TIDMAMP
RNS Number : 8910Q
Amphion Innovations PLC
23 June 2015
23 June 2015
Amphion Innovations plc
Preliminary Results for the year to 31 December 2014
London and New York - Amphion Innovations plc (LSE: AMP) and its
subsidiaries ("Amphion" or "the Group"), the developer of medical
and technology businesses, today announces its Preliminary Results
for the year ended 31 December 2014.
Key Points:
-- Unadjusted Net Asset Value ("NAV") per Share(1) at 31
December 2014 was 0.7p (1.1 US cents) compared to 6p (10 US cents)
at 31 December 2013.
-- Adjusted NAV per Share(2) at 19 June 2015 was 10p (15.7 US cents).
-- Successful AIM flotation of Motif Bio plc ("Motif") on 2 April 2015 at 20p per share.
-- In April 2015, Motif obtained agreement from the U.S. Food
and Drug Administration (the "FDA") to proceed with its proposed
clinical development programme for iclaprim.
-- Since listing, Motif's shares have risen sharply and are
trading near 60p per share at which level Amphion's holding is
worth approximately GBP25 million.
-- Following the favourable December 2014 Appeals Court
decision, DataTern expects to see some tangible progress during the
next six to 12 months.
-- Business model continues to focus on starting and building
high potential companies based on innovative and proprietary, but
basically proven, technology.
Richard Morgan, CEO of Amphion Innovations plc commented:
"Our ability to develop the Intellectual Property ("IP")
portfolios in each of our Partner Companies is a critical success
factor but our goal in every case is to build a good company that
will be a commercial success. The evolution of the business plan
and business model of every company needs continuous attention and
Amphion is committed to providing that to each of our Partner
Companies. Despite our cautious approach to valuation over the last
few years, we continue to see opportunity to build and extract
value from each of them, in addition to the IP licensing programme
being pursued directly by DataTern.
"Following its successful IPO in April 2015, we are committed to
helping Motif become a major player in the antibiotic
biopharmaceutical world. In addition, we now have the opportunity
to move forward one or two other Partner Companies. We look forward
to the future with renewed confidence and to being able to report
further progress with Motif, DataTern and other Partner Companies
in due course."
For further information please contact:
Amphion Innovations plc
Charlie Morgan
+1 (212) 210 6224
Yellow Jersey PR Limited
Dominic Barretto / Fiona Walker
+44 7768 537 739
Panmure Gordon (UK) Limited (Nominated Adviser and Joint
Corporate Broker)
Freddy Crossley / Duncan Monteith (Corporate Finance)
Charles Leigh-Pemberton (Corporate Broking)
+44 020 7886 2500
Northland Capital Partners Limited (Joint Corporate Broker)
Gerry Beaney / David Hignell (Corporate Finance)
John Howes / Mark Treharne (Corporate Broking)
+44 (0) 20 7382 1100
Plumtree Capital Limited (Adviser to Amphion)
Stephen Austin
+44 207 183 2493
+1 646 568 7502
Chairman and CEO's Statement
Revenue in 2014 was US $484,700 (2013: US $1,016,990) while
total administrative expenses were US $3,494,351 in 2014 compared
to US $3,593,735 in 2013. As a result, the operating loss for the
year was US $3,009,651 compared with US $2,576,745 as reported in
the same period of last year. Revenue remained below that of the
prior period due partly to the absence of licensing income from
DataTern and partly from the inability of our Partner Companies to
contribute management fees.
Total administrative expenses have two different components: the
general overheads and operating costs of the parent company and the
expenses incurred within and by DataTern, our wholly-owned
subsidiary. The latter are consolidated into the total but are
dictated by the activity related to the IP licensing programme,
which is discussed further below. General overhead and operating
expense (i.e. excluding expenses related to DataTern) were again
tightly controlled at US $1,754,661, a like for like reduction from
the previous year (2013: US $2,303,269). DataTern expenses were
higher in 2014, due mainly to expenses incurred in relation to
experts hired by its legal counsel.
During the reporting period, the share price of Kromek plc
dropped from GBP0.755 to GBP0.34 and, as a result, the value of the
Amphion's holding of Kromek shares fell to US $6,594,390 from US
$15,579,671. This fall accounted for substantially all of the
decrease in the Company's Assets during the period. Combined with a
rise in total liabilities of US $4,131,542, the Net Asset Value
("NAV") per ordinary share at 31 December 2014 was US $0.011
(GBP0.007) compared to US $0.10 (GBP0.06) at 2013.
Amphion's holding of IP assets is valued at amortised cost of US
$430,100. In addition to the initial purchase of these IP assets
from our Partner Company FireStar Software, Amphion has made
additional substantial investment in these assets. That investment
has been expensed as incurred and the value of those assets
continues to be carried only at amortised historical cost. The
Directors believe that the realisable value of the intellectual
property assets held by DataTern is substantially in excess of the
carrying value and the incremental investments being made in the
pursuit of infringers of the IP will generate a significant profit.
We believe that if we are successful in concluding licensing
agreements with the various infringing parties at levels that meet
our expectations, the NAV per ordinary share would be significantly
higher.
Operating cash flow was again negative in 2014 at US $1,976,585
compared to negative US $1,701,969 in 2013. Some of this cash was
used to support the further development of Motif in the run up to
its IPO. The resulting cash requirement to fund the business was
raised from an institutional investor in the form of loans, as
previously reported.
Motif BioSciences
During 2014, Motif made further progress in developing its
primary antibiotic programme. Early in 2015 Motif completed a
transformational merger that gave Motif worldwide rights to a
clinical stage antibiotic designed to be effective against MRSA and
multi-drug resistant bacteria. Following the successful IPO and
listing on AIM on 2 April 2015 at GBP0.20 per share, Motif obtained
agreement from the U.S. Food and Drug Administration (the "FDA") to
proceed with its proposed clinical development programme for
iclaprim. Since listing, Motif's shares have risen sharply and are
trading near GBP0.60 per share at which level Amphion's holding is
worth approximately GBP25 million.
The decision by Motif to focus on its antibiotic programme is
proving very timely given the growing recognition of the worldwide
problems caused by resistance. In July 2014, Prime Minister David
Cameron announced the launch of a global taskforce, under the
leadership of Jim O'Neill, to coordinate an international effort to
combat antibiotic resistant superbugs. Prime Minister Cameron
commented, "If we fail to act, we are looking at an almost
unthinkable scenario where antibiotics no longer work and we are
cast back to the dark ages of medicine where treatable infections
and injuries can kill once again". Motif's mission is to address
this global health crisis by developing new antibiotics that work
in different ways to those commonly used today.
Iclaprim was originally developed by Hoffman-La Roche Inc. and
completed comprehensive development in 2008, including two Phase 3
trials with over 900 patients being treated, half of whom were
treated with this antibiotic. Iclaprim has a novel mechanism of
action and enjoys a number of important clinical and commercial
attributes, such as a very low propensity to develop resistance,
which has been demonstrated in vitro. Although the FDA declined to
approve the drug at the time, despite having met the original goals
agreed with the agency, the FDA confirmed that they were satisfied
with the safety profile of iclaprim and this was confirmed in
Motif's April meeting with the agency. Motif is now planning to
begin a new Phase 3 trial by the end of the year and is confident
the drug will meet the new endpoints. If all goes according to
plan, Motif could have the drug on the market in 2018.
DataTern and the Intellectual Property Licensing Programme
In April 2014, DataTern received a ruling from the Federal
Circuit Court of Appeal ("FCCA"), which its legal advisers
considered favorable. Following that ruling, DataTern submitted a
request to the FCCA for a reconsideration of certain aspects of the
ruling, which were denied in July 2014 and so the ruling received
in April became final. As a result the case in New York was
terminated, with the result that the previously unfavorable Markman
ruling of August 2012 was, in the case of Microsoft, nullified.
In late December 2014, DataTern received a ruling of its appeal
in the MicroStrategy case that our legal advisers considered to be
clearly favorable. There are 7 defendants in the MicroStrategy
case, which is now starting to move ahead. In May 2015 there was a
hearing on two summary judgment motions filed by the defendants and
a ruling in that hearing has not yet been handed down.
The cases in Texas, which were on hold pending the Microsoft
appeal, are expected to move ahead again in the next six months and
we expect to have a Markman hearing in Texas in 2016. Following
some settlements and dismissals there are now 5 defendants
remaining in Texas.
Our legal team, supported by our extensive team of technical and
patent experts, continues to believe in the strength of our IP.
Both of the 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 firm and considered opinion
of our team that the two patents are both valid and being infringed
by a wide range of companies that are practicing this critical art.
We believe that a Claim Construction ruling, which is fully
reflective of our interpretation of the claims of the patents,
would establish significant infringement by a large number of
companies and we believe that we should be able to generate a
significant amount of revenue from this asset over the next few
years.
Under the revenue sharing agreement with DataTern, Amphion
Partner Company, FireStar Software (where the technology and
patents were originally developed) would share directly in the
revenue stream.
Our goal is to arrive at fair licensing agreements with these
and other users of the technology in order to give DataTern and
FireStar a fair return on the substantial investment they have
made. If we are successful, we believe that the value of the net
income to DataTern should be substantially in excess of its
carrying value.
Building Value in the Partner Companies
Since flotation, our basic business model has been to start and
build high value-potential companies based on innovative and
proprietary, but basically proven, technology. Our 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
provide innovative products, generate revenue, and make profits.
Despite our cautious approach to valuation over the last few years,
we continue to see a lot of opportunity to build and, in due
course, extract value from each one of our Partner Companies, in
addition to the IP licensing programme being pursued directly by
DataTern.
Following the successful IPO for Motif on AIM in April 2015, we
have the opportunity to move forward one or two other Partner
Companies and to start to consider, for the first time in over five
years, how best to grow the business in the future.
m2m is poised to make good progress. We anticipate being able to
revive the core business and we can see a number of ways in which
we can enlarge and improve the scope of the business by combining
with other emerging companies. MRI is a medical imaging modality
that is being increasingly widely used in pre-clinical
investigations as well as for clinical diagnostics. m2m has a
number of patents on the basic technology which is aimed at
improving the diagnostic quality of MRI images and the company's
leadership has identified a number of pathways to expand its
footprint in the general area.
Despite repeated profit warnings since Kromek's IPO, and the
disappointing performance of the share price, we continue to
believe that the company's technology platform holds great promise.
With the acquisition of eV Products, Kromek gained one of the
leading cadmium zinc telluride ("CZT") production capabilities in
the world. As the cost of producing this material becomes
competitive with scintillator technology, the opportunity exists
for a lasting shift to CZT-based detector systems, bringing the
benefits of multispectral imaging to CT systems and nuclear
medicine where SPECT is used.
In April, the case Axcess brought against Baker & Botts LLP,
the law firm, went to the jury which returned a verdict in favour
of Axcess of US $40.5 million. The judge then overruled this
verdict. Axcess is in the process of pursuing an appeal to the
Texas Court of Appeals, which should be heard in the next six
months. In parallel, we have worked closely with Axcess' legal
advisers to evaluate the extent to which all 13 patents in its
portfolio are being infringed. It is clear that many companies are
now offering products or services that incorporate some of the
basic wireless technology developed by Axcess over the last 15
years. A number of companies in the transportation, security and
other sectors appear to be infringing one or more of these patents
and the company has recently initiated a claim for a licence from
one of the Fortune 500 companies where the analysis shows this to
be the case.
During 2014, FireStar was notified by the USPTO of the grant of
an additional patent relating to its innovative messaging
technology. FireStar's technology is incorporated in its
EdgeNode(TM) product and 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.
WellGen has made further progress in the development of a novel
functional beverage based on its patented anti-inflammatory
ingredient. It has reached an agreement in principle to move
forward with a US-based beverage company that has established
distribution channels in the Mid-West of the US, with an
opportunity to expand to other US markets and beyond.
Further developments within each of the Partner Companies can be
found in the Partner Company Summaries section.
Financing
Financial support for Amphion over the last few years has come,
for the most part, from the Directors and the management team. The
team provided additional support in 2014 and Amphion was able, for
the first time, to access a loan facility granted by an
institutional lender. At the time we entered into this arrangement
we saw it as an opportunity to use the value of our publicly traded
assets as security for a loan to bridge the company to the IPO of
Motif. That approach has served the Company well. The amount
outstanding under this facility at the end of the financial year
was US $2,575,000.
Since the end of the reporting period Amphion was able to access
the capital markets again on two occasions in April and June of the
current year, raising a total of GBP2,119,683.
We have made a substantial investment in the pursuit of good
outcomes for DataTern in the form of settlements with the many
companies that we believe have infringed and who continue to
infringe this important technology. If we are successful in
achieving these goals, then cash flow from DataTern should allow us
to pay down the loans on our balance sheet and support our other
Partner Companies.
Prospects for 2015 and Beyond
The successful IPO of Motif has transformed Amphion's financial
condition and prospects. Motif listed on AIM in early April at
GBP0.20 per share and has recently been trading near GBP0.60 per
share. As indicated above, on a pro-forma basis this would result
in a massive improvement in the Company's balance sheet and Net
Asset Value.
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.
We remain steadfast in our belief in the strength and validity
of the DataTern patents. With the Appeals Court decision in hand we
expect to see some tangible progress in these programmes during the
next six to 12 months.
The Company's consolidated balance sheet includes all the
liabilities of its subsidiary DataTern but very little value for
the assets of that company. If both assets and liabilities of
DataTern were completely excluded from the calculation, or a Fair
Value estimate of the DataTern assets included on the balance sheet
and the current market value was used for Motif, we believe the
pro-forma Net Asset Value at the present time would be over GBP0.10
per share based on the current issued and outstanding shares.
As expected, the recovery in the stock market and the IPO market
in particular has led to an improvement in the overall climate for
our business. With the transformation in Motif's business, we have
been able to take advantage of these improved market conditions and
with the sharp rise in the valuation of Motif since the IPO we have
been able to approach the equity capital markets again for the
first time in over seven years. We are pleased to be able to focus
on the future once again and look forward to reporting further
progress with Motif, DataTern and the other Partner Companies.
R. James Macaleer Richard C.E. Morgan
Chairman Chief Executive Officer
Partner Company Summaries
Axcess International provides intelligent wireless ID systems
under the ActiveTrac(TM) brand for improving security, safety, and
productivity in business. Its patented MicroWireless(TM) technology
platform delivers local location identification, tracking, and
control solutions for enterprise personnel and assets. Axcess has a
portfolio of important patents on many different aspects of RFID
technology and is seeking licensing agreements with companies that
are using its proprietary technology. Over 500 prospective entities
have been identified to date and are sized at over US $250 million
of potential royalty value. In January 2014, Axcess was awarded a
novel new patent related to the use of RFID via cellular networks.
Part of the patent programme is a suit against Savi Technologies
("Savi") for patent infringement. That case is on hold as the
patent that is the basis of the suit is being re-examined by the US
Patent and Trademark Office. Another part of the programme is a
suit against the former patent counsel Baker & Botts LLP for
negligence, breach of fiduciary duty, and fraud for acting for both
Savi and Axcess on patent matters without Axcess's consent. On 15
May 2014
the jury in the Baker & Botts case returned a verdict that
found that Baker & Botts had acted with negligence and was
liable to Axcess for damages of US $40.5 million. That verdict
followed a direction by the judge to restrict Axcess's claim to an
issue of negligence which is subject to a two year statute of
limitations, which prevented Axcess from collecting the damages. In
March 2015, Axcess filed an appeal with the Texas Appeals Court
seeking a new trial.
FireStar Software, Inc. is a leader in
application-to-application electronic message exchange between
independent entities. FireStar's EdgeNode(R) messaging and data
translation platform empowers companies to exchange information
securely without the need to replace existing software systems or
to implement expensive custom coding. It accesses, moves, and
transforms data from its source to a required destination format.
EdgeNode(R) brings the total solution cost-point low enough to open
a broader range of businesses in many industries to innovative new
ways to share and leverage information. FireStar was instrumental
in the development of the Model Driven Message Interoperability
(MDMI) industry standard for data transformation. In 2014, the
standard continued to gain acceptance by healthcare industry groups
and saw its first practical implementation. The company continues
to believe the standard will gain broad acceptance within U.S.
healthcare and that its EdgeNode(R) platform will benefit. Spending
on information solutions for healthcare in the US is in excess of
US $40 billion annually. FireStar is working with fellow Amphion
Partner Company, PrivateMarkets, Inc., to identify applications
within healthcare that will demonstrate the high value of the
FireStar platform. In late 2014, FireStar announced that it had
recruited Dr. John Amatruda to the Company's Advisory Board. Dr.
Amatruda brings significant expertise in the area of new drug
development and clinical trials at Bayer and Merck. FireStar
currently holds four granted U.S. patents in the area of
information message exchange with another two patent applications
pending. FireStar also has a participation in the revenue stream
from DataTern's IP licensing programme and has an equity holding in
PrivateMarkets.
Kromek Group plc (LSE: KMK) is an Anglo-American platform
technology company that provides digital colour x-ray and gamma ray
detection and imaging solutions. Its products enable direct
materials identification in the security, nuclear, and medical
markets. The company has operations in the United Kingdom as well
as Pennsylvania and California in the United States. Selling
internationally, with partnerships or distribution channels in
Asia, Europe, and North America, Kromek's global customer base
includes national governments and regulatory bodies, international
airports, research institutes, major energy providers, and some of
the world's largest technology and medical equipment groups. Kromek
announced for the year ending 30 April 2014 revenues of GBP6
million and pre-tax losses of GBP4.3 million. For the year ending
30 April 2015 Kromek issued a trading update that stated that
revenues would be GBP8.1 million and that during the second six
months of the year earnings before interest, taxes, depreciation
and amortization would be positive. Kromek also reaffirmed the
underlying growth dynamic including the signing of multiple
contracts in all three of their target segments.
m2m Imaging has specialised capabilities in a range of
technologies that allow novel materials and design of the coils
that act as receivers in MRI systems. The company's focus to date
has been on preclinical applications of imaging system accessories
(coils and related products). m2m's products are being developed to
serve systems that range from 0.2T to 21T in field strength. m2m
specialises in custom developments to specific research
requirements. The company's business plan envisages a family of
surface coils, volume coils, arrays, and multi element Hi B1 field
uniformity BioSAW coils, some of which are available as stand-alone
coils or integrated into more complete systems. m2m builds coils
and coil systems for a wide range of manufacturers and has over
4000 products in use in major university and pharmaceutical labs
around the world. The company plans to build on its existing
presence in the preclinical market and, in due course, to develop
novel coil components for the clinical imaging systems market based
on the same materials science and RF technologies.
Motif Bio plc (LSE: MTFB) is developing novel antibiotics
designed to be effective against serious and life-threatening
infections caused by multi-drug resistant bacteria. Motif has a
lead antibiotic candidate, iclaprim, and MTF-001, a preclinical
programme to design a best-in-class dihydrofolate reductase
inhibitor ("DHFRi"). Discussions and negotiations with academic
institutes are underway to build a portfolio of antibiotic
candidates through licensing. It is anticipated that Motif's lead
antibiotic candidate could be ready for commercialisation as early
as 2018. Motif became a public company on the London Stock Exchange
and admission and trading of its Ordinary Shares commenced on 2
April 2015 on AIM. On 28 May 2015, Motif announced receipt of the
official meeting minutes from the U.S. Food and Drug Administration
("FDA") guidance meeting which was held on 14 April 2015. The
minutes confirm the FDA's agreement with Motif's Phase 3 clinical
development programme for iclaprim, a broad-spectrum antibiotic
designed to be effective against multi-drug resistant bacteria.
Iclaprim is being developed as an intravenous ("IV") formulation to
treat acute bacterial skin and skin structure infections ("ABSSSI")
and hospital acquired bacterial pneumonia ("HABP") caused by Gram
positive pathogens, including resistant strains such as
methicillin-resistant Staphylococcus aureus ("MRSA") and multi-drug
resistant Streptococcus pneumoniae ("MDRSP"). The FDA has confirmed
that two successful Phase III trials are required for the approval
of iclaprim. In June 2015, Motif announced it had signed Letters of
Intent and interim agreements with a leading global Clinical
Research Organization ("CRO"). Under the terms of these interim
agreements, the CRO will undertake preparations for two Phase 3
trials. Motif expects to begin the Phase III trials in the second
half of 2015.
PrivateMarkets, Inc. has continued working closely with fellow
Amphion Partner Company, FireStar Software, on applications of its
software and the FireStar EdgeNode(R) platform within the
healthcare industry. During 2014, PrivateMarkets decided to focus
on applications within the new drug and medical device development
segments of U.S. healthcare. This segment has many of the same
information sharing issues present in healthcare delivery with an
opportunity for a superior solution value proposition. The U.S.
spends over US $25 billion annually to conduct clinical trials on
new drugs. More effective use of software for data collection and
analysis is a key to controlling or reducing these costs. The U.S.
currently spends over US $3 billion annually on software to support
clinical trials. PrivateMarkets has one granted U.S. patent with a
second application pending.
WellGen, Inc. is at the crossroads of food and pharmaceuticals,
developing natural products with medicinal properties, backed by
rigorous scientific research. WellGen's products have applications
in the management of chronic inflammation-based disease, consumer
products, and pet products. In 2014, WellGen completed experiments
that were funded by an award from the National Institute of Health.
The experiments entitled "Controlling Type 2 Diabetes with
Proprietary Natural Extracts in Medicinal Foods" are now complete
and proved to be inconclusive. Additional work will be required.
WellGen signed a joint venture and supply agreement with a US-based
sports drink company in order to create a new functional beverage
based on WellGen's proprietary Black Tea Extract ("BTE") product.
Formulation of the functional beverage is due to begin in 2015.
WellGen is also in discussions with Rutgers University relating to
the continuation of its license to BTE. WellGen's work in testing
BTE in dogs by a major pet care company stalled in 2014.
Amphion Innovations plc
Consolidated statement of
comprehensive income
For the year ended 31
December 2014
Notes
Year ended Year ended
31 December 31 December
2014 2013
------------------------------ ------------------------------
Continuing operations US $ US $
Revenue 4 484,700 1,016,990
Cost of sales - -
Gross profit 484,700 1,016,990
Administrative expenses (3,494,351) (3,593,735)
Operating loss (3,009,651) (2,576,745)
Fair value losses on investments 15 (9,927,978) (3,363,558)
Interest income 8 849,384 856,564
Other gains and losses 675,265 (198,206)
Finance costs 9 (1,176,299) (1,103,471)
Loss before tax 6 (12,589,279) (6,385,416)
Tax on loss 10 (442) 3,222
Loss for the year (12,589,721) (6,382,194)
------------------------------ ------------------------------
Other comprehensive income
Exchange differences arising
on translation
of foreign operations 18 101
Other comprehensive income
for the year 18 101
------------------------------ ------------------------------
Total comprehensive loss
for the year (12,589,703) (6,382,093)
============================== ==============================
The Directors consider that all results
derive from continuing activities.
Loss per share 11
Basic US $ (0.09) US $ (0.04)
============================== ==============================
Diluted US $ (0.09) US $ (0.04)
============================== ==============================
The notes are an integral part of these financial
statements.
Amphion Innovations
plc
Company statement of comprehensive
income
For the year ended 31
December 2014
Year ended Year ended
31 December 31 December
Notes 2014 2013
-------------------------- ---------------------------------
US $ US $
Continuing operations
Administrative expenses (1,121,478) (1,099,965)
Operating loss (1,121,478) (1,099,965)
Fair value losses on
investments 15 (9,951,615) (3,363,558)
Impairment of subsidiary
investment (156,295) -
Interest income 8 805,049 812,170
Other gains and losses 665,248 (201,906)
Finance costs 9 (1,121,244) (1,074,721)
Loss before tax 6 (10,880,335) (4,927,980)
Tax on profit 10 - -
Loss for the year (10,880,335) (4,927,980)
-------------------------- ---------------------------------
Other comprehensive
income for the year - -
Total comprehensive
loss for the year (10,880,335) (4,927,980)
========================== =================================
The Directors consider that all results
derive from continuing activities.
The notes are an integral part of these financial
statements.
Amphion Innovations plc
Consolidated statement
of financial position
At 31 December 2014
31 December 31 December
Notes 2014 2013
-------------------------------- ---------------------------
US $ US $
Non-current assets
Intangible assets 12 430,100 585,184
Property, plant, and
equipment 13 - 308
Security deposit 16 13,600 13,600
Investments 15 28,767,659 35,746,087
29,211,359 36,345,179
-------------------------------- ---------------------------
Current assets
Prepaid expenses and
other receivables 16 2,569,380 3,654,196
Cash and cash equivalents 16 212,816 353,964
2,782,196 4,008,160
-------------------------------- ---------------------------
Total assets 31,993,555 40,353,339
================================ ===========================
Current liabilities
16,
Trade and other payables 17 10,270,584 9,411,563
16,
Notes payable 18 8,964,901 6,308,600
Convertible promissory 16,
notes 18 10,189,891 9,543,671
29,425,376 25,263,834
-------------------------------- ---------------------------
Non-current liabilities
16,
Notes payable 18 982,000 1,012,000
982,000 1,012,000
-------------------------------- ---------------------------
Total liabilities 30,407,376 26,275,834
================================ ===========================
Net assets 1,586,179 14,077,505
================================ ===========================
Equity
Share capital 19 2,716,656 2,693,319
Share premium account 36,070,864 36,042,868
Translation reserve - (13,396)
Retained earnings (37,201,341) (24,645,286)
Total equity 1,586,179 14,077,505
================================ ===========================
The notes are an integral part of these financial
statements.
The financial statements were approved by the Board
of Directors and authorised for issue on
22 June 2015. They were signed
on its behalf by:
Director Director
R. James Macaleer Robert J. Bertoldi
Amphion Innovations plc
Company statement of financial
position
At 31 December 2014
31 December 31 December
Notes 2014 2013
----------------------------- -----------------------------
US $ US $
Non-current assets
Security deposit - -
Investments 15 26,063,106 34,214,717
Investment in subsidiaries 14 527,444 683,741
26,590,550 34,898,458
----------------------------- -----------------------------
Current assets
Prepaid expenses and other
receivables 16 5,365,760 4,815,932
Cash and cash equivalents 16 192,807 333,131
5,558,567 5,149,063
----------------------------- -----------------------------
Total assets 32,149,117 40,047,521
============================= =============================
Current liabilities
16,
Trade and other payables 17 3,307,920 3,726,887
16,
Notes payable 18 8,964,901 6,308,600
Convertible promissory 16,
notes 18 10,189,891 9,543,671
22,462,712 19,579,158
----------------------------- -----------------------------
Total liabilities 22,462,712 19,579,158
============================= =============================
Net assets 9,686,405 20,468,363
============================= =============================
Equity
Share capital 19 2,716,656 2,693,319
Share premium account 36,070,864 36,042,868
Retained earnings (29,101,115) (18,267,824)
Total equity 9,686,405 20,468,363
============================= =============================
The notes are an integral part of these
financial statements.
The financial statements were approved
by the Board of Directors and authorised
for issue on 22 June 2014. They were
signed on its behalf by:
Director Director
Robert J.
R. James Macaleer Bertoldi
Amphion
Innovations
plc
Consolidated statement of
changes in equity
For the year ended
31 December 2014
Share
Share premium Translation Retained
Notes capital account reserve earnings Total
-------------- ------------------ --------------- ----------------- ---------------
US $ US $ US $ US $ US $
Balance at 31
December
2012 2,682,757 36,009,331 (13,497) (18,100,060) 20,578,531
Loss for the
year - - - (6,382,194) (6,382,194)
Other comprehensive
income for the year - - 101 - 101
--------------
Total
comprehensive
loss for the
year - - 101 (6,382,194) (6,382,093)
-------------- ------------------ --------------- ----------------- ---------------
Issue of share
capital 19 10,562 33,537 - - 44,099
Recognition of
share-based
payments 21 - - - (163,032) (163,032)
Balance at 31
December
2013 2,693,319 36,042,868 (13,396) (24,645,286) 14,077,505
Loss for the
year - - - (12,589,721) (12,589,721)
Other comprehensive
income for the year - - 18 - 18
--------------
Total
comprehensive
loss for the
year - - 18 (12,589,721) (12,589,703)
-------------- ------------------ --------------- ----------------- ---------------
Issue of share
capital 19 23,337 27,996 - - 51,333
Recognition of
share-based
payments 21 - - - 47,044 47,044
Dissolution of
subsidiary - - 13,378 (13,378) -
Balance at 31
December
2014 2,716,656 36,070,864 - (37,201,341) 1,586,179
============== ================== =============== ================= ===============
Amphion
Innovations
plc
Company statement of
changes in equity
For the year ended 31
December 2014
Share
Share premium Retained
Notes capital account earnings Total
----------------- -------------------- ------------------- ------------------
US $ US $ US $ US $
Balance at 31
December
2012 2,682,757 36,009,331 (13,176,812) 25,515,276
Loss for the year - - (4,927,980) (4,927,980)
Total
comprehensive
loss for the
year - - (4,927,980) (4,927,980)
----------------- -------------------- ------------------- ------------------
Issue of share
capital 19 10,562 33,537 - 44,099
Recognition of
share-based
payments 21 - - (163,032) (163,032)
Balance at 31
December
2013 2,693,319 36,042,868 (18,267,824) 20,468,363
Loss for the year - - (10,880,335) (10,880,335)
Total
comprehensive
loss for the
year - - (10,880,335) (10,880,335)
----------------- -------------------- ------------------- ------------------
Issue of share
capital 19 23,337 27,996 - 51,333
Recognition of
share-based
payments 21 - - 47,044 47,044
Balance at 31
December
2014 2,716,656 36,070,864 (29,101,115) 9,686,405
================= ==================== =================== ==================
Amphion Innovations plc
Consolidated cash flow statement
For the year ended 31 December
2014
Year ended Year ended
31 December 31 December
Notes 2014 2013
------------------------------ -----------------------------
US $ US $
Operating activities
Operating loss (3,009,651) (2,576,745)
Adjustments for:
Depreciation of property,
plant, and equipment 13 308 1,331
Amortisation of intangible
assets 12 155,084 162,864
Recognition of share-based
payments 98,377 (118,933)
Decrease in security deposit - 57,135
Decrease/(increase) in prepaid
& other receivables 1,084,816 (112,921)
Increase in trade and other
payables 859,021 1,983,049
Interest expense (1,176,299) (1,103,471)
Other gains and losses 12,201 2,500
Income tax (442) 3,222
Net cash used in operating
activities (1,976,585) (1,701,969)
------------------------------ -----------------------------
Investing activities
Interest received 849,384 856,564
Purchases of investments 15 (286,259) (204,959)
Receivables reclassified to
investments 15 (2,663,291) -
Proceeds from sale of furniture - 1,200
Adjustment to note payable
for foreign exchange rate (656,340) 179,657
Net cash (used in)/from investing
activities (2,756,506) 832,462
------------------------------ -----------------------------
Financing activities
Proceeds on issue of promissory
notes 18 3,081,301 1,012,000
Proceeds on issue of convertible
promissory notes 18 1,302,561 -
Repayments of promissory notes 18 (455,000) -
Net cash from financing activities 3,928,862 1,012,000
------------------------------ -----------------------------
Net (decrease)/increase in
cash and cash equivalents (804,229) 142,493
Cash and cash equivalents at
the beginning of the year 353,964 413,276
Effect of foreign exchange
rate changes 663,081 (201,805)
Cash and cash equivalents at
the end of the year 212,816 353,964
============================== =============================
Amphion Innovations plc
Company cash flow statement
For the year ended 31 December
2014
Year ended Year ended
31 December 31 December
Notes 2014 2013
----------------------------- ------------------------------
Operating activities US $ US $
Operating loss (1,121,478) (1,099,965)
Adjustments for:
Recognition of share-based
payments 98,377 (118,933)
Decrease in security deposit - 70,735
(Increase)/decrease in prepaid
& other receivables (549,828) 453,753
(Decrease)/increase in trade
and other payables (418,967) 1,118,287
Interest expense (1,121,244) (1,074,721)
Other gains and losses 2,167 -
Net cash used in operating
activities (3,110,973) (650,844)
----------------------------- ------------------------------
Investing activities
Interest received 805,049 812,170
Purchases of investments 15 (286,259) (204,959)
Receivables reclassed to
investments 15 (1,513,744) -
Adjustment to note payable
for foreign exchange rate (656,340) 179,657
Net cash (used in)/from investing
activities (1,651,294) 786,868
----------------------------- ------------------------------
Financing activities
Proceeds on issue of promissory
notes 18 3,081,301 -
Proceeds on issue of convertible
promissory notes 18 1,302,561 -
Repayments of promissory
notes 18 (425,000) -
Net cash from financing activities 3,958,862 -
----------------------------- ------------------------------
Net (decrease)/increase in
cash and cash equivalents (803,405) 136,024
Cash and cash equivalents
at the beginning of the year 333,131 399,013
Effect of foreign exchange
rate changes 663,081 (201,906)
Cash and cash equivalents
at the end of the year 192,807 333,131
============================= ==============================
Amphion Innovations plc
Notes to the consolidated financial statements
For the year ended 31 December 2014
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 330 Madison Avenue, 6(th) Floor, New York, NY,
10017, USA. The principal activity of the Company and its
subsidiaries (the "Group") is to build shareholder value in high
growth companies in the medical and technology sectors, by using a
focused, hands-on company building approach, based on decades of
experience in both the US and UK.
The consolidated financial statements include the accounts of
Amphion Innovations plc and its four wholly owned subsidiaries,
Amphion Innovations US Inc. and DataTern, Inc., which are
incorporated in the United States, Amphion Innovations UK Ltd.,
which was incorporated in the United Kingdom (Amphion Innovations
UK Ltd. was dissolved on 8 July 2014), 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 Chairman and CEO's
Statement on pages 1-4 and elsewhere within the financial
statements. In addition, note 16 to the financial statements
includes the Group's objectives, policies, and processes for
managing its capital, its financial risk management objectives,
details of its financial instruments, and its exposures to
liquidity risk and credit risk.
These financial statements have been prepared on the basis that
the Group is a going concern. Although the Group is loss making and
in a net current liabilities 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 licensing of
intellectual property, the realization of the Group's investment in
Partner Companies, and the ability to raise external 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
finance, the reduction in its working capital requirements; or from
the sale of its intellectual property.
However, certain conditions exist which indicate the existence
of a material uncertainty. These conditions and the Directors'
considerations in respect of these matters are discussed below:
-- In prior years, the Group has been able to meet its
obligations through fund raising [issue of shares and convertible
promissory notes ("CPNs")] from revenue generated through the
provision of advisory services to its Partner Companies, and from
the revenue generated from the licensing of intellectual property.
During 2014 and 2013 as a result of a lack of cash being generated
from these activities the Group has had to reduce its financial
support to its Partner Companies and extend the payment dates for
its trade payables and its convertible promissory notes. The Group
has also reduced its operating costs where possible, including
salary and fee reductions for employees and directors, and has
obtained financial support from various related parties, through
the issue of promissory notes and short-term loans (see note 23 for
further detail). The Group will continue to implement these
measures and seek further financing as required. In that regard in
June 2014, the Group entered into a US loan facility which is
secured by the holdings in Kromek Group plc (see note 18 for
further details). The progress of many of the Partner Companies
has, as a result of reduced financial support from the Group and
current economic conditions, been adversely impacted, resulting in
a reduction in their valuations (see note 15 for further detail).
Relations with significant trade suppliers have also been strained
during the year. Should the Group fail to generate sufficient cash
to support its Partner Companies and to pay trade payables on a
timely basis, the Group may see additional adverse effects on its
Partner Companies and their valuations and in its relationship with
its vendors.
-- As at 31 December 2014 the Group has US $20,136,792 (2013: US
$16,864,271) in notes payable including US $10,189,891 (2013: US
$9,543,671) of convertible promissory notes ("CPNs") that are due
to mature on 31 December 2015 and US $2,575,000 from a loan
facility payable in monthly installments to June 2015. In February
2015 the repayment date of US $6,308,600 of related party notes
payable was extended from 31 December 2014 to 31 December 2015 (see
note 23 for further details). However, the Directors of the Company
agreed to a Deed of Postponement, as part of a loan facility, that
defers the repayment of any debt to Directors until the loan
facility has been paid in full (see note 18).
1. General information, (continued)
-- 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.
-- One of the Group's wholly owned subsidiary companies,
DataTern Inc., ("DataTern") was subject to lawsuits which were
brought by Microsoft Corporation ("Microsoft") and SAP AG, and SAP
America, Inc. ("SAP") in April 2011. In December 2012, a summary
judgment was entered in the lawsuits under which it was ruled that
Microsoft and SAP do not infringe on the DataTern patents. DataTern
and its legal team, supported by their extensive team of technical
and patent experts, strongly refuted the basis for the summary
judgment and filed an appeal. In April 2014, DataTern received a
broadly favourable decision on the appeal ending the cases brought
by Microsoft and SAP. The Group believes that the appeal ruling
will allow DataTern to continue to try to reach equitable licensing
agreements with the many companies that are infringing its patents.
The Group is looking for litigation financing to continue to pursue
the cases.
These conditions indicate the existence of a material
uncertainty which may cast significant doubt on the Group's ability
to continue as a going concern and therefore it may be unable to
realise its assets and discharge its liabilities in the normal
course of business. These financial statements do not include any
adjustments that would result from the going concern basis of
preparation being inappropriate.
However, after making enquiries, and considering the
uncertainties described above, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For these reasons
they continue to adopt the going concern basis in preparing the
annual report and financial statements.
2. Significant accounting policies
The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the EU
("IFRSs") as issued by the International Accounting Standards Board
("IASB"), interpretations issued by the International Financial
Reporting Committee of the IASB and applicable legal and regulating
requirements of Isle of Man law and the AIM rules of the London
Stock Exchange.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
financial statements.
Adoption of new and revised Standards
The Group has adopted the following new standards and amendments
to standards with a date of initial application of 1 January
2014.
-- Amendments to IAS 27, Separate Financial Statements
-- Amendments to IFRS 10, Consolidated Financial Statements
-- Amendments to IAS 32, Financial Instruments: Presentation
-- Amendments to IAS 36, Recoverable Amount Disclosures for Non-Financial Assets
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.
2. Significant accounting policies, (continued)
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.
-- 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.
2. Significant accounting policies, (continued)
Financial instruments, (continued)
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.
Convertible promissory notes
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. However,
since the Company issued the 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. The warrants that were issued
with the CPNs have been accounted for as part of the same financial
instrument as the CPNs in accordance with IAS 39: Financial
instruments - Recognition and Measurement, since they were entered
into at the same time and in contemplation of each other, they have
the same counterparty, they relate to the same risk and are
non-transferable.
Prepaid expenses and other receivables
Prepaid expenses and other receivables are stated at their
amortised cost which approximates their fair value. Other
receivables are reduced by appropriate allowances for estimated
irrecoverable amounts and do not carry any interest.
Trade and other payables
Trade and other payables are not interest bearing and are stated
at amortised cost which approximates their fair value.
2. Significant accounting policies, (continued)
Equity instruments
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based
payments.
The Group issues equity-settled share-based payments to certain
employees and consultants. Equity-settled share-based payments are
measured at fair value at the date of grant. The fair value
determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting
period, based on the Group's estimate of the shares that will
eventually vest. The fair value of equity-settled share-based
payments attributable to the issue of equity instruments is charged
against equity.
Fair value is measured using the Black-Scholes pricing model.
The expected life used in the model has been adjusted based on
management's best estimate for effects of non-transferability,
exercise restrictions, and behavioral considerations.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of the debt and
equity balance. The capital structure of the Group consists of cash
and cash equivalents and equity attributable to equity holders of
the parent, comprising issued capital, reserves, and retained
earnings.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for, and
services provided, in the normal course of business, net of VAT and
other sales related taxes.
Revenue from license agreements is recognised in accordance with
the substance of the agreement and when it is probable that the
economic benefits associated with the transaction will flow to the
Group and the amount of the revenue can be measured reliably.
Where assignment of rights for a fixed fee under a
non-cancellable contract permits the licensee to exploit those
rights freely and the licensor has no remaining obligations to
perform, the revenue is recognised at the time of sale.
Where a license fee is contingent on the occurrence of a future
event, the revenue is only recognised when it is probable that the
fee will be received.
Cost of sales
Revenue related costs only include the direct fees paid for
strategic advisory services for licensing and enforcing various
patents.
Interest income
Interest income is recognised on an accruals basis.
Dividend income
Dividend income from investments is recognised when the
shareholders' right to receive payment has been established.
Leasing
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
2. Significant accounting policies, (continued)
Foreign currencies
The individual financial statements of each company in the Group
are presented in the currency of the primary economic environment
in which it operates (its functional currency). For the purpose of
the consolidated financial statements, the results and financial
position of each company in the Group company are expressed in US
dollars, which is the functional currency of the Company, and the
presentation currency for the consolidated financial
statements.
Transactions in currencies other than US dollars are recorded at
the rates of exchange prevailing on the dates of the transactions.
At each statement of financial position date, monetary assets and
liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date.
Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined.
Gains and losses arising on retranslation are included in net
profit or loss for the year, except for exchange differences
arising on non-monetary assets and liabilities where the changes in
fair value are recognised directly in equity.
On consolidation, the assets and liabilities of the Group's
overseas operations are translated at exchange rates prevailing on
the statement of financial position date. Income and expense items
are translated at the average exchange rates for the period unless
exchange rates fluctuate significantly in which case they are
translated at the rate on the date of the transaction. Exchange
differences arising, if any, are recognised in the statement of
comprehensive income and are transferred to the Group's translation
reserve.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
period. Taxable profit differs from net profit as reported in the
statement of comprehensive income because it excludes items of
income or expenditure that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the balance
sheet date.
Deferred taxation is the tax expected to be payable or
recoverable on differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding
tax basis used in the computation of taxable profit.
Deferred tax is calculated at the tax rates that are expected to
apply to the period when the liability is settled or the asset
realised.
Property, plant, and equipment
Property, plant, and equipment are stated at cost less
accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation
of assets over their estimated useful lives of 3-5 years, using the
straight-line method.
Intangible assets
Intangible assets comprise patents and other intellectual
property with finite useful lives and are measured initially at
purchase cost and are amortised on a straight-line basis over their
estimated useful lives of 5-10 years.
Impairment of tangible and intangible assets
At each statement of financial position date, the Group reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the cash-generating unit
to which the asset belongs. An intangible asset with an indefinite
useful life is tested for impairment annually and an intangible
asset which is amortised is tested for impairment only when there
is an indication that the asset may be impaired.
3. Key sources of estimation uncertainty
The preparation of the Group's financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, and contingencies at the
date of the Group's financial statements, and revenue and expenses
during the reporting period. Actual results could differ from those
estimated. Significant estimates in the Group's financial
statements include the amounts recorded for the fair value of the
financial instruments and other receivables. By their nature, these
estimates and assumptions are subject to an inherent measurement of
uncertainty and the effect on the Group's financial statements of
changes in estimates in future periods could be significant.
Investments that are fair valued through profit or loss, as
detailed in note 15, are all considered to be 'Partner Companies'.
Those 'Partner Companies' categorised as Level 3 are defined as
investments in 'Private Companies'.
Fair value of financial instruments
As described in note 2, the Directors use their judgment in
selecting an appropriate valuation technique for financial
instruments not quoted in an active market ("Private Investments").
The estimation of fair value of these Private Investments includes
a number of assumptions which are not supported by observable
market inputs. The carrying amount of the Private Investments is US
$22.1 million (2013: US $20.2 million) in the Group and US $19.4
million (2013: US $18.6 million) in the Company.
Fair value of other receivables
As described in note 2, other receivables are stated at their
amortised cost which approximates their fair value and are reduced
by appropriate allowances for estimated irrecoverable amounts and
do not carry any interest. Note 16 describes how the Group
mitigates the counterparty credit risk associated with advisory
fees due from Partner Companies including those that are past due
at 31 December 2014. The recovery of the advisory fees due at 31
December 2014 of US $0.9 million (2013: US $1.4 million) is
dependent on a number of uncertain factors including the ability of
the Partner Companies to raise finances (through current investors
and new financing rounds) in order to support their future growth
plans and therefore generate enough cash to be able to settle any
outstanding debts.
The valuation of the Private Investments and other receivables
from Partner Companies at 31 December 2014 assumes that the Partner
Companies continue to receive ongoing funding in accordance with
their 2015/2016 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 Year
ended Year ended ended Year ended
31 31
December December
2014 31 December 2014 2013 31 December 2013
--------- --------------------------------- ---------- -----------------------------------------
US $ US $ US $ US $
Continuing
operations
Advisory
fees 480,000 - 939,490 -
License
fees 4,700 - 77,500 -
Fee income 484,700 - 1,016,990 -
========= ================================= ========== =========================================
A provision for doubtful accounts has been set up for US
$240,000 for the advisory fees accrued from Partner Companies in
2014 and US $240,000 of bad debt expense was recognized in the
statement of comprehensive income.
In July 2011, DataTern, Inc. entered into a fee agreement with
McCarter & English LLP ("ME"). Under this agreement, ME will
represent DataTern in the assertion of all patent infringement
claims, except for claims in Texas and conflicts with existing ME
clients. There were no license settlements in 2014 and 2013
relating to the ME fee agreement and as a result no fees were paid
to ME. In addition, ME was engaged to represent DataTern, Inc. in
connection with the lawsuit filed by Microsoft Corporation and SAP
AG and SAP America, Inc. in April 2011. In April 2015, ME issued a
default notice seeking repayment of US $500,178 in expenses giving
Amphion and DataTern sixty days to make payment or the fee
agreement would be terminated. Amphion and DataTern are currently
in discussion with ME regarding payment of the US $500,178 and ME's
continuing representation.
In September 2011, The Davis Firm, PC was engaged to represent
DataTern, Inc. in the patent infringement cases in Texas. DataTern
paid the Davis Firm, PC approximately US $234,000 during the course
of the engagement. At the time DataTern terminated the Davis Firm,
PC, they believed US $133,000 was owed to the Davis Firm, PC. The
Davis Firm, PC claimed that US $280,000 was owed and in January
2013, they commenced a legal action to collect their fees. In
February 2014, the parties negotiated a settlement where DataTern
has to pay The Davis Firm, PC US $150,000 over 12 months starting
15 March 2014. The balance remaining at 31 December 2014 is US
$50,000.
In September 2012, Braden, Varner & Aldous, P.C., was
engaged to represent DataTern, Inc. in the patent infringement
cases in Texas. In September 2013, Braden, Varner & Aldous,
P.C. reduced their hourly rate in consideration for a partial
contingency on the Texas cases and the Microsoft matters. Under the
contingent fee agreement, Braden, Varner & Aldous, P.C. will
receive 15% of any individual settlement up to US $500,000 and 25%
on settlements above US $500,000 on the Texas cases. If the
contingent fee from Texas does not equal 4x return on their total
fee, Braden, Varner & Aldous, P.C. will make up the difference
on a contingent fee with 5% from any settlements or recoveries on
the Microsoft matters up to 4x return on their hourly fee. Prior to
the later of 31 December 2013, or 14 days after the ruling on the
NY appeal, but no later than 30 June 2014, DataTern Inc. can cancel
the contingent fee portion of this agreement if it pays all time
accrued at the standard hourly rates and by paying a bonus of 20%
of the total time billed. The contingent fee agreement termination
date of 30 June 2014 has been extended indefinitely by mutual
agreement. In February 2014, the engagement was moved to Forshey
Prostok, LLP along with the move of one of the partners.
In December 2012, Berkeley Research Group, LLC ("Berkeley"), 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 Berkeley and awarded them a
amount totaling US $2,090,865 for the balance due and legal costs.
DataTern is contesting the award and has filed a lawsuit seeking to
overturn the award.
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 2014, 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
2014 2014 2014 2014 2014
US $ US $ US $ US $ US $
REVENUE
External
advisory fees 480,000 - - - 480,000
External license
fees - - 4,700 - 4,700
---------------------- ----------------------
Total revenue 480,000 - 4,700 - 484,700
Cost of sales - - - - -
---------------------- ---------------------- ---------------------- --------------------- -----------------------
Gross
profit/(loss) 480,000 - 4,700 - 484,700
Administrative
expenses (632,994) (1,121,667) (1,739,690) - (3,494,351)
---------------------- ---------------------- ----------------------
Segment result (152,994) (1,121,667) (1,734,990) - (3,009,651)
Fair value
losses on
investments - (10,084,273) - 156,295 (9,927,978)
Interest income - 849,384 - - 849,384
Other gains and
losses - 663,064 12,201 - 675,265
Finance costs - (1,121,244) (55,055) - (1,176,299)
Loss before tax (152,994) (10,814,736) (1,777,844) 156,295 (12,589,279)
Income taxes (388) - (54) - (442)
---------------------- ---------------------- ----------------------
Loss after tax (153,382) (10,814,736) (1,777,898) 156,295 (12,589,721)
OTHER
INFORMATION
Segment assets 4,755,987 32,265,609 495,689 (5,523,730) 31,993,555
Segment
liabilities 6,637,842 22,482,537 6,283,283 (4,996,286) 30,407,376
Capital
additions - - - - -
Depreciation 308 - - - 308
Amortisation - - 155,084 - 155,084
Recognition of
share-based
payments - 98,377 - - 98,377
5. Business and geographical segments, (continued)
Business segments (continued)
For management purposes for 2013, 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
2013 2013 2013 2013 2013
US $ US $ US $ US $ US $
REVENUE
External
advisory fees 939,490 - - - 939,490
External license
fees - - 77,500 - 77,500
Inter-segment
fees - - - - -
---------------------- ----------------------
Total revenue 939,490 - 77,500 - 1,016,990
Cost of sales - - - - -
---------------------- ---------------------- ---------------------- ---------------------- -----------------------
Gross
profit/(loss) 939,490 - 77,500 - 1,016,990
Administrative
expenses (1,201,239) (1,102,030) (1,290,466) - (3,593,735)
---------------------- ---------------------- ----------------------
Segment result (261,749) (1,102,030) (1,212,966) - (2,576,745)
Fair value
losses on
investments - (3,363,558) - - (3,363,558)
Interest income - 856,505 59 - 856,564
Other gains and
losses 1,200 (201,906) 2,500 - (198,206)
Finance costs - (1,074,721) (28,750) - (1,103,471)
Loss before tax (260,549) (4,885,710) (1,239,157) - (6,385,416)
Income taxes (583) 3,479 326 - 3,222
---------------------- ---------------------- ----------------------
Loss after tax (261,132) (4,882,231) (1,238,831) - (6,382,194)
OTHER
INFORMATION
Segment assets 3,706,645 40,323,494 627,489 (4,304,289) 40,353,339
Segment
liabilities 5,659,385 19,599,812 4,637,185 (3,620,548) 26,275,834
Capital
additions - - - - -
Depreciation 695 - 636 - 1,331
Amortisation - - 162,864 - 162,864
Recognition of
share-based
payments - (118,933) - - (118,933)
5. Business and geographical segments, (continued)
Geographical segments
The Group's operations are located in the United States and the
United Kingdom.
The following table provides an analysis of the Group's external
advisory fees by geographical location of the investment:
External advisory fees by
geographical location
-----------------------------
2014 2013
US $ US $
United States 480,000 480,000
United Kingdom - 459,490
480,000 939,490
================ ===========
The following table provides an analysis of the Group's external
license fees by geographical location:
External license
fees by
geographical
location
----------------------------
2014 2013
US $ US $
United States - 77,500
Europe 4,700 -
4,700 77,500
=============== ===========
The following is an analysis of the carrying amount of segment
assets and capital additions analysed by the geographical area in
which the assets are located:
Carrying amount Additions to fixtures, fittings, and
of segment assets equipment, and intangible assets
-------------------------- ---------------------------------------
2014 2013 2014 2013
US $ US $ US $ US $
United States 25,324,577 24,770,482 - -
United Kingdom 6,668,978 15,582,857 - -
31,993,555 40,353,339 - -
============ ============ =================== ==================
6. Loss before tax
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
2014 2014 2013 2013
US $ US $ US $ US $
----------------------------- -------------------------------- ----------------------------- ----------------------------
Net foreign
exchange
losses 663,081 663,081 (201,906) (201,906)
============================= ================================ ============================= ============================
Change in
fair
value of
financial
assets
designated
as at fair
value
through
profit
or loss (9,927,978) (10,107,910) (3,363,558) (3,363,558)
============================= ================================ ============================= ============================
Depreciation
of
equipment 308 - 1,331 -
============================= ================================ ============================= ============================
Amortisation
of
intangible
assets 155,084 - 162,864 -
Auditors'
remuneration
- audit
services 129,258 54,188 123,728 49,376
============================= ================================ ============================= ============================
Auditors'
remuneration
- taxation
services - - - -
7. Staff costs
The average monthly number of employees (including Executive
Directors) was:
2014 2013
Number Number
Amphion Innovations plc,
Amphion Innovations
US Inc., and DataTern,
Inc. (some employees and
costs are shared) 4 4
Amphion Innovations UK
Ltd. - -
Total for the Group 4 4
======= =======
Group Company Group Company
2014 2014 2013 2013
Their aggregate remuneration comprised: US $ US $ US $ US $
Wages and salaries 851,377 156,827 907,885 136,772
Social security costs 28,852 4,808 12,587 2,058
Other pension costs (see note 23) - - - -
880,229 161,635 920,472 138,830
================ ======== ================ ========
8. Interest income
Group Company Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2014 2014 2013 2013
------------ ------------ ------------ ------------
US $ US $ US $ US $
Interest
income:
Bank deposits 42 42 79 20
Investments 849,342 805,007 856,485 812,150
Other - - - -
849,384 805,049 856,564 812,170
============ ============ ============ ============
At 31 December 2014, the receivable for accrued interest income
from Partner Companies has been reduced by a provision for doubtful
debts of US $805,007 (2013: US $792,191).
9. Finance costs
Group Company Group Company
Year Year Year
ended ended ended Year ended
31 December 31 December 31 December 31 December
2014 2014 2013 2013
------------ ------------ ------------ ------------
US $ US $ US $ US $
Interest on promissory
notes 1,176,299 1,121,244 1,103,471 1,074,721
============ ============ ============ ============
10. Income tax expense
Group Group
Year ended Year ended
31 December 2014 31 December 2013
------------------------------ ------------------------------
US $ US $
Isle of Man income tax - -
Tax on US subsidiaries 442 257
Tax on UK subsidiary - (3,479)
Current tax 442 (3,222)
============================== ==============================
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 (2013: 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 had four subsidiaries, two in the USA, one in the UK
that is now dissolved, 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 UK subsidiary, Amphion Innovations UK Ltd.,
was liable to UK Corporation tax at rates of up to 24% on its
taxable profits and gains.
The Group charge for the year can be reconciled to the profit
per the consolidated income statement as follows:
2014 2013
US $ US $
Loss before tax (12,589,279) (6,385,416)
=========================== ===========================
Tax at the Isle of Man income tax rate of 0% - -
Effect of different tax rates of subsidiaries
operating in other jurisdictions 442 (3,222)
Current tax/(refund) 442 (3,222)
=========================== ===========================
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
2014 2013
------------- ------------
US $ US $
Loss for the purposes of
basic and diluted earnings
per share (12,589,721) (6,382,194)
============= ============
Number of shares
Year ended Year ended
31 December
31 December 2014 2013
------------
Weighted average number of
ordinary shares for
the purposes of basic earnings
per share 147,390,887 146,285,723
Effect of dilutive potential
ordinary shares:
Convertible promissory notes 65,412,061 31,990,100
Weighted average number of
ordinary shares for
the purposes of diluted earnings
per share 212,802,948 178,275,823
================= ============
Shareoptions that could potentially dilute basic earnings per
share in the future have not been included in the calculation of
diluted earnings per share because they are antidilutive.
Loss per share
Year ended Year ended
31 December 31 December
2014 2013
--------------------------- ----------------------
US $ US $
Basic (0.09) (0.04)
=========================== ==================
Diluted (0.09) (0.04)
=========================== ==================
12. Intangible assets
Group
Patents, software,
trademark,
and copyright
--------------------------------------------
COST US $
At 1 January
2013 1,610,489
Additions -
At 1 January
2014 1,610,489
Additions -
At 31 December
2014 1,610,489
--------------------------------------------
AMORTISATION
At 1 January
2013 862,441
Charge for
the period 162,864
At 1 January
2014 1,025,305
Charge for
the period 155,084
At 31 December
2014 1,180,389
--------------------------------------------
CARRYING AMOUNT
At 31 December
2014 430,100
============================================
At 31 December
2013 585,184
============================================
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 (2013:
US $nil).
13. Property, plant, and equipment
Group Company
Property, Property,
plant, plant,
and equipment and equipment
------------------------- -----------------------------
COST US $ US $
At 1 January 2013 70,502 19,986
Additions - -
------------------------- -----------------------------
At 1 January 2014 70,502 19,986
Additions - -
At 31 December 2014 70,502 19,986
------------------------- -----------------------------
ACCUMULATED DEPRECIATION
At 1 January 2013 68,863 19,986
Charge for the period 1,331 -
Exchange difference - -
------------------------- -----------------------------
At 1 January 2014 70,194 19,986
Charge for the period 308 -
Exchange difference - -
At 31 December 2014 70,502 19,986
------------------------- -----------------------------
CARRYING AMOUNT
At 31 December 2014 - -
========================= =============================
At 31 December 2013 308 -
========================= =============================
14. Investments in subsidiaries
Details of the Company's subsidiaries at 31 December 2014 and
2013 are as follows:
Place of
Proportion Proportion
incorporation of of
ownership voting
Name of (or registration) interest power held Share
Principal
subsidiary and operation 2014 2013 2014 2013 Class activity
-------------- ------------------- -------- ----- ------- --------- --------- -------------
% % % %
Consolidated
Amphion
Innovations Delaware, Advisory
US Inc. USA 100 100 100 100 Common services
Amphion
Innovations England Advisory
UK Ltd.* & Wales - 100 - 100 Ordinary services
DataTern, Texas, Intellectual
Inc. USA 100 100 100 100 Common property
MSA Holding Kingdom
Company BSC of Bahrain 100 100 100 100 Ordinary Investments
* Amphion Innovations UK Limited was dissolved on 8 July
2014.
14. Investments in subsidiaries, (continued)
The investments in subsidiaries are all stated at cost less any
provision for impairment where appropriate. Amphion Innovations UK
Ltd. and MSA Holding Company BSC were dormant in 2014 and 2013.
15. Investments
At fair value through profit or loss
Group Company
---------------------------------------------------------------------- ----------------------------------------------------------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
----------------- ----------------- ------------- ----------------- ----------------- ----------------- ------------- -----------------
US US US US US US US
$ $ $ $ $ $ $ US $
At 1 January
2014 15,579,671 - 20,166,416 35,746,087 15,579,671 - 18,635,046 34,214,717
Investments
during the
year - - 2,949,550 2,949,550 - - 1,800,004 1,800,004
Fair value
losses (8,910,693) - (1,017,285) (9,927,978) (8,910,693) - (1,040,922) (9,951,615)
At 31
December
2014 6,668,978 - 22,098,681 28,767,659 6,668,978 - 19,394,128 26,063,106
================= ================= ============= ================= ================= ================= ============= =================
At 1 January
2013 - 3,225,783 35,678,903 38,904,686 - 3,225,783 34,147,533 37,373,316
Investments
during the
year - - 204,959 204,959 - - 204,959 204,959
Transfers
between
levels 17,007,373 (3,225,783) (13,781,590) - 17,007,373 (3,225,783) (13,781,590) -
Fair value
losses (1,427,702) - (1,935,856) (3,363,558) (1,427,702) - (1,935,856) (3,363,558)
At 31
December
2013 15,579,671 - 20,166,416 35,746,087 15,579,671 - 18,635,046 34,214,717
================= ================= ============= ================= ================= ================= ============= =================
The 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 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 net decrease in fair value for the year of US $9,927,978
(2013: decrease of US $3,363,558) includes a net decrease of US
$1,017,285 (2013: US $1,935,856) that has been estimated using
valuation techniques in accordance with the International Private
Equity and Venture Capital Valuation Guidelines.
There were no transfers between levels in 2014.
During 2013, securities with a carrying value of US $15,579,671
at 31 December 2013 were transferred from Level 3 to Level 1
because the securities were listed on the AIM of the London Stock
Exchange in 2013 and are actively traded in that market. The
securities now have a published price quotation in an active
market.
Securities with a carrying amount of US $1,789,926 at 31
December 2013 were transferred from Level 2 to Level 3 because
quoted prices in the market for such securities were no longer
available.
15. Investments, (continued)
Fair value determination
As described in note 2 the Directors have valued the investments
in accordance with the guidance laid down in the International
Private Equity and Venture Capital Valuation Guidelines. The inputs
used to derive the investment valuations are based on estimates and
judgments made by management which are subject to inherent
uncertainty. As such the carrying value in the financial statements
may differ materially from the amount that could be realized 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 2014 is set
out below:
Level Fair Unobservable
3 value Methodology inputs
-----------
US $
Multiple methods used in combination
Private including: Discount to last Discount
investments 22,098,681 market price, (30%-100%),
discount to last financing round,
price of future financing round, price of
and third party fund raising.
valuation.
------------- ----------- ------------------------------------- ---------------
Further information in relation to the directly held private
investment portfolio at 31 December 2013 is set out below:
Level Fair Unobservable
3 value Methodology inputs
-----------
US $
Multiple methods used in combination
Private including: Discount to last Discount
investments 20,166,416 market price, (30%-100%),
Discount to last financing round,
price of future financing round Price of
and third party fund raising.
valuation.
------------- ----------- ------------------------------------- ---------------
Given the range of techniques and inputs used in the valuation
process and the fact that in most cases more than one approach is
used, a sensitivity analysis is not considered to be a practical or
meaningful disclosure. Shareholders should note 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 (2013: US $nil) to profit
or loss of the Group and the Company using more favourable
assumptions and an approximate decrease of US $2.1 million (2013:
US $3.5 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:
2014 2013
Fully-diluted Fully-diluted
ownership ownership
Country of incorporation % %
Axcess International, United States
Inc. of America 11.08 15.07
FireStar Software, United States
Inc. of America 11.44 11.86
Kromek Group PLC England & Wales 10.32 10.60
Motif BioSciences, United States
Inc. of America 16.69 32.09
United States
m2m Imaging Corporation of America 25.58 25.88
Novacyt S.A. (merged
with Lab 21 Limited) France 0.21 0.38
United States
PrivateMarkets, Inc. of America 21.27 25.33
United States
WellGen, Inc. of America 24.31 24.34
The ownership percentages do not include the potential
conversion of convertible promissory notes issued by the Partner
Companies.
16. Other financial assets and liabilities
The carrying amounts of the Group's financial assets and
financial liabilities at the statement of financial position date
are as follows. The accounting policies described in note 2 explain
how the various categories of financial instruments are
measured.
Group Company
2014 2013 2014 2013
Carrying Fair Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value amount value
US $ US $ US $ US $ US $ US $ US $ US $
Financial assets
Fair value
through profit
or loss
Fixed asset investments -
designated
as such upon
initial
recognition 28,767,659 28,767,659 35,746,087 35,746,087 26,063,106 26,063,106 34,214,717 34,214,717
Currents assets
Loans and
receivables
Security deposit 13,600 13,600 13,600 13,600 - - - -
Prepaid expenses
and other
receivables 2,569,380 2,569,380 3,654,196 3,654,196 5,365,760 5,365,760 4,815,932 4,815,932
Cash and cash
equivalents 212,816 212,816 353,964 353,964 192,807 192,807 333,131 333,131
Financial
liabilities
Amortised cost
Trade and other
payables 10,270,584 10,270,584 9,411,563 9,411,563 3,307,920 3,307,920 3,726,887 3,726,887
Current portion
of convertible
promissory
notes 10,189,891 10,189,891 9,543,671 9,543,671 10,189,891 10,189,891 9,543,671 9,543,671
Current portion
of notes
payable 8,964,901 8,964,901 6,308,600 6,308,600 8,964,901 8,964,901 6,308,600 6,308,600
Notes payable 982,000 982,000 1,012,000 1,012,000 - - - -
The carrying value of cash and cash equivalents, the security
deposit, prepaid expenses and other receivables, and trade and
other payables, in the Directors' opinion, approximate to their
fair value at 31 December 2014 and 2013.
The following table sets out the fair values of financial
instruments not measured at fair value and analyses it by the level
in the fair value hierarchy into which each fair value measurement
is categorized at 31 December 2014.
Group Company
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
US US US US
$ US $ $ US $ $ US $ $ US $
------- ------------- ------ ---------------- ------ ------------- ------ ------------------
Financial
assets
Security
deposit - 13,600 - 13,600 - - - -
Prepaid
expenses
and
other
receivables - 2,569,380 - 2,569,380 - 5,365,760 - 5,365,760
Cash and cash
equivalents - 212,816 - 212,816 - 192,807 - 192,807
- 2,795,796 - 2,795,796 - 5,558,567 - 5,558,567
------------------------ ------------- ------ ---------------- ------ ------------- ------ ------------------
Financial
liabilities
Trade and other
payables - 10,270,584 - 10,270,584 - 3,307,920 - 3,307,920
Current portion
of convertible
promissory
notes - 10,189,891 - 10,189,891 - 10,189,891 - 10,189,891
Current portion
of notes
payable - 8,964,901 - 8,964,901 - 8,964,901 - 8,964,901
Notes payable - 982,000 - 982,000 - - - -
- 30,407,376 - 30,407,376 - 22,462,712 - 22,462,712
------------------------ ------------- ------ ---------------- ------ ------------- ------ ------------------
16. Other financial assets and liabilities, (continued)
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.
Included in the Group's other receivables are debtors of which
US $0.9 million (2013: US $1.4 million) are past due at the
reporting date and for which the Group has not provided as there
has not been a significant change in credit quality of the Partner
Companies and the Group believes that the amounts are still
considered recoverable. (See note 3 for further details). The Group
does not hold any collateral over these balances. The Company
believes it can convert the receivables into the Partner Companies'
equity.
The following table is an analysis of the age of financial
assets:
Group
More than 3
Not past due Not more than months and not More than
or impaired 3 months more than 1 year 1 year Total
US $ US $ US $ US $ US $
2014
Fees
receivable
- gross - 60,000 180,000 2,480,000 2,720,000
Impairment - (60,000) (180,000) (1,610,000) (1,850,000)
Rebillable
expenses 987,040 - - - 987,040
Other
receivables 2,030,409 - - 10,000 2,040,409
Impairment (1,405,636) (1,405,636)
Prepaid
expenses 77,567 - - - 77,567
1,689,380 - - 880,000 2,569,380
------------------------ --------------------------- ---------------------------------- --------------------------- ----------------
2013
Fees
receivable
- gross - 120,000 360,000 2,720,000 3,200,000
Impairment - (120,000) (360,000) (1,370,000) (1,850,000)
Rebillable
expenses 726,487 - - - 726,487
Other
receivables 2,933,729 - - 44,536 2,978,265
Impairment (1,415,748) (1,415,748)
Prepaid
expenses 15,192 - - - 15,192
------------------------ --------------------------- ---------------------------------- --------------------------- ----------------
2,259,660 - - 1,394,536 3,654,196
------------------------ --------------------------- ---------------------------------- --------------------------- ----------------
The allowance account for fees receivable is used to record
impairment losses unless the Group is satisfied that no recovery of
the amount owing is possible; at that point the amounts considered
irrecoverable are written off against the fees receivable
directly.
16. Other financial assets and liabilities, (continued)
Company
More than
3
Not past Not more months and
due than not More than
more than
or impaired 3 months 1 year 1 year Total
US $ US $ US $ US $ US $
2014
Rebillable
expenses 940,325 - - - 940,325
Due from
subsidiaries 3,803,622 - - - 3,803,622
Other
receivables 1,984,123 - - - 1,984,123
Impairment (1,405,636) - - - (1,405,636)
Prepaid
expenses 43,326 - - - 43,326
-------------------- ---------------------------- ----------------------------------- ------------------------- -----------------
5,365,760 - - - 5,365,760
-------------------- ---------------------------- ----------------------------------- ------------------------- -----------------
2013
Rebillable
expenses 670,061 - - - 670,061
Due from
subsidiaries 2,719,085 - - - 2,719,085
Other
receivables 1,389,335 - - 34,536 1,423,871
Prepaid
expenses 2,915 - - - 2,915
-------------------- ---------------------------- ----------------------------------- ------------------------- -----------------
4,781,396 - - 34,536 4,815,932
-------------------- ---------------------------- ----------------------------------- ------------------------- -----------------
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 realizable 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 of US $7 million that can be used to meet liquidity needs
subject to the value of the collateral (see note 18). The Group may
also issue equity in order to meet liquidity needs.
16. Other financial assets and liabilities, (continued)
The following table is a maturity analysis that shows the
remaining contractual maturity for the Group and Company's
financial liabilities:
Group
Less
than 1-3 3 months Over
to 1
1 month months year 1 year Total
US US US US US
$ $ $ $ $
2014
Trade payables
& other payables 10,270,584 - - - 10,270,584
Current portion
of promissory
notes 447,968 733,333 7,783,600 - 8,964,901
Convertible promissory
notes - - 10,189,891 - 10,189,891
Notes payable - - - 982,000 982,000
2013
Trade payables
& other payables 9,411,563 - - - 9,411,563
Current portion
of promissory
notes - - 6,308,600 - 6,308,600
Convertible promissory
notes - 9,543,671 - - 9,543,671
Notes payable - - - 1,012,000 1,012,000
Company
Less
than 1-3 3 months Over
to 1
1 month months year 1 year Total
US US US US US
$ $ $ $ $
2014
Trade payables
& other payables 3,307,920 - - - 3,307,920
Current portion
of promissory
notes 447,968 733,333 7,783,600 - 8,964,901
Convertible promissory
notes - - 10,189,891 - 10,189,891
2013
Trade payables
& other payables 3,726,887 - - - 3,726,887
Current portion
of promissory
notes - - 6,308,600 - 6,308,600
Convertible promissory
notes - 9,543,671 - - 9,543,671
Market risk
Market risk is the risk that changes in interest rates, foreign
exchange rates, equity prices, and other rates, prices,
volatilities, correlations, or other market conditions will have an
adverse impact on the Group's financial position or results. Thus
market risk comprises three elements - foreign currency risk,
interest rate risk, and other price risk. Information to enable an
evaluation of the nature and extent of these three elements of
market risk are shown below.
16. Other financial assets and liabilities, (continued)
Foreign currency risk
The Group undertakes certain transactions denominated in foreign
currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed by minimising the balance of
foreign currencies to cover expected cash flows during periods
where there is strengthening in the value of the foreign currency.
The Group has one UK Partner Companies which are denominated in
GBP. The Group have convertible promissory notes issued in GBP. The
valuations of these two companies 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
2014 2013 2014 2013
US $ US $ US $ US $
Sterling - Cash equivalent - 3,262 - 76
Sterling - Investment 6,594,390 15,579,671 6,594,390 15,579,671
Convertible promissory notes (10,189,891) (9,543,671) (10,189,891) (9,543,671)
A 5% (2013: 10%) strengthening of the US dollar against the
British pound sterling at the reporting date would have increased
profit or loss of the Group by approximately US $180,000 (2013: US
$604,000). A 5% (2012: 10%) weakening of the US dollar against the
British pound sterling would have decreased profit or loss of the
Group by approximately US $180,000 (2013: US $604,000). A 5% (2013:
10%) strengthening of the US dollar against the British pound
sterling at the reporting date would have increased profit or loss
of the Company by approximately US $180,000 (2013: US $604,000). A
5% (2013: 10%) weakening of the US dollar against the British pound
sterling would have decreased profit or loss of the Company by
approximately US $180,000 (2013: US $604,000). The GBP/USD rate
used at 31 December 2014 was 1.5578 (2013: 1.6574). 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 $212,816 (2013: US
$353,964). At 31 December 2014, the Group'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 $666,898
(2013: US $1,557,967).
The amounts generated from the sensitivity analysis are
estimates of the impact of market risk assuming that specified
changes occur. Actual results in the future may differ materially
from these results due to developments in the global financial
markets which may cause exchange rates to vary from the
hypothetical amounts disclosed above, which therefore should not be
considered a projection of likely future events and losses.
17. Trade and other payables
Group
Trade and other payables principally comprise amounts
outstanding for purchases and ongoing costs.
Company
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs.
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
18. Promissory notes
Convertible promissory notes
During 2014, US $1,219,739 (GBP782,988) additional convertible
promissory notes were issued in payment of the accrued interest
payable on the notes as of 31 December 2013 and the quarters ended
31 March 2014, 30 June 2014, and 30 September 2014. At 31 December
2014, the convertible promissory notes totaled US $10,189,891
(GBP6,541,206) (2013: US $9,543,671; GBP5,758,218) and the warrants
issued totaled 13,082,416 (2013: 6,391,624).
The notes were convertible into ordinary shares of the Company
at any time prior to 31 December 2013 at a conversion price of
eighteen pence per ordinary share. In the event that the closing
market price of the ordinary shares was equal to or greater than 25
pence per ordinary share for 25 consecutive trading dates at any
time prior to 31 December 2013, the notes would have automatically
been converted into fully paid ordinary shares. The notes were paid
interest at 7% on a quarterly basis.
For each note issued, the Company also issued 1.11 warrants.
Each warrant entitled the holder to subscribe for one ordinary
share at 20 pence per ordinary share during the subscription period
which began on 30 December 2008 and expired on the fifth
anniversary of that date.
The notes were to mature on 31 December 2013 but the due date
was extended to 31 January 2014 by a meeting of the Noteholders on
6 December 2013. At a meeting of the Noteholders on 24 January
2014, it was agreed to extend the convertible promissory notes to
31 December 2015 on revised terms. The new notes can be convertible
into ordinary shares of the Company at a conversion price of 10
pence and will pay interest of 7% if paid in ordinary shares or 5%
if paid in cash or additional notes on a quarterly basis. Prior to
maturity, the notes will be automatically converted into ordinary
shares of the Company at the time that the closing price of the
ordinary shares is equal or greater than 15 pence for 25 trading
days. The Company is obliged to use 50% of its cash balances over
GBP2 million (excluding any cash raised through any fund raising)
to repay the notes. In the event that the notes are not converted,
repaid in cash, or exchanged for Kromek Group PLC ("Kromek") shares
by 31 December 2015, the notes will be repaid by transferring
Kromek shares held by the Company on the date of repayment to the
Noteholders. If, on, or before 15 December 2014, the notes have not
been converted or repaid in cash, the Noteholder will have the
right to exchange part or the whole note into Kromek shares. The
exchange rights were exercisable from 15 December 2014 to 30
December 2014. Holders of US $1,856,250 of the convertible
promissory notes requested an exchange into Kromek shares. For
every GBP1 note, two warrants were issued. The warrants will have
an exercise price of 12 pence per share with an expiration date of
31 December 2015 or within 30 days of the early repayment of the
note. In the event that the cash balances of the Company
immediately following any repayment of the notes exceed GBP7
million, an amount equal to 20% of the surplus over GBP7 million
but not exceeding 20% of the original principal amount of the notes
will be paid to the Noteholders in proportion to the amounts of
notes held by them at the time of repayment.
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 has
drawn down US $3 million with a further draw down facility of up to
a maximum of US $10 million, subject to the consent of each party.
The facility is secured by part of Amphion's holding in Kromek
Group PLC ("Kromek") and may be repaid at the Company's discretion
in cash, the issue of Amphion shares, or the payment of Kromek
shares where the Lender will be subject to certain limitations
including adherence to any existing lock-in and an orderly market
agreement. Repayment is on a monthly basis starting on 1 September
2014 with final payment due 1 June 2015. The balance of the loan at
31 December 2014 is US $2,575,000 (2013: nil). The interest rate of
the loan is 12% per annum of the gross amount provided to the
Company. As part of the loan terms the Lender received 13,727,974
3-year warrants in Amphion with exercise prices ranging from 3.75
pence to 4.375 pence per share. In addition, Amphion issued to the
Lender 981,724 3-year Kromek simulated warrants at exercise prices
ranging from 56.25 pence to 61.25 pence per share. If the Lender
exercises the warrants, Amphion will pay the difference between the
exercise price and the Kromek market price. The Company also paid a
further 8% of the gross amount provided as an implementation fee.
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 funds are to be used for working
capital for Amphion and its Partner Companies.
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.
18. Promissory notes, (continued)
During 2013, the Company cancelled US $6,308,600 of promissory
notes issued to the Chairman of the Company and replaced them with
promissory notes that mature on 31 December 2014. 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 expire on 31
December 2014 and have an exercise price of 8 pence per ordinary
share. In February 2015, the notes and warrants were cancelled and
replaced by a note and warrants expiring on 31 December 2015. Refer
to note 23 for further details.
During 2013, Amphion Capital Management LLC, a related party,
advanced DataTern Inc., a subsidiary of the Company, US $222,000
under promissory notes. The promissory notes accrue interest at 5%
and are payable three years from issuance. Terms include a
requirement that 50% of the gross profits (defined as gross
settlement revenue, less direct expenses, contingency fees, and
FireStar's profit share) will be dedicated to repayment of the
note. There is an additional contingent return of 1.002% of the
gross profits up to 100% return on the note and thereafter 0.498%
of gross profits up to a total return of 300% on the note. The
balance of this note at 31 December 2014 is US $192,000 (2013: US
$222,000).
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 2014 is US $190,000 (2013: US$ 190,000).
During 2013, R. James Macaleer, the 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 2014 is US $600,000 (2013: US
$600,000).
19. Share capital
2014 2013
GBP GBP
Authorised:
500,000,000 ordinary
shares of 1p each 5,000,000 2,500,000
=============== ===========
Number GBP US $
Balance as at 31 December
2012 146,220,250 1,462,202 2,682,757
Issued for cash or services:
Ordinary shares of 1p
each 663,821 6,638 10,562
Balance as at 31 December
2013 146,884,071 1,468,840 2,693,319
Issued for cash or services:
Ordinary shares of 1p
each 690,663 6,907 11,833
Ordinary shares of 1p
each 703,772 7,038 11,504
Balance as at 31 December
2014 148,278,506 1,482,785 2,716,656
============ ========== ==========
The authorized share capital was increased to 500,000,000
ordinary shares upon the Company's re-registration under the
Companies Act 2006 in August 2014.
Holders of the ordinary shares are entitled to receive dividends
and other distributions and to attend and vote at any general
meeting.
19. Share capital, (continued)
During the year ended 31 December 2014, the following changes
occurred to the share capital of the Company:
On 16 July 2014, the Company issued 690,663 ordinary 1p shares
at a premium of 1.175p per share (US $13,904) to Directors in
payment of 2013 fourth quarter and 2014 first and second quarter
Directors' fees.
On 26 September 2014, the Company issued 703,772 ordinary 1p
shares at a premium of 1.225p per share (US $14,092) to Directors
in payment of 2014 third and fourth quarter Directors' fees.
20. Operating lease arrangements
At the balance sheet date, the Group has outstanding commitments
under non-cancellable operating leases, which fall due as
follows:
2014 2013
US $ US $
Within one year 7,500 7,200
In the second to fifth years inclusive - -
After five years - -
7,500 7,200
====== ======
Operating lease payments represent rentals payable by the Group
for certain of its office properties. On 1 August 2013, the lease
was renewed for a New York office for three months. The agreement
automatically renews for an additional term for the same number of
calendar months 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 $87,445 in
respect of operating lease arrangements in the year ended 31
December 2014.
21. Share-based payments
In 2006 the Group established the 2006 Unapproved Share Option
Plan ("the Plan") and it was adopted pursuant to a resolution
passed on 8 June 2006. Under this plan, the Compensation Committee
may grant share options to eligible employees, including Directors,
to subscribe for ordinary shares of the Company. The number of
shares over which options may be granted under the Plan cannot
exceed 10% of the ordinary share capital of the Company in issue on
a fully diluted basis. The Plan will be administered by the
Compensation Committee. The number of shares, terms, performance
targets, and exercise period will be determined by the Compensation
Committee.
As of 31 December 2014, a total of 42,278,869 options have been
issued (2013: 31,778,869) and 26,328,869 have been forfeited or
expired (2013: 22,795,536).
During 2014, 7,000,000 options were issued under the Plan.
Twenty percent of the options vested on 31 December 2014 and the
remaining 80% will vest ratably and monthly over 4 years from 1
September 2014. They expire on 23 September 2024 and have an
exercise price of GBP0.02225.
The options issued under the Plan total 28,650,000 and
18,000,000 have been forfeited or expired. At 31 December 2014, a
total of 5,516,667 options under the Plan were vested (2013:
3,650,000).
As of 31 December 2014, a balance of 13,628,869 options not in
the Plan have been issued (2013: 10,128,869) and 8,328,869 have
expired or been forfeited. At 31 December 2014, 5,300,000 of these
options were vested (2013: 5,241,670). These options have
expiration dates that range from one to ten years from the date of
grant.
21. Share-based payments, (continued)
2014 2013
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 8,983,333 0.11 16,267,424 0.08
Granted during the period 10,500,000 0.04 3,500,000 0.08
Forfeited during the period - - (7,250,000) 0.04
Expired during the period (3,533,333) 0.08 (3,534,091) 0.08
---------------------- ---------------
Outstanding at the end of the period 15,950,000 0.07 8,983,333 0.11
====================== ===============
Exercisable at the end of the period 10,816,667 0.10 8,891,670 0.11
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:
2014 2013
US $ US $
Weighted average share price 0.03 0.04
Weighted average exercise price 0.06 0.13
Expected volatility 65-77% 73%
Expected life 1-10 years 1.75 years
Risk free rate 0.25-2.60% 0.23%
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 2014, options were granted on 23 September 2014 and 31
December 2014. The aggregate of the estimated fair value of the
options granted is US $118,300. In 2013, options were granted on 15
March. The aggregate of the estimated fair value of the options
granted is US $9,527.
The Company and Group recognised share based payments of US
$47,044 and a gain of US ($163,032) relating to equity-settled
share-based payment transactions in 2014 and 2013 respectively. The
2013 cost includes US $189,465 of costs that have been reversed due
to the performance conditions not being met.
22. Retirement benefit plans
The Company established a defined contribution plan under
Section 401(k) of the Internal Revenue Code. The plan enables
qualified employees to reduce their taxable income by contributing
up to 15% of their salary to the plan. The Company may elect to
make a matching contribution to the plan. The Company has elected
not to make a contribution for the years ended 31 December 2014 or
2013.
The UK subsidiary had a defined contribution pension scheme. The
total pension expense recognised in the income statement of US $nil
(2013: US $nil) represents contributions paid by the Company to the
plan.
23. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of
transactions between the Group and other related parties are
disclosed below.
During the year, the Group paid miscellaneous expenses on behalf
of Motif BioSciences, Inc. ("Motif") such as office expenses and
expenses related to their initial public offering. At 31 December
2014, the amount owed by Motif to the Group was US $119,019 (2013:
US $10,914).
23. Related party transactions, (continued)
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 2014 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 2014 (2013: US $nil) on the basis that
the cash has fallen below the US $500,000 level.
Amphion Innovations US Inc. had entered into an agreement with
Kromek Group PLC to provide advisory and consulting services. At 31
December 2014, Richard Morgan, a Director of the Company, was also
Chairman of Kromek. Mr. Morgan resigned from the Kromek Board in
March 2015. The monthly fee under this agreement was the lesser of
US $10,000 and 50% of the gross compensation paid to Directors and
management of Kromek in that month. The agreement was terminated on
31 December 2013. The subsidiary's fee for the year ended 31
December 2013 was US $120,000. Amphion Innovations US Inc. also
earned US $339,490 as a fund raising fee for the year ended 31
December 2013.
Amphion Innovations US Inc. has entered into an agreement with
Motif BioSciences, Inc. ("Motif") to provide advisory and
consulting services. Richard Morgan, a Director of the Company, is
also the Chairman of Motif. The annual fee for the services is US
$240,000. The agreement was effective until 1 April 2014 and shall
automatically renew for successive one year periods. Amphion
Innovations US Inc.'s fee for the period ended 31 December 2014 was
US $240,000 (2013: US $240,000). At 31 December 2014, the US
$960,000 balance payable was reclassified as an additional
investment in Motif. The 31 December 2013 provision for doubtful
debts in the amount of US $240,000 was reversed to US $nil at 31
December 2014.
Amphion Innovations US Inc. has entered into an agreement with
m2m Imaging Corp. ("m2m") to provide advisory and consulting
services. Robert Bertoldi, a Director of the Company, is also the
Chairman of m2m. The monthly fee under this agreement is US
$15,000. This agreement renews on an annual basis until terminated
by either party. Amphion Innovations US Inc.'s fee for the periods
ended 31 December 2014 and 2013 were suspended. At 31 December
2014, US $630,000 (2013: US $630,000) remains payable. This balance
has been reduced by a provision for doubtful debts in the amount of
US $600,000.
Amphion Innovations US Inc. has entered into an agreement with
WellGen, Inc. ("WellGen") to provide advisory and consulting
services. Richard Morgan and Robert Bertoldi, Directors of the
Company, are also Chairman and Directors of WellGen, respectively.
The fee under this agreement is US $60,000 per quarter. The
agreement renews annually until terminated by either party. The
subsidiary's fee for the year ended 31 December 2014 was US
$240,000 (2013: US $240,000) of which US $1,320,000 (2013: US
$1,080,000) remains payable at 31 December 2014. This balance has
been reduced by a provision for doubtful debts in the amount of US
$480,000.
Amphion Innovations US Inc. has entered into an agreement with
PrivateMarkets, Inc. ("PrivateMarkets") to provide advisory
services. Richard Morgan, a Director of the Company, is also the
Chairman of PrivateMarkets. The fee under this agreement is US
$30,000 per quarter until the successful sale of at least US
$3,000,000 of equity and thereafter, US $45,000 per quarter. This
agreement will renew annually unless terminated by either party.
The subsidiary's fee for the years ended 31 December 2014 and 2013
were suspended. At 31 December 2014, US $770,000 (2013: 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.
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 year ended 31 December 2014 was suspended
(2013: US $nil).
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 2014, US $81,301
remains outstanding. The net amount payable by the Company at 31
December 2014 to Richard Morgan is US $2,230,702 (2013: US
$1,995,693). The amount payable includes a voluntary salary
reduction of US $1,604,010, US $341,779 of which will be payable at
the discretion of the Board at a later date.
During 2013, the Company cancelled US $6,308,600 of promissory
notes payable to R. James Macaleer, the Chairman of the Company.
The promissory notes accrued interest at 7% per annum and were
payable in 2012 and 2013. The notes were replaced with promissory
notes that mature on 31 December 2014 and accrue interest at 7%. In
addition, 3,500,000 warrants that were issued with the original
notes that had an expiration date of 31 December 2013 and an
exercise price of 8 pence per share were cancelled and replaced
with 3,500,000 warrants that expired on 31 December 2014 and have
an exercise price per share of 8 pence. In February 2015, the notes
and warrants were cancelled and replaced by a note and warrants
expiring on 31 December 2015 under the same terms. During 2013, R.
James Macaleer advanced US $600,000
23. Related party transactions, (continued)
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 2014, US
$nil (2013: US $8,451) was due to Mr. Macaleer for Director's fees.
At 31 December 2014, Mr. Macaleer was due US $1,387,513 (2013: US
$914,701) for accrued interest on the promissory notes.
At 31 December 2014, US $116,667 (2013: US $102,201) was due to
Gerard Moufflet, a Director of the Company, for Director's fees and
US $8,337 (2013: US $8,337) for expenses.
At 31 December 2014, US $6,917 (2013: US $7,211) was due to
Anthony Henfrey, a retired Director of the Company, for expenses.
Dr. Henfrey waived his entitlement to receive his director's fees
for 2014 and 2013.
At 31 December 2014, US $23,535 (2013: US $23,535) was due to
Richard Mansell-Jones, a retired Director of the Company for
Director's fees.
At 31 December 2014, US $855,925 (2013: US $720,530) was due to
Robert Bertoldi, a Director of the Company, for voluntary salary
deductions in 2009 through 2014 of which US $188,769 is payable at
the discretion of the Board.
Directors' interests
The Directors' direct ownership in the Partner Companies is as
follows:
Fully diluted
%
owned by
Investment company Directors
------------------------ ----------------
2014 2013
Axcess International,
Inc. 5.66% 5.41%
FireStar Software,
Inc. 1.49% 1.59%
Kromek Group PLC 0.96% 0.96%
Lab 21 Limited (merged
with Novacyt S.A.) 0.00% 0.01%
Motif BioSciences,
Inc. 5.29% 4.06%
m2m Imaging Corp. 1.46% 1.46%
Novacyt S.A. 0.00% 0.00%
PrivateMarkets, Inc. 2.89% 2.74%
WellGen, Inc. 3.09% 3.08%
The Directors who held office at 31 December 2014 had the
following interests in the Company's ordinary share capital:
2014 2013 2014 2013 2014 2013
Number Number
of of Convertible Convertible
Number Number
ordinary ordinary promissory promissory of of
shares shares notes notes warrants warrants
Richard
C.E.
Morgan 25,642,499 25,442,499 GBP934,079 GBP900,000 1,868,158 999,000
Robert J.
Bertoldi 6,436,431 6,436,431 - - - -
R. James
Macaleer 25,595,535 24,480,266 GBP12,408 GBP10,027 4,024,817 4,011,130
Anthony W.
Henfrey - 1,190,735 - GBP13,932 - 15,465
Gerard
Moufflet 1,039,583 862,500 - - - -
Miroslaw
Izienicki 102,083 - - - - -
23. Related party transactions, (continued)
Aggregate Directors' remuneration
The total amounts for Directors' remuneration was as
follows:
Year ended Year ended
31 December 2014 31 December 2013
US $ US $
Emoluments 775,030 760,179
Directors' emoluments and compensation
(1) Group
Fees/Basic
salary
accrued Year Period
Group Payment Group ended ended
not subject
Fees/Basic to Benefits 31 December 31 December
salary board In 2014 2013
paid discretion kind total total
US
US $ US $ $ US $ US $
Name of
dirc Name
of Director
Executive
- s
Executive-salary
Richard
C.E. Richard
C.E. Morgan 95,280 257,412 18,189 370,881 367,237
Robert J.
Ber Robert
J. Bertoldi 163,390 137,610 23,363 324,363 324,838
Jerel WhittiJe
Jerel Whittingham - - - - -
Non-executi
Non-executive
- fees
R. James
Ma R. James
Macaleer 34,189 - - 34,189 33,429
Anthony
W. Anthony
W. Henfrey - - - - -
Gerard Mouff
Gerard Moufflet 30,741 - - 30,741 34,675
Gerard Mouff
Miroslaw
Izienicki 14,856 - - 14,856 -
Aggregate
e Aggregate
emoluments 338,456 395,022 41,552 775,030 760,179
================= ============================ ================== ===================== =====================
(1) Deferred fees/basic salary refers to voluntary salary
reductions taken by the Executive Directors in 2014 which were
recorded as a liability in 2014 in the Group accounts, payment of
which is not subject to the discretion of the Board.
Directors' share options
Aggregate emoluments disclosed above do not include any amounts
for the value of options to acquire ordinary shares in the Company
granted to or held by the Directors. Details of options for
Directors who served during the year are as follows:
Date
1 31 from
Name of January December Exercise which Expiry
Director Scheme 2014 Granted 2014 price exercisable date
2006
Unapproved
Share 24
Richard Option Mar 24 Mar
Morgan Plan 500,000 - 500,000 GBP0.1075 2010 2019
2006
Unapproved
Share 23
Richard Option Sep 23 Sep
Morgan Plan - 2,500,000 2,500,000 GBP0.02225 2014 2024
2006
Unapproved
Share 24
Robert Option Mar 24 Mar
Bertoldi Plan 350,000 - 350,000 GBP0.1075 2010 2019
2006
Unapproved
Share 23
Robert Option Sep 23 Sep
Bertoldi Plan - 2,500,000 2,500,000 GBP0.02225 2014 2024
850,000 5,000,000 5,850,000
========= ====================== ============
24. Subsequent events
In February 2015, the Company issued 344,471 ordinary shares to
certain of its Board members in consideration of their directors'
fees for the first quarter of 2015.
In February 2015, the Company issued 2,148,243 ordinary shares
to YA Global Master SPV, Ltd in partial payment of the loan
facility.
In February 2015, the Company borrowed an additional US $300,000
from the YA Global Master SPV, Ltd loan facility. As part of the
loan terms, 1,511,503 three year warrants were issued with an
exercise price of GBP.0408 and 131,892 simulated Kromek warrants
were issued with an exercise price of GBP0.4670. The monthly
repayment schedule was extended to 1 January 2016.
In March 2015, the Company issued 1,298,646 ordinary shares to
YA Global Master SPV, Ltd in partial payment of the loan
facility.
On 2 April 2015, the Company's Partner Company, Motif Bio plc,
successfully listed 64,238,442 ordinary shares on AIM at 20 pence
per share.
In April 2015, the Company issued 15,239,477 ordinary shares to
YA Global Master SPV, Ltd, Ashworth Global Investments Limited, and
Global Market Neutral Strategies SICAV plc in settlement of the
exercise of warrants that were issued in conjunction with the loan
facility for a total of GBP580,843 (US $904,837).
In May 2015, the Company engaged Northland Capital Partners
Limited ("Northland") as the Company's sole broker in connection
with a placing and as joint broker.
In June 2015, the Company issued 29,311,230 ordinary shares at a
price of 5.25 pence per share for a total of GBP1,538,840 (US
$2,397,205).
In June 2015, the Company sold 779,642 shares of Kromek in
partial payment of the loan facility with YA Global Master SPV and
agreed to exchange 2,916,523 shares of Kromek in partial payment of
convertible promissory notes.
Notice
The financial information set out above does not constitute the
Group's statutory accounts for the year ended 31 December 2014 or
2013, 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 2014 and 2013 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 22 June
2015.
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,
330 Madison Avenue, 6(th) Floor, New York, NY 10017, USA.
(1) Unadjusted NAV per Share is the basic NAV of the Group per
share.
(2) Adjusted NAV per Share is the basic NAV of the Group
excluding the assets and liabilities of DataTern and using the
current market value of Motif and Kromek as well as the current
issued and outstanding shares of Amphion. The Directors believe the
Adjusted NAV figure is a fairer representation of the position of
the Group than the Unadjusted NAV figure as DataTern has
liabilities of approximately US $4.7 million at the year end and
includes the value of the patents at US $430,000. While the full
extent of the liabilities is carried at face value, the potential
value of the patents is not reflected in the financials.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGURWQUPAGRP
Amphion Innovations (LSE:AMP)
Historical Stock Chart
From Mar 2024 to Apr 2024
Amphion Innovations (LSE:AMP)
Historical Stock Chart
From Apr 2023 to Apr 2024
