Source - RNS
RNS Number : 1359J
Amphion Innovations PLC
07 September 2016
 

 

Amphion Innovations plc

Interim Results for the six months to 30 June 2016

 

London and New York, 7 September 2016 - Amphion Innovations plc (LSE: AMP) ("Amphion" or the "Company"), the developer of medical and technology businesses, today announces its unaudited interim results for the six months to 30 June 2016 (the "Period").

Period Highlights:

·     Net Asset Value per ordinary share in the Company ("Ordinary Shares") up to 4.3p (US $0.057 cents)* at Period-end from 3.8p (US $0.055 cents) as at year end. The success of the AIM IPO of Amphion's Partner Company, Motif Bio plc ("Motif"), and the subsequent increase in the value of Amphion's shareholding in Motif, has been the driver behind the increase in the Company's Net Asset Value over the last 15 months. 

 

·    Total liabilities remained approximately unchanged over the period at US $29.1 million.

 

·    Motif began dosing patients in its iclaprim Phase III trials in March.

 

·     Satisfactory settlement with Berkeley Research Group LLC ("BRG") for US $1.6 million, of which US $0.6 million remains payable by 31 December 2016.

 

Post-Period Highlights:

·    Concluded a new Memorandum of Understanding to merge m2m with another company.

 

·    DataTern's Markman Hearing in MicroStrategy Case scheduled for September 26 in the U.S. District Court of Massachusetts.

 

·    Entered into additional draw-downs of loan facility of US $750,000 and US $2,350,000, with US $6.2 million currently drawn down.

 

* Exchange rate at 30 June 2016 - US $1.32 per GBP

Richard Morgan, CEO of Amphion Innovations plc, commented:

"Since completing the IPO on AIM in April last year, Motif has moved quickly to get two trials underway and announced the dosing of the first patient in March in its pivotal Phase III trial.  Motif recently announced that patient enrollment to date is ahead of projections.  Motif has a very bright future and is now on its way to potentially becoming a significant player in the antibiotic market, which has a growing need for novel therapies.

"We are committed to working closely with Motif to help it achieve its goals.  In addition, we now have the opportunity to move forward a couple of our other Partner Companies.  We look forward to the future with confidence and to being able to report further progress with Motif, DataTern, m2m, and other Partner Companies in due course."

 

                Financial Results and Net Asset Value

Revenue for the six-month period ended 30 June 2016 was US $60,000 compared with US $267,601 recorded in the first half of 2015.  We have continued to control costs and the Board has continued to work with reduced levels of current cash compensation. Total administrative expenses were on par with last year and, as a result, the operating loss for the Period was US $1,505,488 compared with US $1,254,554 as reported in the same period of last year.

 

The Pound fell against the Dollar in late June, following the Leave vote in the Brexit referendum, and over the six month period the exchange rate fell approximately 10%.  However, because the Company has assets and liabilities in both US Dollars and Pounds Sterling, there was only a small, but marginally positive, impact on the net assets of the Company.  Total assets in US Dollars were US $40,334,276 and the Net Asset Value per Share was 5.7 cents (up 3.6%) versus 5.5 cents at the end of last year.  In Pounds Sterling, NAV per Share was 4.3 pence at the end of the Period, up approximately 15% versus the year end figure of 3.8 pence.

 

On 5 January 2016, the Company announced that it agreed, in principle, to replace the US $3,308,600 of Notes payable to R. James Macaleer, the former Chairman of the Company, and the US $3,000,000 of Notes payable to the RJM Amphion Trust, a trust set up for the benefit of Mr. Macaleer's children, with the issue of new promissory notes that are now due to mature on 31 December 2016 ("New Promissory Notes"). The rate of interest on the New Promissory Notes will remain unchanged at 7%.  The New Promissory Notes also contain certain provisions for early repayment. However, in no case will any payment be made on the New Promissory Notes until the amounts outstanding under the Company's existing loan facility are fully repaid. Final payment of the loan facility is now scheduled for 1 December 2017.

 

In addition, on 2 March 2016 the Company announced that at a meeting on 26 February 2016, the holders of £5,707,738 Convertible Promissory Notes previously due on 31 December 2015 (the "Notes", and the "Note Holders") unanimously agreed to amend the terms of the Notes, which will now be redeemed on 31 December 2017 (subject to certain early partial redemption options) unless previously converted.  The Notes will be convertible into fully paid Ordinary Shares at 8 pence per Ordinary Share and will pay interest at 7% if the Company elects to pay in Ordinary Shares, or will pay interest at 5% if the Company elects to pay in cash or additional Notes, until conversion or redemption.  In addition, for every £1 of Note held, the respective Noteholder will be issued two warrants.  Each warrant granted will entitle the holder to subscribe for Ordinary Shares at 10 pence per Ordinary Share.

 

On 7 April 2016, the Company announced that it had reached a settlement agreement with BRG for US $1,575,000 million. As previously reported, in December 2012 BRG, an expert consultant engaged by the Company's wholly owned subsidiary DataTern, filed for arbitration claiming US $1,142,478 million was owed to them.  DataTern opposed the arbitration and vigorously contested the amount owed.  In January 2015, the arbitrator found in favour of BRG and awarded them a total amount of US$2,090,865 million for the balance due and legal costs. As a consequence of this settlement agreement, the liability has been transferred from DataTern to Amphion. Settling the BRG obligation and transferring the liability to Amphion will allow DataTern to obtain non-recourse litigation financing so that it may continue its patent litigation programme. The Company had recorded US $2,090,865 as a liability in its Consolidated Financial Statements for the year ended 31 December 2015.  US $100,000 was paid upon signing the settlement agreement, a further payment of US $400,000 was made on 30 April 2016, followed by US $100,000 on 30 June 2016.  An additional US $400,000 was paid in early July, leaving US $575,000 due on 31 December 2016.  The Company has continued to record the larger original amount, less payments made, on the books, so that the obligation showing in the balance sheet at the end of June was US $1,490,865.

 

During the course of the Period, the Company has made additional tranches of draw-downs on its loan facility with an institutional lender, as announced originally on 5 June 2014 (the "Loan Facility"). As at the period-end, the Company had drawn-down approximately US $4.1 million, following which a further two tranches have been drawn-down in addition to partial repayment of the outstanding amount, resulting in the Company having a current balance under the Loan Facility of US $6.2 million. Of this amount, US $3.0 million plus interest is convertible into the ordinary shares of Amphion at 6 pence and the remaining amount, plus interest, is convertible at 8 pence. Under the terms of the Loan Facility, the interest rate will be 10% with final repayment due on 1 December 2017.  The Loan Facility is secured by the pledge by the Company of 6.7 million ordinary shares of Kromek Group plc and 28.0 million ordinary shares of Motif.

 

Amphion's holding of intellectual property assets is valued at amortised cost of US $197,474. In addition to the initial purchase of these IP assets from our Partner Company FireStar Software, Amphion has made additional substantial investment in these assets. That investment has been expensed as incurred and the value of those assets continues to be carried only at amortised historical cost.  The Directors believe that the realisable value of the intellectual property assets held by DataTern is substantially in excess of the carrying value and the incremental investments being made in the pursuit of infringers of the IP will generate a significant profit. We believe that if we are successful in concluding licensing agreements with the various infringing parties at levels that meet our expectations, the Company's NAV per Ordinary Share would be significantly higher.

 

Motif Bio plc

Following Motif's AIM IPO on 2 April 2015, it raised an additional £22 million from institutional investors in July 2015, at which time the FDA designated iclaprim a Qualified Infectious Diseases Product ("QIDP") for hospital acquired bacterial pneumonia ("HABP") and for acute bacterial skin and skin structure infections ("ABSSSI").  With QIDP designation, iclaprim is now eligible for a total of ten years of market exclusivity from the date of approval.

 

Iclaprim has a novel mechanism of action and enjoys a number of important clinical and commercial attributes, such as a low propensity to develop resistance, which has been demonstrated in vitro.  Iclaprim was originally developed by Hoffman-La Roche Inc. and completed comprehensive development in 2008, including two Phase III trials with over 900 patients, half of whom were treated with this antibiotic.  Although the FDA declined to approve the drug at the time, despite having met the original goals agreed with the agency, the FDA confirmed that they were satisfied with the safety profile of iclaprim and this was confirmed in Motif's April 2015 meeting with the agency. 

 

On 2 March 2016, Motif announced that the first person to enter the new Phase III trial had been screened and dosed and Motif has recently announced that the patient enrollment to date is ahead of projections.  The trial was originally expected to take about 18 months and, in light of the extensive development history and the improvements in the trial design, Motif believes the drug will meet the new endpoints.  Subject to the necessary regulatory approvals, Motif expects to begin marketing the drug in 2018. Motif announced its filing for its intention to pursue a US public offering on 13 July 2016 for a listing of American depositary shares on the NASDAQ Global Select Market. However, as a result of market conditions, it has deferred pricing of its proposed public offering, but intends to continue to engage with investors with a view to pursue the listing in the near future. The Directors of Amphion believe that the successful listing of ADSs in Motif on NASDAQ should, in due course, give Motif access to a broader base of investors and a deeper pool of development capital.

 

Motif's share price rose approximately 21% over the Period to 51.75 pence as at 30 June 2016, but remained below the high of 68.75 pence reached at the end of June 2015.  Amphion holds approximately 43 million shares of Motif Bio plc on a fully diluted basis, of which approximately 28.0 million are pledged in relation to the Loan Facility.

 

DataTern and the Intellectual Property Licensing Programme

DataTern Inc. ("DataTern"), a wholly owned subsidiary of the Company, announced in September 2015 that it received a favourable ruling by the U.S. District Court in Massachusetts (the "Court"), which denied two motions for summary judgment filed by MicroStrategy Inc. ("MicroStrategy") seeking dismissal of DataTern's claims on the grounds of validity and infringement.  In May 2015, there was a hearing on the two motions: one motion argued that DataTern's '502 patent is invalid under section 101 of the United States Patent Act, and the second argued that MicroStrategy did not infringe the '502 patent. 

 

The Court found that the '502 patent solved a specific problem in computing using an inventive concept and concluded that the invention was eligible for patent protection under the U.S. Supreme Court's most recent precedent.  On the second motion, concerning the issue of infringement, the Court denied MicroStrategy's motion seeking a determination that it did not infringe because its Business Platform did not use an "object model", leaving the door open to revisit related issues in the future.

 

With these favourable results, the MicroStrategy case has continued.  A review of the MicroStrategy source code is expected to take place in September 2016 and a Markman Hearing has been scheduled for the end of the same month. Once the Markman Ruling is received, a trial schedule will be set with the prospect that the trial could be completed before the end of 2017.

 

Given the favourable ruling DataTern received from the Federal Circuit Court of Appeals in its appeal in the MicroStrategy case in December 2014 (which the Company's legal advisors considered to be clearly favourable), DataTern believes that they have a strong position entering the Markman Hearing.

 

MicroStrategy sells business intelligence and analytics software platforms used by other defendants.  There are seven defendants in the MicroStrategy case.

 

DataTern's legal team, supported by the Company's extensive team of technical and patent experts, continues to believe in the strength of its intellectual property.  Both of DataTern's key patents have completed a comprehensive re-examination by the United States Patent and Trademark Office ("USPTO") and successfully emerged both fully validated and with additional claims added.  It remains the considered opinion of the Company's team that the two patents are both valid and being infringed by a wide range of companies that are practicing this critical art. The Board believes that a Claim Construction ruling (Markman Ruling), which is fully reflective of its interpretation of the claims of the patents, would establish significant infringement by a large number of companies and it believes that DataTern should potentially be able to generate a significant amount of revenue from this asset over the next few years. 

 

Under the revenue sharing agreement with DataTern, Amphion's Partner Company, FireStar Software Inc. (where the technology and patents were originally developed), would share directly in the revenue stream.

 

Building Value in the Partner Companies

Since flotation, our business model has been to start and build companies with high value potential based on innovative and proprietary, but fundamentally proven, technology. Our continued ability to select promising IP and to develop the IP portfolios in each of our Partner Companies is a critical success factor, and is getting steadily stronger as we deepen our knowledge and experience in this area. This knowledge underpins Amphion's investment in each Partner Company at the outset and as it develops. However, our primary goal in every company is the development of a successful business model and operating capabilities that can utilise the technology to develop and commercialise innovative products, generate revenue, and make profits.  Following the successful IPO for Motif on AIM in April 2015, we have the opportunity to advance m2m and to start to consider how best to grow the Company in the future.

 

m2m is poised to make good progress.  We are pleased to be able to announce that we have renewed the Memorandum of Understanding first announced in early November 2015.  Those plans were adversely affected by the steep fall in the biotech market but we have continued to explore this opportunity and with a more stable biotech market in recent months we have once again established a basis to proceed with the proposed merger with an undisclosed pioneer and leader in advanced pulmonary imaging technology ("the Private Company").  Conditional upon the fulfillment of certain terms and following the merger, Amphion expects to own a significant stake in the combined merged entity.  m2m is a US-based company focused on developing a range of preclinical and clinical imaging system accessories for Magnetic Resonance Imaging ("MRI") systems.  The Private Company owns an advanced pulmonary imaging technology platform which is used to more accurately diagnose and monitor major lung diseases, including COPD, asthma, and cystic fibrosis.  The combined company will have an array of products that will be sold as add-on components to the substantial installed base of MRI machines around the world.  MRI is a medical imaging modality that is being increasingly used in pre-clinical investigations as well as for clinical diagnostics. Lung Disease is a major global public-health issue affecting over 40 million people in the United States and costs the United States US $150 billion annually.

 

We continue to believe that the technology platform of Kromek Group plc ("Kromek") has significant potential.  With the acquisition of eV Products in 2013, Kromek gained one of the leading cadmium zinc telluride ("CZT") production capabilities in the world.  As the cost of producing this material becomes competitive with scintillator technology, the opportunity exists for a lasting shift to CZT-based detector systems, bringing the benefits of multispectral imaging to CT systems and nuclear medicine, for example in SPECT systems.  During its last fiscal year to April 2016, Kromek announced a number of orders from the Defense Advanced Research Projects Agency ("DARPA"), an agency of the U.S. Department of Defense, and from other existing customers to be recognised over the lifetime of the orders. As a result, Kromek is entering its new fiscal year with a substantial backlog, and the recently announced orders support our view that, in time, the technology should be widely adopted for use across all of its target markets, including medical imaging systems. Following the institutional placing last year, Amphion's shareholding in Kromek decreased to approximately 5.27%. While our policy is to continue to hold as many shares as long as possible, we have recently undertaken a process to dispose a certain proportion of our holding in order to support the Loan Facility we are using to finance the other projects in development. Our holding in Kromek as at the date of this announcement is approximately 6.7 million shares, all of which are pledged in relation to the Loan Facility.

 

In April 2014, the case Axcess brought against Baker & Botts LLP, the law firm, went to the jury which returned a verdict in favour of Axcess of US $40.5 million. The judge then overruled this verdict. Axcess' appeal to the Texas Appeals Court for a new trial was denied and they are now in the process of pursuing an appeal to the Texas Supreme Court.  Axcess is also appealing the decision by the US Patent and Trademark Office to invalidate the patent that is the subject of a suit against Savi Technologies.  That appeal is being made to the Federal Circuit Court of Appeals and will be heard sometime in the third quarter of 2016.  In parallel, Amphion has worked closely with Axcess' legal advisers to evaluate the extent to which all 13 patents in its portfolio are being infringed. It is clear that many companies are now offering products or services that incorporate some of the basic wireless technology developed by Axcess over the last 15 years.  A number of companies in the transportation, security, and other sectors appear to be infringing one or more of these patents. Axcess is currently discussing litigation strategies and financing opportunities with several legal and litigation financing firms. They hope to engage with one or more of these firms in the near future with a plan of initiating patent suits against infringers of their patents.

 

FireStar has continued to work on the development of its patented technology, which was also the basis of the formation of PrivateMarkets and is incorporated in its EdgeNode™ product.  PrivateMarkets, an Amphion Partner Company, offers an internet-based marketplace that links together a network of potential buyers and sellers who trade specific physical commodities. EdgeNode enables companies to facilitate low-cost, secure, machine-to-machine messaging, in a novel architecture, which is well suited to the needs of the healthcare and financial industries. The current focus is moving increasingly towards healthcare and, in particular, the potential productivity gains that should be possible with use of the technology in managing data and images so vital to clinical trials.  FireStar is looking to start a pilot programme with a small clinical trial sponsor with the plan to create a product offering by the end of 2016.  FireStar continues to build its patent portfolio in support of its product offering and believes that there may also be opportunities to license the technology.

 

WellGen continues to explore the opportunity to develop a novel functional beverage based on a patented anti-inflammatory ingredient. The market for such products has been expanding rapidly in recent years. The company signed a joint venture and supply agreement with a US-based sports drink company that has established distribution channels in the mid-west of the United States, with an opportunity to expand to other US markets and beyond.

 

Financing

Financial support for Amphion over the last few years has come, for the most part, from the Directors and the management team. Following the Kromek IPO in late 2013, Amphion was able, for the first time, to access the Loan Facility in 2014, granted by an institutional lender, using the value of the publicly traded assets as security for a loan to bridge the Company financially through to the IPO of Motif.  That approach served the Company well.  Since then, the Company has borrowed additional funds under this loan facility and, during 2015, Amphion was able, for the first time in many years, to access the equity capital markets again on two occasions in April and June 2015, raising a total of £2,119,683.  The support from the management team has continued but with reduced prominence.  Since the end of the Period, the Company has concluded a new arrangement with the provider of the Loan Facility that has enabled access to an additional US $2 million net of fees and expenses.  This additional capital will be used to support the operations of the business and the development of other projects.

 

The liabilities on the balance sheet stood at a total of approximately US $29.1 million at the end of the Period, about the same as at the end of last year.  Some of the liabilities are at the DataTern level, although consolidated into the Company's reporting accounts.  Adjusting for the settlement made with BRG (announced in April 2016), the remainder of the third party payables at the DataTern level stood at approximately US $1.3 million.  Of the remainder of the liabilities, US $13,838,425 were amounts owing to current or former board members and US $6,301,716 were amounts due to the other holders of the Company's Convertible Promissory Notes, which was extended in maturity in February 2016. The remainder of the Company's liabilities total approximately US $7.7 million representing 19% of total assets.  The management team has worked closely with the main holders of Convertible Promissory Notes, the Notes and other claims on the Company in order to extend the maturity of these obligations to the maximum extent possible.  The most recent draws from the Loan Facility add approximately US $2.3 million to the total, but put US $2 million in cash at the Company's disposal and, as noted above, the total owing BRG is overstated by about US $1 million, assuming the final payment is made.

 

Prospects

The success of Motif's AIM IPO and the subsequent increase in the value of our shareholding in Motif has been the driver behind the increase in our Net Asset Value over the last 15 months.  It has also demonstrated the value of our patient and persistent approach to the development of our Partner Companies.  Despite the sharp increase in Motif's share price since the IPO, we believe that it should be valued more in-line with comparable companies trading on NASDAQ and that our holding could be worth considerably more than the level shown on the balance sheet at the end of June 2016. We continue to work closely with Motif to develop the business and close the valuation gap.  We believe Motif has a very bright future and we are committed to helping the company to become a major player in the antibiotic biopharmaceutical world.

 

The outlook for Amphion depends increasingly on the value we can capture from our holdings in Motif, Kromek and, if we can move it forward successfully, m2m.  We are very actively supporting the development of both Motif and m2m and view the future of all three companies with optimism. 

 

           

 

 

            For further information please contact:

Amphion Innovations
Charlie Morgan
+1 212 210 6224

Yellow Jersey PR
Dominic Barretto
+44 (0)7768 537 739

Panmure Gordon (UK) Limited
Freddy Crossley / Duncan Monteith (Corporate Finance)
Charlie Leigh-Pemberton (Corporate Broking)
+44 020 7886 2500

Northland Capital Partners Limited (Joint Corporate Broker)
Gerry Beaney / David Hignell (Corporate Finance)
John Howes/ Mark Treharne (Corporate Broking)
+44 020 7382 1100

 

 

Amphion Innovations plc

 

 

 

 

 

 

 

 

Condensed consolidated statement of comprehensive income

 

 

 

 

For the six months ended 30 June 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

 

 

 

Notes

 

Six months

 

Six months

 

Audited

 

 

 

 

ended

 

ended

 

Year ended

 

 

 

 

30 June 2016

 

30 June 2015

 

31 December 2015

Continuing operations

 

 

 

 US $

 

 US $

 

 US $

 

 

 

 

 

 

 

 

 

Revenue

 

4

 

              60,000

 

         267,601

 

                 519,855

Cost of sales

 

 

 

                       -

 

                    -

 

                            -

Gross profit

 

 

 

              60,000

 

         267,601

 

                 519,855

 

 

 

 

 

 

 

 

 

Administrative expenses

 

 

 

        (1,565,488)

 

     (1,522,155)

 

             (4,680,212)

 

 

 

 

 

 

 

 

 

Operating loss

 

 

 

        (1,505,488)

 

     (1,254,554)

 

             (4,160,357)

 

 

 

 

 

 

 

 

 

Fair value gains on investments

 

8

 

         1,156,454

 

    34,807,904

 

              8,512,215

Realised gains on sale of investment

 

 

 

                       -

 

                    -

 

              1,595,429

Interest income

 

 

 

            326,914

 

         342,657

 

                 678,824

Other gains and losses

 

 

 

            948,995

 

          (93,792)

 

                 505,015

Finance costs

 

 

 

           (606,848)

 

        (650,573)

 

             (1,187,427)

 

 

 

 

 

 

 

 

 

Profit before tax

 

 

 

            320,027

 

     33,151,642

 

              5,943,699

 

 

 

 

 

 

 

 

 

Tax on profit

 

6

 

                       -  

 

                     -  

 

                    (1,900)

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

            320,027

 

     33,151,642

 

              5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange differences arising on translation

 

 

 

 

 

 

 

   of foreign operations

 

 

 

                       -

 

                    -

 

                            -

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss) for the period

 

 

                       -

 

                    -

 

                            -

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

            320,027

 

    33,151,642

 

             5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

US

 $              0.00

US

 $          0.21

US

 $                   0.03

 

 

 

 

 

 

 

 

 

Diluted

 

 

US

 $              0.00

US

 $          0.15

US

 $                   0.02

 

 

 

 

 

 

 

 

 

                           

  

 

Amphion Innovations plc

 

 

 

 

 

 

 

Condensed consolidated statement of financial position

 

 

 

 

At 30 June 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

Notes

 

30 June 2016

 

30 June 2015

 

31 December 2015

 

 

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Intangible assets

 

 

        197,474

 

        352,558

 

                   275,016

Security deposit

 

 

          20,000

 

          13,600

 

                     22,008

Investments

8

 

   38,766,523

 

   61,602,246

 

              37,444,316

 

 

 

   38,983,997

 

   61,968,404

 

              37,741,340

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Prepaid expenses and other receivables

 

 

     1,302,133

 

     2,648,118

 

                1,206,843

Cash and cash equivalents

 

 

          48,146

 

     1,690,277

 

                   936,981

 

 

 

     1,350,279

 

     4,338,395

 

                2,143,824

 

 

 

 

 

 

 

 

Total assets

 

 

   40,334,276

 

   66,306,799

 

              39,885,164

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

   10,121,740

 

   10,288,182

 

              10,346,011

Notes payable

10

 

   11,326,234

 

     8,316,734

 

              10,334,901

Convertible promissory notes

10

 

                    -

 

     8,694,834

 

                8,312,180

 

 

 

   21,447,974

 

   27,299,750

 

              28,993,092

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Convertible promissory notes

10

 

     7,652,133

 

                   -

 

                              -

Notes payable

10

 

                   -

 

        975,000

 

                              -

 

 

 

     7,652,133

 

        975,000

 

                              -

 

 

 

 

 

 

 

 

Total liabilities

 

 

   29,100,107

 

   28,274,750

 

              28,993,092

 

 

 

 

 

 

 

 

Net assets

 

 

   11,234,169

 

   38,032,049

 

              10,892,072

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Share capital

11

 

     3,465,082

 

     3,451,594

 

                 3,460,880

Share premium account

 

 

   38,677,055

 

   38,618,323

 

               38,667,074

Retained earnings

 

 

  (30,907,968)

 

    (4,037,868)

 

              (31,235,882)

 

 

 

 

 

 

 

 

Total equity

 

 

   11,234,169

 

    38,032,049

 

               10,892,072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Amphion Innovations plc

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of changes in equity

 

 

 

 

 

 

For the six months ended 30 June 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

Share

 

premium

 

Retained

 

 

 

Notes

 

capital

 

account

 

earnings

 

Total

 

 

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

 

 2,716,656

 

 36,070,864

 

 (37,201,341)

 

   1,586,179

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

          -  

 

                 -

 

  33,151,642

 

 33,151,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

             -

 

                 -

 

  33,151,642

 

 33,151,642

 

 

 

 

 

 

 

 

 

 

Issue of share capital

 

 

    734,938

 

   2,667,411

 

                  -

 

   3,402,349

 

 

 

 

 

 

 

 

 

 

Costs of issuance

 

 

              -

 

     (119,952)

 

                  -

 

     (119,952)

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

 

 

             -

 

                 -

 

         11,831

 

        11,831

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2015

 

 

 3,451,594

 

 38,618,323

 

   (4,037,868)

 

 38,032,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

 

 

 3,460,880

 

 38,667,074

 

 (31,235,882)

 

 10,892,072

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

              -

 

                 -

 

       320,027

 

      320,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

            -  

 

                 -

 

       320,027

 

      320,027

 

 

 

 

 

 

 

 

 

 

Issue of share capital

 

 

 4,202

 

          9,981

 

                  -

 

        14,183

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

12

 

              -

 

                 -

 

           7,887

 

          7,887

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2016

 

 

 3,465,082

 

 38,677,055

 

 (30,907,968)

 

 11,234,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                       

  

 

Amphion Innovations plc

 

 

 

 

 

Condensed consolidated statement of cash flows

 

 

 

 

 

For the six months ended 30 June 2016

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

 

 

Six months

 

Six months

 

Audited

 

ended

 

ended

 

Year ended

 

30 June 2016

 

30 June 2015

 

31 December 2015

 

US $

 

US $

 

US  $

Operating activities

 

 

 

 

 

 

 

 

 

 

 

Profit

        320,027

 

      33,151,642

 

              5,941,799

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

   Amortisation of intangible assets

          77,542

 

             77,542

 

                 155,084

   Recognition of share-based payments

          22,071

 

             29,015

 

                   98,881

   (Increase)/decrease in security deposit

         2,008 

 

                       -

 

         (8,408)

   (Increase)/decrease in prepaid & other receivables

      (95,290)

 

            (78,738)

 

              1,362,537

   Increase/(decrease) in trade & other payables

       (224,271)

 

             17,598

 

                   75,427

   Receivables reclassified to investments

                  -

 

          (106,041)

 

 (432,420)

   Change in fair value of investments

    (1,156,454)

 

     (33,587,887)

 

  (8,512,215)

   Gain on sale of investments

                   -

 

       (1,220,017)

 

(1,595,429)

   Transfer of assets to settle interest expense

                   -

 

             89,480

 

                   89,480

   Issue notes to settle interest expense

        205,221

 

           227,061

 

                -  

   (Gain)/loss from change in foreign exchange rate on

 

 

 

 

 

        convertible promissory notes

       (865,269)

 

           104,725

 

             -  

 

 

 

 

 

 

Net cash used in operating activities

    (1,714,415)

 

       (1,295,620)

 

     (2,825,264)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Purchases of investments

       (165,753)

 

          (139,799)

 

  (402,015)

 

 

 

 

 

 

Net cash used in investing activities

       (165,753)

 

          (139,799)

 

   (402,015)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds on issue of shares, net of issuance costs

              -  

 

        3,265,213

 

              3,265,213

Proceeds on issue of promissory notes

     1,765,000

 

           300,000

 

              3,300,000

Repayments of promissory notes

       (773,667)

 

          (652,333)

 

   (2,609,167)

 

 

 

 

 

 

Net cash from financing activities

        991,333

 

        2,912,880

 

              3,956,046

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

       (888,835)

 

        1,477,461

 

                 728,767

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

        936,981

 

           212,816

 

                 212,816

 

 

 

 

 

 

Effect of foreign exchange rate changes

                   -

 

                      - 

 

          (4,602)

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

          48,146

 

        1,690,277

 

                 936,981

 

 

 

 

 

 

Interest received

                 18

 

                    19

 

      43

Interest paid

        156,205

 

             77,231

 

                 245,079

  

 

               Amphion Innovations plc
               Notes to the condensed consolidated financial statements (Unaudited)
 
                For the six months ended 30 June 2016

1.   General information

 

The condensed consolidated interim financial statements for the six months ended 30 June 2016 are unaudited and do not constitute statutory accounts within the meaning of the Isle of Man Companies Act 2006.  The statutory accounts of Amphion Innovations plc for the year ended 31 December 2015 have been filed with the Registrar of Companies and contain an unqualified audit report which includes an emphasis of matter relating to significant uncertainty in respect of going concern and valuation of Partner Company investments.  Copies are available on the company's website at www.amphionplc.com/reports.php.

2.  Accounting policies

These condensed consolidated interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS).

The accounting policies applied by the Group are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2015.  Changes to accounting standards in the current year had no material impact.

3.  Use of judgements and estimates

The preparation of the Group's interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingencies at the date of the Group's interim financial statements, and revenue and expenses during the reporting period. Actual results could differ from those estimated.  Significant estimates in the Group's financial statements include the amounts recorded for the fair value of the financial instruments and other receivables.  By their nature, these estimates and assumptions are subject to an inherent measurement of uncertainty and the effect on the Group's financial statements of changes in estimates in future periods could be significant.

Investments that are fair valued through profit or loss, as detailed in note 8, are all considered to be "Partner Companies".  Those "Partner Companies" categorised as Level 3 are defined as investment in "Private Companies".

Fair value of financial instruments

The Directors use their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an active market ("Private Investments").  The estimation of fair value of these Private Investments includes a number of assumptions which are not supported by observable market inputs.  The carrying amount of the Private Investments is US $6 million.

Fair value of other receivables

Other receivables are stated at their amortised cost which approximates their fair value and are reduced by appropriate allowances for estimated irrecoverable amounts and do not carry any interest. 
 

4.  Revenue

 

An analysis of the Group's revenue is as follows:

 

 

Six months ended

 

Six months ended

 

Year ended

 

30 June 2016

 

30 June 2015

 

31 December 2015

 

US $

 

US $

 

US $

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

Advisory fees

                   60,000  

 

                 210,000

 

                 459,904

License fees

                            -

 

                   57,601

 

                   59,951

 

 

 

 

 

 

 

                   60,000

 

                 267,601

 

                 519,855

 

As part of the agreement for DataTern, Inc. to purchase certain of the intangible assets in December 2007, a portion of future revenues from these patents will be retained by FireStar Software, Inc.  No amounts have become payable to FireStar Software, Inc. to date.

 

 

5.  Segment information

 

For management purposes, the Group is currently organised into three business segments - advisory services, investing, and intellectual property.  These business segments are the basis on which the Group reports its primary segment information. 

 

Information regarding these segments is presented below.

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

30 June 2016

 

30 June 2016

 

30 June 2016

 

30 June 2016

 

30 June 2016

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

REVENUE

 

 

 

 

 

 

 

 

 

 

External advisory fees

 

            60,000

 

                     -  

 

                     -  

 

                     -

 

            60,000

External license fees

 

                     -

 

                     -

 

                     -

 

                     -

 

                     -

  Total revenue

 

            60,000

 

                     -

 

                     -

 

                     -

 

            60,000

Cost of sales

 

                     -

 

                     -

 

                     -

 

                     -

 

                     -

Gross profit

 

            60,000

 

                     -

 

                     -

 

                     -

 

            60,000

Administrative expenses

 

         (341,193)

 

         (889,603)

 

         (334,692)

 

                     -

 

      (1,565,488)

 

 

 

 

 

 

 

 

 

 

 

 

Segment result

 

         (281,193)

 

         (889,603)

 

         (334,692)

 

                     -  

 

      (1,505,488)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gains on

 

 

 

 

 

 

 

 

     investments

 

                     -  

 

       1,176,171

 

                     -

 

           (19,717) 

 

        1,156,454

Interest income

 

                     -

 

          326,914

 

                     -

 

                     -

 

           326,914

Other gains and losses

 

                 195    

 

          948,800

 

                     -

 

                     -  

 

           948,995

Finance costs

 

                     -  

 

         (583,491)

 

           (23,357)

 

                     -

 

          (606,848)

Profit/(loss) before tax

 

         (280,998)

 

          978,791

 

         (358,049)

 

           (19,717)  

 

           320,027

Income taxes

 

                     -

 

                     -

 

                     -     

 

                     -  

 

                      -

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) after tax

 

         (280,998)

 

          978,791

 

         (358,049)

 

           (19,717) 

 

          320,027

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

 

30 June 2016

 

30 June 2016

 

30 June 2016

 

30 June 2016

 

30 June 2016

 

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

Segment assets

 

       7,858,227

 

     40,836,766

 

            229,627

 

     (8,590,344)

 

    40,334,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

 

       7,885,812

 

     21,907,661

 

         7,235,277

 

     (7,928,643)

 

    29,100,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation

                     -

 

                     -

 

              77,542

 

                    -

 

           77,542

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of share-based      

 

 

 

 

 

 

 

 

 

 

   payments

 

                     -  

 

            22,071

 

                      -  

 

                    -  

 

           22,071

 

 

 

5.  Segment information, (continued)

 

For management purposes for 30 June 2015, the Group was organised into three business segments - advisory services, investing activities, and intellectual property.

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

REVENUE

 

 

 

 

 

 

 

 

 

 

External advisory fees

 

          210,000

 

                     -  

 

                     -  

 

                    -

 

          210,000

External license fees

 

                     -

 

                     -

 

            57,601

 

                    -

 

            57,601

  Total revenue

 

          210,000

 

                     -

 

            57,601

 

                    -

 

          267,601

Cost of sales

 

                     -

 

                     -

 

                     -

 

                    -

 

                     -

Gross profit

 

          210,000

 

                     -

 

            57,601

 

                    -

 

          267,601

Administrative expenses

 

         (472,570)

 

         (668,081)

 

         (381,504)

 

                    -

 

      (1,522,155)

 

 

 

 

 

 

 

 

 

 

 

 

Segment result

 

         (262,570)

 

         (668,081)

 

         (323,903)

 

                    -  

 

      (1,254,554)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gains on

 

 

 

 

 

 

 

 

     investments

 

                     -  

 

     35,084,408

 

                     -

 

         (276,504) 

 

      34,807,904

Interest income

 

                     -

 

          342,657

 

                     -

 

                    -

 

           342,657

Other gains and losses

 

                     -     

 

           (93,792)

 

                     -

 

                    -  

 

            (93,792)

Finance costs

 

                (342)  

 

         (625,634)

 

           (24,597)

 

                    -

 

          (650,573)

Profit/(loss) before tax

 

         (262,912)

 

     34,039,558

 

         (348,500)

 

         (276,504)  

 

      33,151,642

Income taxes

 

                     -

 

                     -

 

                     -     

 

                    -  

 

                      -

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) after tax

 

         (262,912)

 

     34,039,558

 

         (348,500)

 

         (276,504) 

 

      33,151,642

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

Segment assets

 

     11,705,260

 

     60,892,631

 

            396,170

 

     (6,687,262)

 

    66,306,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

 

       7,085,484

 

     20,540,316

 

         6,532,264

 

     (5,883,314)

 

    28,274,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation

                     -

 

                     -

 

              77,542

 

                    -

 

           77,542

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of share-based      

 

 

 

 

 

 

 

 

 

 

   payments

 

                     -  

 

            29,015

 

                      -  

 

                    -  

 

           29,015

 

 

 

 

5.  Segment information, (continued)

 

Geographical segments

 

The Group's operations are located in the United States and the United Kingdom.

 

The following table provides an analysis of the Group's advisory fees by geographical location of the investment.

 

 

 

Advisory fees by

 

 

geographical location

 

 

Six months ended

 

Six months ended

 

 

30 June 2016

 

30 June 2015

 

 

US $

 

US $

 

 

 

 

 

United States

 

-

 

210,000

United Kingdom

 

60,000

 

                            -

 

 

60,000

 

210,000 

 

The following table provides an analysis of the Group's license fees by geographical location.

 

 

License fees by

 

geographical location

 

Six months ended

Six months ended

 

30 June 2016

30 June 2015

 

US $

US $

United States

                        -

                     50,551

Europe

                         -

                       7,050 

 

-

                     57,601

 

 

The following is an analysis of the carrying amount of segment assets, and additions to fixtures, fittings, and equipment, analysed by the geographical area in which the assets are located:

 

 

Carrying amount

 

Additions to fixtures, fittings, and

 

of segment assets

 

equipment and intangible assets

 

Six months ended

 

Six months ended

 

Six months ended

 

Six months ended

 

30 June 2016

 

30 June 2015

 

30 June 2016

 

30 June 2015

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

United States

7,520,429

 

13,733,409

 

-

 

-

United Kingdom

32,813,847

 

52,573,390

 

-

 

-

 

40,334,276

 

66,306,799

 

-

 

-

 

 

 

 

 

 

 

6.   Income tax expense

 

 

Six months ended

 

Six months ended

 

Year ended

 

30 June 2016 

 

30 June 2015

 

31 December 2015

 

US $

 

US $

 

US $

 

 

 

 

 

 

Isle of Man income tax

                                  -  

 

                                    -  

 

                                   -

Tax on US subsidiaries

                                  -

 

                      -  

 

                            1.900

 

 

 

 

 

 

Current tax / refund

                            -

 

                                -  

 

                            1,900

 

 

 

From 6 April 2006, a standard rate of corporate income tax of 0% applies to Isle of Man companies, with exceptions taxable at the 10% rate, namely licensed banks in respect of deposit-taking business, companies that profit from land and property in the Isle of Man and companies that elect to pay tax at the 10% rate.  No provision for Isle of Man taxation is therefore required.  The Company is treated as a Partnership for U.S. federal and state income tax purposes and, accordingly, its income or loss is taxable directly to its partners. 

 

The Company has three subsidiaries, two in the USA and one in the Kingdom of Bahrain.  The US subsidiaries, Amphion Innovations US Inc. and DataTern, Inc., are Corporations and therefore taxed directly.  The US subsidiaries suffer US federal tax, state tax, and New York City tax on their taxable net income. 

 

The Group charge for the period can be reconciled to the profit per the consolidated income statement as follows:

 

 

 US $

 

 

Profit before tax

         320,027

 

 

Tax at the Isle of Man income tax rate of 0%

                        -  

 

 

Effect of different tax rates of subsidiaries

 

operating in other jurisdictions

                        -

 

 

Current tax

                        -

  

 

7.  Earnings per share

 

The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the following data:

 

Earnings

 

Six months ended

 

Six months ended

 

 Year ended

 

 

30 June 2016

 

30 June 2015

 

31 December 2015

 

 

US $

 

US $

 

US $

Earnings for the purposes of basic and diluted earnings per share

 

 

 

 

 

 

    (profit for the year attributable to equity holders of the parent)

 

                  320,027

 

            33,151,642

 

              5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

 

 

 

 

 

 

Six months

 

Six months

 

 

 

 

ended

 

ended

 

Year ended

 

 

30 June 2016

 

30 June 2015

 

31 December 2015

 

 

 

 

 

 

 

Weighted average number of ordinary shares for

 

 

 

 

 

 

    the purposes of basic earnings per share

 

           197,493,495

 

           160,917,415

 

          179,083,069

 

 

 

 

 

 

 

Effect of dilutive potential ordinary shares:

 

 

 

 

 

 

    Share options

 

               2,405,083

 

               3,671,872

 

              3,925,501

    Convertible promissory notes

 

            72,233,543

 

            55,286,030

 

            56,369,051

 

 

 

 

 

 

 

Weighted average number of ordinary shares for

 

 

 

 

 

 

    the purposes of diluted earnings per share

 

           272,132,121

 

           219,875,317

 

          239,377,621

 

Share options that could potentially dilute basic earnings per share in the future have not been included in the calculation of diluted earnings per share because they are antidilutive.

8.  Investments

 

At fair value through profit or loss

 

 

Group

 

Level 1

Level 2

Level 3

Total

 

         US $

         US $

           US $

         US $

At 1 January 2016

  31,655,446

                  -

    5,788,870

  37,444,316

 

 

 

 

 

Investments during the year

                  -  

                  -  

       165,753

       165,753

Fair value gains

    1,158,404

                  -

          (1,950)

    1,156,454

 

 

 

 

 

At 30 June 2016

  32,813,850

                  -

    5,952,673

  38,766,523

 

 

 

 

 

At 1 January 2015

    6,668,978

                  -

  22,098,681

  28,767,659

 

 

 

 

 

Investments during the year

                  -  

                  -  

       245,840

       245,840

Disposition of investment

   (2,219,157)

                  -

                  -

   (2,219,157)

Transfers between levels

  13,315,665

                  -          

 (13,315,665)

                  -  

Fair value losses

  34,807,904

                  -

                  -

  34,807,904

 

 

 

 

 

At 30 June 2015

  52,573,390

                  -

    9,028,856

  61,602,246

 

The Group is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.  In the case of the Group, investments classified as Level 1 have been valued based on a quoted price in an active market.  Investments classified as Level 2 have been valued using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).  Fair values of unquoted investments classified as Level 3 in the fair value hierarchy have been determined in part or in full by valuation techniques that are not supported by observable market prices or rates.  Investment valuations for Level 3 investments have been arrived at using a variety of valuation techniques and assumptions.  For instance where the fair values are based upon the most recent market transaction but which occurred more than twelve months previously, the investments are classified as Level 3 in the fair value hierarchy. 

 

The net increase in fair value for the six months ended 30 June 2016 of US $1,156,454 includes a net increase of US $1,158,404 from the change in value of the public companies and is based on quoted prices in active markets.

 

Fair value determination

 

The Directors have valued the investments in accordance with the guidance laid down in the International Private Equity and Venture Capital Valuation Guidelines.  The inputs used to derive the investment valuations are based on estimates and judgements made by management which are subject to inherent uncertainty.  As such the carrying value in the financial statements at 30 June 2016 may differ materially from the amount that could be realised in an orderly transaction between willing market participants on the reporting date.

 

In making their assessment of fair value at 30 June 2016, management has considered the total exposure to each entity including equity, warrants, options, promissory notes, and receivables.

 

 

 

8.  Investments, (continued)

 

Further information in relation to the directly held private investment portfolio that are at Level 3 at 30 June 2016 is set out below:

 

 

Fair value

Methodology

Unobservable inputs

 

US $

 

 

Private investments

5,952,673

Multiple methods used in combination including:  Discount to last market price,

Discount (30%-100%),

 

 

discount to last financing round, price of future financing round and third party

Price of fund raising.

 

 

valuation.

 

 

Given the range of techniques and inputs used in the valuation process and the fact that in most cases more than one approach is used, a sensitivity analysis is not considered to be a practical or meaningful disclosure.  Shareholders should note however that increases or decreases in any of the inputs listed above in isolation may result in higher or lower fair value measurements.

 

9.  Other financial assets and liabilities

 

The carrying amounts of the Group's financial assets and financial liabilities at the statement of financial position date are as follows. 

 

 

 

 

       30 June 2016

      31 December 2015

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

US $

US $

US $

US $

Financial assets

 

 

 

 

Fair value through profit or loss

 

 

 

 

Fixed asset investments - designated

 

 

 

     as such upon initial recognition

38,766,523

38,766,523

  37,444,316

  37,444,316

Currents assets

 

 

 

 

Loans and receivables

 

 

 

 

Security deposit

         20,000

         20,000

         22,008

         22,008

Prepaid expenses and other

 

 

 

 

     receivables

    1,302,133

    1,302,133

 1,206,843

 1,206,843

Cash and cash equivalents

       48,146

       48,146

       936,981

       936,981

 

 

 

 

 

Financial liabilities

 

 

 

 

Amortised cost

 

 

 

 

Trade and other payables

10,121,740

10,121,740

10,346,011

10,346,011

Notes payable

11,326,234

11,326,234

10,334,901

10,334,901

Convertible promissory notes

7,652,133

7,652,133

8,312,180

8,312,180

 

 

 

9.  Other financial assets and liabilities, (continued)

 

The carrying value of cash and cash equivalents, the security deposit, prepaid expenses and other receivables, and trade and other payables, in the Directors' opinion, approximate to their fair value at 30 June 2016 and 31 December 2015.

 

The following table sets out the fair values of financial instruments not measured at fair value and analyses it by the level in the fair value hierarchy into which each fair value measurement is categorised at 30 June 2016.

 

 

 

Level 1

Level 2

Level 3

Total

 

US $

US $

US $

US $

Financial assets

 

 

 

 

Security deposit

-

       20,000

-

  20,000

Prepaid expenses and

 

 

 

 

   other receivables

-

   1,302,133

-

      1,302,133

Cash and cash equivalents

-

      48,146

-

  48,146

 

-

 1,370,279

-

      1,370,279

 

 

 

 

 

Financial liabilities

 

 

 

 

Trade and other payables

-

   10,121,740

-

    10,121,740

Notes payable

-

   11,326,234

-

    11,326,234

Convertible promissory notes

-

7,652,133

 

      7,652,133

 

-

29,100,107

-

    29,100,107

 

 

 

10.  Promissory notes

 

Convertible promissory notes

 

At a meeting on 26 February 2016, the holders of £5,707,738 of convertible promissory notes agreed to amend the terms of the note.  The notes will now be redeemed on 31 December 2017, will be convertible into ordinary shares at 8 pence per share, and will pay interest at 7% if paid in ordinary shares or 5% if paid in cash or additional notes.  In addition, for every £1 of note held, the noteholder will be issued two warrants with an exercise price of 10 pence per share.  Each note holder may serve at least 60 days' notice on the Company to redeem up to a proportion of the notes held by it on the following dates:  15% on 31 May 2016; 20% on 30 November 2016; 20% on 30 June 2017.

 

During 2016, US $205,221 (£141,778) additional convertible promissory notes were issued in payment of the accrued interest payable on the notes for the quarter ended 31 December 2015 and the quarter ended 31 March 2016.  The Company redeemed a total of approximately £67,000 of convertible promissory notes at the 31 May 2016 redemption date.  The amounts were paid in August 2016.

 

The net proceeds received from the issue of the convertible promissory notes are classified as a financial liability due to the fact that the notes are denominated in a currency other than the Company's functional currency and that on any future conversion a fixed number of shares would be delivered in exchange for a variable amount of cash.

 

 

 

 

10.  Promissory notes, continued

 

Promissory notes

 

In June 2014, the Company was granted a loan facility by an institutional lender (the "Lender").  In April 2016, the Company borrowed an additional US $1,765,000 increasing the amount borrowed under the facility to US $4.1 million.  Under the terms of the additional draw, the interest rate will be 10% with repayments starting on 1 May 2016 and with the final repayment due on 1 February 2017.  The proceeds are to be used to repay the existing amount due under the facility and for working capital for Amphion and its Partners Companies.  The loan is secured by the pledge by the Company of 7,774,678 ordinary shares of Kromek Group plc and 14,906,145 ordinary shares of Motif Bio plc.  Additional terms of the facility allow the conversion of the drawn-down amount into ordinary shares in the Company.  Up to US $500,000 of the facility may be converted at 6.5 pence per ordinary share and the remainder of the amount drawn-down, approximately US $3.6 million, may be converted at 8.0 pence per ordinary share.  At 30 June 2016, the balance of the note is US $3,998,333.  As part of the loan facility, the Directors agreed to a Deed of Postponement that regulates the Directors' rights in respect to the repayment of any debt due to them from the Company.  The Directors agreed to defer payment of their debt by the Company until the loan facility is repaid in full.  The loan facility was amended in July and August 2016 (see note 14 for full details).

 

11.  Share capital

 

 

Number

 

£

 

US $

 

 

 

 

 

 

Balance as at 31 December 2015

  197,219,423

 

    1,972,194

 

     3,460,880

 

 

 

 

 

 

Issued and fully paid:

 

 

 

 

 

   Ordinary shares of 1p each

         291,806

 

           2,918

 

            4,202

 

 

 

 

 

 

Balance as at 30 June 2016

  197,511,229

 

    1,975,112

 

     3,465,082

 

 

 

 

 

 

 

During the six months ended 30 June 2016, the following changes occurred to the share capital of the Company:

 

On 12 January 2016, the Company issued 291,806 ordinary 1p shares at a premium of 2.375 per share (US $9,982) to Directors in payment of the 2015 fourth quarter and 2016 first quarter Directors' fees.

 

 

 

12.  Share based payments

 

In 2006 the Group established the 2006 Unapproved Share Option Plan ("the Plan") and it was adopted pursuant to a resolution passed on 8 June 2006.  Under this plan, the Compensation Committee may grant share options to eligible employees, including Directors, to subscribe for ordinary shares of the Company.  The number of Shares over which options may be granted under the Unapproved Plan cannot exceed ten percent of the ordinary share capital of the Company in issue on a fully diluted basis.  The Plan will be administered by the Compensation Committee.  The number of shares, terms, performance targets, and exercise period will be determined by the Compensation Committee.  During 2016, no options were issued under the Plan.

 

 

2016

 

 

 

Weighted

 

 

 

average

 

Number of

 

exercise

 

share options

 

price (in £)

 

 

 

 

Outstanding at beginning of period

       12,450,000

 

           0.07

Granted during the period

                     -

 

                 -

Cancelled during the period

                     -

 

Expired during the period

           (500,000)   

 

           0.11

Outstanding at the end of the period

       11,950,000

 

           0.07

 

 

 

 

Exercisable at the end of the period

      11,516,667

 

           0.08

 

Options are recorded at fair value on the date of grant using the Black-Scholes model.  The Group recognised total costs of US $7,887 relating to equity-settled share-based payment transactions in 2016 which were expensed in the statement of comprehensive income during the period.

 

 

 

 

13.  Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.  Details of transactions between the Group and other related partners are disclosed below.

 

During the period, the Group paid miscellaneous expenses for Motif BioSciences, Inc. ("Motif") such as office expenses.  At 30 June 2016, the amount due from Motif is US $459.

 

On 1 April 2015, Motif Bio plc entered into an advisory and consultancy agreement with Amphion Innovations US Inc.  Richard Morgan, a Director of the Company, is also the Chairman of Motif Bio plc and Robert Bertoldi, a Director of the Company, is also a Director of Motif Bio plc.  The consideration for the services is US $120,000 per annum.  The period is for an initial period of twelve months and will automatically renew each year on the anniversary date unless either party notifies the other by giving 90 days written notice prior to expiration.  Amphion Innovations US Inc.'s fee for the period ended 30 June 2016 was US $60,000.

 

On 1 April 2015, Motif Bio plc entered into a consultancy agreement with Amphion Innovations plc for Robert Bertoldi, an employee of Amphion Innovations plc, to provide services to Motif Bio plc.  The consideration for the services is US $180,000 annually.  On 1 July 2016, the consideration decreased to US $75,000 annually.  The agreement is for an initial period of twelve months and will automatically renew each year on the anniversary date unless either party notifies the other by giving 90 days written notice prior to expiration.

 

A subsidiary of the Company has entered into an agreement with Axcess International, Inc. ("Axcess") to provide advisory services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of Axcess.  Amphion Innovations US Inc. will receive a monthly fee of US $10,000 pursuant to this agreement. The agreement renews on an annual basis until terminated by one of the parties.  The monthly fee is suspended for any month in which Axcess' cash balance falls below US $500,000.  Amphion Innovations US Inc. received no fee during the period ended 30 June 2016.

 

A subsidiary of the Company has entered into an agreement with m2m Imaging Corp. ("m2m") to provide advisory and consulting services.  Robert Bertoldi, a Director of the Company, is also a Director of m2m.  The quarterly fee under this agreement is US $45,000.  This agreement renews on an annual basis until terminated by either party.    Amphion Innovations US Inc.'s fee for the period ended 30 June 2016 was suspended.  At 30 June 2016, US $630,000 of the advisory fees remain payable by m2m.  This balance has been reduced by a provision for doubtful debts in the amount of US $600,000.

 

A subsidiary of the Company has entered into an agreement with WellGen, Inc. ("WellGen") to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of WellGen.  The fee under this agreement is US $60,000 per quarter.  The agreement renews annually until terminated by either party.  The subsidiary's fee for the period ended 30 June 2016 was suspended.  At 30 June 2016, US $1,320,000 of the advisory fees remain payable.  This balance has been reduced by a provision for doubtful debts in the amount of US $1,320,000.

 

A subsidiary of the Company has entered into an agreement with PrivateMarkets, Inc. ("PrivateMarkets") to provide advisory services.  Richard Morgan, a Director of the Company, is also a Director of PrivateMarkets.  The fee under this agreement is US $30,000 per quarter until the successful sale of at least US $3,000,000 and thereafter, US $45,000 per quarter.  This agreement will renew annually unless terminated by either party.  The subsidiary's fee for the period ended 30 June 2016 was suspended.  At 30 June 2016, US $770,000 remains payable by PrivateMarkets.  The payable has been reduced by a provision for doubtful debts in the amount of US $770,000.

 

Amphion Innovations US Inc. has entered into an agreement with DataTern, Inc. ("DataTern") (a wholly owned subsidiary of the Company) to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of DataTern.  The quarterly fee under this agreement is US $60,000 and renews annually unless terminated by either party.  The subsidiary's fee for the period ended 30 June 2016 was suspended.

 

13.  Related party transactions, (continued)

 

During 2013, Richard Morgan, a Director of the Company, advanced US $190,000 to a subsidiary of the Company under promissory notes.  The promissory notes accrue interest at 5% per annum and are payable in three years.  In 2010, Richard Morgan advanced US $352,866 to the Company.  In July 2014, the balance of this advance was converted into a demand note that accrues interest at 5% per annum.  At 30 June 2016, US $81,301 remains outstanding.  The net amount payable by the Group at 30 June 2016 to Richard Morgan is US $2,307,787.  The amount payable includes a voluntary salary reduction of US $1,804,879, US $341,779 of which will be payable at the discretion of the Board at a later date.

 

At 30 June 2016, US $110,273 was due to Gerard Moufflet, a Director of the Company, for Director's fees and US $8,337 for expenses. 

 

At 30 June 2016, US $988,254 was due to Robert Bertoldi, a Director of the Company, for voluntary salary reductions of which US $188,769 is payable by the discretion of the Board at a later date.

 

14.  Subsequent Events

 

In July 2016, the Company borrowed an additional US $750,000 under the YA Global Master SPV Ltd. loan facility.  Under the terms of the additional draw, nil interest is charged with a repayment amount of US $881,250 due on 6 October 2016.  The additional draw may be converted into ordinary shares in accordance with the additional terms of the facility in April 2016.  The additional draw is to be secured by the Company pledging 1,400,000 ordinary shares of Motif Bio plc.  In July and August 2016, the Company sold 2,070,000 ordinary shares of Kromek Group plc in repayment of the US $881,250.  Pursuant to the terms of the additional draw, the net proceeds of US $720,995 was used to repay the additional draw leaving the balance remaining of US $160,255.

 

At the annual general meeting in July 2016, Mr. Richard Mansell-Jones was appointed Chairman of the Company and Mr. Paul Kennedy was appointed as a Director.  Mr. Gerard Moufflet did not stand for re-election.

 

In July 2016, the Company issued 300,000 warrants to a consultant with a subscription price of 3.5 pence per share and an expiration date of 28 July 2019.

 

In August 2016, the Company borrowed an additional US $2,350,000 under the YA Global Master SPV Ltd. loan facility increasing the loan balance to US $6,198,333.  Of this amount, US $3,000,000, plus interest is convertible into ordinary shares of Amphion Innovations plc at 6 pence and the remaining amount, plus interest is convertible at 8 pence.  Under the terms of the additional draw, the interest rate will be 10% with repayments starting on 1 January 2017 and with the final repayment due on 1 December 2017.  The proceeds are to be used to repay the existing amount due under the facility and for working capital for Amphion and its Partner Companies.  The loan is secured by the pledge by the Company of 6,684,255 ordinary shares of Kromek Group plc and 27,961,625 ordinary shares of Motif Bio plc. 

 

 

 

 

 

 

 

 

 

 

 


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