TIDMALM
RNS Number : 5240I
Allied Minds PLC
22 March 2018
FOR IMMEDIATE RELEASE 22 March 2018
Allied Minds plc
("Allied Minds" or the "Group" or the "Company")
Annual Results Release
Allied Minds plc (LSE: ALM), an IP commercialisation company
focused on early stage company creation and development within the
technology and life science sectors, announces its annual results
for the year ended 31 December 2017.
-- Group Subsidiary Ownership Adjusted Value (GSOAV) of $395.6
million as of 22 March 2018 ($416.2 million as at 24 April 2017),
reflecting the estimated ownership adjusted value of Allied Minds'
investment in the group subsidiaries.
-- Net cash and investments* of $169.1 million (2016: $226.1
million) of which $84.2 million (2016: $136.7 million) is held at
the parent level.
* includes funds in form of fixed income securities.
-- Revenues of $5.0 million (2016: $2.7 million) mainly from
non-recurring engineering (NRE) and service contracts, reflecting
the early stage nature of our portfolio of subsidiary
businesses.
-- Net loss of $111.1 million, (2016: $128.7 million) primarily
reflects G&A and R&D spending of $55.2 million and $49.0
million, respectively, to support the portfolio activities, offset,
in part, by NRE revenue of $5.0 million.
Jill Smith, President and Chief Executive Officer of Allied
Minds, said:
"We are pleased with the progress made in 2017 in terms of both
the performance and focus of the portfolio and the steps taken to
ensure a higher level of discipline in how we allocate capital and
operate our subsidiaries. We have secured co-investment from brand
name strategic investors, strengthened our leadership teams and
their accountability, and focused our origination efforts on
specific areas of competitive advantage. 2018 will be another
important year in which we expect to meet several key milestones.
We believe the company is well positioned to realize returns for
our shareholders."
There will be a call for analysts and investors to join at 9.30
am GMT using the dial in details below:
To join via conference call please dial:
UK Dial-In Number: +44 333 300 0804
US Dial-In Number: +1 855 857 0686
PIN: 06929696#
HIGHLIGHTS
Investment Highlights
During 2017, an aggregate of $81.1 million was invested into new
and existing subsidiary businesses, including:
-- $64.5 million from subsidiary fundraisings with $35.1 million
coming from third-party investment and $29.4 million from Allied
Minds, to support and accelerate the development of four of the
Group's existing companies: Federated Wireless; BridgeSat;
HawkEye(360) and Signature Medical.
o On 7 February 2017, HawkEye(360) completed the second closing
of its $13.8 million Series A preferred funding round of $1.3
million, adding additional investors to a syndicate including
Razor's Edge Ventures and a defence market leader.
o On 5 May 2017, BridgeSat closed a $6.0 million Series A
preferred funding round, including participation from Space Angels,
a prominent angel investor network of experts focused on Space
2.0.
o On 26 July 2017, Signature Medical completed a $2.5 million
Series A preferred funding round, including participation from Riot
Ventures and Bose Corporation.
o On 14 September 2017, Federated Wireless announced the closing
of a $42.0 million Series B preferred funding. The round was led by
new investors who are key members of the shared spectrum ecosystem:
Charter Communications (NASDAQ: CHTR); American Tower (NYSE: AMT);
and ARRIS International plc (NASDAQ: ARRS), and by GIC, Singapore's
sovereign wealth fund. The balance of the raise was subscribed
principally by Allied Minds and Woodford Investment Management
(WIM).
o On 5 October 2017, Spin Transfer Technologies, Inc. announced
that it had secured $22.8 million of funding via a convertible
bridge facility. Proceeds from the bridge are to be applied to fund
development work of next-generation ST-MRAM. The convertible bridge
was underwritten by Allied Minds with initial subscription of $12.7
million. The note was designed to bridge the company to the
completion of a Series B round, targeting strategic investors.
Post-period end on 11 January 2018, the company announced that
existing shareholders Invesco Asset Management and Woodford
Investment Management would subscribe for a combined $10.3 million
of the bridge facility.
-- In addition to these fundraisings, $16.6 million was invested
by the Group into new and other existing subsidiary businesses.
Corporate Highlights
-- On 13 March 2017, the Company appointed Jill Smith, formerly
a Non-Executive Director, as interim CEO. Jill's appointment as
President and CEO was confirmed on 30 May 2017.
-- On 29 June 2017, Allied Minds announced the appointment of
Simon Davidson as Executive Vice President, Technology
Investments.
-- On 19 September 2017, Allied Minds announced the appointment of Harry Rein as an Independent Non-Executive Director.
Financial Highlights
-- Net cash and investments* of $169.1 million (2016: $226.1
million) of which $84.2 million (2016: $136.7 million) is held at
the parent level.
* includes funds in form of fixed income securities.
-- Revenues of $5.0 million (2016: $2.7 million) mainly from
non-recurring engineering (NRE) and service contracts, reflecting
the early stage nature of our portfolio of subsidiary
businesses.
-- Net loss of $111.1 million, (2016: $128.7 million) primarily
reflects G&A and R&D spending of $55.2 million and $49.0
million, respectively, to support the portfolio activities, offset,
in part, by NRE revenue of $5.0 million.
-- Group Subsidiary Ownership Adjusted Value (GSOAV) of $395.6
million as of 22 March 2018 ($416.2 million as at 24 April 2017),
reflecting the estimated ownership adjusted value of Allied Minds'
investment in the group subsidiaries.
Corporate Partnership Highlights
-- On 30 October 2017, Allied-Bristol Life Sciences, LLC, a
biopharmaceutical enterprise jointly owned by Allied Minds and
Bristol-Myers Squibb Company announced that it had formed a new
subsidiary, ABLS IV, to enter into an alliance with Weill Cornell
Medicine and an exclusive licensing agreement with Cornell
University in relation to a novel class of inhibitors of
immunoproteasomes.
Selected Subsidiary Highlights
-- On 11 July 2017, Spin Transfer Technologies announced the
appointment of Tom Sparkman as CEO, signalling a transition to
focus on the commercial exploitation of its product
differentiators. Tom is a veteran of the semiconductor industry who
has held CEO and senior executive roles at Spansion, Integrated
Device Technologies, and Maxim Integrated Products.
-- On 12 July 2017, BridgeSat announced the appointment of Barry
Matsumori, formerly a senior executive at Qualcomm, SpaceX and
Virgin Galactic, as CEO. In April 2017, BridgeSat secured an
agreement with The Swedish Space Corporation to install its optical
ground stations in at least three ground sites and announced a
partnership with York Space Systems (York) to include its optical
downlink technology on York satellites delivering the Harbinger
Mission for the U.S. Army.
-- Federated Wireless concluded or currently is in live trials
with a total of 30 partners across the spectrum sharing ecosystem,
and continued to make progress towards full FCC certification
expected later in 2018.
-- HawkEye(360) progressed in its preparations for the
Pathfinder launch scheduled for Q2 2018 and entered into revenue
contracts with commercial and government entities to provide
demonstrations of capabilities anticipated to be available with the
Pathfinder cluster.
-- Precision Biopsy completed enrolment for its ClariCore(TM)
Cohort A trial and has delivered its algorithm for system level
U.S. Food and Drug Administration (FDA) validation and
verification.
-- On 28 September 2017, SciFluor Life Sciences announced
positive top-line results of a Phase 1/2 study of SF0166, the
company's lead drug in development for the topical (eye drop)
treatment of patients with Diabetic Macular Edema (DME). The Phase
I/II study assessed the safety and preliminary efficacy of SF0166
in 40 evaluable patients with DME who were randomized to one of two
dose strengths (2.5% and 5.0% solutions) self-administered by
patients as an eye drop twice-a-day for 28 days, with a 28 day
follow-up period.
-- On 16 October 2017, Spin Transfer Technologies and Tokyo
Electron Ltd. announced that they signed an agreement for a
collaborative engineering program for next-generation Static
Random-Access Memory (SRAM) and Dynamic Random-Access Memory
(DRAM)-class Spin-Torque Magnetoresistive Random-Access Memory
(ST-MRAM) devices.
-- On 18 December 2017, SciFluor announced positive top-line
results of a Phase I/II trial studying the treatment of 'Wet'
Age-Related Macular Degeneration patients with SF0166, the
company's lead eye drop drug for back of the eye diseases. The
double masked Phase I/II study assessed the safety, tolerability
and preliminary efficacy of SF0166 in 42 evaluable subjects with
neovascular (wet) AMD who were randomised 1:1 to self-administer an
eye drop containing either a 2.5% or a 5% solution of SF0166
twice-a-day for 28 days.
-- Post-period end on 17 January 2018, Allied Minds announced
that it had completed the sale of Percipient Networks to WatchGuard
Technologies, Inc.
Outlook for Top Six Subsidiaries
Highlighted below are the key operational management objectives
for 2018 across the top six subsidiaries. In addition, several of
these subsidiaries aim to secure additional funding in the course
of 2018. It is in the nature of early stage company creation and
development that business plans need to adapt dynamically in
response to changing circumstances. Where this becomes necessary we
will provide an update on materially revised plans.
Subsidiary 2018 Key Operational Management Objectives
--------------------------- --------------------------------------------------------------------
BridgeSat
* Successfully demonstrate end-to-end service: Network
Operations Centre (NOC), at least one ground station,
and customer pathfinder(s)
* Sign 2+ customer agreements; build strong commercial
revenue backlog
Federated Wireless * FCC certification
* Support multiple customer launches and realise
commercial revenue
* Build out national availability of Environmental
Sensing Capability (ESC) network to meet customer
requirements
HawkEye(360)
* Successfully launch Pathfinder satellite cluster
* Launch Marine Domain Awareness (MDA) products and
realise commercial revenue
Precision Biopsy * Gain CE Mark
* Complete Cohort B trial
SciFluor
* Initiate at least one Phase II trial for SF0166
* Complete in-life Investigational New Drug (IND)
enabling study for one new asset
Spin Transfer Technologies
* Successfully demonstrate the advantages of the Spin
Polarizer and Endurance Engine
* Sign 2+ customer/partner agreements
Board and Management Highlights
Following Jill Smith's appointment as President and CEO,
vacating her previous Non-executive Directorship, the Board
appointed Harry Rein as a Non-executive Director in August 2017.
Harry brings extensive experience from the venture capital sector,
most recently serving as General Partner for 10 years at Foundation
Medical Partners (Foundation), an early stage venture capital firm
focused on the healthcare sector. Prior to Foundation, Harry served
as Founder and Managing Partner at Canaan Partners (Canaan). Harry
was responsible for life sciences investments at both Foundation
and Canaan. Earlier in his career Harry was President and CEO of GE
Venture Capital Corporation, having joined General Electric Company
in 1979.
In July, Simon Davidson was appointed Executive Vice President,
Technology Investments. In this role Simon has lead responsibility
for the origination of new technology investments and plays an
important role in the oversight of our existing technology
subsidiaries. Simon has 25 years' experience in the technology
sector and joins Allied Minds from In-Q-Tel, where he was a
Managing Partner of the US-based strategic investor that identifies
and partners with start-up companies that develop innovative
technologies for the US intelligence community.
____________________________
In compliance with Listing Rule 9.6.3, the following documents
will be submitted to the National Storage Mechanism and will
shortly be available for inspection at
www.morningstar.co.uk/uk/NSM:
-- Annual Report and Accounts for the year ended 31 December
2017; and
-- Notice of 2018 Annual General Meeting.
Printed copies of these documents together with the Form of
Proxy will be posted to shareholders shortly. Copies will also be
available shortly on the Investor Relations section of the
Company's website at
http://investors.alliedminds.com/reports-and-presentations.
The 2018 Annual General Meeting will be held at 11.00 am BST on
23 May 2018 at the offices of DLA Piper UK LLP, 3 Noble Street,
London EC2V 7EE, United Kingdom.
For more information, please contact:
Allied Minds plc +1 617 419 1800
Joe Pignato, Chief Financial Officer IR@alliedminds.com
Neil Pizey, Head of Corporate Development
FTI Consulting
Ben Atwell / Brett Pollard +44 20 3727 1000
Further information on Allied Minds is available on our website:
www.alliedminds.com
Notes
(i) Nature of announcement
This Annual Results Release was approved by the directors on 22
March 2018. The financial information set out in this Annual
Results Release does not constitute the Company's statutory
accounts for the years ended 31 December 2017 or 2016 but is
derived from those accounts. Statutory accounts for the year ended
31 December 2016 have been filed with the Registrar of Companies.
Statutory accounts for 2017 will be delivered to the registrar of
companies in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditor's report can be found in the
Company's full Annual Report and Accounts for the year ended 31
December 2017 (2017 Annual Report).
(ii) Forward looking statements
This Annual Results Release and the 2017 Annual Report contain
statements that are or may be forward-looking statements, including
statements that relate to the Company's future prospects,
developments and strategies. The forward-looking statements are
based on current expectations and are subject to known and unknown
risks and uncertainties that could cause actual results,
performance and achievements to differ materially from current
expectations, including, but not limited to, those risks and
uncertainties described in the risk management section of the 2017
Annual Report. These forward-looking statements are based on
assumptions regarding the present and future business strategies of
the Company and the environment in which it will operate in the
future. Each forward-looking statement speaks only as at the date
of this Annual Results Release. Except as required by law,
regulatory requirement, the Listing Rules and the Disclosure and
Transparency Rules, neither the Company nor any other party intends
to update or revise these forward-looking statements, whether as a
result of new information, future events or otherwise.
2017 Annual Report and Accounts
STRATEGIC REPORT
Chairman's Report
I am pleased to present this Annual Report to shareholders for
the financial year ended 31 December 2017, which was a critical
period in Allied Minds' development.
In March 2017 the Board appointed Jill Smith as President and
Chief Executive Officer (CEO). Jill's extensive leadership
experience, including most recently as CEO of DigitalGlobe where
she led the business to growth and a successful IPO, is
well-aligned with our overarching priorities at Allied Minds: to
deliver shareholder returns by driving commercialisation and
monetisations at our key subsidiaries, and building a growth engine
of new investments. The substantial and decisive actions undertaken
since her appointment position the Group well to deliver against
these priorities.
In the first half of the year, the decision was made to
rationalise the portfolio of subsidiary companies. This was
completed after careful review of the capital requirements,
competitive position and market opportunities facing each company.
Since then, capital and management resources have been redirected
to the most promising subsidiary businesses in the portfolio.
Greater discipline is being exerted in the management and support
of the portfolio, through more effective boards and greater
accountability and transparency. The result is that our subsidiary
businesses are operating with substantially greater focus, energy
and urgency and are well-positioned to achieve the goals set.
After a year of focusing primarily on driving value from the
existing portfolio, in 2018 we look forward to returning to
opportunities to build and support new businesses. The same
discipline brought to company operations is being applied to our
new investment strategy. It is designed to seek out technology and
innovations aligned to investment theses that are grounded in
Allied Minds' depth of experience and access, in particular with
medical institutions and federal laboratories, and working in
regulated industries and with the US Government.
Together with the Board, I am satisfied that as a result of
actions undertaken in 2017 to rationalise the portfolio, improve
capital allocation and operational discipline and bring renewed
focus on commercialisation and monetisation, Allied Minds is in a
stronger position today than it has ever been.
Non-Executive Director Rick Davis will retire and not seek
re-election at the AGM to be held in May 2018 after completing over
seven years of service to the Company. We have greatly appreciated
his dedication, experience, wealth of knowledge and insights he
brought to Board deliberations over his years of service on the
Board.
Finally, I would like to thank our shareholders for their
continued support and our management team and staff for their hard
work and commitment.
Peter Dolan
Chairman
22 March 2018
CEO's Report
Shortly after my appointment in March 2017 we set out three key
strategic priorities critical to enhancing our capital allocation
discipline:
-- Earlier and broader syndication of our subsidiaries, focusing
on strategic investors, where we see scope for valuable validation
and acceleration or de-risking of the path to commercialisation and
monetisation;
-- Strengthened leadership, governance and accountability at our
subsidiary businesses, including changes in personnel where
required, additional Board and advisory Board members, and clearer
accountability for tangible milestone delivery; and
-- A transition to thematic investing, focusing on theses and
areas of competitive advantage, and on deeper relationships with a
smaller number of research institutions aligned to these areas.
The actions undertaken across our investment, syndication and
operating activities have been consistent with these
priorities.
We completed subsidiary funding rounds in 2017 for HawkEye(360)
, BridgeSat, Federated Wireless and Signature Medical that each
included external strategic investors. As financial, strategic or
commercial co-investors, they offer both validation of the
respective company's business model and expand and/or de-risk the
path to commercialisation.
We made good progress against a majority of the management
objectives set for 2017, and I would like to recognise the teams
for their accomplishments. Further, we strengthened leadership at
several of our subsidiaries, including the appointment of two new
CEOs, Tom Sparkman at Spin Transfer and Barry Matsumori at
BridgeSat.
The addition of representatives from the strategic investors to
the respective boards, and experienced non-executive directors to
others have enhanced governance and strategic insight.
In terms of new opportunities, we have focused our origination
activities around theses or areas of competitive advantage, and
sourcing on a more selective group of university and federal
laboratories, and medical institutions with expertise in these
areas, in addition to leveraging our own strong networks. As part
of this enhanced focus, we are expanding the types of new
investments we make, to consider both majority and minority
investments at seed or Series A rounds where the opportunity is
aligned to one of our theses and where we can leverage our
experience and network.
Simon Davidson joined the team in June as Executive Vice
President, Technology Investments, bringing extensive experience
working with federal laboratories and government customers. He is
driving focus on areas including space, connectivity and data, all
of which leverage expertise and access derived from our current
portfolio and team. Omar Amirana, MD, Senior Vice President, Life
Sciences Investments, has focused on investment theses revolving
around proprietary minimally-invasive solutions for procedures with
a clear reimbursement path that reduce morbidity, mortality and
costs. We are largely focused in areas where adoption can be
dramatic such as interventional cardiology, electrophysiology,
neuroradiology, pulmonology, and gastroenterology.
2017 was a year in which we focused on strengthening and
repositioning the current portfolio. In 2018, we will continue to
build on the strategic priorities identified with a view to
focusing on two drivers of shareholder returns:
-- Accelerate the path to commercialisation/monetisation at our
top six companies, and nurture progress at our earlier stage
companies; and
-- Grow our new opportunity platform by increasing the number of high quality new investments.
Given the disruptive innovations and significant market
opportunities our subsidiaries face and the steps we have taken to
strengthen and focus operations, we believe that our portfolio
holds the potential to deliver premium exit valuations and
attractive returns to our shareholders. We believe each of our top
six subsidiaries has strong sources of sustainable competitive
advantage, including via patent portfolios which were markedly
strengthened in 2017. The highly capable, experienced management
teams have the necessary mix of technical and commercial skills,
and have a clear line of sight to the critical goals and inflection
points necessary to drive value and maximise exit optionality.
Strategic, commercial and financial co-investors have validated the
business plans and opportunities for those companies and provided
invaluable support for the management teams.
I look forward to 2018 as a year in which we consolidate the
hard work undertaken in 2017 and deliver further demonstrable
progress against our objectives. I would like to thank our
shareholders, our employees and our partners and customers for
their ongoing support.
Jill Smith
President and Chief Executive Officer
22 March 2018
Company Overview
The Opportunity
The US is the world's largest market for research and
development (R&D) investment, with more than $125.0 billion in
annual spending by the US federal government, resulting in
thousands of US patent applications per annum. However, despite
having established technology transfer processes designed to
commercialise this intellectual property, only a relatively small
number of patents per year are licensed, and only a small fraction
progress to the next stage of development. Likewise, corporations
have large areas of R&D output which may not align with their
core strategy and target markets but could be refocused on other
markets with cooperation from outside investors.
Allied Minds seeks to collaborate with targeted US federal
research institutions, universities, medical institutions, and
select corporations and entrepreneurs to identify early stage
innovations and inventions that have the potential to transform
markets, and to invest to build strong companies that can bring
differentiated products and services to market. We seek to deliver
attractive returns for our shareholders, as well as generate an
additional source of funds for company creation and development, by
realising superior exit valuations from those businesses that
achieve commercialisation.
Our Strategy and Capital Allocation
Allied Minds sources, operates and funds a portfolio of
subsidiary companies to generate long-term value for its investors
and stakeholders, supporting its businesses with capital,
management, expertise and shared services.
We seek to invest in companies at an early stage, including seed
investment to build a company based on a technical breakthrough or
invention. As such, our investments have significant upside
potential, but also carry significant risk inherent in the early
stage model. Allied Minds provides equity funding at the initial
seed or Series A investment round and participates in follow-on
investment rounds. Additionally, we provide hands-on support
through the appropriate level of management, operating and
governance support and expertise, and shared services over the life
of the subsidiary to commercialisation and monetisation. A key
component of the Company's strategy is to maintain strict
discipline in the allocation of financial and human capital to
those businesses meeting the objectives or milestones set, and
ceasing funds for those where the path to commercialisation is no
longer attractive.
Allied Minds invests in technologies that have the potential to
disrupt large markets and builds companies with a strong focus on
those criteria that together best position them for successful
commercialisation and ultimately an exit at a superior valuation.
The company has defined six key success factors that, if present,
can create the conditions for a superior exit valuation:
-- Disruptive innovation solving an important problem (ideally
with first mover advantage)
-- Favourable market dynamics (large market and/or high growth
rate)
-- Sustainable competitive advantage (unique or superior solutions,
with sustainable barriers to entry, potentially including
IP)
-- Route to widespread adoption (minimum barriers to adoption;
known/available distribution channels)
-- Capable management with aligned interest (right skill mix
and accountability for delivery)
-- Potential for competitive tension (operate to maximise exit
optionality and nurture potential buyers)
Source
Since inception, Allied Minds has sought to deliver the
commercial potential of IP developed in universities, federal
laboratories, and medical institutions, by working with technology
transfer offices (TTOs). It maintains relationships with several US
Department of Defense laboratories and federal government agencies
such as the Department of Homeland Security and the Department of
Energy.
The Company typically receives certain access and licensing
rights to inventions selected for investment. Additionally, the
Company has established certain partnerships and alliances with US
corporations, including Bristol Myers Squibb (BMS) (via Allied-
Bristol Life Sciences, LLC (ABLS)) and GE Ventures, which provide
us with access to technology, expertise and capital. Finally, we
leverage our own businesses and operators, as well as our network
of partners and advisors to help identify emerging market and/or
breakthrough technology opportunities. We prioritise those
technologies or companies that benefit from the "network effect",
i.e. where we can leverage our market insight, operating expertise
and network, often gained from those companies already in our
portfolio, to benefit the early stage opportunity, or where it can
deliver incremental value to our own companies.
Operate
We evaluate on an on-going basis the progress and potential of
each of the Company's businesses, and make strategy and funding
decisions based on the achievement of key milestones. Together with
management, the Company defines the critical milestones, or
inflection points, for each subsidiary and measures tangible
progress towards commercialisation and the key success factors for
a successful monetisation event. Management is accountable for
these milestones, which are developed into annual management
objectives (or MBOs).
Allied Minds actively supports its businesses throughout their
life-cycle. During the early stages, Allied Minds typically
provides technical and executive leadership, as well as shared
services support. At the appropriate time we will support a
subsidiary business in hiring a full time CEO and other critical
talent and in putting in place incentives to drive results. As
businesses evolve, Allied Minds builds and leads the Board,
recruits advisors and forms advisory Boards comprising of seasoned
industry experts who act as mentors, while maintaining dedicated
personnel to oversee progress.
It is a fact of life in early stage company creation and
development that not all ideas or technologies will successfully
transition to commercialisation. We carefully scrutinise our
portfolio of subsidiary businesses with the objective of ensuring
that we identify early signs that successful commercialisation and
attractive returns on investment may not be obtainable. Where it
becomes evident that a company does not have a clear path to
commercial traction we seek to terminate early and with minimum
sunk capital, while treating all parties involved fairly and with
respect. Although our model assumes that not all of our investments
will succeed, we expect to make sufficient successful investments
to generate attractive returns across the portfolio as a whole
because we enjoy competitive advantages via our origination
platform and central operating expertise, and focus on investing in
innovations that are disruptive to large and growing markets and
maintaining large positions where appropriate.
Allied Minds has established scalable shared services
capabilities designed to enable our businesses to focus on
research, product development and commercialisation activities and
at the same time benefit from strong, cost-effective operational
and financial infrastructure and support. The administrative
support provided includes payroll, IT support, legal, HR and
fund-raising support, as well as hands-on operational advice.
Fund
As our companies meet the objectives identified for success, we
seek to participate in subsequent capital raises to mitigate
dilution, to the extent consistent with our goal to maximise risk
adjusted returns for our shareholders and, taking into account
competing uses of capital across our portfolio and pipeline.
Co-investors in later rounds include financial, strategic and
commercial partners. Where appropriate, we seek to include partners
who validate the market opportunity and can provide support and/or
commercial commitments to accelerate, expand and/or de-risk the
path to commercialisation.
Portfolio composition
Allied Minds has identified six subsidiaries as defined earlier
that we believe are well-positioned for commercialisation and have
the potential to realise superior exit valuations.
These subsidiaries currently represent the substantial majority
of Group Subsidiary Ownership Adjusted Value. Allied Minds'
ownership stakes range from 48.40% (Spin Transfer Technologies) to
98.15% (BridgeSat).
Outside these subsidiaries Allied Minds has two earlier stage
investments (LuxCath and Signature Medical). These represent
exciting opportunities in medtech, albeit with more work to be done
to commercialise their technologies.
In addition Allied Minds operates an early stage drug
development joint venture with Bristol Myers Squibb: Allied Bristol
Life Sciences (ABLS). Currently ABLS has two drug candidates in
initial feasibility studies and a third in lead optimisation.
Origination activities
Allied Minds focuses its origination activities on technologies
or companies that are aligned with our theses on the future
direction of market segments we are close to. Leveraging
proprietary knowledge, expertise and networks - often gained from
the companies already in our portfolio - we believe we have
differentiated insight enabling us to identify new opportunities in
dynamic markets, as well as market and operating experience and
expertise that can deliver meaningful benefits to early stage
companies. This is particularly true for market opportunities in
regulated industries, or where target markets include government
customers.
Areas where we have established ourselves as one of the leading
operators, and where we believe there will be large or
transformational market opportunities include: space/analytics;
connectivity; data/machine learning; wearables; and
minimally-invasive solutions where adoption can be dramatic such as
interventional cardiology, electrophysiology, neuroradiology,
pulmonology, and gastroenterology.
In order to fully participate in these emerging market
opportunities, Allied Minds expects to take majority positions to
build new companies and selectively take minority positions in
already-formed companies. We will consider the latter where an
opportunity is financially compelling in its own right and fits
with an existing thesis or area of competitive advantage, and where
participation is expected to also yield additional knowledge and
expertise or strengthen our network in that area, thereby
consolidating our competitive advantage.
Partner Network
The Group has well-established relationships with some of the
most prestigious academic research institutions across the United
States. Allied Minds aims to gain direct access to technologies at
the forefront of research by working to deepen our relationships
with selected institutions and selectively adding highly regarded
research centres across the US. As described above, thematic
investing demands a more selective approach to institutional
relationships, matching origination efforts to those entities with
expertise aligned to the Group's investing theses. We anticipate
focusing more on US government laboratories and other Federal
Funded Research and Development Centers (FFRDCs), given our areas
of interest.
Corporate partnerships provide an additional valuable source of
new investments. This began with the formation of our ABLS
partnership with BMS, and has continued with our strategic alliance
with GE Ventures formed in September 2016. We continue to actively
explore additional sources of world-class technology
innovation.
Portfolio Summary
During 2017, an aggregate of $81.1 million was invested into new
and existing subsidiary businesses. This included $64.5 million
from fundraisings, of which $35.1 million came from third-party
investment, to further accelerate the development of HawkEye(360) ,
Signature Medical, BridgeSat, Federated Wireless, Spin Transfer. In
addition to these fundraisings, $16.6 million was invested by the
Group into other existing subsidiary businesses.
Allied Minds currently has majority ownership in, or operating
control of, all of its subsidiary businesses. Below we provide an
overview of our 12 current operating subsidiary businesses,
including year formed, and Allied Minds' ownership interest. These
12 subsidiary businesses include two entities which do not directly
provide or are not directly developing products and services:
Allied-Bristol Life Sciences (ABLS) (the holding company for ABLS
drug development subsidiaries); and ABLS Capital (a funding vehicle
for ABLS drug development subsidiaries). There are some additional
non-operating or holding companies not listed in the table
below.
Ownership
Interest
Operating Subsidiary(2)(3)(4) Year Formed (1) Overview
------------------------------ ------------ ---------- ---------------------------------------
Corporate partnerships
Allied-Bristol Life 2014 80.00% Created with BMS to identify
Sciences, LLC and conduct pre-clinical
development of therapeutic
candidates which are intended
to be sold to BMS prior to
clinical development
ABLS Capital, LLC 2015 30.25% Funding vehicle with up to
$80 million of binding commitments
to support development of
ABLS drug compounds proceeding
to lead optimisation phase
ABLS II, LLC 2014 35.95% Novel small molecule therapeutics
for the treatment of fibrotic
and autoimmune diseases,
developed in the Harvard
University laboratory of
Professor Malcolm Whitman
ABLS IV, LLC 2017 80.00% Novel inhibitors of immunoproteasomes
targeting inflammatory and
autoimmune diseases, developed
by Dr. Ramanuj Dasgupta at
the NYU School of Medicine
Life sciences
LuxCath, LLC 2012 98.00% Catheter ablation initially
focused on atrial fibrillation
using novel proprietary real-time
tissue and lesion visualisation
technology
Precision Biopsy, Inc. 2008 64.59% Medical device and analytics
company using spectral analysis
to distinguish tissue characteristics
in real-time, with the aim
of improving diagnostics
and therapies. Initially
focused on prostate cancer,
the technology is potentially
applicable to other cancers
SciFluor Life Sciences, 2010 69.89% Drug development company
Inc. focused on creating a portfolio
of best- in- class compounds
in the fields of ophthalmology,
neuroscience and fibrosis.
Lead clinical asset SF0166
is a topical eye droplet
treatment for retinal diseases
including Wet AMD and DME
Signature Medical, 2016 88.09% Developing cardiac signature
Inc. technology on a wearable
device enabling diagnosis
and monitoring of heart failure
during hospital therapy and
post discharge
Technology
BridgeSat, Inc. 2015 98.15% Developing an optical communications
service for data transfer
from LEO and Geostationary
Equatorial Orbit (GEO) satellites
to earth (and vice versa),
and between satellites, targeting
significantly lower cost
and faster rates than current
Radio Frequency (RF) solutions
Federated Wireless, 2012 52.26% Plans to offer a cloud-based
Inc. SaaS service that unlocks
spectrum previously unavailable
to commercial users by enabling
government and commercial
users to securely share the
same spectrum band
HawkEye(360) , Inc. 2015 53.06% Data analytics company seeking
to commercialise the capability
to detect, independently
geo-locate and analyse diverse
RF signals from space
Spin Transfer Technologies, 2007 48.40% Developing technology solutions
Inc. that have the potential to
materially enhance the endurance,
speed and size characteristics
of MRAM (magneto-resistive
random access memory) - the
emerging next generation
memory technology
In addition Allied Minds is party to an agreement with GE
Ventures establishing a Strategic Alliance through which the two
parties envisage cooperating to jointly invest in technologies from
their pipelines.
Notes:
(1) Ownership interests are as at 19 March 2018 (being the latest
practicable date prior to the publication of this document),
and are based upon percentage interest in issued and outstanding
share capital in the subsidiary undertakings.
(2) Not reflected in the above list of operating subsidiaries
are the two platform companies: Foreland Technologies and
Allied Minds Federal Innovations.
(3) ABLS and BMS together resolved that ABLS III, which was pursuing
feasibility studies on proprietary compounds that target the
Wnt signaling pathway and nuclear beta catenin, had not met
pre-set objectives and accordingly the program was terminated.
(4) Post-period end, Allied Minds ceased operations and dissolved
each of Whitewood Encryption Systems, Inc. (Whitewood Encryption)
and Seamless Devices, Inc. (Seamless Devices), and sold the
assets of Percipient Networks, LLC. (Percipient Networks).
Subsidiary Valuation
All of the Company's subsidiary companies are currently majority
owned and/or controlled and therefore fully consolidated in the
Company's consolidated financial statements prepared in accordance
with International Financial Reporting Standards as adopted by the
EU (IFRS). As a result, the Consolidated Statements of Financial
Position incorporated within the Company's consolidated financial
statements do not include current valuations of the Company's
subsidiary companies.
At the close of each annual financial period, the Directors
formally approve the value of all subsidiary businesses in the
Group, which is used to derive the GSOAV. There can be no guarantee
that the aforementioned valuation of the Group will be considered
to be correct in light of the future performance of the various
Group businesses, or that the Group would be able to realise
proceeds in the amount of such valuations, or at all, in the event
of a sale by it of any of its subsidiaries. These valuations assume
there will be available funds for the subsidiaries to reach next
stages of their development towards commercial success or an exit
event.
The GSOAV was $395.6 million as of 19 March 2018 (being the
latest practicable date prior to the publication of this document),
of which $375.3 million (or 94.9%) is attributed to the top six
companies ($371.6 million or 89.4% as last reported). Of the total
GSOAV, 95.9% is valued by reference to the valuation implied by the
most recent third party funding round. Compared to $415.8 million
when last reported, this reflects a decrease of $20.2 million, or
4.9%. This decrease is primarily attributed to the liquidation of
several subsidiary businesses subsequent to current year end and
write off of their value, namely Percipient Networks, Seamless
Devices, and Whitewood Encryption as well as write downs in
platform companies Allied Minds Federal Innovations, Inc. (AMFI)
and Foreland Technologies Inc. (Foreland). This decrease was
partially offset by an increase in value at BridgeSat and Federated
Wireless demonstrated by the consummation of third-party
fundraisings.
Ownership adjusted value represents Allied Minds' interest in
the equity value of each subsidiary and is calculated as follows:
(Business Enterprise Value - Long Term Debt + Cash) x Allied Minds
percentage ownership plus the value of debt provided by Allied
Minds plc to each subsidiary business.
Key Performance Indicators
The following Key Performance Indicators (KPIs) were selected to
measure the performance of the Company in 2017. These objectives
seek to link financial, operational, technical and other
performance milestones established by the Board directly to
remuneration and KPIs.
-- Change in Group Subsidiary Ownership Adjusted Value (GSOAV);
and
-- Percentage level of achievement of management by objectives
(MBOs).
Performance against 2017 KPIs is set out below:
KPI 2017 2016 Performance
----------------------------- --------------- --------------- ---------------------
$20.6 million / 4.9%
GSOAV $395.6 million $416.2 million decrease
MBO Achievement; Percentage
of Target; See Detail Substantially above
Below 131.0% 111.2% target
Notes:
(1) $416.2 million is GSOAV estimated as at 24 April 2017,
following the Board's decision to discontinue funding at several
subsidiary businesses.
The MBOs set by the Board for 2017, along with the level of
achievement against such MBOs, is set forth below:
Threshold Target Maximum Achieved
MBO Weightings Weightings Weightings Weightings
Deliver Validating Events(1) and
Technical Milestones(2) for Key
Subsidiaries 0.0% 40.0% 60.0% 57.0%
Secure Funding and Strategic Relationships
for Subsidiary Companies 0.0% 20.0% 30.0% 24.0%
Strengthen Investment Committee
Process:
Establish Corporate Partner Goals
and Commitments 0.0% 5.0% 7.5% 5.0%
Expand New Company Pipeline Development 0.0% 5.0% 7.5% 5.0%
Define Path to Commercialisation,
Liquidity Event or Key Commercial
or Strategic Differentiators 0.0% 10.0% 15.0% 15.0%
Develop Strategic Plan to Drive
Shareholder Value 0.0% 10.0% 15.0% 15.0%
Manage Cash 0.0% 10.0% 15.0% 10.0%
------------ ------------ ------------ ------------
Total Percentage of Target 0.0% 100.0% 150.0% 131.0%
============ ============ ============ ============
The following Key Performance Indicators (KPIs) were selected to
measure the performance of the Company in 2018. These objectives
seek to link financial, operational, technical and other
performance milestones established by the Board directly to
remuneration and KPIs.
The 2018 KPIs, including financial, operational, technical and
other performance targets and their weightings for the upcoming
year were set at the start of 2018, as follows:
Target
KPIs Weightings
Deliver Validating Events(1) and Technical Milestones(2)
for Key Subsidiaries 30.0%
Secure Funding and Strategic Relationships for Subsidiary
Companies 20.0%
Strengthen Investment Committee Process; Progress Longer
Term Strategy:
Initiate New Company Formation and Investment 15.0%
Deepen Specific Federal Lab Relationships 5.0%
Expand Sources of New Deal Pipeline 5.0%
Strengthen Core Business for Sustainability
Manage Cash 15.0%
Broaden Shareholder Base 5.0%
Bolster Portfolio Company Support and Services 5.0%
Total Percentage of Target 100.0%
============
Notes:
(1) "Validating Events" represent various material achievements,
such as fundraisings, mergers and acquisitions, development
partnerships, strategic alliances, customer contracts and
other significant corporate events.
(2) "Technical Milestones" represent various research and development
achievements, as well as advancement of clinical trials.
Portfolio Review and Developments
Top Six Subsidiary Businesses
BridgeSat, Inc.
Overview
Formed in 2015, BridgeSat is seeking to develop an optical
communications service for data transfer from LEO and GEO
satellites to earth (and vice versa), and between satellites, at
significantly lower cost and faster rates than current RF
solutions. The technology underpinning BridgeSat's offering was
sourced originally from The Aerospace Corporation and Draper
Laboratories. BridgeSat is based in Denver, Colorado.
Problem statement - RF cannot meet exponential growth in demand
for satellite data downlink
LEO satellite data downlink demand is expected to grow over 125%
annually through 2024, as a result of an expected three-fold
increase in number of satellites by 2022 carrying a broader range
of data-intensive sensors. The cost and speed characteristics of
RF, together with increasingly scarce spectrum, make it difficult
to support this increase in data downlink demand.
Proposed solution - optical-based data delivery service
BridgeSat is seeking to build an optical-based data delivery
service that will enable data transfer to/from satellites at speeds
of up to 10Gbps (roughly 10x the speed of current RF communications
technologies) and significantly lower cost (up to 10x cheaper on a
$/byte basis at speeds above 1Gbps). Other advantages include the
fact that optical does not use spectrum, which is a scarce resource
with competing demands; does not suffer spectrum interference
issues; and is more secure since the narrow optical beam is
difficult to jam.
BridgeSat's optical communications system has three core
elements. The first is the space terminal that is installed on
customer satellites. The second is a network of optical ground
stations that will receive data from BridgeSat space terminals and
is planned to be compatible with those manufactured by other
suppliers. The company estimates that a network of 10 ground
stations is needed to meet the service requirements of LEO and GEO
customers. The third is the Network Operations Centre (NOC),
located in Colorado, required to operate the network and manage
data delivery against customer service levels.
BridgeSat enjoys first mover advantages and is thought to be the
only commercial entity currently building out a network of optical
communications ground stations.
Business model and target markets
BridgeSat's service contracts will vary based on volume of data
and service levels.
BridgeSat's first target market is the fast-growing LEO data
downlink segment, currently estimated to be worth $1.5 billion
annually. In addition it will target the GEO and inter-satellite
data markets.
2017 management objectives:
-- Complete series A fund-raise
-- Acquire launch customers
-- Demonstrate operation of first BridgeSat ground station
Progress in 2017:
-- Appointed Barry Matsumori as CEO
-- Completed a $6.0 million series A fund-raise completed in
May 2017, including participation by Space Angels, a venture
capital firm focused on emerging space
-- Signed ground station partnership with Swedish Space Corporation
(SSC)
-- First ground station designed and contracted with completion
due in 2018
-- Contracted with launch customers (3 pathfinder customers signed
and one space terminal delivered)
-- Signed an agreement with Tesat to develop interoperability
with BridgeSat's ground station network
-- Received a contract award in Japan to deliver a GEO space
terminal for the ETS-IX GEO satellite programme
2018 key operational management objectives
-- Successfully demonstrate end-to-end service: NOC, at least
one ground station, and customer pathfinder(s)
-- Sign 2+ customer agreements; build strong commercial revenue
backlog
Federated Wireless, Inc.
Overview
Based in Arlington, Virginia, Federated Wireless plans to offer
a cloud-based SaaS service that unlocks spectrum previously
unavailable to commercial users by enabling government and
commercial users to securely share the same spectrum band. Founded
in 2012, the company's solution is based on technology developed
with support from Virginia Tech University and the US Department of
Defense (DoD).
Problem statement - the spectrum crunch
Demand for more spectrum to meet the growing needs of wireless
broadband, IoT and next generation services while also ensuring the
protection of critical missions performed by federal agencies is
challenging existing allocation models. These include licensed
spectrum, which can be high cost and inefficient, and unlicensed
spectrum, such as Wi-Fi, which has no or very low cost but may be
congested and unpredictable, and lacks carrier-grade technologies
such as LTE. According to the FCC, "service quality is likely to
suffer and prices are likely to rise" without new models that
address the expected shortage of usable spectrum.
Proposed solution - shared spectrum model
Pioneered by Federated Wireless, spectrum sharing enables
government and commercial users to securely share the same spectrum
band.
In the US, the FCC initially plans to open up for shared use
150MHz of spectrum in the 3.5GHz band previously held by the
Department of Defense, following an order creating the Citizens
Broadband Radio Service (CBRS) that makes 3.5G available for mobile
broadband and other commercial users. 150MHz of spectrum is
equivalent to a large wireless carriers' spectrum holdings. The
cost to deploy the necessary equipment to utilise shared spectrum
is approximately on par with that for wi-fi systems, but the
technology is based on robust, carrier-grade LTE. The first
commercial spectrum sharing services of the 3.5 GHz band are slated
to be launched in 2018, pending FCC certification.
Federated Wireless' Technology
There are two key elements to the core Federated Wireless
spectrum controller product. The Spectrum Allocation System (SAS)
is cloud-based software that dynamically allocates available
spectrum in the 3.5GHz band to registered users. Spectrum is
allocated according to the three tier priorities determined by FCC
rules and regulations. Access to the spectrum is gained via "access
points" - equivalent to a wi-fi router - which are deployed close
to the end user.
The second element is the ESC sensors that detects use by the
incumbent (in the case of 3.5GHz the U.S. Navy) and secures
priority access on an as needed basis. Federated Wireless is
installing and will operate over one hundred ESC sensors along
substantial stretches of the US coastlines. Dozens of ESC sensors
are currently deployed at the time of writing.
Business model and target markets
There are five core markets for Federated Wireless' spectrum
sharing technology.
1. Mobile Network Operators (MNOs) are expected to provide access
by adding access points in highly populated areas to densify
their existing networks, improve coverage and extend capacity
and service quality.
2. Cable companies, also known as multiple system operators (MSOs),
are expected to provide access by installing access points
in homes and destinations to provide mobile offload.
3. Neutral hosts can harness shared spectrum by installing access
points at private venues such as stadiums, campuses and other
commercial properties to provide local networks at significantly
reduced cost compared to current distributed antenna system
technologies.
4. Wireless broadband providers (also known as WISPs) can install
access points in rural locations otherwise underserved by
fixed line broadband.
5. Enterprise, industrial and other commercial customers can
install access points to enable private LTE networks in factories
and other venues, in support of IoT.
Overall, Federated Wireless estimates that the total addressable
US market for 3.5GHz shared spectrum equates to more than 135
million access points, including 100 million home cable and
broadband MSO installations; 30 million enterprise installations;
and 5 million in last mile access installations for rural homes.
Not included is additional demand expected from MNOs for network
densification and underserved travel and commercial hubs. Assuming
FCC certification in 2018 and adoption rates equivalent to wi-fi,
it is estimated that the US market could reach 5.4 million access
points by 2022 (less than 4% of the total addressable US
market).
2017 management objectives
-- Complete Series B fund-raise
-- Receive formal SAS and ESC FCC certification
-- Launch SAS commercial product
Progress in 2017
-- Completed a $42.0 million Series B financing led by Charter
Communications, Arris International, American Tower and GIC,
together with participation from existing investors
-- Launched the Spectrum Controller commercial product, with
FCC approval for selected use by customers in field trials
in US cities.
-- In Q4 began field trials with customers covering all five
of the spectrum sharing verticals, including Charter Communications;
Arris International; American Tower as well as Verizon and
Telrad (a wireless broadband provider or WISP)
-- After the period end, signed a multi-year commercial agreement
with Telrad in January to deliver LTE fixed wireless services
2018 key operational management objectives
-- FCC certification
-- Support multiple customer launches and realise commercial
revenue
-- Build out national availability of ESC network to meet customer
requirements
HawkEye(360) , Inc.
Overview
Formed in 2015, HawkEye(360) is a data analytics company seeking
to commercialise the capability to detect, independently geo-locate
and analyse diverse RF signals from space. Using proprietary
algorithms, HawkEye(360) aims to combine RF signals detection with
other forms of geospatial information to produce contextually
relevant analytics and reports for government and commercial end
market applications. HawkEye(360) is based in Herndon,
Virginia.
Problem statement - current space-based RF signals detection and
mapping capabilities are limited
Wireless communications, using RF signals, are proliferating yet
there is currently no commercial provider of RF detection, mapping
and analytics with signal diversity and independent geolocation
capabilities that can support sophisticated data analytic products.
These capabilities have the potential to enhance government and
commercial activities across a range of applications including
spectrum mapping and interference management, maritime domain
awareness and infrastructure management.
Proposed solution - RF signals detection, mapping and analytics
from formation satellite constellations
HawkEye(360) plans to operate clusters of 3 low earth orbit
(LEO) small satellites flying in formation to provide independent
data streams that can be used to accurately geo-locate diverse RF
signals. Using proprietary algorithms, signals data will be used
individually or in combination with multiple other data sources to
deliver contextual, timely analysis and predictions related to
sources of RF signals, such as ships and fishing vessels. For
example maritime vessels engaged in illegal fishing may seek to
evade detection by switching off their AIS (Automatic
Identification System) and going "dark". HawkEye(360) 's capability
may be used to detect other forms of RF emissions from the "dark"
ship making it possible to detect vessels that are attempting to
hide or spoof their location and avoid interception.
The company estimates that at full capacity it will operate with
up to 10 commercial clusters. HawkEye(360) 's satellites and
payloads are provided by third parties and have flight heritage,
and its signals detection and geo-location capability has been
simulated successfully using aircraft. The algorithms that form the
foundation of HawkEye(360) 's signals processing and data analytics
are proprietary to HawkEye(360) .
HawkEye(360) enjoys first mover advantages and is thought to be
the only commercial entity currently planning for launch of
satellite clusters with diverse RF signals detection, mapping and
analytics capabilities.
Business model and target markets
The first market targeted by HawkEye(360) is maritime domain
awareness (MDA). Per Frost and Sullivan, this is currently a $1.7
billion market, forecast to grow to $2.2 billion by 2024 (excluding
defence and intelligence expenditure). In civil government the
market is anticipated to include: anti-piracy and pollution;
illegal, unreported and unregulated (IUU) fishing: and anti-illegal
transshipment. Other representative markets include: spectrum
mapping; emergency response and search and rescue;
communications/spectrum interference detection; critical
infrastructure awareness; and government mission support.
HawkEye(360') s subscription model is expected to generate
recurring revenue.
2017 management objectives
-- Prepare for 2018 pathfinder launch
-- Initiate contract for development of next commercial satellite
clusters
Progress in 2017
-- Pathfinder satellites, payloads and software developed, tested
and integrated on track for readiness ahead of summer 2018
launch schedule, with additional testing conducted following
launch delay
-- Ground infrastructure for relay of data/analytics to end customers
operational, with software complete and awaiting deployment
2018 key operational management objectives
-- Successfully launch Pathfinder satellite cluster
-- Launch MDA products and realise commercial revenue
Precision Biopsy, Inc.
Overview
Precision Biopsy is a medical device and analytics company using
spectral analysis to distinguish tissue characteristics in
real-time, with the aim of improving diagnostics and therapies.
Initially focused on prostate cancer, the technology is potentially
applicable to other cancers. Precision Biopsy was formed in 2008
based on technology originally sourced from the University of
Colorado. It is based in Aurora, Colorado.
Problem statement - poor diagnosis rates and invasive therapies
for prostate cancer
The location of the prostate means that cancer tumours cannot be
accurately imaged so biopsies are performed "blind", with 12 to 14
cores sampled randomly. Poor diagnosis rates mean that cancer is
missed nearly half of the time and patients are subjected to repeat
treatments. Further, 90% of tissue cores are negative, resulting in
unnecessary pathology costs of around $900 million annually in the
US alone. Because tumours cannot be accurately mapped, treatments
for prostate cancer are predominantly whole gland treatments,
principally prostatectomy, carrying c. 85% side effects including
sexual dysfunction and incontinence.
Proposed solution - "smart" diagnosis and therapy
Precision Biopsy's ClariCore(TM) system uses spectral analysis
to distinguish benign and cancerous tissue in real-time during the
biopsy procedure, guiding the urologist, and potentially improving
diagnosis rates and reducing pathology costs. The same technology
is anticipated to be leveraged to produce accurate 3D mappings of
prostate cancer tumours, which in turn builds the foundation for
focal therapy. Targeted therapy has the potential to replace
certain prostatectomies, and potentially move treatment from the
operating room to the clinic at significantly reduced cost.
Today's standard of care involves a random biopsy of 12-14 cores
under ultrasound. Where routine biopsies of high risk patients fail
to diagnose the cancer, physicians typically prescribe an MR Fusion
biopsy which involves an MRI scan (typically in the hospital)
followed by the biopsy (typically in the urology office). An MRI
scan is expensive and has an estimated 10mm error margin.
ClariCore(TM) is estimated to have an error margin of 1mm, which is
accurate enough for focal therapy, in which only the cancerous
tissue is treated.
Target markets
In the US, Precision Biopsy's ClariCore(TM) diagnostic product
targets a c. $1.5 billion segment of the estimated $7 billion
prostate cancer market, or approximately 1 million biopsies
annually. Precision Biopsy believes an estimated 100,000 prostate
cancer patients may be eligible for 3D mapping, worth c. $300
million annually in the US, plus an additional $500 million US
market for an integrated focal therapy device. The European market
is of a similar size to the US.
Precision Biopsy' performance against 2017 management
objectives
-- Complete Cohort A study
-- Initiate Cohort B trial
-- Progress ClariCore(TM) CE Mark and FDA approval
Progress in 2017
-- Completed Cohort A study
-- Improved algorithm accuracy - supports biopsy, 3D mapping
and focal therapy
-- Confirmed de novo 510k approval path with FDA (on average
a markedly cheaper route to FDA approval for a medical device
versus the PMA alternative)
-- Cohort B IDE submission completed
-- Good progress against ClariCore(TM) CE mark approval
-- 3D mapping prototype developed, ready for first in man studies
2018 key operational management objectives
-- Gain CE Mark
-- Complete Cohort B trial
SciFluor Life Sciences, Inc.
Overview
SciFluor is a drug development company focused on creating best
in class compounds in the fields of ophthalmology, neuroscience and
fibrosis. SciFluor's lead clinical asset, SF0166, is a topical eye
droplet treatment for Age-related Macular Degeneration and Diabetic
Macular Edema, both widely prevalent retinal diseases that lead to
blindness if left untreated. The company has a pipeline of
compounds in pre-clinical development. SciFluor is based in
Cambridge, Massachusetts.
The disclosure below focuses on SF0166.
Problem statement - treatment of AMD and DME requires regular
injections to the back of the eye
AMD and DME require monthly injections to the back of the eye,
causing patient discomfort and imposing significant costs on
payors.
Proposed solution - topical eye droplet
SF0166 is a fluorinated compound administered via daily topical
eye droplets. The patented fluorination process modifies a compound
known to be safe and lends it qualities intended to enable passage
to the back of the eye. In the second half of 2017 SciFluor
concluded separate Phase I/II clinical trials for DME and Wet-AMD.
The results of these trials, as interpreted by SciFluor's
Scientific Advisory Board (SAB), indicate that SF0166 is safe and
well-tolerated by patients. In addition, the trials provided a
preliminary indication that the drug is reaching the retina and
having a biological effect. Of the 40 patients in the DME trial 53%
were deemed responders as assessed by reduction in retinal
thickness. In the Wet-AMD study 21% of the 42 patients were deemed
responders, as assessed by reduction in retinal thickness,
elimination or significant reduction of subretinal fluid and
clinical judgement. In the view of SciFluor's Board and SAB the
results of these trials provide a clear basis to proceed to full
Phase II trials for both indications. SciFluor is in the planning
and design phase for these trials.
Target markets
20 million patients globally suffer from DME and 15 million
suffer from Wet-AMD, with a further 150 million patients suffering
from earlier stage Dry-AMD. In 2016 worldwide combined revenue for
Lucentis and Eylea, the two leading injectable drugs treating these
diseases, exceeded $8 billion. Ageing populations and the projected
increased prevalence of diabetes are expected to drive future
growth.
2017 management objectives
-- SF0166: complete Phase I/II trials in DME (AMD in 2018)
-- SF0034: file IND and complete enrollment
Progress in 2017
-- Phase I/II trial for DME successfully completed
-- Phase I/II trial for wet-AMD successfully completed
-- Both SF0166 trials with positive safety profile and preliminary
evidence of biological effect
-- SciFluor secured 12 additional patents in relation to SF0166,
and filed 4 patents in relation to new compounds
-- SF0034 enrollment completed, but trial halted due to metabolic
response. New alternatives under development
2018 key operational management objectives
-- Initiate at least one Phase II trial for SF0166
-- Complete in-life IND enabling study for one new asset
Spin Transfer Technologies, Inc. (Spin Transfer)
Overview
Spin Transfer is developing technology solutions that have the
potential to materially enhance the endurance, speed and size
characteristics of MRAM (magneto-resistive random access memory) -
the emerging next generation memory technology. Spin Transfer
believes these technologies hold the potential to unlock the
widespread adoption of MRAM technology as a replacement for
existing SRAM and DRAM. Based in Fremont, California, Spin Transfer
was formed in 2006 and employs over 20 PhDs in fields including
engineering, physics, materials sciences and mathematics.
Problem statement - current pervasive SRAM and DRAM technologies
are reaching obsolescence
Current pervasive SRAM and DRAM memories deliver powerful size,
speed and endurance performance, but have limitations in terms of
volatility, i.e. they do not retain memory when power is cut, and
have a high power consumption. Memory demand is growing, driven by
more devices and more complex, data-intensive applications,
including AI and VR, that require rapidly increasing amounts of
memory to store data. At the same time, downward pressure on size
and cost continues.
Proposed solution - universal technologies that enable
DRAM-grade MRAM
Spin Transfer is developing 3 patented, universal technologies
that hold the potential to enable MRAM (which is inherently
non-volatile and low power) to meet or exceed the size, speed and
endurance characteristics of SRAM and DRAM.
-- Endurance Engine - circuitry designed to correct for inherent
errors or non-idealities of MRAM, improving endurance by up
to 6 orders of magnitude, taking current MRAM technologies
from 10(8) to 10(14) compared to DRAM at up to 10(15) or above.
The Endurance Engine also improves cell size, speed, power
consumption, density and retention. The Endurance Engine has
parallels to innovations pioneered by SanDisk to correct for
non-idealities in Flash memory leading to the widespread adoption
of this technology.
-- Spin Polarizer (also known as PSC) - series of materials that
can be layered onto a perpendicular magnetic tunnel junction
(pMTJ - the core magnetics technology of MRAM) to improve
switching speeds and increase efficiency by an estimated 30%,
and reduce size by a corresponding amount.
-- 3D multi-level cell (3D-MLC) - allows increases in densities
to a level which, when combined with the Spin Polarizer and
Endurance Engine, will allow MRAM to match or exceed the characteristics
of DRAM.
Spin Transfer has more than 150 patents issued or pending in
relation to these three technologies.
Target markets and business model
Through a phased roll-out of capabilities with partners, Spin
Transfer expects first to target SRAM markets estimated at $500
million, and later DRAM with a total addressable market estimated
to be worth $20 billion.
Spin Transfer plans to commercialise its technology through a
combination of licensing agreements, potentially delineated by
component and field of use, NRE-type agreements or sponsorship
agreements, and other commercial partnerships. It does not possess
a large scale manufacturing capability and would need to partner
with a manufacturer at some stage to move beyond a licensing model
if this were deemed desirable.
On a cost evaluation basis, the Endurance Engine is intended to
decrease the overall silicon area (and hence cost) of a large (>
32 Megabit) MRAM memory. The Spin Polarizer adds an infinitesimal
processing cost (fractions of a per cent) while greatly reducing
silicon area. The 3D-MLC will add an as-yet undetermined processing
cost that should also be significantly outweighed by the further
silicon area reduction.
2017 management objectives (as of March 2017)
-- Advance technology to demonstrate differentiators
-- Secure strategic development/investing partner
-- Complete Series B fund-raise
Note: After Tom Sparkman was hired as CEO, new objectives were
set, including:
-- Partner with Tokyo Electron Limited (TEL)
-- Create 1G of data to demonstrate advanced pMTJ capability
-- Meet with 25+ potential partners
-- Increase patent portfolio
Progress in 2017
-- In July recruited Tom Sparkman as CEO, with previous executive
roles at Maxim, Spansion
-- New strategy in place, transformed operational and commercial
focus
-- In September signed a collaborative engineering program with
TEL providing expedited access to MRAM deposition tools and
engineering resource
-- 1G data measured
-- Held over 50 partner meetings
-- 87 new patents filed
-- $22.8 million bridge finance facility underwritten by Allied
Minds in October 2017. Spin Transfer secured $10.3 million
of funding via a convertible bridge facility with existing
shareholders of the Group in January 2018, which satisfied
Allied Minds' commitment to fulfill the remaining balance
of the 2017 bridge facility with Spin Transfer.
2018 key operational management objectives
-- Successfully demonstrate the advantages of the Spin Polarizer
and Endurance Engine
-- Sign 2+ customer/partner agreements
Spin Transfer is engaged in active dialogue regarding its Series
B fundraising activities with multiple high quality strategic
investors and commercial partners. Spin Transfer has sufficient
cash resources to bridge to the Series B round without making any
material changes to its technical development and operational
plans.
Corporate Partnerships
ABLS, LLC
ABLS is a drug discovery and development company created in
August 2014 through a partnership between Allied Minds and BMS. The
company's mission is to create novel drug candidates against
serious diseases with large market potential. These include
fibrosis, cardiovascular, immune-science, immuno-oncology and
oncology, aligning to BMS's strategic areas of focus. BMS has the
option to acquire drug candidates from ABLS upon completion of the
lead optimisation phase for a pre-agreed multiple of invested
capital, with Allied Minds retaining rights to potential milestone
and royalty payments.
ABLS sources novel mechanisms and initial lead molecules from
Allied Minds' network of institutional research partners and funds
the initial feasibility study. Recently ABLS has in certain cases
sought to de-risk projects by undertaking early work via a
materials transfer agreement and an exclusive option, prior to
forming a subsidiary and entering into an exclusive license.
If the drug does not pass the initial feasibility stage, funding
is ceased and the subsidiary or project is closed with losses
capped at the up to approximately $1 million of seed investment. If
the drug passes the initial feasibility state it will enter into
the lead optimisation phase to further advance the lead molecules,
typically requiring further capital investment of up to $15.0
million. Funding for lead optimisation is provided by a combination
of ABLS Capital, LLC (ABLS Capital) (80.0%) and BMS (20.0%). The
lead optimisation phase studies are in part carried out at a BMS
R&D Site in India, called Biocon-BMS Research Center
(BBRC).
ABLS Capital was formed to provide the majority of the capital
required to fund up to ten (10) ABLS subsidiaries though the lead
optimisation phase. In April 2016 ABLS Capital secured commitments
amounting to $80.0 million, including $40.0 million from Woodford
Investment Management and $20.0 million from Invesco Perpetual.
These funding commitments will be used to invest alongside the up
to $20.0 million from BMS to fund these lead optimisation
phases.
The ABLS partnership aligns Allied Minds with a seasoned large
pharmaceutical partner and creates a natural early stage
(pre-clinical) acquirer of developing assets, potentially
de-risking the drug development process for Allied Minds and
providing attractive risk adjusted returns.
ABLS II, LLC
ABLS II was formed in June 2015 to undertake pre-clinical
discovery and development of molecules against a novel target
(Prolyl tRNA Synthetase) for treatment of fibrotic diseases.
Harvard University researchers had earlier identified the mechanism
of halofuginone (a natural product with anti-fibrotic properties)
as an inhibitor of Prolyl tRNA Synthetase. ABLS II's objective is
to discover and develop halofuginone analogues with novel IP,
better safety and superior efficacy. ABLS II has synthesised
various molecules and is evaluating them for safety and efficacy.
In May 2016 ABLS announced that ABLS II had successfully passed
feasibility and in August ABLS II successfully raised $15.0 million
of funding from ABLS Capital and BMS to fund the Lead Optimisation
phase. The work is underway at BBRC with several proprietary
molecules synthesised. However, the current lead molecules have not
yet improved the therapeutics index (TI) using the industry
standard Bleomycin model of Fibrotic diseases. Selected lead
molecules are being evaluated in another disease model of Duchenne
Muscular Dystrophy (DMD).
ABLS IV, LLC
ABLS IV was formed in October 2017 to enter into an alliance
with Weill Cornell Medicine and an exclusive licensing agreement
with Cornell University to conduct initial feasibility studies in
relation to a novel class of inhibitors of immunoproteasomes. The
class of inhibitors under development is targeted at a specific
sub-unit of the immunoproteasome playing a critical role in
inflammation and autoimmune diseases, including lupus and
rheumatoid arthritis, with the potential to develop safer
treatments with better efficacy. The market for unmet medical needs
in autoimmune and inflammatory diseases is estimated to be in the
tens of billions of dollars. Initial Feasibility Phase is underway
at BBRC.
Strategic Alliance with GE Ventures
Created in September 2016 to jointly identify and invest in
technologies from Allied Minds' and GE Ventures' combined
technology and innovation pipelines. Through this agreement, Allied
Minds has an exclusive right of first refusal to license certain
technologies, chosen by GE, for the spin-out and commercialisation
of that technology.
Consistent with our focus on thematic investing, our efforts
with GE Ventures have been focused on discovering the overlap of
our strategic themes with commercialisation candidates from GE
Ventures. Through this joint discovery process between Allied Minds
and GE Ventures' technology licensing group, multiple promising
candidates for eventual spin-out have been reviewed. While we have
not yet identified a candidate that meets each of our investment
criteria and objectives, we continue to seek an opportunity for
Allied Minds to form new entities based on the cutting-edge
technologies developed by one of the world's leaders in technology
innovation. The strategic alliance with GE will expire by its terms
in September 2018 unless extended by mutual agreement of the
parties.
Other subsidiaries
LuxCath, LLC
LuxCath is developing a proprietary ablation catheter technology
to enable live, optical interrogation of heart tissue during
cardiac ablation, applying fluorescence to allow a cardiologist to
assess on a real-time basis the impact of ablation therapy on
targeted heart tissue. Current procedures are typically executed on
a "blind" basis with the cardiologists unable to visually assess
whether there is tissue contact before commencing ablation and
unable to determine whether ablation has successfully killed target
tissue, or left gaps between lesions which could lead to
recurrence. LuxCath's technology can be applicable to all cardiac
ablation procedures and is focused on atrial fibrillation (AF)
ablation as its initial target market. It aims to improve clinical
outcomes while reducing procedure times, fluoroscopy exposure,
costs, and clinical recurrences. AF is the most common cardiac
arrhythmia in the US, affecting more than two million people and
projected to affect 15.9 million in the year 2050, half of whom
will be over 80 years old. AF has been implicated as a significant
cause of strokes, thromboembolic events, and heart failure, costing
the US healthcare system billions of dollars annually.
During 2017 LuxCath began developing a proprietary catheter into
which its optical tissue interrogation technology will be
integrated. A prototype integrated device is expected to be
delivered and tested in 2018. The prototype will have the
capability to interrogate cardiac tissue radially (not only in a
straight line), enabling more comprehensive lesion assessment.
Subject to testing, LuxCath expects to move the integrated device
to patient trials. LuxCath has recruited a highly qualified
Scientific Advisory Board comprising leading electrophysiologists
at Mount Sinai Health System (New York), Massachusetts General
Hospital, Beaumont Health (Michigan), Texas Cardiac Arrhythmia
Institute at St. David's Medical Center and L'Institut de
Rythmologie et Modelisation Cardiaque (Bordeaux, France).
Signature Medical, Inc.
Signature Medical is developing smart wearable devices to
evaluate and monitor patients remotely and on a real time basis.
Its lead AcoustiCare(TM) device is designed for patients with heart
failure and other indications.
While acoustic signature analysis represents an excellent and
well-founded approach to cardiac evaluation and monitoring,
AcoustiCare(TM) and other products under development by Signature
Medical, differ from other sensor-based wearables based on
proprietary artificial intelligence coupled with cloud-based audio
technology. Most existing technologies are based on measurement of
rhythm, movement or impedance.
AcoustiCare(TM) is being developed with the objective of
providing a more effective and non-invasive heart monitoring and
evaluation system for patients suffering from heart failure and
other indications. Remote, cloud-based monitoring of data
transmitted by the device offers patients the potential for earlier
and more targeted intervention, with the benefit to the healthcare
system of improving clinical outcomes, reducing hospital
re-admissions and material associated cost. Heart failure
recurrence represents an enormous under-served market opportunity
and ranks among the most prevalent and costly chronic diseases. It
is the number one cause of hospitalisation among US adults over the
age of 65 and consumes 1-2% of all healthcare expenditures in
developed countries. Heart failure re-admission rates alone are
estimated to be approximately 25% within 30 days of hospital
discharge at a cost of approximately $5 billion in the US
annually.
During 2017, Signature Medical completed a $2.5 million Series A
preferred financing round, including participation by Riot
Ventures, an early stage investment fund focused on emerging
technology, and Bose Corporation, a global leader in audio
innovation. The company has begun work on building an
AcoustiCare(TM) prototype, integrating a proprietary algorithm
capable of assessing cardiac function, and expects to collect
acoustic data to train and validate the algorithm and build its IP
position. Signature Medical has formed an expert Scientific
Advisory Board comprising of heart failure thought leaders at
renowned institutions including University of California, San
Francisco Brigham & Women's Hospital and the Cardiovascular
Research Foundation in New York City.
Discontinued Subsidiaries
Consistent with the Allied Minds' model, where a project has
failed to deliver sufficient additional proof points for ultimate
commercialisation and financial return, no longer supports on-going
development and commercialisation activity, and cannot be
successfully redirected to an alternative commercial path, Allied
Minds will look to cease operations and terminate the project.
In April 2017, Allied Minds announced that it would cease
operations at the following subsidiaries, having determined that
the path to commercialisation was not sufficiently clear and that
capital and management resource should be redirected to more
promising areas of the portfolio and pipeline: Biotectix;
Cephalogics; CryoXtract; Novare Pharmaceuticals; Optio Labs; RF
Biocidics; SoundCure; and Tinnitus Treatment Solutions. The related
net restructuring cost for the period was $7.3 million, which
included $4.7 million of non-cash charges for impairment of
tangible and intangible assets and inventory write-offs and is net
of $1.1 million in net proceeds from the sale of assets.
Also in 2017, ABLS I and ABLS III ceased operations and were
dissolved following Board determination that they had not
successfully completed initial feasibility studies. Vatic Materials
was closed following unsatisfactory due diligence outcomes.
Post period-end the Group sold the assets of Percipient Networks
to WatchGuard Technologies, and ceased operations and dissolved
each of Whitewood Encryption and Seamless Devices.
Financial Review
During 2017, $81.1 million was invested into new and existing
subsidiary businesses. This included $64.5 million from subsidiary
fundraisings, with $35.1 million coming from third-party
investment, to further accelerate the development of four of the
Group's existing companies, HawkEye(360) , BridgeSat, Federated
Wireless, and Signature Medical. In addition to these fundraisings,
$16.6 million was invested by the Group into new and other existing
subsidiary businesses.
Consolidated Statement of Comprehensive Loss
For the years ended 31 December
2017 2016
$'000 $'000
---------- ----------
Revenue 5,001 2,664
Cost of revenue (5,242) (5,563)
Selling, general and administrative expenses (55,214) (55,484)
Research and development expenses (49,012) (55,292)
Finance cost, net (6,545) (15,267)
Other comprehensive income (103) 208
---------- ----------
Total comprehensive loss (111,115) (128,734)
of which attributable to:
Equity holders of the parent (75,778) (96,125)
Non-controlling interests (35,337) (32,609)
Revenue increased by $2.3 million, to $5.0 million in 2017
(2016: $2.7 million). This increase is mainly attributable to the
higher NRE revenue at Federated Wireless and HawkEye(360) . Cost of
revenue was lower by $0.4 million at $5.2 million (2016: $5.6
million), reflecting prior year higher cost from write offs of
inventory at two liquidated subsidiaries.
Selling, general and administrative (SG&A) expenses
decreased by $0.3 million, to $55.2 million, for the year ended 31
December 2017 (2016: $55.5 million), largely due to savings from
the restructuring and discontinued funding of subsidiaries during
the year of $8.9 million. These savings were offset by an increase
in spending at certain companies nearing comercialisation within
the Group.
R&D expenses decreased by $6.3 million to $49.0 million for
the year ended 31 December 2017 (2016: $55.3 million). Similarly to
SG&A expenses, the decrease in R&D cost was largely due to
savings from the restructuring and discontinued funding of
subsidiaries during the year of $7.3 million. These savings were
offset, in part, by the acceleration of activities at companies
supported by third party financing rounds in 2016 and 2017, such as
BridgeSat and HawkEye(360) .
Finance cost, net decreased by $8.8 million to $6.5 million in
2017 (2016: $15.3 million) reflecting to the fair value accounting
adjustment of the subsidiary preferred shares liability balance of
$6.8 million (2016: $17.6 million), and interest income, net of
interest expense, of $0.3 million (2016: $1.0 million).
As a result of the above discussed factors, total comprehensive
loss decreased by $17.6 million to $111.1 million for the year
ended 31 December 2017 (2016: $128.7 million). Total comprehensive
loss for the year attributed to the equity holders of the Group was
$75.8 million (2016: $96.1 million) and $35.3 million (2016: $32.6
million) was attributable to the owners of non-controlling
interests.
Consolidated Statement of Financial Position
As of 31 December
2017 2016
$'000 $'000
-------- --------
Non-current assets 28,369 38,282
Current assets 184,792 232,007
-------- --------
Total assets 213,161 270,239
Non-current liabilities 867 720
Current liabilities 200,202 155,402
Equity 12,092 114,117
-------- --------
Total liabilities and equity 213,161 270,239
Significant performance-impacting events and business
developments reflected in the Company's financial position at year
end include:
Non-current assets
-- Property and equipment decreased by $5.3 million to $26.6
million as at 31 December 2017 (2016: $31.9 million), mainly
reflecting depreciation expense of $5.8 million and impairment
charges of $0.7 million, offset by purchases of approximately $1.2
million, mainly at HawkEye(360) and Federated Wireless;
-- Intangible assets as of 31 December 2017 decreased by $1.7
million to $1.1 million (2016: $2.8 million) mainly as a result of
amortisation expense of $0.3 million and impairment charges of $1.7
million, offset by additions of $0.3 million in acquired licenses
and software assets;
-- Other investments, non-current decreased to nil (2016: $2.7
million) reflecting the maturity of investment in fixed income
government and corporate securities into current assets;
Current assets
-- Cash and cash equivalents decreased by $51.1 million to
$158.1 million at 31 December 2017 from $209.2 million at 31
December 2016. The decrease is mainly attributed to $90.8 million
of net cash used in operations, offset by $35.4 million of cash
from financing activities mainly from subsidiary financing rounds,
and $4.3 million cash from investing activities mainly reflecting
the conversion of fixed income security investments into cash and
cash equivalents;
-- Other investments, current decreased to $11.1 million (2016:
$14.2 million) as those securities matured into cash and cash
equivalents, reflecting the investment of excess cash into fixed
income government and corporate securities that have maturities
shorter than twelve months;
-- Inventories decreased by $2.6 million to nil as at 31
December 2017 (2016: $2.6 million) reflecting mainly the
obsolescence charges at discontinued subsidiaries of $2.5
million;
-- Trade and other receivables increased by $9.7 million to
$15.6 million at 31 December 2017 (2016: $5.9 million) as a result
of an increase of $6.4 million mainly from advance payments to
contract manufacturers plus a net increase of $3.3 million in trade
receivables;
Current liabilities
-- Subsidiary preferred shares increased by $40.7 million to
$181.6 million as of 31 December 2017 (2016: $140.9 million) as a
result of net proceeds from subsidiary preferred rounds of $33.9
million at BridgeSat, Federated Wireless, HawkEye360 and Signature
Medical in 2017. The IAS 39 fair value adjustment for the year of
$6.8 million additionally contributed to the increase in the
subsidiary preferred shares liability;
-- Deferred revenue increased to $4.3 million as of 31 December
2017 (2016: $0.5 million) primarily due to $3.7 million of customer
deposits on contracts mainly at BridgeSat and HawkEye(360) ;
Equity
-- Share capital and premium increased by $1.6 million to a
combined $162.3 million at 31 December 2017 (2016: $160.7 million)
primarily due to exercises of stock options under the U.S. Stock
Option Plan. The increase in accumulated deficit of $65.0 million
to $354.4 million (2016: $289.4 million) mainly reflected the net
comprehensive loss attributable to equity holders of the Group for
the year of $75.8 million (2016: $96.1 million). This increase is
offset by the effect from dissolution of subsidiaries of $4.7
million (2016: nil) and the share-based compensation expense charge
for the year of $6.1 million (2016: $5.9 million).
Consolidated Statement of Cash Flows
For the years ended 31 December
2017 2016
$'000 $'000
--------- ---------
Net cash outflow from operating activities (90,779) (95,220)
Net cash inflow from investing activities 4,331 70,729
Net cash inflow from financing activities 35,372 128,087
--------- ---------
Net (decrease)/increase in cash and cash
equivalents (51,076) 103,596
Cash and cash equivalents in the beginning
of the year 209,151 105,555
--------- ---------
Cash and cash equivalents at the end
of the year 158,075 209,151
--------- ---------
The Group's net cash outflow from operating activities of $90.8
million in 2017 (2016: $95.2 million) was primarily due to the net
operating losses for the year of $104.5 million and the net effect
from movement in working capital of $2.4 million, offset by the
adjustment for non-cash items such as depreciation, amortisation,
impairments and share-based expenses of $16.0 million and interest
received net of paid and other finance charges of $0.1 million.
The Group had a net cash inflow from investing activities of
$4.3 million in 2017 (2016: $70.7 million) mainly reflecting the
disposal of fixed income investment securities of $5.9 million,
offset by purchases or property and equipment, net of disposals, of
$1.3 million, and purchases of intangible assets net of disposals
of $0.3 million.
The Group's net cash inflow from financing activities of $35.4
million in 2017 (2016: $128.1 million) primarily reflects $33.9
million proceeds from subsidiary financing rounds in HawkEye(360) ,
BridgeSat, Signature Medical and Federated Wireless and $1.6
million from exercises of stock options and issuance of share
capital, offset by $0.1 million repayment of notes payable.
The Group's strategy is to maintain healthy, highly liquid cash
balances that are readily available for investment. To further
minimise its exposure to risks the Group does not maintain any
material borrowings or cash balances in foreign currency.
Risk Management
The execution of the Group's strategy is subject to a number of
risks and uncertainties. A key focus for the Board is to formally
identify the principal risks facing the Group and develop a robust
and effective framework to ensure that the risks are both well
understood and appropriate for the Company's risk appetite to
achieve the stated corporate goals. This process needs to address
both risks arising from the internal operations of the Group and
those arising from the business environment in which it operates.
It is possible that one or more of these identified risks could
impact the Group in a similar timeframe which may compound their
effects.
With our focus on early stage company creation and development,
the Group inherently faces significant risks and challenges. The
overall aim of the risk management policy is to achieve an
effective balancing of risk and reward, although ultimately no
strategy can provide an absolute assurance against loss.
The Board has carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its
business model, future performance, solvency and/or liquidity. The
major risks and uncertainties identified by the Board are set out
below along with the consequences and mitigation strategy of each
risk.
1. The science and technology being developed or commercialised
by the Group's businesses may fail and/or the Group's businesses
may not be able to develop their innovations and intellectual
property into commercially viable products or technologies.
There is also a risk that some of the subsidiary businesses
may fail or not succeed as anticipated, whether as a result
of technical, product, market or other risks, resulting in
an impairment of the Group's value.
Impact: The failure of any of the Group's subsidiary businesses
would impact the Group's value. A failure of one of the major
subsidiary businesses could also impact on the perception of the
Group as a builder of high value businesses and possibly make
additional fund raising at the Group or subsidiary level more
difficult.
Mitigation:
-- Before making any investment, extensive due diligence is
carried out by the Group which covers all the major business risks
including market size, strategy, adoption and intellectual
property.
-- The initial seed round investment is typically quite small
with additional investment only being made on successful completion
of milestones.
-- A disciplined approach to capital allocation is pursued such
that proof of concept has to be achieved before substantial capital
is committed.
-- Members of the Group's management team who carry out the
initial due diligence may initially manage the subsidiary in its
incubation phase and will typically serve as directors, thus
staying with the project to help ensure consistency of
management.
-- Dedicated leadership with deep industry or sector knowledge,
and relevant technical and/or leadership experience, is recruited
as appropriate, and the Group ensures that each subsidiary has
independent directors and/or other advisors, as appropriate for the
relevant stage of development.
-- During incubation stage, we closely monitor milestone
developments and should a project fail to achieve sufficient
progress, we terminate the investments.
-- Each subsidiary business holds quarterly board of director
meetings, with participation from the Group's management and/or
investment team, along with the senior management team of such
subsidiary business.
-- The shared services model provides significant administrative
support to the subsidiary businesses whilst the budgetary and
financial controls ensure good governance.
-- Within the Group there is significant management expertise
which can be called upon to support each of the subsidiary
businesses where necessary.
-- The Group actively uses third party advisors and consultants,
specific to the particular domain in which a subsidiary business
operates, to assist on market strategy and direction.
2. The Group expects to continue to incur substantial expenditure
in further research and development, product development,
marketing and other operational activities of its businesses.
There is no guarantee that the Group or any of its individual
subsidiaries will become profitable prior to the achievement
of a subsidiary sale or other liquidity event, and, even if
the Group or any of its individual subsidiaries does become
profitable, such profitability may not be sustainable. The
Group may not be able to sell its ownership interests in subsidiary
businesses during any specific time frame or otherwise on
desirable terms, if at all.
Impact: The strategic aim of the business is to generate profits
for its shareholders through early stage company creation and
development within the technology and life science sectors, to
generate long-term value. Such value is expected to be delivered
through the commercialisation and monetisation of these businesses,
including through generation of revenue and profits, and through
sales of subsidiary businesses or other liquidity events. The
timing and size of these potential inflows is uncertain and should
liquidity events not be forthcoming, or in the event that they are
achieved but at values significantly less than the amount of
capital invested, then it would be difficult to sustain the current
levels of investment in the subsidiary businesses and continue to
make new investments. This will lead to reduced activity across the
Group. In turn this could make raising additional capital at the
Group level difficult and it could ultimately lead to the failure
of the Group as a whole.
Mitigation:
-- The Group retains significant cash balances in order to
support its cash flow requirements, including to support the cash
requirements for each subsidiary and for corporate resources, as
well as invest in new businesses.
-- The Group has close relationships with a wide group of
investors, including its shareholder base to ensure it can continue
to access the capital markets, and continues to identify and
develop strategic and financial relationships for co-investing in
the Group's subsidiary businesses.
-- Senior management continually seek to create additional
strategic relationships for the Group, and each subsidiary
continually seeks to engage in strategic relationships relevant to
their respective markets and to maintain current information on and
awareness of potential monetisation strategies.
3. If a significant number of the Group's relationships with
US universities and federal government institutions were to
break down or be terminated or expire, then the Group would
lose any rights that it has to act as a private sector partner
in the commercialisation of intellectual property being generated
by such universities, other research intensive institutions
or US federal research institutions.
Impact: Termination of certain of the Group's existing
relationships would impact the quantity and potential quality of
the Company's deal flow. This may in turn prevent the Company from
completing promising new deals and reduce its opportunity to create
new subsidiaries. This could potentially have an adverse effect on
the Group's long term prospects and performance.
Mitigation:
-- The Group continues to strengthen its partner network. The
Group seeks to ensure that it has a diversity of relationships to
ensure that no one university or US government laboratory has
inordinate influence on our prospects. At the same time we seek to
develop deep relationships with select research institutions and
corporate partners, as well as build out a network of
industry-specific relationships, in order to strengthen the quality
and quantity of new deal opportunities.
-- The risk of losing deal flow through the termination of
relationships is greatly lessened by the wide portfolio and
geographic spread of our partners.
-- The Group is fostering new relationships with strategic
corporate partners to expand and strengthen its partner network and
pipeline for opportunities.
4. A majority of the Group's intellectual property relates to
technologies originated in the course of research conducted
in, and initially funded by, US universities or other federally-funded
research institutions. Although the Group has been granted
exclusive licenses to use this intellectual property, there
are certain limitations inherent in these licenses, for example
as required by the Bayh-Dole Act of 1980.
Impact: There are certain circumstances where the US government
has rights to utilise the underlying intellectual property without
any economic benefit flowing back to the Group. In the event this
were to happen, this could impact the financial return to the Group
on its investment in the applicable subsidiary businesses.
Mitigation:
-- To the Board's knowledge, while these so called "march in"
rights exist, the US government has never had cause to use
them.
-- The Group seeks to develop dual use capabilities for the
technology it licenses and generally tends to avoid use cases
directly applicable to government use.
-- This risk is also mitigated through employing experienced
technology transfer experts supported by our legal team to assess
risks that may arise out of this eventuality.
5. The Group, including certain of the subsidiary businesses,
currently has in place cooperative research and development
agreements with certain US Department of Defense laboratories
and other federally funded government institutions. Certain
regulatory measures apply to these agreements which restrict
the export of information and material that may be used for
military or intelligence applications by a non-US person,
and compliance with these regulatory measures may be complex
and limit commercial alternatives.
Impact: If the Group were to breach restrictions on the use of
certain licensed technologies, particularly those derived from
federally funded research facilities, this could materially impact
upon the Group's ability to license additional intellectual
property from these establishments. In certain circumstances it may
also lead to the termination of existing licenses. In the event
that this were to happen, this could materially affect a number of
the Group's businesses and potentially harm the reputation and
standing of the Group and cause the termination of certain
important relationships with federally funded research
institutions.
Mitigation:
-- Prior to licensing any technology under these agreements, the
Group's management seeks to identify the commercial and other
alternatives available for products and services associated with
such technology and innovations, and to ensure that there are
sufficient markets available to justify the capital investment.
-- Prior to the commercialisation process, the Group's
management seeks to obtain all the necessary clearances from
applicable regulatory bodies to ensure that the export of products
based upon the licensed IP is strictly in accordance with
government guidelines.
-- The Group employs a number of individuals with experience in
working with various government agencies.
-- Senior management is fully cognisant of the regulations and
sensitivities in relation to this issue and in particular with
International Traffic in Arms Regulations (ITAR) which regulate the
use of technologies for export, and has numerous mitigating actions
available should issues arise.
6. The Group operates in complex and specialised business domains
and requires highly qualified and experienced management to
implement its strategy successfully. All of the operations
of the Group and its subsidiary businesses are located in
the United States, which is a highly competitive employment
market. Furthermore, given the relatively small size of the
senior management at the corporate level, the Group is reliant
on a small number of key individuals.
Impact: There is a risk that the Group may lose key personnel,
or fail to attract or retain new personnel. The loss of key
personnel would have an adverse impact on the ability of the Group
to continue to grow and may negatively affect the Group's
competitive advantage.
Mitigation:
-- The Board annually seeks external expertise to assess the
competitiveness of the compensation packages of its senior
management, and to ensure that the structure of compensation is
designed to properly incent performance and retention.
-- Senior management continually monitor and assess compensation
levels to ensure the Group remains competitive in the employment
market.
-- While staff turnover has historically been low and the Group
continues to attract highly qualified individuals, management
encourages development and inclusion through coaching and mentoring
programmes.
7. A large proportion of the overall value of the Group's businesses
may be concentrated in a small proportion of the Group's businesses.
If one or more of the intellectual property rights relevant
to a valuable business were terminated, this would have a
material adverse impact on the overall value of the Group's
businesses.
Impact: The termination of critical IP licenses would materially
impact the value of the subsidiary business and have a consequent
effect on the value of the overall Group.
Mitigation:
-- In each subsidiary, the management is specifically directed
to pursue a policy of generating and patenting additional
intellectual property to both provide additional protection and
create direct IP ownership for the subsidiary business.
-- Where possible, the Group seeks to negotiate intellectual
property ownership rights in any research and development agreement
it enters into with a network partner, such that the Group becomes
a part owner of the underlying IP.
-- The Group has a diversified portfolio of subsidiary
businesses. The value of any one of its subsidiaries relative to
the aggregate value of the Group is closely monitored to ensure
that the concentration of risk of any one subsidiary is not
disproportionate.
8. Clinical studies and other trials to assess the commercial
viability of a product are typically expensive, complex and
time-consuming, and have uncertain outcomes. If the Company
fails to complete or experiences delays in completing trials
for any of its product candidates, it may not be able to obtain
regulatory approval or commercialise its product candidates
on a timely basis, or at all.
Impact: Significant delays in any of the clinical studies to
support the appropriate regulatory approvals could significantly
impact the amount of capital required for the subsidiary business
to achieve final regulatory approval, which in turn may impact the
value of such subsidiary. A critical failure in any stage of a
clinical testing programme would probably necessitate a termination
of the project and a loss of the Group's investment.
Mitigation:
-- The Group has dedicated internal resources within each
subsidiary business to establish and monitor each of the clinical
programmes in order to try and maximise successful outcomes.
-- During the evaluation and due diligence phase prior to the
initial investment, focus is placed on an analysis of the risks of
the clinical phase of development.
-- Prior to the launch of any clinical trials it will be normal
for a dedicated management team (and an advisory team to include
key opinion leaders (KOLs)) to be hired, and experience with the
management of clinical programmes would be a prerequisite
qualification.
-- In the event of the outsourcing of these trials, care and
attention is given to assure the quality of the Contract Research
Organization (CRO) vendors used to perform the work.
9. The US Investment Company Act of 1940 regulates companies
which are engaged primarily in the business of investing,
reinvesting, owning, holding or trading in securities. Securities
issued by companies other than consolidated partner companies
are generally considered "investment securities" for purposes
of the Investment Company Act, unless other circumstances
exist which actively involve the company holding such interests
in the management of the underlying company.
Impact: If the Company is deemed to be an "investment company"
subject to regulation under the Investment Company Act, applicable
restrictions could make it impractical for the Group to continue
its business as contemplated and could have a material adverse
effect on its business. If anything were to happen which would
cause the Company to be deemed to be an investment company under
the Investment Company Act, requirements imposed by the Investment
Company Act, including limitations on capital structure, ability to
transact business with subsidiaries and ability to compensate key
employees, could make it impractical for it to continue its
business as currently conducted.
Mitigation:
-- The Company intends to monitor and conduct its operations so
that it will not be deemed to be an investment company under the
Investment Company Act.
-- The Company seeks to build value by forming majority-owned or
primarily controlled subsidiary companies; it is not engaged
primarily in the business of investing, reinvesting, owning,
holding or trading in securities and does not own or propose to
acquire investment securities above prescribed thresholds under the
Investment Company Act.
-- Currently the Company holds more than 50% of the voting
securities of each of its subsidiary companies (other than Spin
Transfer Technologies, where it owns 48.40%), and intends to
continue to try to structure its new businesses in such a way as to
hold majority of the voting securities in its operating
subsidiaries, or otherwise obtain and maintain primary control.
-- In addition to ownership levels, the Company seeks to obtain
and maintain primary control of its subsidiary businesses through a
combination of the following:
-- Rights to elect representatives to the board of directors,
with ability to exercise influence over the subsidiary's
business strategy, operating plans, budgets and key corporate
decisions;
-- Legal rights, such as access to information (books and
records) and financial statements, liquidation preferences,
registrations rights, rights of first refusal, pre-emptive
rights and co-sale rights;
-- Protective provisions, such as rights to block certain
subsidiary actions; and
-- Active involvement in the management of the subsidiary,
such as shared service support, business development introductions,
co-locating, and key management recruiting.
10. The Group expects to remain viable through December 2020 given
its current cash and financial position. However, if the Group
is unable to raise capital, generate sufficient revenue, appropriately
manage expenses, or exit any of its existing Group businesses
prior to the end of such period, then the Group's business,
financial condition, results of operations, prospects and future
viability could be adversely affected.
Impact: Lack of capital could restrict the Group's ability to
further fund, develop and commercialise its existing businesses and
prevent the Group from investing in attractive new opportunities.
In turn, this could ultimately lead to failure of individual
subsidiaries and loss of investment as well as failure of the Group
as a whole.
Mitigation:
-- The Group maintains close relationships with its shareholder
base, strategic partners, and a wide group of investors to ensure
it continuous access to the capital markets.
-- The Group has historically had a strong financial position,
including prior to its initial public offering (IPO), and holds
significant control over the Company's investments and how
subsidiary company working capital requirements are met.
-- The Company strives to maintain majority ownership and/or
control over all of the subsidiary companies, so that it can seek
to influence optimal capital allocation, use of cash, and
fund-raising strategy.
-- The Company has built a valuable portfolio of subsidiary businesses since its inception.
-- The Company continuously and critically reviews the progress
of its subsidiaries against pre-set milestones to ensure its
financial capital and human resource is properly allocated to the
more promising areas of its portfolio to help strengthen and
accelerate the Group's path to monetisation.
Brexit
On 23 June 2016, the UK electorate voted to leave the European
Union in a so-called "Brexit" referendum. The full consequences of
the decision to leave the European Union will not be known for some
time. The uncertainty surrounding the implementation and effect of
Brexit has caused and is likely to continue to cause increased
economic volatility.
It is expected that companies based in the UK and with
significant UK and EU operational focus will be the most directly
impacted by Brexit. All of the Group's subsidiary businesses are
based in the US, and substantially all of the business and
operations of the Group are conducted in the US. However, the Group
has raised significant capital in the UK and may need to raise
additional capital in the UK in the future to support the growth
and development of its subsidiaries. The uncertainty caused by
Brexit may result in the Group being unable to obtain additional
capital on a timely basis on commercially acceptable terms.
In addition, Brexit exposes the Group to increased foreign
currency risk. Foreign exchange risk is an exposure for the Group
as it derives substantially all of its revenue in US dollars and
the Group's businesses borrow, account in, and are valued in, US
dollars, but its shares trade in amounts denominated in pounds
sterling. Any capital raised by the Group in the UK would be
denominated in pounds sterling, but would be allocated to
subsidiary businesses which operate in the US and whose functional
currency is US dollars.
If the Group requires and fails to obtain sufficient capital on
acceptable terms, it may be forced to curtail or abandon its
planned growth activity and to forego further investment in
developing certain of its current businesses, and otherwise be
subject to a material adverse impact on the Group's business and
financial condition.
Corporate and Social Responsibility
Details on the Group's policies, activities and aims with regard
to its corporate and social responsibilities, including diversity,
are included in the Sustainability section and are incorporated
herein by reference.
This Strategic Report of the 2017 Annual Report has been
approved by the Board of Directors.
ON BEHALF OF THE BOARD
Peter Dolan Jill Smith
Chairman Chief Executive Officer
22 March 2018
Consolidated Financial Information
The financial information set out below has been extracted from
the 2017 Annual Report and is an abridged version of the full
financial statements, not all of which are reproduced in this
Annual Results Release.
Directors' Responsibilities Statement
The responsibility statement set out below has been reproduced
from the 2017 Annual Report, which was published in March 2018, and
relates to that document and not this announcement.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group and the parent Company and the undertakings included
in the consolidation taken as a whole; and
-- the Strategic Report of the 2017 Annual Report includes a
fair review of the development and performance of the business and
the position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
We consider the 2017 Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Group's position and performance,
business model and strategy.
ON BEHALF OF THE BOARD
Peter Dolan Jill Smith
Chairman Chief Executive Officer
22 March 2018
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
For the year ended 31 December Note 2017 2016
$'000 $'000
---------- ----------
Revenue 3 5,001 2,664
Operating expenses:
Cost of revenue 4,5 (5,242) (5,563)
Selling, general and administrative
expenses 4,5 (55,214) (55,484)
Research and development expenses 4,5 (49,012) (55,292)
---------- ----------
Operating loss (104,467) (113,675)
Finance income 7 485 2,879
Finance cost 7 (180) (561)
Finance cost from IAS 39 fair value
accounting 7 (6,850) (17,585)
---------- ----------
Finance cost, net (6,545) (15,267)
---------- ----------
Loss before taxation (111,012) (128,942)
Taxation 25 - -
---------- ----------
Loss for the period (111,012) (128,942)
Other comprehensive loss:
Items that may be reclassified subsequently
to profit or loss:
Foreign currency translation differences (103) 208
---------- ----------
Other comprehensive (loss)/income,
net of taxation (103) 208
---------- ----------
Total comprehensive loss for the
period (111,115) (128,734)
---------- ----------
Loss attributable to:
Equity holders of the parent (75,675) (96,333)
Non-controlling interests 17 (35,337) (32,609)
---------- ----------
(111,012) (128,942)
---------- ----------
Total comprehensive loss attributable
to:
Equity holders of the parent (75,778) (96,125)
Non-controlling interests 17 (35,337) (32,609)
---------- ----------
(111,115) (128,734)
---------- ----------
Loss per share $ $
---------- ----------
Basic 8 (0.32) (0.44)
---------- ----------
Diluted 8 (0.32) (0.44)
---------- ----------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2017 2016
As of 31 December Note $'000 $'000
---------- ----------
Non-current assets
Property and equipment 9 26,627 31,882
Intangible assets 10 1,074 2,762
Other investments 12 - 2,668
Other financial assets 22 668 904
Other non-current assets - 16
---------- ----------
Total non-current assets 28,369 38,232
---------- ----------
Current assets
Cash and cash equivalents 13 158,075 209,151
Other investments 12 11,057 14,244
Inventories 14 - 2,551
Trade and other receivables 15 15,642 5,900
Other financial assets 22 18 161
---------- ----------
Total current assets 184,792 232,007
---------- ----------
Total assets 213,161 270,239
---------- ----------
Equity
Share capital 16 3,714 3,657
Share premium 16 158,606 157,067
Merger reserve 16 263,367 263,435
Translation reserve 16 89 192
Accumulated deficit 16 (354,443) (289,437)
---------- ----------
Equity attributable to owners of the
Company 71,333 134,914
Non-controlling interests 16,17 (59,241) (20,797)
---------- ----------
Total equity 12,092 114,117
---------- ----------
Non-current liabilities
Other non-current liabilities 20 867 720
---------- ----------
Total non-current liabilities 867 720
---------- ----------
Current liabilities
Trade and other payables 20 14,276 13,941
Deferred revenue 3 4,296 458
Loans 19 - 115
Subsidiary preferred shares 18 181,630 140,888
---------- ----------
Total current liabilities 200,202 155,402
---------- ----------
Total liabilities 201,069 156,122
---------- ----------
Total equity and liabilities 213,161 270,239
---------- ----------
See accompanying notes to consolidated financial statements.
Registered number: 8998697
The financial statements were approved by the Board of Directors
and authorised for issue on 22 March 2018 and signed on its behalf
by:
Jill Smith
Chief Executive Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Total
Share capital Share Merger Translation Accumulated parent Non-controlling Total
Note Shares Amount premium reserve reserve Deficit equity interests equity
$' 000 $' 000 $' 000 $' 000 $' 000 $' 000 $' 000 $' 000
------------ ------- -------- -------- ------------ ------------ --------- ---------------- ----------
Balance at 31
December
2015 215,637,363 3,429 155,867 185,544 (16) (192,819) 152,005 (10,631) 141,374
Total
comprehensive
loss for the year
Loss from
continuing
operations - - - - - (96,333) (96,333) (32,609) (128,942)
Foreign currency
translation - - - - 208 - 208 - 208
Total
comprehensive
loss for the
year 208 (96,333) (96,125) (32,609) (128,734)
Issuance of
ordinary
shares 16 17,457,015 219 - 77,891 - - 78,110 - 78,110
New funds into
non-controlling
interest 16 - - - - - - - 13,773 13,773
Gain/(loss)
arising
from change in
non-controlling
interest 17 - - - - - (6,229) (6,229) 6,229 -
Exercise of stock
options 6 650,000 9 1,200 - - - 1,209 - 1,209
Equity-settled
share
based payments 6 - - - - - 5,944 5,944 2,441 8,385
------------ ------- -------- -------- ------------ ------------ --------- ---------------- ----------
Balance at 31
December
2016 233,744,378 3,657 157,067 263,435 192 (289,437) 134,914 (20,797) 114,117
Total
comprehensive
loss for the year
Loss from
continuing
operations - - - - - (75,675) (75,675) (35,337) (111,012)
Foreign currency
translation - - - - (103) - (103) - (103)
Total
comprehensive
loss for the
year (103) (75,675) (75,778) (35,377) (111,115)
Issuance of
ordinary
shares 16 3,402,567 43 - (68) - - (25) - (25)
Gain/(loss)
arising
from change in
non-controlling
interest 17 - - - - - (50) (50) 50 -
Dissolution of
subsidiaries 17 4,653 4,653 (4,653) -
Exercise of stock
options 6 1,055,596 14 1,539 - - - 1,553 - 1,553
Equity-settled
share
based payments 6 - - - - - 6,066 6,066 1,496 7,562
------------ ------- -------- -------- ------------ ------------ --------- ---------------- ----------
Balance at 31
December
2017 238,202,541 3,714 158,606 263,367 89 (354,443) 71,333 (59,241) 12,092
============ ======= ======== ======== ============ ============ ========= ================ ==========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017 2016
Note $ '000 $ '000
---------- ----------
Cash flows from operating activities:
Net operating loss (104,467) (113,675)
Adjustments to reconcile net loss
to net cash
used in operating activities:
Depreciation 9 5,800 5,714
Amortisation 10 302 921
Impairment losses on property
and equipment 9 701 340
Impairment losses on intangible
assets 10 1,662 1,025
Share-based compensation expense 5,6 7,562 8,385
Changes in working capital:
Decrease/(increase) in inventory 14 2,551 (1,040)
(Increase)/decrease in trade
and other receivables 15 (9,742) 1,442
Decrease in other assets 394 361
Increase/(decrease) in trade
and other payables 20 335 (327)
Increase/(decrease) in other
non-current liabilities 20 147 (31)
Increase in deferred revenue 3 3,838 63
Interest received 7 475 1,610
Interest paid 7 (174) (527)
Other finance (expense)/income (163) 519
Net cash used in operating activities (90,779) (95,220)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment,
net of disposals 9 (1,246) (3,763)
Purchases of intangible assets,
net of disposals 10 (276) (324)
Disposal of investment in equity
accounted investees 11 _ 2,535
Disposal of other investments 12 5,853 72,281
Net cash provided by investing activities 4,331 70,729
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock
options 16 1,545 1,209
Repayment of notes payable 19 (115) (225)
Proceeds from issuance of share
capital 16 50 78,110
Proceeds from issuance of share
capital in subsidiaries 17 _ 13,773
Proceeds from issuance of preferred
shares in subsidiaries 18 33,892 35,220
Net cash provided by financing activities 35,372 128,087
---------- ----------
Net (decrease)/increase in cash and
cash equivalents (51,076) 103,596
Cash and cash equivalents at beginning
of the period 209,151 105,555
Cash and cash equivalents at end
of the period 158,075 209,151
========== ==========
See accompanying notes to consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
(1) Accounting Policies
Basis of Preparation
Allied Minds plc ("Allied Minds" or the "Company") is a company
incorporated and domiciled in the UK. The Annual Report and
Accounts of Allied Minds and its subsidiaries (together referred to
as the "Group") are presented for the year ended 31 December 2017.
The group financial statements consolidate those of the Company and
its subsidiaries and include the Group's interest in associates
using the equity method of accounting. The Group financial
statements have been prepared and approved by the directors in
accordance with the International Financial Reporting Standards,
International Accounting Standards, and Interpretations
(collectively "IFRS") issued by the International Accounting
Standards Board ("IASB") as adopted by the European Union ("adopted
IFRSs"). The accounting policies set out below have, unless
otherwise stated, been applied consistently to all periods
presented in these consolidated financial statements.
Basis of Measurement
The consolidated financial statements, with exception of
financial instruments, have been prepared on the historical cost
basis.
Use of Judgments and Estimates
In preparing these consolidated financial statements, management
has made judgments, estimates and assumptions that affect the
application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying
assumptions are reviewed on an on-going basis. Revisions to
estimates are recognised prospectively. The effects on the amounts
recognised in the consolidated financial statements, or on other
alternative performance measures, is included in the following
notes:
-- Note 4 - revenue recognition: when determining the correct
amount of revenue to be recognised. This includes making certain
estimates and judgements when determining the appropriate
accounting treatment of key customer contract terms in accordance
with the applicable accounting standards. In particular, judgement
is required to determine the timing of revenue recognition (on
delivery or over a period of time). The Directors also make
estimates of the fair values of each component of a contract to be
able to allocate the overall consideration to each component.
-- Note 11 and 18 - portfolio and subsidiary preferred shares
valuations: when determining the appropriate valuation methodology
and deriving the estimated fair value of subsidiary undertakings
and subsidiary preferred shares. This includes making certain
estimates of the future earnings potential of the subsidiary
businesses, appropriate discount rate and earnings multiple to be
applied, marketability and other industry and company specific risk
factors.
-- Note 18 - subsidiary preferred shares liability
classification: when determining the classification of financial
instruments in terms of liability or equity. These judgements
include an assessment whether the financial instrument include any
embedded derivative features, whether they include a contractual
obligations upon the Group to deliver cash or other financial
assets or to exchange financial assets or financial liabilities
with another party, and whether that obligation will be settled by
the Company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments. Further
information about these critical judgments and estimates is
included below under Financial Instruments.
Changes in Accounting Policies
No other new standards, interpretations and amendments effective
for the first time from 1 January 2017 have had a material effect
on the Group's financial statements.
Going Concern
The Directors have prepared trading and cash flow forecasts for
the Group covering the period to 31 December 2020. Despite the fact
that the Group is currently loss making and is likely to continue
to be so, at least in the short term, after making enquiries and
considering the impact of risks and opportunities on expected cash
flows, and given the fact that the Group has $169.1 million of
available funds in the form of cash and fixed income securities as
at 31 December 2017, the Directors have a reasonable expectation
that the Group has adequate cash to continue in operational
existence for the period to 31 December 2020. For this reason, they
have adopted the going concern basis in preparing the financial
statements.
Basis of Consolidation
Allied Minds plc was formed on 15 April 2014 and the
consolidated financial statements for each of the years ended 31
December 2017 and 2016 comprises the financial statements of Allied
Minds plc and its subsidiaries.
Subsidiaries
The financial information of the subsidiaries is prepared for
the same reporting period as the parent Company, using consistent
accounting policies. Subsidiaries are entities controlled by the
Group. The Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. The financial statements of subsidiaries are included
in the consolidated financial statements from the date that control
commences until the date that control ceases. Losses applicable to
the non-controlling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the
non-controlling interests to have a deficit balance.
Changes in the Group's interest in a subsidiary that do not
result in a loss of control are accounted for as equity
transactions. Where the Group loses control of a subsidiary, the
assets and liabilities are derecognised along with any related NCI
and other components of equity. Any resulting gain or loss is
recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost.
Associates
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the Group
holds between 20 and 50 percent of the voting power of another
entity.
Associates are accounted for using the equity method (equity
accounted investees) and are initially recognised at cost. The
Group's investment includes goodwill identified on acquisition, net
of any accumulated impairment losses. The consolidated financial
statements include the Group's share of the total comprehensive
income and equity movements of equity accounted investees, from the
date that significant influence commences until the date that
significant influence ceases. When the Group's share of losses
exceeds its interest in an equity accounted investee, the Group's
carrying amount is reduced to nil and recognition of further losses
is discontinued except to the extent that the Group has incurred
legal or constructive obligations or made payments on behalf of an
investee.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra- group transactions, are
eliminated. Unrealised gains arising from transactions with
equity-accounted investees are eliminated against the investment to
the extent of the Group's interest in the investee. Unrealised
losses are eliminated in the same way as unrealised gains, but only
to the extent that there is no evidence of impairment.
Acquisitions and disposals of non-controlling interests
Non-controlling interests ("NCI") are measured at their
proportionate share of the acquiree's identifiable net assets at
the acquisition date. Changes in the Group's interest in a
subsidiary that do not result in a loss of control are accounted
for as equity transactions.
Acquisitions and disposals of non-controlling interests that do
not result in a change of control are accounted for as transactions
with owners in their capacity as owners and therefore no goodwill
is recognised as a result of such transactions. The adjustments to
non-controlling interests are based on a proportionate amount of
the net assets of the subsidiary. Any difference between the price
paid or received and the amount by which non-controlling interests
are adjusted is recognised directly in equity and attributed to the
owners of the parent.
Functional and Presentation Currency
These consolidated financial statements are presented in US
dollars, which is the functional currency of most of the entities
in the Group. All amounts have been rounded to the nearest thousand
unless otherwise indicated.
Foreign Currency
Transactions in foreign currencies are translated to the
respective functional currencies of Group entities at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are retranslated to the functional currency at
the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the
consolidated statement of comprehensive loss. Non-monetary assets
and liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are
retranslated to the functional currency at foreign exchange rates
ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated to the Group's presentational currency (US dollar) at
foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of foreign operations are translated at an
average rate for the year where this rate approximates to the
foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign
operations are reported as an item of other comprehensive income
and accumulated in the translation reserve or non- controlling
interest, as the case may be. When a foreign operation is disposed
of, such that control, joint control or significant influence (as
the case may be) is lost, the entire accumulated amount in the
Translation reserve, net of amounts previously attributed to
non-controlling interests, is reclassified to profit or loss as
part of the gain or loss on disposal. When the Group disposes of
only part of its interest in a subsidiary that includes a foreign
operation while still retaining control, the relevant proportion of
the accumulated amount is reattributed to non-controlling
interests. When the Group disposes of only part of its investment
in a subsidiary or an associate that includes a foreign operation
while still retaining significant influence or joint control, the
relevant proportion of the cumulative amount is reclassified to
profit or loss.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments
with original maturities of three months or less.
Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost of inventories is based on the specific
identification or weighted-average method. The cost of inventories
includes expenditure incurred in acquiring the inventories,
production or conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case of
manufactured inventories and work in progress, cost includes an
appropriate share of production overheads based on normal operating
capacity.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion
and selling expenses.
Financial Instruments
Financial Assets
The Group initially recognises loans and receivables and
deposits on the date that they are originated. All other financial
assets are recognised initially on the trade date at which the
Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards
of ownership of the financial asset are transferred.
Financial assets and liabilities are offset and the net amount
presented in the Consolidated Statement of Financial Position when,
and only when, the Group has a legal right to offset the amounts
and intends either to settle on a net basis or to realise the asset
and settle the liability simultaneously.
The Group classifies its financial assets into the following
categories: cash and cash equivalents, trade and other receivables,
security and other deposits, other investments. Fixed income
securities are recognised at fair value through profit and loss.
The remaining categories are recognised at amortised cost using the
effective interest rate method.
Other investments comprise fixed income debt securities,
including government agency and corporate bonds, are stated at
amortised cost less impairment. It is the Group policy to hold
these investments until a maximum maturity of three years.
Financial Liabilities
The Group initially recognises debt securities issued and
subordinated liabilities on the date that they are originated. All
other financial liabilities are recognised initially on the trade
date at which the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into
the following categories: trade and other payables and loans. Such
financial liabilities are recognised at fair value through profit
and loss plus any directly attributable transaction costs.
Subsequent to initial recognition these financial liabilities are
measured at amortised cost using the effective interest method.
Warrants are accounted for as financial liabilities and recorded
at fair value.
The Group's financial liabilities include subsidiary preferred
shares some of which incorporate embedded derivatives. In
accordance with IAS 39.11 the Group has elected not to bifurcate
the embedded derivative but fair value the entire instrument at
each reporting date. The gain or loss on remeasurement to fair
value is recognised immediately in profit or loss.
Financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued
by the Group are treated as equity only to the extent that they
meet the following two conditions:
-- they include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
-- where the instrument will or may be settled in the Company's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial
instrument is classified as a financial liability. Where the
instrument so classified takes the legal form of the Company's own
shares, the amounts presented in the financial information for
share capital and merger reserve account exclude amounts in
relation to those shares.
Where a financial instrument that contains both equity and
financial liability components exists, these components are
separated and accounted for individually under the above
policy.
Share Capital
Ordinary shares are classified as equity. The Group considers
its capital to comprise share capital, share premium, merger
reserve, translation reserve, and accumulated deficit.
Property and Equipment
Property and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the
asset. Assets under construction represent machinery and equipment
to be used in operations, R&D activities, or to be leased to
customers once completed.
When parts of an item of property and equipment have different
useful lives, they are accounted for as separate items (major
components) of property and equipment. Depreciation is calculated
using the straight-line method over the estimated useful lives of
the related assets:
Computers and electronics 3 years
Furniture and fixtures 5 years
Machinery and equipment 5 -20 years
Under construction Not depreciated until transferred
into use
Leasehold improvements Shorter of the lease term or
estimated useful life of the
asset
Depreciation methods, useful lives and residual values are
reviewed at least annually and adjusted if appropriate.
Intangible Assets
Licenses (or Options to License) and Purchased In Process
Research & Development
Licenses or options to license represent licenses or such
options provided by universities, federal laboratories, and
scientists in exchange for an equity ownership in the entities or
cash. Purchased in process research & development ("IPR&D")
represents time and expertise already invested by the scientist and
provided in exchange for an equity interest in the entity. Licenses
or options to license and purchased IPR&D are valued based on
the amount of cash directly paid to acquire those assets or based
on the amount of cash contributed by Allied Minds, at inception of
the subsidiary, and the proportionate amount of equity ascribed to
Allied Minds. The licenses or options to license and purchased
IPR&D are capitalised only when they meet the criteria for
capitalisation, namely separately identifiable and measurable and
it is probable that economic benefit will flow to the entity.
Capitalised Development Costs
Research and development costs include charges from universities
based on sponsored research agreements ("SRAs") that the
subsidiaries of Allied Minds enter into with universities. Under
these agreements, the universities perform research on the
technology that is being licensed to the subsidiaries. Research and
development costs also include charges from independent research
and development contractors, contract research organisations
("CROs"), and other research institutions.
Expenditure on research activities is recognised in profit or
loss as incurred. Development expenditure is capitalised only if
the expenditure can be measured reliably, the product or process is
technically and commercially feasible, future economic benefits are
probable, the Group intends to and has sufficient resources to
complete development and to use or sell the asset, and if the Group
can measure reliably the expenditure attributable to the intangible
asset during its development. The point at which technical
feasibility is determined to have been reached is when regulatory
approval has been received, where applicable. Management determines
that commercial viability has been reached when a clear market and
pricing point have been identified, which may coincide with
achieving recurring sales. Development activities involve a plan or
design for the production of new or substantially improved products
or processes. The expenditure considered for capitalisation
includes the cost of materials, direct labour and an appropriate
proportion of overhead costs. Otherwise, the development
expenditure is recognised in profit or loss as incurred. Subsequent
to initial recognition, development expenditure is measured at cost
less accumulated amortisation and any accumulated impairment
losses.
Software
Software intangible assets that are acquired by the Group and
have finite useful lives are measured at cost less accumulated
amortisation and any accumulated impairment losses.
Finite-lived intangible assets are amortised on a straight-line
basis over their estimated useful lives, from the date that they
are available for use. Intangible assets which are not yet
available for use (and therefore not amortised) are tested for
impairment at least annually.
Amortisation
Amortisation is charged to the consolidated statement of
comprehensive loss on a straight-line basis over the estimated
useful lives of intangible assets unless such lives are indefinite.
Intangible assets with an indefinite useful life and goodwill are
systematically tested for impairment at each balance sheet date.
Other intangible assets are amortised from the date they are
available for use. Amortisation methods, useful lives and residual
values are reviewed at least annually and adjusted if
appropriate.
The estimated useful lives of the Group's intangible assets are
as follows:
Licences and Options Over the remaining life of the underlying
to License patents
Purchased IPR&D Over the remaining life of the underlying
patents, once commercial viability has
been achieved
Development cost Over the remaining life of the underlying
technology
Software 2 years
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
Current Income Tax
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred Income Tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax assets are recognised for unused tax losses,
unused tax credits and deductible temporary differences to the
extent that it is probable that future taxable profits will be
available against which they can be used. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be
realised.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and
assets, and they relate to taxes levied by the same tax authority
on the same taxable entity, or on different tax entities where the
Group intends to settle current tax liabilities and assets on a net
basis or their tax assets and liabilities will be realised
simultaneously.
Deferred taxes are recognised in profit or loss except to the
extent that it relates to items recognised directly in equity or in
other comprehensive income.
Impairment
Impairment of Non-Financial Assets
Non-financial assets consist of property and equipment and
intangible assets, including licences, purchased IPR&D,
capitalised development cost, with finite lives and such intangible
assets which are not yet available for use.
The Group reviews the carrying amounts of its property and
equipment and finite-lived intangibles at each reporting date to
determine whether there is any indication of impairment. If any
such indication exists, then the asset's recoverable amount is
estimated. Intangible assets which are not yet available for use
are tested annually for impairment.
For impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of
other assets or cash-generating units ("CGUs").
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. Value in use is
based on the estimated future cash flows, discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset or CGU.
An impairment loss is recognised in profit and loss if the
carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are allocated to reduce the carrying amounts of
assets in a CGU on a pro rata basis.
Impairment of Financial Assets
Financial assets not classified as at fair value through profit
or loss are assessed at each reporting date to determine whether
there is objective evidence of impairment.
Objective evidence that financial assets are impaired
includes:
-- default or delinquency by a debtor;
-- restructuring of an amount due to the Group on terms that the
Group would not consider otherwise;
-- indications that a debtor or issuer will enter
bankruptcy;
-- adverse changes in the payment status of borrowers or
issuers;
-- the disappearance of an active market for a security; or
-- observable data indicating that there is measurable decrease
in expected cash flows from a group of financial assets.
Financial Assets Measured at Amortised Cost
The Group considers evidence of impairment for these assets at
both an individual asset and a collective level. All individually
significant assets are individually assessed for impairment. Those
found not to be impaired are then collectively assessed for any
impairment that has been incurred but not yet individually
identified. Assets that are not individually significant are
collectively assessed for impairment. Collective assessment is
carried out by grouping together assets with similar risk
characteristics.
In assessing collective impairment, the Group uses historical
information on the timing of recoveries and the amount of loss
incurred, and makes an adjustment if current economic and credit
conditions are such that the actual losses are likely to be greater
or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an
asset's carrying amount and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognised in profit or loss and
reflected in an allowance account. When the Group considers that
there are no realistic prospects of recovery of the asset, the
relevant amounts are written off. If the amount of impairment loss
subsequently decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised, then the
previously recognised impairment loss is reversed through profit or
loss.
Share-based Payments
Share-based payment arrangements in which the Group or its
subsidiaries receive goods or services as consideration for their
own equity instruments are accounted for as equity-settled
share-based payment transactions, regardless of how the equity
instruments are obtained by the Group or its subsidiaries. Grants
of equity instruments under the subsidiary stock option incentive
plans are accounted for as equity-settled in the consolidated
accounts of the parent and are reflected in equity as a credit to
Non-Controlling Interest.
The grant date fair value of share-based payment awards granted
to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using an option pricing
valuation model, taking into account the terms and conditions upon
which the options were granted. The amount recognised as an expense
is adjusted to reflect the actual number of awards for which the
related service and non-market vesting conditions are expected to
be met, such that the amount ultimately recognised as an expense is
based on the number of awards that do meet the related service and
non-market performance conditions at the vesting date. For
share-based payment awards with non-vesting conditions, the grant
date fair value of the share-based payment is measured to reflect
such conditions and there is no true-up for differences between
expected and actual outcomes.
Employee Benefits
Short-term Employee Benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognised for the amount expected to be
paid if the Group has a present legal or constructive obligation to
pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan
under which an entity pays fixed contributions into a separate
entity and has no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution
plans are recognised as an employee benefit expense in the periods
during which related services are rendered by employees. Prepaid
contributions are recognised as an asset to the extent that a cash
refund or a reduction in future payments is available.
Phantom Plan
The Phantom Plan is a cash settled bonus plan. Expense is
accrued when it is determined that it is probable that a payment
will be made and when the amount can be reasonably estimated.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, that can be reliably measured and it is probable that
an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects risks specific to
the liability.
Revenue Recognition
Sale of Goods
Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the customer, recovery of the
consideration is probable, the associated costs and possible return
of goods can be estimated reliably, there is no continuing
management involvement with the goods and the amount of revenue can
be measured reliably.
The transfer of significant risks and rewards of ownership
usually occurs when products are shipped and the customer takes
ownership and assumes risk of loss.
Rendering of Services
The Group recognises revenue from rendering of services at the
time services are provided to the customer and the Group has no
additional performance obligation to the customer.
Government Grants
Grants received are recognised as revenue when the related work
is performed and the qualifying research and development costs are
incurred.
License Revenue
The Group recognises revenue from fees associated with licensing
of its technologies to third parties in the form of license fees
and royalties on an accruals basis in accordance with the substance
of the relevant agreement and when the Company's right to receive
payment is established, provided that it is probable that the
economic benefits will flow to the Company and the amount of
revenue can be measured reliably.
Finance Income and Finance Costs
Finance income mainly comprises interest income on funds
invested and foreign exchange gains. Finance costs mainly comprise
loan interest expense and foreign exchange losses. Interest income
and interest payable are recognised as they accrue in profit or
loss, using the effective interest method.
Fair Value Measurements
A number of the Group's accounting policies and disclosures
require the measurement of fair values, for both financial and
non-financial assets and liabilities.
When measuring the fair value of an asset or a liability, the
Group uses market observable data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability might be categorised in different levels of the fair
value hierarchy, then the fair value measurement is categorised in
its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire
measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
The carrying amount of cash and cash equivalents, accounts
receivable, deposits, accounts payable, accrued expenses and other
current liabilities in the Group's Consolidated Statements of
Financial Position approximates their fair value because of the
short maturities of these instruments.
Operating Leases
Payments made under operating leases are recognised in profit or
loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total
lease expense, over the term of the lease.
Operating Segments
Allied Minds determines and presents operating segments based on
the information that internally is provided to the executive
management team, the body which is considered to be Allied Minds'
Chief Operating Decision Maker ("CODM").
An operating segment is a component of Allied Minds that engages
in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Allied Minds' other components. The
operating segment's operating results are reviewed regularly by the
CODM to make decisions about resources to be allocated to the
segment, to assess its performance, and for which discrete
financial information is available.
(2) New Standards and Interpretations not yet Adopted
A number of new standards, interpretations and amendments to
existing standards are effective for annual periods beginning after
1 January 2018, and have not therefore been applied in preparing
this consolidated financial information. Management has yet to
complete an analysis of these new standards, interpretations and
amendments to existing standards on the results of its operations,
financial position, and disclosures. The Group intends to adopt
these standards on their respective effective dates.
The following are amended or new standards and interpretations
that may impact the Group. The Group is finalising the required
disclosures, which includes an assessment of the impact of the new
guidance on our financial position and results of operations. The
adoption of the proposed changes is not expected to have a material
effect on the financial statements unless otherwise indicated:
IFRS 9, 'Financial instruments' (effective 1 January 2018)
IFRS 9, 'Financial instruments', deals with recognition,
measurement, classification and impairment and derecognition of
financial assets, financial liabilities and some contracts to buy
or sell non-financial items. This standard replaces IAS 39
'Financial Instruments: Recognition and Measurement and is required
to be adopted from 1 January 2018. The Group has performed a
preliminary assessment of the potential impact of adoption of IFRS
9 based on its positions at 31 December 2017 under IAS 39 and it
does not expect the adoption of this guidance to have a material
effect on its financial statements.
Classification - Financial assets
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. IFRS 9
contains three principal classification categories for financial
assets: measured at amortised cost, fair value through other
comprehensive income ("FVOCI") and fair value through profit or
loss ("FVTPL"). The standard eliminates the existing IAS 39
categories of held to maturity, loans and receivables, and
available for sale. Under IFRS 9, derivatives embedded in contracts
where the host is a financial asset in the scope of the standard
are never bifurcated. Instead, the hybrid as a whole is assessed
for classification.
Cash and cash equivalents: Represent basic cash balances in
banks used to fund operations. These will be classified as assets
at Amortised cost under the new standard;
Trade Receivables: Under IFRS 9 trade receivables that do not
have a significant financing component have to be initially
recognised at their transaction price rather than at FV. The Group
initially recognises receivables and deposits on the date that they
are originated at their transaction price, which is the same as
their fair value. As such, Trade and other receivables will be
classified as assets at Amortised cost under IFRS 9.
Security and other deposits: These generally represent security
deposits paid by the Group to landlords as part of operating lease
commitments. As the Company's objective is that those deposits will
be collected back, they will be classified as assets at Amortised
Cost under IFRS 9.
Fixed income securities: At 31 December 2017, the Group had
investments in the form of fixed income securities classified as
assets designated as FVTPL with a fair value of $11.1 million that
are held for supporting the short-term liquidity needs of the
Group. The changes in fair value year over year have been
historically immaterial as these investments are in cash equivalent
and short term position. Per the new guidance, the amounts
presented in OCI are never reclassified to profit or loss even if
such a gain or loss is realized by settling or repurchasing the
financial instrument at fair value. However, the Company has the
option to transfer the cumulative gain and loss within equity.
Under IFRS 9, these investments will be designated as measured at
FVOCI. Consequently, all fair value gains and losses will be
reported in OCI and no impairment losses will be recognised in
profit or loss. The Group's preliminary assessment does not
indicate any material impact from IFRS 9 on the Group's financial
position as of 31 December 2017 or the total comprehensive loss for
the year then ended.
Investments in subsidiaries: Currently, all group subsidiaries
are fully consolidated in the consolidated financial statements.
The value of those investments is disclosed as an alternative
performance measure, which was determined at $395.6 million as of
22 March 2018. In future, the Company's position in those
investments may be reduced to a point where the Company no longer
exercises control over these entities and they are deconsolidated
from the group accounts and presented separately as investments in
equity securities on the consolidated statement of financial
position. If these investments continue to then be held for the
same long-term strategic purposes, per the application of IFRS 9,
the Group may elect then to classify them as FVOCI or FVTPL. The
Group has not yet made a decision in this regard. In the former
case, all fair value gains and losses would be reported in other
comprehensive income, no impairment losses would be recognised in
profit or loss and no gains or losses would be reclassified to
profit or loss on disposal. In the latter case, all fair value
gains and losses would be recognised in profit or loss as they
arise, increasing volatility in the Group's profits.
Impairment - Financial assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a
'forward looking expected credit loss' ("ECL") model. This will
require considerable judgement about how changes in economic
factors affect ECLs, which will be determined on a
probability-weighted basis.
The new impairment model will apply to debt instruments
accounted for at amortised cost or at FVOCI, most loan commitments,
financial guarantee contracts, contract assets under IFRS 15
Revenue from Contracts with Customers and lease receivables under
IAS 17 Leases or IFRS 16 Leases.
Under IFRS 9, loss allowances will be measured on either
12-month ECL on initial recognition and thereafter as long as there
is no significant deterioration in credit risk; or lifetime ECL if
there has been a significant increase in credit risk on an
individual or collective basis. For trade receivables, a simplified
approach may be applied whereby the lifetime ECL are always
recognised. Based on the assessments undertaken to date, the group
expects no additional impairment provision recognised as at 1
January 2018.
Classification - Financial liabilities
Under IAS 39 all fair value changes of liabilities designated as
at fair value through profit or loss are recognised in profit or
loss, whereas under IFRS 9 these fair value changes are generally
presented as follows:
- the amount of change in the fair value that is attributable to
changes in the credit risk of the liability is presented in OCI;
and
- the remaining amount of change in the fair value is presented in profit or loss.
The Group has designated the subsidiary preferred shares
liability at FVTPL and the trade and other payables and loans at
Amortised Cost under IFRS 9. The Group's preliminary assessment did
not indicate any material impact if IFRS 9's requirements regarding
the classification of financial liabilities were applied at 31
December 2017.
IFRS 15, 'Revenue from contracts with customers' (effective 1
January 2018)
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaces
existing revenue recognition guidance, including IAS 18 Revenue,
IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty
Programs.
The standard outlines a comprehensive five-step revenue
recognition model based on the principal that an entity should
recognise revenue at an amount that reflects the consideration to
which the entity expects to be entitled in exchange for
transferring goods or services to a customer. The standard permits
either a full retrospective or a modified retrospective approach
for the adoption. The Group has completed an initial assessment of
the potential impact on its consolidated financial statements and
determined that this standard will not have a material impact on
our financial position and results of operations. As of 1 January
2018, the Group's implementation plan to adopt this new guidance is
substantially complete. The Company intends to adopt this standard
using a modified retrospective approach.
The majority of the Company's subsidiaries are characterised by
some early stage sales that are generally still considered an
isolated number of sales. In 2017, the company has recognised $5.0
million in revenue. Out of the total revenue recognised in current
year, 89% has been recorded by Federated Wireless, Inc.,
Hawkeye(360) , Inc. and RF Biocidics, Inc. Management's evaluation
and adoption impact of IFRS 15 was performed based on the 5-step
model and each signed revenue contract was considered unique and
reviewed separately. For sale of products, revenue is currently
recognised when the goods are delivered to the customers' premises,
which is taken to be the point in time at which the customer
accepts the goods and the related risks and rewards of ownership
transfer. While IAS 18 states that the revenue recognition criteria
depends on each type of revenue, IFRS 15 implements a uniform
method of recognising revenue based on the actual contract and
performance obligation. The new standard is based on the principle
that revenue is recognised when control of a good or service
transfers to a customer. Based on the Group's assessment, the fair
value and the stand-alone selling prices of the good rendered and
services provided are broadly similar. Therefore, the Group does
not expect the application of IFRS 15 to result in significant
differences in the timing of revenue recognition for these good and
services.
IFRS 16, 'Leases' (effective 1 January 2019)
IFRS 16 replaces existing leases guidance, including IAS 17
Leases, IFRIC 4 Determining whether an Arrangement contains a
lease, SIC -15 Operating Leases -Incentives and SIC-27 Evaluating
the substance of transactions involving the legal form of a lease.
IFRS 16 introduces a single, on-balance sheet lease accounting
model for lessees in a similar way to finance leases under IAS 17.
A lessee recognises a right-of-use asset representing its right to
use the underlying asset and a lease liability representing its
obligation to make lease payments. There are recognition exemptions
for short-term leases and leases of low-value items. Lessor
accounting remains similar to the current standard-i.e: lessors
continue to classify leases as finance or operating leases.
The Group has completed an initial assessment of the potential
impact on its consolidated financial statements but has not yet
completed its detailed assessment. So far, the most significant
impact identified is that the Group will recognise new assets and
liabilities for its operating leases of its rented office and
laboratory space. As at 31 December 2017, the Group's future
minimum lease payments under non-cancellable operating leases
amounted to $8.0 million, on an undiscounted basis (see note 21).
The Group plans to apply IFRS 16 initially on 1 January 2019, using
the modified retrospective approach. Therefore, the cumulative
effect of adopting IFRS 16 will be recognised as an adjustment to
the opening balance of retained earnings at 1 January 2019, with no
restatement of comparative information.
Other new standards and interpretations yet to be adopted, for
which the Company does not expect to have a material impact on its
financial statements include:
Amendments to IFRS 2, 'Share-based Payment' to clarify
classification and measurement (effective 1 January 2018)
IFRIC Interpretation 22, Foreign Currency Transactions and
Advance Consideration (effective 1 January 2018)
(3) Revenue
Revenue recorded in the statement of comprehensive loss consists
of the following:
For the year ended 31 December: 2017 2016
$'000 $'000
------ ------
Product revenue 1,537 1,829
Service revenue 3,464 835
Total revenue in consolidated statement
of loss 5,001 2,664
====== ======
Product revenue includes license revenue of $22,000 and $55,000
during 2017 and 2016, respectively.
Deferred revenue recorded in the statement of financial position
consists of the following:
As of 31 December: 2017 2016
$'000 $'000
------ ------
Customer deposits 3,750 297
Other deferred revenue, current 546 161
------ ------
Total deferred revenue in statement of
financial position 4,296 458
====== ======
(4) Operating Segments
Basis for Segmentation
For management purposes, the Group's principal operations are
currently organised in two types of activities:
(i) Early stage companies - subsidiary businesses that are in
the early stage of their lifecycle characterised by incubation,
research and development activities; and
(ii) Later stage companies - subsidiary businesses that have substantially
advanced with or completed their research and development
activities, are closer in their lifecycle to commercialisation,
and/or have a potential of realising material return on investment
through a future liquidity event.
The Group no longer recognises commercial stage companies as a
separate reportable segment. Instead, a Later stage companies
reportable segment is established in the current year, as defined
above.
The Group's CODM reviews internal management reports on these
segments at least quarterly in order to make decisions about
resources to be allocated to the segment and to assess its
performance.
Other operations include the management function of the head
office at the parent level of Allied Minds.
Information about Reportable Segments
The following provides detailed information of the Group's
reportable segments as of and for the years ended 31 December 2017
and 2016, respectively:
2017
$'000
------------------------------------------------------
Early stage Later stage Other Consolidated
operations
------------ ------------ ----------- -------------
Statement of Comprehensive
Loss
Revenue 1,607 3,394 _ 5,001
Cost of revenue (3,861) (1,381) _ (5,242)
Selling, general and
administrative expenses (9,544) (23,205) (22,465) (55,214)
Research and development
expenses (6,424) (42,588) _ (49,012)
Finance income/(cost),
net (11) (6,954) 420 (6,545)
Loss for the period (18,233) (70,734) (22,045) (111,012)
Other comprehensive
income 79 _ (182) (103)
Total comprehensive
loss (18,154) (70,734) (22,227) (111,115)
============ ============ =========== =============
Total comprehensive
loss attributable to:
Equity holders of
the parent (13,794) (39,757) (22,227) (75,778)
Non-controlling interests (4,360) (30,977) _ (35,337)
Total comprehensive
loss (18,154) (70,734) (22,227) (111,115)
============ ============ =========== =============
Statement of financial
position
Non-current assets 452 26,834 1,083 28,369
Current assets 22,297 77,849 84,646 184,792
------------ ------------ ----------- -------------
Total assets 22,749 104,683 85,729 213,161
Non-current liabilities (3) (109) (755) (867)
Current liabilities (2,237) (193,523) (4,442) (200,202)
Total liabilities (2,240) (193,632) (5,197) (201,069)
------------ ------------ ----------- -------------
Net assets/(liabilities) 20,509 (88,949) 80,532 12,092
============ ============ =========== =============
2016
$'000
------------------------------------------------------
Early stage Later stage Other Consolidated
operations
------------ ------------ ----------- -------------
Statement of Comprehensive
Loss
Revenue 2,376 288 _ 2,664
Cost of revenue (5,436) (127) _ (5,563)
Selling, general and
administrative expenses (17,362) (18,498) (19,624) (55,484)
Research and development
expenses (15,802) (39,490) _ (55,292)
Finance income/(cost),
net (27) (17,472) 2,232 (15,267)
Loss for the period (36,251) (75,299) (17,392) (128,942)
Other comprehensive
income/(loss) (74) _ 282 208
Total comprehensive
loss (36,325) (75,299) (17,110) (128,734)
============ ============ =========== =============
Total comprehensive
loss attributable to:
Equity holders of
the parent (28,161) (50,854) (17,110) (96,125)
Non-controlling interests (8,164) (24,445) _ (32,609)
Total comprehensive
loss (36,325) (75,299) (17,110) (128,734)
============ ============ =========== =============
Statement of financial
position
Non-current assets 3,629 30,778 3,825 38,232
Current assets 27,644 70,042 134,321 232,007
------------ ------------ ----------- -------------
Total assets 31,273 100,820 138,146 270,239
Non-current liabilities (131) (91) (498) (720)
Current liabilities (3,511) (148,813) (3,078) (155,402)
Total liabilities (3,642) (148,904) (3,576) (156,122)
------------ ------------ ----------- -------------
Net assets/(liabilities) 27,631 (48,084) 134,570 114,117
============ ============ =========== =============
All discontinued subsidiaries, including those disclosed in the
prior year Commercial stage segment, are presented in the Early
stage segment at the current year end. Later stage companies in the
current year comprise those that have graduated from Early stage by
way of further advancements in their development as described
above. Those currently include our top six subsidiaries, namely
BridgeSat, Federated Wireless, HawkEye(360) , Precision Biopsy,
SciFluor Life Sciences, and Spin Transfer Technologies. This change
has been reflected accordingly in the comparative year information
about reportable segments.
In 2017, Cost of revenue and Selling, general and administrative
expenses of Early stage, Later stage, and Other operations segments
included depreciation and amortisation expense of $308,000,
$5,558,000, and $236,000, respectively (2016: $1,180,000,
$5,302,000 and $153,000, respectively).
The proportion of net assets shown above that is attributable to
non-controlling interest is disclosed further in notes 11 and
17.
Geographic Information
Whilst the Group includes RF Biocidics (UK) Limited, which is a
UK company, the revenues and net operating losses of that
subsidiary are not considered material to the Group, and therefore
the Group revenues and net operating losses for the years ended 31
December 2017 and 2016 are considered to be entirely derived from
its operations within the United States and accordingly no
additional geographical discloses are provided.
(5) Operating Expenses
The average number of persons employed by the Group (including
Directors) during the year, analysed by category, was as
follows:
2017 2016
For the year ending 31 December: $'000 $'000
------- -------
Selling, general and administrative 80 88
Research and development 125 121
Total 205 209
======= =======
The aggregate payroll costs of these persons were as
follows:
For the year ending 31 December: 2017 2016
$'000 $'000
------- -------
Selling, general and administrative 28,714 28,913
Research and development 21,596 21,644
Total 50,310 50,557
======= =======
Total operating expenses were as follows:
For the year ending 31 December: 2017 2016
$'000 $'000
-------- --------
Salaries and wages 36,864 36,050
Payroll taxes 2,026 2,110
Healthcare benefit 2,589 2,837
Other payroll cost 1,269 1,175
Share-based payments 7,562 8,385
Total 50,310 50,557
-------- --------
Cost of revenue 5,242 5,563
Other SG&A expenses 26,500 26,571
Other R&D expenses 27,416 33,648
Total operating expenses 109,468 116,339
======== ========
2017 2016
$'000 $'000
-------- --------
Auditor's remuneration
Audit of these financial statements 552 425
Audit of the financial statements
of subsidiaries 20 20
Review of half-yearly report 129 106
701 551
======== ========
The cumulative amount of litigation settlements during 2017 was
nil (2016: $1,750,000). In the prior year, this related to the
settlement of a manufacturing commitment, which RF Biocidics held
with a third party. The issue arose and was settled during
2016.
As a result of the restructuring plan from April 2017, the
Company recognised a net restructuring charge for the period of
$7.3 million, of which $4.7 million related to non-cash charges for
impairment of tangible and intangible assets and inventory
write-offs and is net of $1.1 million in net proceeds from the sale
of assets.
The Group recorded an impairment charge on property and
equipment of $0.6 million (2016: nil) and on intangible assets of
$1.6 million (2016: nil) and wrote off certain tangible and
intangible assets at the companies included in the plan.
Inventory write-offs as a result of the restructuring plan
accounted for $2.5 million of the cost of sales for the period.
See note 6 for further disclosures related to share-based
payments and note 24 for management's remuneration disclosures.
(6) Share-Based Payments
UK Long Term Incentive Plan
Under the UK Long Term Incentive Plan ("LTIP"), awards over
Ordinary Shares may be made to employees, officers and Directors,
and other individuals providing services to the Company and its
subsidiaries. Awards may be granted in the form of share options,
share appreciation rights, restricted or unrestricted share awards,
performance share awards, restricted share units, phantom-share
awards and other share-based awards. Vesting is subject to the
achievement of certain performance conditions and continued
services of the participant.
Awards have been granted under the LTIP based on the following
vesting criteria:
-- awards subject to performance conditions based on the
Company's total shareholder return ("TSR") performance or relative
total shareholder return (rTSR) performance over a defined of
time;
-- awards subject to performance conditions based on a basket of
shareholder value metrics ("SVM"). Performance is assessed on these
measures on a scorecard basis over a defined period of time;
-- awards that vest 100 per cent after a period of time subject
to continued service condition only.
The Company issued awards under the LTIP during 2017 and 2016 in
respect of a total of 7,466,235 and 1,499,247 Ordinary Shares,
respectively. A summary of stock option activity under the UK LTIP
for the year ended 31 December 2017 and 2016, respectively, is
shown below:
For the year ended
31 December: 2017 2016
------------------------------------- ---------------------- ----------
rTSR SVM Time rTSR SVM Time
------- ------------- ------------- ------- ------------- ----------
Number of shares granted
at maximum ('000) 2,837 1,632 2,998 1,443 _ 56
Weighted average fair
value (GBP) 0.89 1.44 1.48 2.19 _ 3.37
Fair value measurement Monte Market Market Monte Market Market
basis Carlo value value Carlo value value of
of ordinary of ordinary of ordinary ordinary
share share share share
The share grants that vest upon the occurrence of a market
condition (i.e. the TSR performance) and service condition were
adjusted to current market price at the date of the grant to
reflect the effect of the market condition on the non-vested
shares' value. The Company used a Monte Carlo simulation analysis
utilising a Geometric Brownian Motion process with 50,000
simulations to value those shares. The model takes into account
share price volatilities, risk-free rate and other covariance of
comparable UK public companies and other market data to predict
distribution of relative share performance. This is applied to the
reward criteria to arrive at expected value of the TSR awards.
The share grants that vests only upon the occurrence of a
non-market performance condition (i.e. the SVM grants) and service
condition were valued at the fair value of the shares on the date
of the grants and the vesting conditions are taken into account by
subsequently adjusting the number of instruments included in the
measurement of the transaction amount so that, ultimately, the
amount of recognised share-based expense is based on the number of
instruments that eventually vest.
The accounting charge does not necessarily represent the
intended value of share-based payments made to recipients, which
are determined by the Remuneration Committee according to
established criteria. The share-based payment charge for the fiscal
year ended 31 December 2017 related to the UK LTIP was $7.6 million
(2016: $5.9 million).
U.S. Stock Option/Stock Issuance Plan
The U.S. Stock Option/Stock Issuance Plan (the "U.S. Stock
Plan") was originally adopted by Allied Minds, Inc. (now Allied
Minds, LLC) in 2008. The U.S. Stock Plan provides for the grant of
share option awards, restricted share awards, and other awards to
acquire common stock of Allied Minds, Inc. (now Allied Minds, LLC).
All stock options granted to employees under this plan are equity
settled, for a ten-year term. Pursuant to the Company's IPO in
2014, Allied Minds plc adopted and assumed the rights and
obligations of Allied Minds, Inc. (now Allied Minds, LLC) under
this plan except that the obligation to issue Common Stock is
replaced with an obligation to issue ordinary shares to satisfy
awards granted under the U.S. Stock Plan. As of 19 June 2014, the
maximum number of options reserved under the plan were issued and
outstanding and as a result of the Company's IPO in 2014, all
issued and outstanding options vested on 19 June 2014. The Company
does not intend to make any further grants under the U.S. Stock
Plan.
No new stock option grants were awarded in 2017 and 2016 under
the Allied Minds 2008 Plan. A summary of stock option activity in
the U.S. Stock Plan is presented in the following table:
Weighted Number Weighted
Number of average of average
exercise exercise
options price options price
2017 2017 2016 2016
-------------- --------- ---------- ---------
Outstanding as of
1 January 8,554,712 $ 2.12 9,204,712 $ 2.10
Exercised during
the year (1,055,596) $ 1.46 (650,000) $ 1.86
Outstanding as of
31 December 7,499,116 $ 2.21 8,554,712 $ 2.12
============== ========= ========== =========
Exercisable as of
31 December 7,499,116 $ 2.21 8,554,712 $ 2.12
-------------- --------- ---------- ---------
Intrinsic value $ 31.5
of Exercisable $ 0.1 million million
The options outstanding as of 31 December 2017 had an exercise
price in the range of $1.78 to $2.49 (2016: $0.68 to $2.60).
The share-based payment charge for the fiscal year ended 31
December 2017 related to the U.S. Stock Plan was $18,000 (2016:
$57,000).
Other Plans
Spin Transfer Technologies ("Spin Transfer")
Stock compensation expense was approximately $724,000 and
$1,129,000 for the year ended 31 December 2017 and 2016,
respectively. Deferred stock compensation expense under these
grants was approximately $475,000 and $1,199,000 as of 31 December
2017 and 2016, respectively.
There were no new grants under the 2012 Equity Incentive Plan in
2017. The fair value of the stock option grants awarded under the
2012 Equity Incentive Plan is estimated as of the date of grant
using a Black-Scholes-Merton option valuation model that uses the
following weighted average assumptions:
2017 2016
------ -------
Expected option life (in
years) - 6.10
Expected stock price volatility - 40.99%
Risk-free interest rate - 1.21%
Expected dividend yield - -
Grant date option fair
value - $ 3.18
Share price at grant date - $ 7.77
Exercise price - $ 7.77
Expected volatility has been based on an evaluation of the
historical volatility of the share price of publicly traded
companies comparable to Spin Transfer, particularly over the
historical period commensurate with the expected term. The expected
term of the instruments has been based on historical experience and
general option holder behavior.
A summary of stock option activity in the Spin Transfer plans is
presented in the following table:
Weighted Weighted
Number
Number of average of average
exercise exercise
options price options price
2017 2017 2016 2016
-------------- --------- -------------- ---------
Outstanding as of
1 January 2,188,293 $ 7.48 1,849,367 $ 7.43
Granted during the
year - - 346,426 $ 7.77
Forfeited during
the year (245,000) $ 7.75 (7,500) $ 7.77
Outstanding as of
31 December 1,943,293 $ 7.14 2,188,293 $ 7.48
============== ========= ============== =========
Exercisable as of
31 December 1,543,350 $ 6.98 1,397,056 $ 7.34
-------------- --------- -------------- ---------
Intrinsic value
of Exercisable $ 0.7 million $ 0.1 million
The options outstanding as of 31 December 2017 had an exercise
price in the range of $6.97 to $7.77 (2016: $6.97 to $7.77) and a
weighted-average contractual life of approximately 8.3 years (2016:
8.7 years).
Plans Under Other Subsidiaries
The stock compensation expense under other subsidiaries of the
Company was $771,000 (2016: $1,312,000). Deferred stock
compensation expense under these grants as of 31 December 2017 was
approximately $744,000 (2016: $1,035,000).
Allied Minds Phantom Plan
In 2007, Allied Minds established a cash settled bonus plan for
Allied Minds employees, also known as its Phantom Plan. In 2012,
the board of directors adopted the Amended and Restated 2007
Phantom Plan. Under the terms of the Amended and Restated Plan,
upon a liquidity event Allied Minds will allocate 10% of the value
(after deduction of the amount invested by Allied Minds and accrued
interest at a rate not exceeding 5% per annum) of the invested
capital owned by Allied Minds of each operating company to the plan
account. Upon a liquidity event, plan participants holding units
will receive their proportionate share of the plan account. The
allocated shares at all times remain the sole and exclusive
property of Allied Minds and holders of units have no rights or
interests in Allied Minds. No amount has been paid out to employees
under the Phantom Stock Plan through 31 December 2017.
Allied Minds has not accrued any expense relating to the Phantom
Plan as of 31 December 2017 or 2016. Management will record an
expense relating to this plan when it is probable that a subsidiary
will be sold and the amount of the payout is reasonably
estimable.
Share-based Payment Expense
The Group recorded share-based payment expense related to stock
options of approximately $7,562,000 and $8,385,000 for the years
ended 31 December 2017 and 2016, respectively. There was no income
tax benefit recognised for share- based payment arrangements for
the years ended 31 December 2017 and 2016, respectively, due to
operating losses. Shared-based payment expenses are included in
selling, general and administrative expenses and research and
development expenses in the Consolidated Statement of Comprehensive
Income.
(7) Finance Cost, Net
The following table shows the breakdown of finance income and
cost:
For the year ended 31 December: 2017 2016
$'000 $'000
-------- ---------
Interest income on:
- Bank deposits 475 1,610
Foreign exchange gain 10 1,269
Finance income 485 2,879
-------- ---------
Interest expense on:
- Financial liabilities
at amortised cost (174) (527)
Foreign exchange loss (6) (34)
-------- ---------
Finance cost contractual (180) (561)
Loss on fair value measurement
of subsidiary preferred shares (6,850) (17,585)
Finance cost (7,030) (18,146)
-------- ---------
Total finance cost, net (6,545) (15,267)
======== =========
See note 18 for further disclosure related to subsidiary
preferred shares.
(8) Loss Per Share
The calculation of basic and diluted loss per share as of 31
December 2017 was based on the loss attributable to ordinary
shareholders of $75.7 million (2016: $96.3 million) and a weighted
average number of ordinary shares outstanding of 236,194,051 (2016:
217,317,696), calculated as follows:
Loss attributable to ordinary shareholders
2017 2016
$'000 $'000
-------------------- --------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
Loss for the year attributed
to the
owners of the Company (75,675) (75,675) (96,333) (96,333)
--------- --------- --------- ---------
Loss for the year attributed
to the
ordinary shareholders (75,675) (75,675) (96,333) (96,333)
========= ========= ========= =========
Weighted average number of ordinary shares
2017 2016
Basic Diluted Basic Diluted
------------ ------------ ------------ ------------
Issued ordinary shares
on 1 January 233,744,378 233,744,378 215,637,363 215,637,363
Effect of share capital
issued _ _ 1,390,196 1,390,196
Effect of vesting of
RSUs 1,823,106 1,823,106 _ _
Effect of share options
exercised 626,567 626,567 290,137 290,137
Weighted average ordinary
shares 236,194,051 236,194,051 217,317,696 217,317,696
============ ============ ============ ============
Loss per share
2017 2016
$ $
----------------- -----------------
Basic Diluted Basic Diluted
------- -------- ------- --------
Loss per share (0.32) (0.32) (0.44) (0.44)
======= ======== ======= ========
(9) Property and Equipment
Property and equipment, net, consists of the following at:
Cost
Machinery Furniture Computers
and and Leasehold and Under
in $'000 Equipment Fixtures Improvements Electronics Construction Total
Balance as of 31
December 2015 32,378 572 4,671 1,165 2,969 41,755
Additions, net
of transfers 4,560 313 919 239 (2,268) 3,763
Disposals (1,829) (23) (27) (53) - (1,932)
----------- ---------- -------------- ------------- -------------- ---------
Balance as of 31
December 2016 35,109 862 5,563 1,351 701 43,586
Additions, net
of transfers 723 25 258 373 (133) 1,246
Disposals (1,159) (211) (147) (530) _ (2,047)
Balance as of 31
December 2017 34,673 676 5,674 1,194 568 42,785
=========== ========== ============== ============= ============== =========
Accumulated Depreciation
and Impairment
loss
Machinery Furniture Computers
and and Leasehold and Under
in $'000 Equipment Fixtures Improvements Electronics Construction Total
Balance as of 31
December 2015 (5,805) (197) (1,011) (569) - (7,582)
Depreciation (4,378) (135) (876) (325) - (5,714)
Impairment loss (320) (7) - (13) - (340)
Disposals 1,829 23 27 53 - 1,932
----------- ---------- -------------- ------------- -------------- -----------
Balance as of 31
December 2016 (8,674) (316) (1,860) (854) - (11,704)
Depreciation (4,456) (122) (909) (313) _ (5,800)
Impairment loss (425) (114) (53) (109) _ (701)
Disposals 1,159 211 147 530 _ 2,047
Balance as of 31
December 2017 (12,396) (341) (2,675) (746) _ (16,158)
=========== ========== ============== ============= ============== ===========
Property and equipment,
net
Machinery Furniture Computers
and and Leasehold and Under
in $'000 Equipment Fixtures Improvements Electronics Construction Total
----------- ---------- -------------- ------------- -------------- ---------
Balance as of 31
December 2016 26,435 546 3,703 497 701 31,882
Balance as of 31
December 2017 22,277 335 2,999 448 568 26,627
Impairment of property and equipment of $701,000 and $340,000
for the years ended 31 December 2017 and 2016, respectively, is
mainly attributed to the closing of subsidiary companies, which
resulted in the associated assets being impaired, see further
detail in note 26. Impairment of property and equipment is included
in selling, general and administrative expenses in the consolidated
statement of comprehensive income.
Property and equipment under constructions represents assets
that are in the process of being built and not placed in service as
of the reporting date.
(10) Intangible Assets
Information regarding the cost and accumulated amortisation of
intangible assets is as follows:
Cost
Purchased Development
in $'000 Licenses IPR&D Software cost Total
--------- ---------- --------- ------------ --------
Balance as of 31 December
2015 5,417 768 744 504 7,433
Additions - Acquired
separately 85 - 20 - 105
Additions - Internally
developed - - - 219 219
Disposals (681) - (34) (629) (1,344)
--------- ---------- --------- ------------ --------
Balance as of 31 December
2016 4,821 768 730 94 6,413
Additions - Acquired
separately 264 _ 12 _ 276
Additions - Internally
developed _ _ _ _ _
Disposals (3,883) (491) (199) (94) (4,667)
Balance as of 31 December
2017 1,202 277 543 _ 2,022
========= ========== ========= ============ ========
Accumulated amortisation
and Impairment loss
Purchased Development
in $'000 Licenses IPR&D Software Cost Total
--------- ---------- --------- ------------ --------
Balance as of December
31, 2015 (2,615) (102) (276) (56) (3,049)
Amortisation (522) (22) (318) (59) (921)
Impairment loss (487) - - (538) (1,025)
Disposals 681 - 34 629 1,344
--------- ---------- --------- ------------ --------
Balance as of December
31, 2016 (2,943) (124) (560) (24) (3,651)
Amortisation (130) (13) (153) (6) (302)
Impairment loss (1,223) (354) (21) (64) (1,662)
Disposals 3,883 491 199 94 4,667
Balance as of December
31, 2017 (413) _ (535) _ (948)
========= ========== ========= ============ ========
Intangible assets,
net
Purchased Development
in $'000 Licenses IPR&D Software Cost Total
--------- ---------- --------- ------------ --------
Balance as of 31 December
2016 1,878 644 170 70 2,762
Balance as of 31 December
2017 789 277 8 _ 1,074
Amortisation expense is included in selling, general and
administrative expenses in the consolidated statement of
comprehensive loss. Amortisation expense, recorded using the
straight-line method, was approximately $302,000 and $921,000 for
the years ended 31 December 2017 and 2016, respectively.
Impairment of intangible assets of $1,662,000 and $1,025,000 for
the years ended 31 December 2017 and 2016, respectively, is mainly
attributed to the closing of subsidiary companies, which resulted
in the associated intangible assets being impaired to zero, see
further detail in note 26. Impairment expense is included in
selling, general and administrative expenses in the consolidated
statement of comprehensive income.
At each reporting period, management considers qualitative and
quantitative factors that define the future prospects of the
respective investment and assesses whether it supports the value of
the underlying intangible.
(11) Investment in Subsidiaries and Associates
Group Subsidiaries
Allied Minds has 23 subsidiaries as of 31 December 2017. As of
and for the two years ended 31 December 2017 the capitalisation of
all subsidiary companies in the Group portfolio is in the form of
ordinary shares only, except for certain subsidiaries where Series
A and B preferred shares were issued to both the parent company and
third parties in financing rounds, namely ABLS II, BridgeSat,
Federated Wireless, HawkEye(360) , Precision Biopsy, SciFluor Life
Sciences, Signature Medical and Spin Transfer Technologies. The
Group's ownership of preferred shares as per cent of the total
ownership percentage of economic interest in those subsidiaries as
of 31 December 2017 were 19.14%, 32.34%, 12.60%, 53.03% 18.15%,
3.82%, 47.63% and 8.01%, respectively.
The following outlines the formation of each subsidiary and
evolution of Allied Minds' equity ownership interest over the two
year period ended 31 December 2017:
Ownership percentage
of equity interest
at
Inception 31 December (2)
Date Location (4) 2017 2016
----------------------------------------- ----------- ------------------ ----------- ----------
Active subsidiaries
Holding companies
Allied Minds, LLC (1), (3) 19/06/14 Boston, MA 100.00% 100.00%
Allied Minds Securities Corp.
(3) 21/12/15 Boston, MA 100.00% 100.00%
Early stage companies
ABLS Capital, LLC 09/07/15 Boston, MA 30.25% 30.25%
Allied-Bristol Life Sciences,
LLC 31/07/14 Boston, MA 80.00% 80.00%
ABLS II, LLC 24/09/14 Boston, MA 35.95% 35.95%
ABLS IV, LLC 26/10/17 Boston, MA 80.00% _
Allied Minds Federal Innovations,
Inc. 09/03/12 Boston, MA 100.00% 100.00%
Foreland Technologies, Inc. 23/01/13 Boston, MA 100.00% 100.00%
LuxCath, LLC 29/05/12 Boston, MA 98.00% 98.00%
Wakefield,
Percipient Networks, LLC 29/01/14 MA 100.00% 100.00%
RF Biocidics, Inc. 12/06/08 Boston, MA 67.14% 67.14%
RF Biocidics (UK) Ltd (3) 10/09/10 United Kingdom 67.14% 67.14%
Seamless Devices, Inc. 14/10/14 Boston, MA 79.12% 79.12%
Signature Medical, Inc. 12/12/16 Boston, MA 88.09% 100.00%
Whitewood Encryption Systems,
Inc. 21/07/14 Boston, MA 100.00% 100.00%
Later stage companies
BridgeSat, Inc. 09/02/15 Denver, CO 98.15% 100.00%
Arlington,
Federated Wireless, Inc. 08/08/12 VA 52.26% 72.99%
Federated Wireless Government Arlington,
Solutions, Inc. (3) 04/05/16 VA 52.26% 72.99%
HawkEye(360) , Inc. 16/09/15 Herndon, VA 53.06% 56.11%
HawkEye(360) Federal, Inc.
(3) 22/09/15 Herndon, VA 53.06% 56.11%
Precision Biopsy, Inc. 17/06/08 Denver, CO 64.59% 64.59%
Cambridge,
SciFluor Life Sciences, LLC 14/12/10 MA 69.89% 69.89%
Spin Transfer Technologies,
Inc. 03/12/07 Fremont, CA 48.40% 48.40%
Closed subsidiaries
Project Poldark (Jersey) Limited
(3) 29/11/16 Boston, MA _ 100.00%
ABLS I, LLC 24/09/14 Boston, MA _ 74.00%
ABLS III, LLC 10/03/16 Boston, MA _ 80.00%
Biotectix, LLC 16/01/07 Richmond, CA _ 64.35%
Cambridge,
Cephalogics, LLC 29/11/06 MA _ 95.00%
CryoXtract Instruments, LLC 23/05/08 Woburn, MA _ 93.24%
Baltimore,
Optio Labs, Inc. 28/02/12 MD _ 81.23%
ProGDerm, Inc. (dba Novare
Pharmaceuticals) 19/09/08 Boston, MA _ 90.38%
SoundCure, Inc. (3) 04/06/09 San Jose, CA _ 84.62%
Vatic Materials, Inc. 21/11/16 Boston, MA _ 100.00%
Tinnitus Treatment Solutions,
LLC 26/02/13 San Jose, CA _ 100.00%
Number of active subsidiaries at 31
December: 23 33
=========== ==========
Notes:
(1) On 19 June 2014, Allied Minds plc completed a reorganisation
of its corporate structure, whereby Allied Minds plc acquired the
entire issued share capital of Allied Minds, Inc., first
incorporated on 4 June 2004, which at the same time changed its
name to Allied Minds, LLC;
(2) Represents ownership percentage used in allocations to
non-controlling interests except for BridgeSat, Federated Wireless,
HawkEye360, Precision Biopsy, SciFluor Life Sciences, Signature
Medical and Spin Transfer Technologies in which cases the
percentage used to allocate the non-controlling interests was 100%,
94.15%, 0%, 80.35%, 86.86%, 100.00% and 56.13%, respectively, where
in these cases there are liability classified preferred shares in
issue, which are excluded.
(3) These subsidiaries do not represent separate subsidiary
businesses referred to earlier within the annual report.
(4) All subsidiaries have a registered office address at CT
Corporation System, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801, United States except for Allied Minds
Securities Corp. with registered office address at CT Corporation
System, 155 Federal Street, Suite 700, Boston, MA 02110, United
States, and Biotectix, LLC, Cephalogics, LLC at CT Corporation
System, 120 South Central Avenue, Suite 400, Clayton, MO 63105,
United States.
2017
In February 2017, HawkEye completed a second closing of the
Series A-2 financing round for additional $2.75 million, of which
$1.25 million from existing shareholders of the Group and members
of management of the company for 967,641 Series A-2 shares and a
warrant to purchase 1,161,172 Series A-2 shares for $1.5 million
issued to an existing investor of the company.
In May 2017, BridgeSat closed a Series A round of financing
issuing 4,675,446 Series A preferred shares for $6.0 million to
Allied Minds and another strategic investor. As a result, following
the transaction, Allied Minds' ownership percentage in BridgeSat is
98.15%. The Company continues to exercise effective control over
BridgeSat and as such, the subsidiary will continue to be fully
consolidated within the group's financial statements.
In July 2017, Signature Medical completed a Series A round of
financing issuing 13,241,526 Series A preferred shares for $2.5
million to Allied Minds and two new strategic investors. As a
result, following the transaction, Allied Minds' ownership
percentage in Signature Medical is 88.09%. The Company continues to
exercise effective control over Signature Medical and as such, the
subsidiary will continue to be fully consolidated within the
group's financial statements.
In September 2017, Federated Wireless completed a Series B round
of financing issuing 27,167,093 Series B preferred shares for $42.0
million to Allied Minds, existing shareholders of the Group, and a
number of new strategic investors who led the round. As a result,
following the transaction, Allied Minds' ownership percentage in
Federated Wireless is 52.26%. The Company continues to exercise
effective control over Federated Wireless and as such, the
subsidiary will continue to be fully consolidated within the
group's financial statements.
2016
In April 2016, Allied Minds completed the formation of ABLS
Capital, LLC in partnership with existing shareholders of the
Group. The members of ABLS Capital committed to up to $80.0 million
for the development of drug discovery programs, of which 22.5% was
committed by Allied Minds, and contributed an initial $2.0 million
for 2.0 million Class B shares to fund the operations of the
subsidiary. The purpose of this partnership is to fund 80% of the
lead optimisation phase of up to ten new drug candidates that pass
initial feasibility studies funded by Allied Bristol Life Sciences,
LLC ("ABLS"). The remaining 20% of lead optimisation phase
investment, or up to an additional $20.0 million, will be funded by
Bristol-Myers Squibb, pursuant to the terms of the partnership
formed in 2014 through ABLS. Further, in August 2016, ABLS Capital
raised $12.0 million of new equity in a Class B shares round
pursuant to the initial commitment discussed above, which were used
to further fund the development at ABLS II. Under the terms of the
ABLS Capital organisation documents, Allied Minds is appointed as
the manager of the company and effectively controls the policies
and management of ABLS Capital. As a result, following the
transactions from 2016, Allied Minds continues to exercise
effective control over ABLS Capital and as such the subsidiary will
continue to be fully consolidated within the group's financial
statements.
In August 2016, ABLS II closed a Series A round of financing
issuing 6,410,256 shares of Preferred Stock at issue price of
$2.34/share to ABLS Capital ($12.0 million) and Bristol-Myers
Squibb Company ($3.0 million), raising approximately $15.0 million.
Under the terms of the ABLS II organisation documents, through its
control over ABLS and ABLS Capital, the Company effectively
controls the policies and management of ABLS II. As a result,
following the transaction, Allied Minds continues to exercise
effective control over ABLS II and as such, the subsidiary will
continue to be fully consolidated within the group's financial
statements.
2014
In October 2014, Spin Transfer Technologies ("STT") completed a
Series A financing round as a result of which the Allied Minds'
ownership percentage in STT decreased from 56.13% to 48.40%. Whilst
Allied Minds owns less than 50.00% of the voting share capital
after the transaction and as of 31 December 2017, the company
remains the largest single shareholder at 48.40% of the voting
share capital, and retains control over the majority of the voting
rights on the board of directors of STT. Under the terms of the STT
organisational documents, the board of directors effectively
controls the policies and management of STT, and in all instances,
the board acts by majority vote. In addition, all material
shareholder voting provisions of the STT organisational documents
require a simple majority for approval, giving the Company
substantial influence over the outcome of all actions which require
a shareholder vote. As a result, following the transaction, Allied
Minds continues to exercise effective control over STT and as such
will continue to be fully consolidated within the group's financial
statements.
The following tables summarise the financial information related
to the Group's subsidiaries with material non-controlling
interests, aggregated for interests in similar entities, and before
intra-group eliminations.
As of and for the year ended 31 December:
2017
$'000
--------------------------
Early stage Later stage
------------ ------------
Statement of Comprehensive Loss
Revenue 1,405 3,394
Loss for the year (13,390) (70,734)
Other comprehensive loss 79 _
Total comprehensive loss (13,311) (70,734)
============ ============
Comprehensive loss attributed
to NCI (4,360) (30,977)
Statement of Financial Position
Non-current assets 412 26,834
Current assets 21,825 77,849
Total assets 22,237 104,683
Non-current liabilities (3) (109)
Current liabilities (2,066) (193,525)
Total liabilities (2,069) (193,634)
------------ ------------
Net assets/(liabilities) 20,168 (88,951)
============ ============
Carrying amount of NCI (4,371) (54,870)
Statement of Cash Flows
Cash flows from operating
activities (11,262) (71,284)
Cash flows from investing
activities 149 (1,472)
Cash flows from financing
activities 8,881 70,456
------------ ------------
(2,232) (2,300)
============ ============
2016
$'000
--------------------------
Early stage Later stage
------------ ------------
Statement of Comprehensive Loss
Revenue 2,082 288
Loss for the year (32,376) (75,300)
Other comprehensive loss (74) _
Total comprehensive loss (32,450) (75,300)
============ ============
Comprehensive loss attributed
to NCI (8,165) (24,444)
Statement of Financial Position
Non-current assets 3,471 30,778
Current assets 27,208 70,042
Total assets 30,679 100,820
Non-current liabilities (21) (91)
Current liabilities (2,750) (148,813)
Total liabilities (2,771) (148,904)
------------ ------------
Net assets/(liabilities) 27,908 (48,084)
============ ============
Carrying amount of NCI 4,400 (25,197)
Statement of Cash Flows
Cash flows from operating
activities (36,541) (51,144)
Cash flows from investing
activities 1,222 (2,725)
Cash flows from financing
activities 49,063 50,186
------------ ------------
13,744 (3,683)
============ ============
Portfolio Valuation
At the close of each annual financial period, the Directors
formally approve the value of all subsidiary businesses in the
Group, which is used to derive the "Group Subsidiary Ownership
Adjusted Value". This Group Subsidiary Ownership Adjusted Value is
a sum-of-the-parts ("SOTP") valuation of all the subsidiaries that
make up the Group. GSOAV is an alternative performance measure
("APM") used by the Directors as a key performance indicator
("KPI") to measure the performance of the Group. An APM is a
numeric measure of the Group's financial position that is not a
GAAP measure. As the Group exercises control over all of its
investments in subsidiary undertakings their activities are fully
consolidated in the group accounts and the value of those
investments is not separately disclosed in the statement of
financial position. Only the value of non-controlling interests of
certain subsidiaries reflecting the subsidiary preferred shares
liability is disclosed separately in the statement of financial
position, as further discussed in footnote 18. These valuations
assume there will be available funds for the subsidiaries to reach
next stages of their development towards commercial success or an
exit event.
The Group Subsidiary Ownership Adjusted Value ("GSOAV") was
$395.6 million as of 22 March 2018 (2016: $416.2 million). The
decrease compared to prior year is primarily attributed to
discontinued funding and wind-down of Percipient Networks, Seamless
Devices and Whitewood Encryption, as well as write downs in
platform companies AMFI and Foreland. The decrease was partially
offset by an increase in value at BridgeSat and Federated Wireless
demonstrated by the consummation of a third-party fundraising.
Ownership adjusted value represents Allied Minds' interest in
the equity value of each subsidiary and is calculated as follows:
lower of (Business Enterprise Value - Long Term Debt + Cash) x
Allied Minds percentage ownership plus the value of debt provided
by Allied Minds plc to each subsidiary business, or the subsidiary
Business Enterprise Value. Allied Minds commits post seed funding
to its subsidiaries in the form of loans.
Valuation Methodology
Each subsidiary company is regularly evaluated based on a range
of inputs, including: company performance and progress towards
development milestones; market and competitor analyses based on
information from databases and public material; and interviews with
scientists and physicians.
The Group Subsidiary Ownership Adjusted Value represents the
sum-of-the-parts ("SOTP") of, principally, net present value
("NPV") or risk-adjusted net present value ("rNPV") from discounted
cash flow ("DCF") valuations and valuations based on recent third
party investment at the subsidiary level. A DCF valuation is used
for the majority of Allied Minds subsidiaries. The DCF valuations
are updated when the underlying assumptions for the valuations
warrant a change. Generally, valuations are not increased unless
warranted by or in anticipation of a financing transaction.
Valuations are decreased in situations where the subsidiary is
falling short of expected progress. Otherwise, the valuations are
kept constant. When available, financing transactions are used as
the basis for the subsidiary valuation. In limited instances other
techniques such as based on asset values are utilised.
In the current year, the Group relied on funding transactions as
the principal methodology to value all subsidiaries in the
portfolio, except for LuxCath where the DCF valuation model was
updated in the current year. Funding transactions used as basis for
the subsidiary valuations were consummated in the current year,
except for Allied Bristol Life Sciences (2014), Spin Transfer
Technologies (2014), Precision Biopsy (2016), HawkEye(360)
(2016)and SciFluor Life Sciences (2015). In those cases, a DCF was
used to substantiate the subsidiary valuation based on a prior
funding round. Subsidiaries for which the ownership-adjusted value
was based on a funding transaction accounted for 95.9% of total
GSOAV in the current year (2016: 87.1%), and those based on DCF or
other alternative methods accounted for 4.1% (2016: 13.9%).
For detail of the Net Present Value ("NPV") method used in
estimating the group valuations from discounted cash flows see
footnote 18.
(12) Other Investments
As of 31 December: 2017 2016
$'000 $'000
------- -------
Fixed income securities
Corporate bonds 11,057 14,244
Other investments, current 11,057 14,244
Fixed income securities
Corporate bonds _ 2,668
Other investments, long-term _ 2,668
------- -------
Total other investments 11,057 16,912
======= =======
Other investments represent investments in fixed income
securities issued by government agencies and US and non-US
corporations. As of 31 December 2017, the investments had a credit
rating of A-1 to A+, maturities of up to 2 months and original
coupon rate from 0.00% to 1.55% (2016: 0.00% to 5.00%).
(13) Cash and Cash Equivalents
As of 31 December: 2017 2016
$'000 $'000
-------- --------
Bank balances 158,207 209,283
Restricted cash (132) (132)
Total cash and cash equivalents 158,075 209,151
======== ========
Restricted cash represents cash reserved as collateral against a
letter of credit with a bank issued for the benefit of a landlord
in lieu of a security deposit to an office space lease for one of
the Group's subsidiaries. The amount is classified as other
financial assets, non-current in the statement of financial
position.
(14) Inventories
As of 31 December: 2017 2016
$'000 $'000
------- ------
Finished units _ 2,505
Work in progress _ 15
Raw materials _ 31
Total inventories _ 2,551
======== ======
Finished units and raw materials recognised as cost of revenue
in the year amounted to $1,874,000 (2016: $1,756,000). The
write-down of inventories to net realisable value recognised
through cost of revenue during the year was $2,532,000 (2016:
$3,403,000).
(15) Trade and Other Receivables
As of 31 December: 2017 2016
$'000 $'000
------- ------
Trade receivables 3,493 312
Prepayments and other current assets 12,149 5,588
Total trade and other receivables 15,642 5,900
======= ======
(16) Equity
In December 2016, the Company issued 17,457,015 ordinary shares
of one pence at 367 pence, which were admitted to the premium
listing segment of the Official List of the UK Listing Authority
and to trading on the LSE's Main Market for listed securities. This
resulted in approximately $78.1 million of net proceeds from the
equity placing (net of issue cost of $2.2 million). The amounts
subscribed for share capital in excess of the nominal value in
relation to this transaction are reflected in the merger reserve
balance as of 31 December 2016.
During 2017, existing and former employees of the Group
exercised options to purchase 1,055,596 shares of the Company under
the U.S. Stock Plan (2016: 650,000), resulting in additional share
premium of $1,539,000 (2016: $1,200,000). Additionally, 3,402,567
shares were issued to existing and former employees of the Group
during the year as result of vesting of RSUs under the LTIP.
As of 31 December 2017, 11,551,496 ordinary shares were reserved
under the U.S. Stock Plan and 23,820,254 were reserved under the
LTIP, see note 6 for further discussion of the share-based payment
plans.
The table below explains the composition of share capital:
As of 31 December: 2017 2016
$'000 $'000
---------- ----------
Equity
Share capital, GBP0.01 par value,
issued and fully paid 3,714 3,657
238,202,541 and 233,744,378,
respectively
Share premium 158,606 157,067
Merger reserve 263,367 263,435
Translation reserve 89 192
Accumulated deficit (354,443) (289,437)
Equity attributable to owners
of the Company 471,333 134,914
Non-controlling interests (59,241) (20,797)
Total equity 12,092 114,117
========== ==========
Holders of Ordinary Shares are entitled to vote, on all matters
submitted to shareholders for a vote. Each Ordinary Share is
entitled to one vote. Each ordinary share is entitled to receive
dividends when and if declared by the Company's board of directors.
The Company has not declared any dividends in the past.
Share premium represents the amounts subscribed for share
capital in excess of the nominal value, net of directly
attributable issue costs.
Merger reserve reflects the amounts subscribed for share capital
in excess of the nominal value in relation to the qualifying
acquisition of subsidiary undertakings.
Translation reserve comprises all foreign exchange differences
arising from the translation of the financial statements of foreign
operations.
(17) Acquisition of Non-Controlling Interest ("NCI")
For the two years ended 31 December 2017, the Group recognised
the following changes in common and preferred stock ownership in
subsidiaries resulting in changes to non-controlling interest:
-- In April 2016, the Group completed the formation of ABLS
Capital, LLC in partnership with existing shareholders of Allied
Minds. The members of the LLC committed to up to $80.0 million for
the development of up to 10 drug discovery programs, of which
Allied Minds commits 22.5%, and contributed an initial $2.0 million
funding for 2.0 million Class B shares. The purpose of this
partnership is to fund 80% of the lead optimisation phase of up to
ten new drug candidates that pass initial feasibility studies
funded by ABLS. The remaining 20% of lead optimisation phase
investment, or up to an additional $20.0 million, will be funded by
Bristol-Myers Squibb Company (BMS), pursuant to the terms of the
partnership formed in 2014 through ABLS. Following the transaction,
Allied Minds continues to exercise effective control over ABLS
Capital and as such the subsidiary will continue to be fully
consolidated within the group's financial statements.
In August 2016, ABLS Capital raised $12.0 million of new equity
in a Class B shares round pursuant to the initial commitment
discussed to fund its portion of the ABLS II financing (see below).
There is no change in the subsidiary's governance structure as a
result of the round. Following the transaction Allied Minds
continues to exercise effective control over ABLS Capital and as
such the subsidiary will continue to be fully consolidated within
the group's financial statements.
-- In August 2016, ABLS II closed a Series A round of financing
issuing 6,410,256 shares of Preferred Stock at issue price of $2.34
per share to ABLS Capital and Bristol-Myers Squibb Company, raising
approximately $15.0 million. The use of proceeds from the Series A
round is intended primarily to fund further development of the lead
ecognizesn program. Should this next lead ecognizesn phase prove
successful, Bristol-Myers Squibb has the right to acquire Allied
Minds' interest in ABLS II at a pre-determined multiple of invested
capital.
-- In October 2017, Allied-Bristol Life Sciences (ABLS) launched
its fourth project - ABLS IV, LLC, in a partnership with Cornell
University. ABLS owns 100% of the common stock of ABLS IV.
Following the transaction, Allied Minds continues to exercise
effective control over ABLS and subsidiaries including ABLSI V and
as such the subsidiary will continue to be fully consolidated
within the group's financial statements.
-- During 2017, as a result of the restructuring earlier in the
year, the company discontinued funding of eight subsidiaries, seven
of which were legally dissolved and deconsolidated as of 31
December 2017.
The following summarises the changes in the non-controlling
ownership interest in subsidiaries by reportable segment:
Early stage Later stage Consolidated
$'000 $'000 $'000
------------ ------------ -------------
Non-controlling interest as
of 31 December 2015 (7,921) (2,710) (10,631)
New funds into non-controlling
interest 13,773 _ 13,773
Share of comprehensive loss (8,164) (24,445) (32,609)
Effect of change in Company's
ownership interest 5,913 316 6,229
Equity-settled share based
payments 799 1,642 2,441
------------ ------------ -------------
Non-controlling interest as
of 31 December 2016 4,400 (25,197) (20,797)
------------ ------------ -------------
Share of comprehensive loss (4,360) (30,977) (35,337)
Effect of change in Company's
ownership interest 36 14 50
Equity-settled share based
payments 206 1,290 1,496
Dissolution of subsidiaries (4,653) _ (4,653)
Non-controlling interest as
of 31 December 2017 (4,371) (54,870) (59,241)
============ ============ =============
(18) Subsidiary Preferred Shares
Certain of the Group's subsidiaries have outstanding preferred
shares which have been classified as a subsidiary preferred shares
in current liabilities in accordance with IAS 39 as the
subsidiaries have a contractual obligation to deliver cash or other
assets to the holders under certain future liquidity events, and/or
a requirement to deliver an uncertain number of common shares upon
conversion. The preferred shares do not contain mandatory dividend
rights. The preferred shares are convertible into common stock of
the subsidiary at the option of the holder and mandatorily
convertible into common stock of the subsidiary upon a qualified
public offering at or above certain value and gross proceeds
specified in the agreements or upon the vote of the holders of a
majority of the subsidiary preferred shares. Under certain
scenarios the number of common stock shares receivable on
conversion will change. The Group has elected not to bifurcate the
variable conversion feature as a derivative liability, but account
for the entire instrument at fair value through the income
statement.
The preferred shares are entitled to a vote with holders of
common stock on an as converted basis. The holders of the preferred
shares are entitled to a liquidation preference amount in the event
of a liquidation or a deemed liquidation event of the respective
subsidiary. The Group ecognizes the subsidiary preferred shares
balance upon the receipt of cash financing, and records the change
in its fair value for the respective reporting period through
profit and loss. Preferred shares are not allocated shares of the
subsidiary losses.
The following summarises the subsidiary preferred shares
balance:
Finance
cost
from IAS
39
fair value
As of 31 December: 2017 accounting Additions 2016
$'000 $'000 $'000 $'000
BridgeSat 339 14 325 _
Federated Wireless 47,033 (2,126) 31,817 17,342
HawkEye(360) 13,512 4,998 1,250 7,264
Precision Biopsy 25,973 3,455 _ 22,518
SciFluor Life Sciences 32,354 (27) _ 32,381
Signature Medical 530 30 500 _
Spin Transfer Technologies 61,889 506 _ 61,383
Total subsidiary preferred
shares 181,630 6,850 33,892 140,888
======== ============ ========== ========
The redemption is conditional on occurrence of uncertain future
events beyond the control of the Group. The amount that would be
payable in case of such events is as follows:
2017 2016
As of 31 December: $'000 $'000
BridgeSat 325 _
Federated Wireless 50,000 17,000
HawkEye(360) 8,500 7,250
Precision Biopsy 22,000 22,000
SciFluor Life Sciences 25,200 25,200
Signature Medical 500 _
Spin Transfer Technologies 50,000 50,000
Total liquidation preference 156,525 121,450
======== ========
For the two years ended 31 December 2017, the Group recognised
the following changes in subsidiary preferred shares:
2017
-- HawkEye(360) completed a second closing of the Series A-2
financing round in February 2017 for additional $2.75 million, of
which $1.25 million from existing shareholders of the Group and
members of management of the company for 967,641 Series A-2
shares.
-- BridgeSat closed a Series A round of financing in May 2017
issuing 4,675,446 Series A preferred shares for $6.0 million.
Allied Minds contributed $5.7 million and another strategic
investor contributed with the remainder of the round.
-- Signature Medical completed a Series A round of financing in
July 2017 issuing 13,241,526 Series A preferred shares for $2.5
million. Allied Minds contributed with $2.0 million and two new
strategic investors contributed with the remainder of the
round.
-- Federated Wireless completed a Series B round of financing in
September 2017 issuing 27,167,093 Series B preferred shares for
$42.0 million. Allied Minds contributed $9.0 million. Other
existing shareholders of the Group and a number of new strategic
investors contributed with the remainder of the round.
2016
-- Federated Wireless completed a $22.0 million round of Series
A financing in January 2016. Of the $22.0 million raised in this
financing, Allied Minds contributed approximately $5.0 million for
the purchase of 2,727,580 preferred shares, and other existing
shareholders of the Group contributed with the remainder of the
round.
-- Precision Biopsy received the second tranche of the October
2015 Series A round (see below) and raised addition $5.0 million
from one of the existing shareholders that originally participated
in the round for additional 945,966 shares.
-- HawkEye(360) completed a $11.0 million round of Series A-2
financing in November 2016. Of the $11.0 million raised in this
financing, Allied Minds contributed approximately $4.0 million for
the purchase of 3,096,459 preferred shares, and other new investors
contributed with the remainder of the round.
The fair value is derived using the option pricing model where
the key inputs and assumptions include the subsidiary valuations,
which are either based on the implied value from a third party
funding round, on a Net Present Valuation method or asset based
valuation, volatility, time to liquidity and risk free rate.
Net Present Valuation ("NPV") method
NPV is a standard technique used in valuation and can be defined
as the difference between the present value of the future cash
flows from an investment and the amount of investment. Present
value of the estimated cash flows is computed by discounting them
at the required rate of return which includes an adjustment for
risk.
The following are important factors when determining fair value
based on NPV:
-- Estimated income generally consists of sales, co-development
revenues, one-time payments and royalty payments on sales depending
on the company, its business model and industry. These are
estimated based on a variety of factors including: total
addressable market; competitive factors; barriers to competition;
pricing; typical standards for contract value; royalty rates; and
likelihood of development of a product that is commercially
viable.
-- Costs and capital expenditures are estimated for each phase
of development based on the companies' information or according to
industry standards. Costs are typically forecasted for cost of
goods, SG&A (selling, general and administrative), research and
development as well as a variety of other expenses. These are
typically developed "from the ground up" for earlier years and for
later years depicted as a factor or percentage of sales.
-- The terminal or exit value represents the aggregate value of
an entity at the end of the discrete forecast period. Terminal
value may be estimated using the terminal multiple method, which
inherently assumes that the business will be valued at the end of
the projection period based on reference valuations. Under this
methodology, the terminal value is typically calculated by applying
one of two commonly accepted methodologies:
o Multiple base terminal value: Use of an appropriate multiple
to the relevant financial metric forecasted for the last projected
year taking into consideration the ongoing growth potential of the
business in the terminal year. Exit values included in the analysis
are typically projected as a multiple of EBIT, EBITDA or Sales
based on the final year results for the forecast period. Where
available, a set of guideline public companies that are similar to
the company to be used for comparative purposes and the multiple is
derived from this set;
o Gordon growth model based terminal value: Use of a formula
that calculates the present value of cash flow in the terminal year
growing into infinity at an ascribed terminal growth rate. The
terminal growth rate is derived by estimating the long-term annual
growth potential of the business at the terminal year.
-- Selection of discount rates is based on part utilising
American Institute of Certified Public Accountants ("AICPA")
practice standards varying by stage of development of the
subsidiary as well as other risk factors and typically range from
20-45%.
-- Where available NPV results are compared against peer
companies and to valuations for similar companies.
Due to the early stage nature of the Group's subsidiary
companies, projections are particularly sensitive to certain key
assumptions namely:
-- Discount rate and in particular risk premium;
-- The ability to predict the cost and timing of achieving
technical and commercial viability;
-- Projected revenue and operating costs in the post-product
development phase of each company; and
-- The size and share of addressable market for intellectual
property, products and services developed.
In certain cases, the value of a subsidiary is determined using
a market instead of income- based approach. Where there has been a
third party funding round in the year this has been used as the
implied value of the subsidiary, adjusted for indexation where this
is deemed to be appropriate.
Whilst the Board considers the methodologies and assumptions
adopted in the valuation are supportable, reasonable and robust,
because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have
been used had a ready market for the investment existed and the
differences could be significant.
The two principal methods the Group applies for allocation of
value are the Probability-Weighted Expected Return Method ("PWERM")
and the Option Pricing Method ("OPM").
The PWERM estimates the value of equity securities based on an
analysis of various discrete future outcomes, such as an IPO,
merger or sale, dissolution, or continued operation as a private
enterprise until a later exit date. The equity value today is based
on the probability-weighted present values of expected future
investment returns, considering each of the possible outcomes
available to the enterprise, as well as the rights of each security
class.
The OPM treats common stock or derivatives thereof as call
options on the enterprise's value or overall equity value. The
value of a security is based on the optionality over and above the
value securities that are senior in the capital structure (e.g.
preferred stock), considering the dilutive effects of subordinate
securities. In the OPM, the exercise price is based on a comparison
with the overall equity value rather than per-share value.
Allocation Model Inputs
The following presents the quantitative information about the
significant unobservable inputs used in the fair value measurement
of the Group's subsidiary preferred shares liability:
As of 31 December: 2017 2016
-------------- --------------
Volatility 29.0% - 79.3% 33.0% - 75.5%
Time to Liquidity (years) 1.70 - 4.57 2.06 - 3.76
Risk-Free Rate 1.85% - 2.15% 1.22% - 1.70%
Sensitivity Analysis
The following summarises the sensitivity from the assumptions
made by the Company in respect to the unobservable inputs used in
the fair value measurement of the Group's subsidiary preferred
shares liability, as well as that in respect to the enterprise
value of the underlying subsidiary in general:
As of 31 December: 2017 2016
$'000 $'000
----------- ----------
Input Sensitivity Subsidiary Preferred
range Shares Liability
increase/(decrease)
-------------------- ------------ -----------------------
Enterprise Value -2% (1,956) (1,746)
+2% 2,144 1,746
Volatility -10% (138) (377)
+10% (651) (776)
Time to Liquidity -6 months 168 416
+6 months (413) (762)
Risk-Free Rate -0.44% /
(1) -0.18% 168 416
+0.06% /
+0.13% (413) (762)
(1) Risk-free rate is a function of the time to liquidity input
assumption.
The change in fair value of the subsidiary preferred shares is
recorded in Finance cost, net in the consolidated statement of
comprehensive loss.
(19) Loans
As of 31 December: 2017 2016
$'000 $'000
------- ------
Current liabilities
- Loans:
Unsecured loan - 115
Total loans - 115
======== ======
The terms and conditions of outstanding loans are as
follows:
2017 2016
$'000 $'000
------------------ ------------------
Currency Nominal Year Face Carrying Face Carrying
interest of maturity value amount value amount
As of 31 December: rate
---------- ---------- ------------- ------- --------- ------- ---------
Unsecured loan USD 6.5% 2013-17 - - 115 115
Total interest bearing
liabilities - - 115 115
======= ========= ======= =========
CryoXtract Instruments, LLC Promissory Note
In May 2012, CryoXtract Instruments, LLC signed a promissory
note with a state financing authority in the amount of $800,000 to
provide working capital for materials and fund salaries. The note
fully matured in May 2017 and bears interest of 6.5%. Payment of
interest only is due in the first 18 months. As of 31 December
2013, CryoXtract had drawn the full balance of the note, of which
$115,000 and $225,000 was repaid during 2017 and 2016,
respectively, down to nil as of 31 December 2017 (2016: $115,000).
Interest expense incurred on the note was nil and $26,000 for the
years ended 31 December 2017 and 2016, respectively.
As part of the consideration for the loan, CryoXtract had issued
to the lender a warrant entitling the lender to purchase an
aggregate of 65,310 membership units in the subsidiary's ordinary
shares, representing 0.01% of the total membership units. The fair
value of the warrant issued of $35,000 was amortised over the life
of the loan as a discount against the note balance. CryoXtract was
dissolved in July 2017.
(20) Trade and Other Payables
As of 31 December: 2017 2016
$'000 $'000
------- -------
Trade payables 2,489 4,362
Accrued expenses 10,434 9,210
Other current liabilities 1,353 369
Trade and other payables,
current 14,276 13,941
Other non-current payables 867 720
Total trade and other
payables 15,143 14,661
======= =======
(21) Leases
Office and laboratory space is rented under non-cancellable
operating leases. These lease agreements contain various clauses
for renewal at the Group's option and, in certain cases, escalation
clauses typically linked to rates of inflation.
Minimum rental commitments under non-cancellable leases were
payable as follows:
For the year ended 31 December: 2017 2016
$'000 $'000
------ ------
Less than one year 2,204 2,015
Between one and five years 5,842 3,713
More than five years _ 438
Total minimum lease payments 8,046 6,166
====== ======
Total rent expense under these leases was approximately
$2,426,000 and $2,859,000 in 2017 and 2016, respectively. Rent
expenses are included in selling, general and administrative
expenses and research and development expenses in the consolidated
statements of comprehensive loss.
(22) Financial Instruments and Related Disclosures
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy:
As of 31 December: 2017
$'000
-----------------------------------------------
Carrying Fair value
------------------------------------
Level Level Level
amount 1 2 3 Total
--------- ------ -------- -------- --------
Financial assets designated
as fair value through
profit or loss
Fixed income securities 11,057 - 11,057 - 11,057
Loans and receivables
Cash and cash equivalents 158,075 - 158,075 - 158,075
Trade and other
receivables 15,642 - 15,642 - 15,642
Security and other
deposits 686 - 686 - 686
--------- ------ -------- -------- --------
Total 185,460 - 185,460 - 185,460
========= ====== ======== ======== ========
Financial liabilities
designated as fair
value through profit
or loss
Subsidiary preferred
shares 181,630 - - 181,630 181,630
Financial liabilities
measured at amortised
cost
Unsecured loan _ - _ - _
Trade and other
payables 15,143 - 15,143 - 15,143
Total 196,773 - 15,143 181,630 196,773
========= ====== ======== ======== ========
As of 31 December: 2016
$'000
-----------------------------------------------
Carrying Fair value
------------------------------------
Level Level Level
amount 1 2 3 Total
--------- ------ -------- -------- --------
Financial assets designated
as fair value through
profit or loss
Fixed income securities 16,912 - 16,912 - 16,912
Loans and receivables
Cash and cash equivalents 209,151 - 209,151 - 209,151
Trade and other
receivables 5,900 - 5,900 - 5,900
Security and other
deposits 1,065 - 1,065 - 1,065
--------- ------ -------- -------- --------
Total 233,028 - 233,028 - 233,028
========= ====== ======== ======== ========
Financial liabilities
designated as fair
value through profit
or loss
Subsidiary preferred
shares 140,888 - - 140,888 140,888
--------- ------ -------- -------- --------
Financial liabilities
measured at amortised
cost
Unsecured loan 115 - 123 - 123
Trade and other
payables 14,662 - 14,662 - 14,662
Total 155,665 - 14,785 140,888 155,673
========= ====== ======== ======== ========
The fair value of financial instruments that are not traded is
determined by using valuation techniques that maximise the use of
observable market data where it is available and rely as little as
possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument
is included in Level 2. Where the inputs for determining the fair
value of financial instruments are not based on observable market
data, the instrument is included in Level 3.
The Group has determined that the carrying amounts for cash and
cash equivalents, trade and other receivables and payables,
security and other deposits, and customer deposits are a reasonable
approximation of their fair values and are included in Level 2.
For assumptions used in the fair value measurement of the
Group's subsidiary preferred shares liability designated as Level
3, see footnote 18.
(23) Capital and Financial Risk Management
The Group's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. Management monitors the level
of capital deployed and available for deployment in subsidiary
projects. The board of directors seeks to maintain a balance
between the higher returns that might be possible with higher
levels of deployed capital and the advantages and security afforded
by a sound capital position.
The Group's executive management and board of directors have
overall responsibility for establishment and oversight of the
Group's risk management framework. The Group is exposed to certain
risks through its normal course of operations. The Group's main
objective in using financial instruments is to promote the
commercialisation of intellectual property through the raising and
investing of funds for this purpose. The Group's policies in
calculating the nature, amount and timing of funding are determined
by planned future investment activity. Due to the nature of
activities and with the aim to maintain the investors' funds secure
and protected, the Group's policy is to hold any excess funds in
highly liquid and readily available financial instruments and
reduce the exposure to other financial risks.
The Group has exposure to the following risks arising from
financial instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially
subject the Group to concentrations of credit risk consist
principally of cash and cash equivalents, other investments in the
form of fixed income securities, and trade and other
receivables.
The Group held following balances:
As of 31 December: 2017 2016
$'000 $'000
-------- --------
Cash and cash equivalent 158,075 209,151
Other investments 11,057 16,912
Trade and other receivables 15,642 5,900
184,774 231,963
======== ========
The Group maintains money market funds, certificates of
deposits, and fixed income securities with financial institutions,
which the Group believes are of high credit quality. Risk control
assesses the credit quality of the customer, taking into account
its financial position, past experience and other factors.
Individual risk limits are set based on ratings in accordance with
limits set by the board. The utilisation of credit limits is
regularly monitored. The credit quality of financial assets that
are neither past due nor impaired can be assessed by reference to
credit ratings (if available) or to historical information about
counterparty default rates.
Group policy is to maintain its funds in highly liquid deposit
accounts with reputable financial institutions.
The aging of trade receivables that were not impaired was as
follows:
As of 31 December: 2017 2016
$'000 $'000
------ ------
Neither past due nor
impaired 3,493 162
Past due 30-90 days _ 81
Past due over 90 days 367 921
Reserve for bad debt (367) (852)
3,493 312
====== ======
The Group has no significant concentration of credit risk. The
Group assesses the credit quality of customers, taking into account
their current financial position. An analysis of the credit quality
of trade receivables that are neither past due nor impaired is as
follows:
As of 31 December: 2017 2016
$'000 $'000
------ ------
Customers with less than
three years of 3,493 312
trading history with the
Group
3,493 312
====== ======
Liquidity Risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity
to meet its liabilities when they are due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
The Group seeks to manage liquidity risk, ensuring that
sufficient liquidity is available to meet foreseeable
requirements.
The following are the remaining contractual maturities of
financial liabilities at the reporting date. The amounts are gross
and undiscounted, and include estimated interest payments and
exclude the impact of netting agreements. The current portion of
the carrying amount of lease obligations is included in trade and
other payables.
As of 31 December
2017: Contractual cash flows
------- ----------------------------------
Carrying Less than More than
$'000 amount Total 1 year 2-5 years 5 years
--------- ------- ---------- ---------- ----------
Trade and other payables 14,276 14,276 14,276 _ _
Other non-current
liabilities 867 867 _ 867 _
15,143 15,143 14,276 867 _
========= ======= ========== ========== ==========
As of 31 December
2016: Contractual cash flows
------- ----------------------------------
Carrying Less than More than
$'000 amount Total 1 year 2-5 years 5 years
--------- ------- ---------- ---------- ----------
Trade and other payables 13,941 13,941 13,941 - -
Other non-current
liabilities 720 720 236 433 51
Unsecured bank loans 115 115 115 - -
14,776 14,776 14,292 433 51
========= ======= ========== ========== ==========
It is not expected that the cash flows included in the maturity
analysis could occur significantly earlier, or at significantly
different amounts.
Market Risk
Market risk is the risk that changes in market prices - such as
foreign exchange rates, interest rates and equity prices - will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising the return. The Group maintains the exposure to
market risk from such financial instruments to insignificant
levels. The Group exposure to changes in interest rates is
determined to be insignificant.
Capital Risk Management
The Group is funded by equity finance and long term borrowings.
Total capital is calculated as 'total equity' as shown in the
consolidated statement of financial position.
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. In order to maintain or adjust the capital
structure, the Group may issue new shares or borrow new debt. The
Group has some external debt and no material externally imposed
capital requirements. The Group's share capital is set out in note
16.
(24) Related Parties
Transactions with Key Management Personnel
Key Management Personnel Compensation
Key management personnel compensation received comprised the
following:
For the year ended 31 December: 2017 2016
$'000 $'000
------ ------
Short-term employee benefits 1,658 3,097
Share-based payments 7,607 2,073
Total 9,265 5,170
====== ======
Short-term employee benefits of the Group's key management
personnel include salaries and bonuses, health care and other
non-cash benefits.
Share-based payments include the value of awards granted under
the LTIP during the year. Share-based payments under the LTIP are
subject to vesting terms over future periods. See further details
of the two plans in note 6.
Bonuses to key management for the year of $1,840,000 were
outstanding at 31 December 2017 (2016: $1,673,000) and were paid in
January of 2018.
Key Management Personnel Transactions
Directors' remuneration for the year comprised the
following:
For the year ended 31 December: 2017 2016
$'000 $'000
------ ------
Non-executive Directors' fees 456 492
Non-executive Directors' share-based
payments 275 275
Total 731 767
====== ======
Fees to non-executive Directors of $124,000 were outstanding at
31 December 2017 and paid in January 2018 (2016: nil).
Executive management and Directors of the Company control 0.2%
of the voting shares of the Company as of 31 December 2017 (2016:
2.0%).
The Group has not engaged in any other transactions with key
management personnel or other related parties.
(25) Taxation
Amounts recognised in profit or loss
No current income tax expense was recorded for the years ended
31 December 2017 and 2016 due to accumulated losses.
For the year ended 31 December: 2017 2016
$'000 $'000
-------- --------
Net loss 111,012 128,942
Income taxes - -
Net loss before taxes 111,012 128,942
======== ========
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the US, therefore
the reconciliation of the effective tax rate has been prepared
using the US statutory tax rate. A reconciliation of the US
statutory rate to the effective tax rate is as follows:
2017 2016
% %
------- -------
Weighted average statutory rate 35.0 35.0
Effect of state tax rate in US 5.2 5.2
Research credits 3.8 3.4
Share-based payment remeasurement (12.7) (1.8)
Losses from dissolved subsidiaries 5.0 -
Other temporary differences (2.5) (5.0)
Current year losses for which
no deferred
tax asset is recognised (33.8) (36.8)
- -
======= =======
Factors that may affect future tax expense
The Group is primarily subject to taxation in the US and UK.
Additionally, the Group is exposed to state taxation in various
jurisdictions throughout the US. Changes in corporate tax rates can
change both the current tax expense (benefit) as well as the
deferred tax expense (benefit). Reductions in the UK corporation
tax rate to 19% (effective 1 April 2017) and to 18% (effective 1
April 2020) were substantially enacted on 26 October 2015. A
further reduction to 17% (effective 1 April 2020) was substantially
enacted on 6 September 2016. The maximum corporate tax rate in the
US for the corresponding periods is 35%, which was reduced to 21%
effective 1 January 2018.
On December 22, 2017, the U.S. government enacted a
comprehensive tax legislation, H.R.1, commonly referred to as the
Tax Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and
complex changes to the U.S. tax code, and it will take time for
additional clarifying guidance and legislation to be issued, and
this guidance will be required for the interpretation of these
comprehensive changes. We are in the process of analyzing the
potential aggregate current and future impacts of the Tax Act
relative to the Company.
As of 31 December 2017, the Company has completed a preliminary
analysis for the tax effects of the enactment of the Tax Act. In
certain cases, specifically as follows, the Company has made a
reasonable estimate of the effects on its existing deferred tax
balances. The impact of the Tax Act may differ from this estimate,
due to, among other things, changes in interpretations and
assumptions the Company has made, guidance that may be issued and
actions the Company may take as a result of the Tax Act.
The Tax Act reduces the U.S. federal corporate tax rate from 35%
to 21%. The change in our future effective tax rate is not
anticipated to have an effect on our cash tax until all of our U.S.
federal net operating losses and credits have been utilised.
Unrecognised Deferred Tax Assets
Deferred tax assets have not been recognised in respect of the
following items, due to history of losses and no convincing
evidence that future taxable profit will be available against which
the Group can use the benefits therefrom, as well as due to
potential permanent restrictions under IRS Section 382 rules:
As of 31 December: 2017 2016
$'000 $'000
-------- --------
Operating tax losses (1) 84,037 115,868
Capital losses (2) 13,596 1,146
Research credits (1) 11,772 10,130
Temporary differences (3) 4,502 20,620
Deferred tax assets 113,907 147,764
Other temporary differences (3) (746) (1,079)
Deferred tax liabilities (746) (1,079)
-------- --------
Deferred tax assets, net, not recognised 113,161 146,685
======== ========
(1) expire starting in 2024
(2) expiring since 2015
(3) generally will expire 20 years subsequent to the time
the deduction is taken
Deferred tax is measured at the rates that are expected to apply
in the period when the temporary differences are expected to
reverse, based on tax rates and laws that have been enacted or
substantially enacted by the statement of financial position date.
The reduction in the main rate of UK corporation tax to 20% (from
23%) was substantially enacted on 2 July 2013 and applied from 1
April 2015. However, the UK corporation tax rate initially reduced
from 23% to 21% from 1 April 2014. The change in the UK corporate
tax rate did not materially impact the calculation of the deferred
tax assets as these assets are generally exposed to tax in US
jurisdiction.
There were no movements in deferred tax recognised in income or
equity in 2017 or 2016 as the deferred tax asset was not recognised
in any of those years.
As of 31 December 2017 the Company had United States federal net
operating losses carry forwards ("NOLs") of approximately $321.7
million (2016: $287.6 million) available to offset future taxable
income, if any. These carry forwards start to expire in 2026 and
are subject to review and possible adjustment by the Internal
Revenue Service. The Company may be subject to limitations under
Section 382 of the Internal Revenue Code as a result of changes in
ownership. The Company's preliminary analysis on the impact from
Section 382 limitations suggests that there is unlikely to be a
material restriction on NOLs. A detailed exercise is ongoing. Upon
the completion of the study, there may or may not be limitations on
the Company's ability to utilize its current NOLs against future
profits, although these are not expected to be material.
(26) Subsequent Events
The Company has evaluated subsequent events through 22 March
2018, which is the date the consolidated financial information is
available to be issued.
Spin Transfer Technologies, Inc.
On 11 January 2018, Spin Transfer secured $10.3 million of
funding via a convertible bridge facility with existing
shareholders of the Group, which satisfied Allied Minds' commitment
to fulfill the remaining balance of the 2017 bridge facility with
Spin Transfer.
Percipient Networks, LLC
On 17 January 2018, Percipient completed a sale of assets to
WatchGuard Technologies, Inc.
Discontinued Subsidiaries
The Group ceased operations and dissolved each of Whitewood
Encryption Systems, Inc. and Seamless Devices, Inc. subsequent to
year end. The impact of this was assessed in the Group financials
as of 31 December 2017 and unrecoverable amounts were written
off.
Company Information
Company Registration Number 08998697 Brokers
Credit Suisse International
Registered Office 1 Cabot Square
Beaufort House London E14 4QJ
51 New North Road United Kingdom
Exeter EX4 4EP TEL: +44 207 888 8888
United Kingdom
Numis Securities Limited
Website The London Stock Exchange Building
www.alliedminds.com 10 Paternoster Square
London EC4M 7LT
Board of Directors United Kingdom
Peter Dolan TEL: +44 207 260 1000
(Non-Executive Chairman)
Registrar
Jill Smith Link Asset Services
(Chief Executive Officer) The Registry
34 Beckenham Road
Rick Davis Beckenham Kent BR3 4TU
(Senior Independent Director) United Kingdom
TEL UK: 0871 664 0300
Harry Rein TEL Overseas: +44 208 639 3399
(Independent Non-Executive Director)
Solicitors
Jeff Rohr DLA Piper UK LLP
(Independent Non-Executive Director) 3 Noble Street
London EC2V 7EE
Kevin Sharer United Kingdom
(Independent Non-Executive Director) TEL: +44 870 011 1111
Company Secretary Independent Auditor
Michael Turner KPMG LLP
15 Canada Square
London E14 5GL
United Kingdom
TEL: +44 207 311 1000
Media Relations
FTI Consulting LLP
200 Aldersgate
Aldersgate Street
London EC1A 4HD
United Kingdom
TEL: +44 203 727 1000
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR VFLFLVXFZBBK
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March 22, 2018 03:01 ET (07:01 GMT)
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