Source - RNS
RNS Number : 3529J
Amphion Innovations PLC
28 June 2017
 

Amphion Innovations plc

 ("Amphion" or the "Company")

 

Final results

London and New York, 28 June 2017 - Amphion Innovations plc (AIM: AMP), the developer of medical, life science, and technology businesses, announces its audited results for the year ended 31 December 2016.

 

Financial Results:

·     Net Asset Value ("NAV") fell to US -$5,886,381 (2015: US $10,892,072) as at year-end due almost entirely to the movement in value of the Motif Bio plc share price

 

Partner Companies' Highlights:

·     Motif Bio completed treatment of patients in its Phase III trial (REVIVE-1) for its product
candidate iclaprim

·     Motif Bio listed on NASDAQ, raising £20.0 million (US $25.0 million)

 

Post Period Events:

·     Motif Bio released data readout from REVIVE-1, showing iclaprim to be well tolerated and met the non-inferiority margin mandated by the FDA

·     Motif Bio raised an additional £20.0 million (US $25.8 million) to fund its REVIVE-2 study through to completion and the filing of a New Drug Application for iclaprim with the US FDA

·     m2m Imaging Corp. and Polarean Inc. merged to create Polarean Imaging Limited, a clinical-stage, revenue generating, medical imaging product company, in a cash and share merger

·     Polarean Imaging Limited announces the closing of its Pre-IPO financing of US $2.0 million

·     Sold the Company's remaining holding of Kromek Group plc

·     In May 2017, Richard Morgan and Robert Bertoldi, Directors of the Company, entered into a Deed of Postponement where they have agreed to postpone the repayment of the amounts owed to them, which total US $4.3 million, until all other debts of the company are repaid

·     As of 26 June 2017, the increase in Motif's share price to 29.75p has increased Amphion's Net Asset Value by approximately US $3.2 million

·     Mr. Paul Kennedy resigned as a Non-executive Director on 27 June 2017, with immediate effect

 

Richard Morgan, CEO of Amphion Innovations plc, commented: "2016 was a difficult year for Motif with the Brexit vote disrupting the company's funding plans. The sharp fall in sterling amplified the decline in the share price which in turn hit the value of Amphion's holding.  The release of good data from the REVIVE-1 clinical trial in 2017 confirmed our belief that Motif has a good programme and is significantly undervalued. The formation of Polarean Imaging Limited and the closing of the pre-IPO has put this exciting company on track for a listing later this year. We look forward to helping both companies achieve their full potential and to progress the development of other assets in the Amphion portfolio.  We would also like to thank Paul Kennedy for his contribution to the board and wish him well."

 

 

For further information please contact:

 

Amphion Innovations

Tel: +1 (212) 210 6224

Charlie Morgan

 

 

 

Panmure Gordon Limited (Nominated Adviser and Corporate Broker)

Tel: +44 (0)20 7886 2500

Freddy Crossley / Duncan Monteith (Corporate Finance)

 

Charlie Leigh-Pemberton (Corporate Broking)

 

 

 

Northland Capital Partners Limited (Joint Corporate Broker)

Tel: +44 (0)20 3861 6625

Patrick Claridge / David Hignell (Corporate Finance)

 

John Howes (Corporate Broking)

 

 

 

Walbrook PR

Tel: +44 (0)20 7933 8780 or

Mike Wort/ Paul McManus

[email protected]

 

 

           

 

About Amphion Innovations plc - www.amphionplc.com    

Amphion Innovations is a developer of medical, life science and technology businesses. We use our extensive experience in company building to invest and build shareholder value in high growth companies in the US and UK. Amphion has significant shareholding in seven partner companies developing proven technologies targeting substantial commercial marketplaces. The Amphion model has been refined to optimise the commercialisation of patents and other intellectual property within the partner companies. The partner companies collectively own or control over 200 separately identified pieces of intellectual property, a number which grows rapidly each year.

 

 

 

 

 

Chief Executive Officer's Statement

 

Financial Results and Net Asset Value

Revenue in 2016 was US $139,633 (2015: US $519,855) while total administrative expenses were US $3,474,045 (2015: US $4,680,212). As a result, the operating loss for the year was US $3,334,412 (2015: US $4,160,357). 

 

Revenue was lower than in 2015 due mainly to a further reduction in management fees from our Partner Companies.  Total administrative expenses were down sharply compared to the previous year despite incurring costs associated with DataTern of US $841,055, roughly similar to the previous year (2015: US $871,003).

 

The Net Asset Value ("NAV") fell sharply during the year from US $10,892,072 at 31 December 2015 to
-US -$5,886,381 due nearly entirely to a large reduction in the value of Amphion's holding in Motif Bio plc ("Motif"), the clinical stage biopharmaceutical company specialising in developing novel antibiotics.  The share price of Motif fell from 51.7 pence at the end of June 2016 to 24.7 pence at the end of December 2016. The fall in the value of the pound, which started in late
June following the leave vote in the Brexit referendum, made the reduction in the value of the holding in US dollars even more severe.  The pound fell from about US $1.50 just before the Brexit vote to US $1.23 at the end of December 2016. As result of these factors, the value of the holding fell by US $13.8 million over the financial year. As a result, the NAV per Share was -3.0 cents at 31 December 2016 versus 5.5 cents at the end of 2015.  In Pounds Sterling, NAV per Share was -2.4 pence at the end of December 2016, versus the 2015 year end figure of 3.8 pence.

 

As noted, the Brexit vote and resulting disruptions in the financial markets had an adverse impact on Motif and as a result on Amphion.  Since the IPO on AIM in April 2015 Motif's intention was always to seek a listing on NASDAQ on the assumption that it would prove to be of value to the shareholders to be listed on the same market as the other leading antibiotic companies. Unfortunately, the biotech market experienced challenges in late 2015 and by the time a recovery started in the spring the main biotech indices were down over 40% from their highs in the summer of 2015. The volatility within the biotech indices meant that Motif's board and executives were forced to be flexible in achieving the goals of new capital and a public listing in the US markets. During this time, the Motif share price fell to around 30p, almost 30% below where it had been just twelve months prior and more than 50% below where it had been a year earlier in US dollars. The financing to raise £20 million (approximately US $26 million) was ultimately priced at 28p, which was disappointing, but necessary for Motif to continue towards its goals and deliver significant shareholder value. 

 

Amphion continues to have confidence in the underlying value of Motif and despite the sharp fall in the market price late last year we continue to expect the value to be significantly in the short-to-medium term if the data readout from REVIVE-2, the second of the two pivotal clinical trials, meets expectations. The data readout for REVIVE-1, announced on 18 April 2017, did indeed meet those expectations and we have every reason to expect the readout from REVIVE-2, due in the next six months, to be very similar. 

 

Since the period end, Motif raised an additional £20.0 million (US $25.8 million) in June 2017 which is expected to be sufficient to fund the company through the filing of a New Drug Application ("NDA") for its antibiotic product candidate iclaprim in the first half of 2018. Historically, most antibiotic companies that have reached the stage where the value of the drug is supported by good data have traded in the stock market at valuations significantly higher than Motif's current valuation. For example, Durata Therapeutics was acquired for US $675 million in late 2014 following approval of its antibiotic a few months earlier.  At the time of writing, both Tetraphase Pharmaceuticals Inc. and Paratek Pharmaceuticals have valuations considerably higher of US $270 million and US $680 million respectively) and the valuation of Achaogen Inc. is approaching US $1 billion. 

 

 

Motif Bio plc

Post period end, on 18 April 2017, Motif announced the data readout from REVIVE-1, the first of the two Phase III trials under way to provide the regulatory agencies with the information and data required for Motif to seek marketing approval of the drug in the US and Europe.  The data show iclaprim to be well tolerated and to meet the non-inferiority margin mandated by the FDA.  Data readout from REVIVE-2, the on-going second Phase III trial, is expected in the second half of 2017.  REVIVE-2 uses the same protocol and trial design but at different sites and there is no reason to believe the data readout from the second trial should be materially different from the first.  If REVIVE-2 is successful, as we expect it to be, iclaprim will have been used in close to 1,000 patients and demonstrated a good safety profile and efficacy comparable to other antibiotics in use today, many of which are already seeing the onset of antimicrobial resistance. Subject to the necessary regulatory approvals, Motif expects to begin marketing the drug in 2019. Amphion currently owns approximately 16.5% of Motif.

 

Polarean Imaging Limited

Post period end, on 31 May 2017, we announced that Amphion Partner Company, m2m Imaging Corp. ("m2m"), completed the merger with Polarean Inc. to form Polarean Imaging Limited ("Polarean"), a UK company, for which we plan to seek a listing on AIM later this year.  In addition to the merger, we announced the successful completion of a pre-IPO placing which raised Polarean a total of US $2 million.  Approximately 20% of the total financing was subscribed by Amphion. Polarean is a clinical-stage, revenue generating, medical imaging product company that expects to gain clinical approval for its drug/device combination product, which enables the visualisation of hyperpolarised Xenon129 via magnetic resonance imaging technology, within three years. The protocol for the clinical trials has been agreed with the FDA and, if successful, should garner a broad clearance to market "for use in pulmonary medicine."  The FDA has recognised hyperpolarized Xenon129 as safe, given the history of use of Xenon gas in anesthesia.  Polarean has a growing installed base of 15 systems currently in use at leading research institutions and the company expects to sell additional units and consumables for research purposes during the course of the next two years while the Phase III clinical trial is under way. The FDA has indicated a broad marketing label for the system if the trial is successful and launch of the system for clinical use should follow in early 2020.

 

Polarean designs, develops, and manufactures the equipment required to hyperpolarise the noble gas Xenon129, which is visible in magnetic resonance imaging ("MRI") for the purpose of quantitatively and non-invasively visualizing pulmonary function at high levels of resolution, sensitivity, and reproducibility. Polarean also designs, develops, and manufactures optimised high performance Radio Frequency ("RF") coils specifically required for the Xenon signal detection in MRI systems. Polarean has a proprietary position in the technology and equipment that enables all existing MRI systems to achieve a vastly improved level of pulmonary functional imaging.

 

Polarean's products address an acute unmet medical need.  Current methods to diagnose and monitor lung disease are either imprecise (e.g. spirometry and scintigraphy), and/or deliver radiation to patients (scintigraphy, X-ray, computerised tomography ("CT")). None are able to visualise the function of the smallest airways where disease begins. Polarean's technology provides vastly improved imaging quality and diagnostic benefit.

 

The potential market for Polarean's products is very large, conditioned by the prevalence of pulmonary disease and by the over 10,000 MRI systems in operation in the US today (and a similar number overseas).  The company's proprietary technology is used in conjunction with the existing installed base of MRI machines, allowing MRI equipment to function more profitably and in novel ways.  Lung disease is widespread, costly, and growing. In the US alone, it affects approximately 40 million Americans and costs the healthcare delivery system more than US $150 billion annually.  In China, 100 million people suffer from chronic obstructive pulmonary disease ("COPD"), 30 million from asthma, and respiratory disease accounts for 12% of all deaths.

 

Amphion invested about US $400,000 in the pre-IPO financing, and following the merger and pre-IPO raise, Amphion will own approximately 26% of Polarean.

 

DataTern Inc. and the Intellectual Property Licensing Programme

After a very long delay, DataTern Inc. ("DataTern"), a wholly owned subsidiary of the Company, received a Markman ruling in the MicroStrategy case that has been under review by DataTern's legal team.  This followed favourable rulings by the U.S. District Court in Massachusetts (the "Court"), which earlier denied two motions for summary judgment filed by MicroStrategy Inc. ("MicroStrategy") seeking dismissal of DataTern's claims on the grounds of validity and infringement.  DataTern has since been conferring with legal counsel on possible ways to move the programme forward.

 

The '502 patent and the '402 patent are directed to how object-oriented software applications access data stored in relational databases.  Such applications are widely used and exist within most current databases which are relational databases.  We continue to believe that companies that are using or want to use DataTern's patented technology should enter into equitable licensing agreements.

 

DataTern's legal team, supported by its extensive team of technical and patent experts, has for many years expressed confidence in the strength of the intellectual property.  DataTern's two key patents have completed a comprehensive re-examination by the United States Patent and Trademark Office ("USPTO") and successfully emerged both fully validated and with additional claims added. It remains the considered opinion of the team that the two patents are both valid and being infringed by a wide range of companies that are practicing this critical art.  Ultimately these opinions will be tested in the courts and the recent Markman ruling has clarified certain aspects of the patent which will be important as the case moves on to the next stage.  In order to pursue these claims DataTern needs to be able to fund the expenses in the programme and efforts to find a suitable funding source are continuing.

 

Amphion's holding of intellectual property ("IP") assets is valued at amortised cost of US $119,932.  In addition to the initial purchase of these IP assets from our Partner Company, FireStar Software Inc. ("FireStar"), Amphion has made significant additional investment in these assets, which has been expensed as incurred and the value of those assets continues to be carried only at amortised historical cost.  The Directors continue to believe that the realisable value of the intellectual property assets held by DataTern should be greater than the carrying value. 

 

Under the revenue sharing agreement with DataTern, (as fully described in Note 12 on page 43 of the Company's consolidated financial statements)  Amphion's Partner Company, FireStar, (where the technology and patents were originally developed) would share directly in the revenue stream.

 

Building Value in the Partner Companies

Since flotation, Amphion's business model has been to create and build companies with high value potential based on innovative and proprietary, but basically proven, technology. Our continued ability to select good IP and to develop the IP portfolios in each of our Partner Companies is a critical success factor and is getting steadily stronger as we deepen our knowledge and experience in this area. This knowledge underpins Amphion's investment in each Partner Company at the outset and as it develops. However, our primary goal in every company is the development of a successful business model and operating capabilities that can utilise the technology to develop and commercialise innovative products, generate revenue, and make profits.

 

Following the successful IPO for Motif on AIM in April 2015, we saw the opportunity to advance other Partner Companies and to start to consider, for the first time in over five years, how best to grow the Company in the future.

 

Although we continue to believe that the technology platform of Kromek Group plc ("Kromek"), a former Partner Company, has significant potential, the company has continued to lose money, which led to the need for a further substantial fund raising in early 2017.  Amphion's shareholding in Kromek had already fallen to 2% by the end of 2016 and, following the financing and subsequent rally in the share price, we decided to dispose of the remainder of our holding.  Over the life of the investment Amphion invested a total of US $3.4 million dollars and realised a total gain of close to US $5 million dollars.  We are pleased to have been instrumental in the development of the business and hope to see it do well in the future.

 

Amphion has continued to work closely with the legal advisers of Axcess International Inc. ("Axcess"), which provides Micro-WirelessTM system solutions for real-time business activity monitoring and control, to evaluate the extent to which all 13 patents in Axcess' portfolio are being infringed. It is clear that many companies are now offering products or services that incorporate some of the basic wireless technology developed by Axcess over the last 15 years, and a number of companies in the transportation, security, and other sectors appear to be infringing one or more of these patents. Axcess is currently discussing litigation strategies and financing opportunities with several legal and litigation financing firms. Axcess has already engaged with one law firm which is currently asserting claims against companies that are believed to be infringing one of the Company's patents.  A second law firm is conducting a protracted review of the case for assisting Axcess in pursuing separate claims against another large company that is thought to be infringing a second patent.

 

FireStar has continued to work on the development of its patented technology, which was also the basis of the formation of PrivateMarkets and is incorporated in its EdgeNode™ product.  PrivateMarkets, an Amphion Partner Company, offers an internet-based marketplace that links together a network of potential buyers and sellers who trade specific physical commodities. EdgeNode enables companies to facilitate low-cost, secure, machine-to-machine messaging, in a novel architecture, which is well suited to the needs of the healthcare and financial industries. The current focus is moving increasingly towards healthcare and, in particular, the potential productivity gains that should be possible with use of the technology in managing data and images so vital to clinical trials.  FireStar is looking to start a pilot programme with a small clinical trial sponsor with the plan to create a product offering by the end of 2017.  FireStar was recently advised that another patent will be shortly issued, bringing to five the total number of patents issued to the company in support of its product offering, and the company believes that there may also be opportunities to license the technology.

 

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

 

Financing

Financial support for Amphion over the last few years has come, for the most part, from the Directors and the management team. Following the Kromek IPO in late 2013, Amphion was able, for the first time, to access a loan facility in 2014, granted by an institutional lender, using the value of the publicly traded assets as security for a loan to bridge the Company financially through to the IPO of Motif in April 2015.  Since then, the Company has borrowed additional funds under this loan facility. The sale of some of our holding in Kromek in 2016 provided US $0.9 million in financing that was used to fund working capital, the further development of m2m, and other Partner Companies. That has continued into 2017 with the sale of the remainder of the holding of Kromek shares. The support from the management team has continued but with reduced prominence and the Company has managed to continue to access the loan facility which has been secured by the holding of shares in Motif.

 

The liabilities on the balance sheet stood at a total of US $30,335,082 million at the end of the year, about US $1.2 million higher than at mid-year. Total assets at the end of 2016 stood at US $24,448,701 million. Some of the liabilities are at the DataTern level, although consolidated into the Company's reporting accounts. Adjusting for the settlement made with BRG (announced in April 2016), the remainder of the third-party payables at the DataTern level stood at about US $1 million. Of the remainder of the liabilities, US $14,356,476 were amounts owing to current or former board members and US $5,936,197 were amounts due to the other holders of the Company's Convertible Promissory Note ("CPN"), which was extended in February of 2016 to a maturity date at the end of 2017.  The Executive Directors of the Company have entered into a Deed of Postponement with terms that postpone payments to these individuals of approximately US $4.3 million until all other debts of the Company are paid. The management team has worked closely with the main holders of notes and other claims on the Company in order to extend the maturity of these obligations to the maximum extent possible.

 

Earlier in the 2016 financial year/post period end, the Company entered into discussions with the estate of R. James Macaleer, the former Chairman of the Company, and has reached an agreement to extend the maturity of the Notes payable to the end of 2017, in return for the grant of 3 million warrants (1 million at 8p, 1 million at 9p, and 1 million at 10p).  However, in no case will any payment be due on the Macaleer Notes until the amounts outstanding under the Company's existing loan facility are fully repaid. 

 

When the terms of the CPN were amended in March 2016 the holders were offered an option to apply for early redemption on three specified dates. A small quantity of the CPN was redeemed on 31 May 2016 and 30 November 2016 and the next redemption date is on 30 June 2017. The amount to be redeemed at that date is approximately £55,000. The balance of the CPN is due to be repaid on 31 December 2017.  The Notes are convertible into fully paid Ordinary Shares at 8 pence per Ordinary Share and pay interest at 7% if the respective Noteholder elects to be paid in Ordinary Shares, or at 5% if the respective Noteholder elects to be paid in cash or additional Notes, until conversion or redemption. In addition, for every £1 of Note held, the respective Noteholder was issued two warrants. Each warrant granted will entitle the holder to subscribe for Shares at 10 pence per Ordinary Share.

 

Prospects for 2017 and Beyond

Despite the setback to the Motif share price, we continue to believe that it should be valued more in-line with comparable companies trading on NASDAQ and that our holding could be worth considerably more than the level recorded on the balance sheet at the year-end. We continue to work closely with Motif to develop the business and close the valuation gap. We believe Motif has a very bright future and we are committed to helping the company to become a major player in the antibiotic biopharmaceutical world.

 

The Board and management of Amphion have supported the Company through several lean years, and 2016 proved to be more difficult than most.  We are pleased to see our commitment to the development of m2m starting to bear fruit. Polarean is an exciting company addressing a major unmet medical need with an innovative, proprietary, and clinically useful technology that has already started to garner a following in the market.

 

The weighting of Amphion's shareholding in Motif relative to the total assets of the Company currently causes Amphion's share price to be correlated to the Motif share price. As a result of the further fall in the price of Motif's shares in the second half of 2016, we decided to raise more capital for Amphion in the short-term via an increase in the use of our loan facility, rather than attempt to approach the equity market for the time being. The additional loans are quite small in relation to the total value of our marketable assets and we believe this form of financing makes the most sense for our shareholders for the time being. The loan facility can be repaid at any time using Amphion shares, Motif shares or cash.

 

The outlook for Amphion depends increasingly on the value we can capture from our holdings in Motif and Polarean, now that we have Polarean on the path to commercialisation.  We are very actively supporting the development of both Motif and Polarean and view the future of both companies with optimism.  In addition, we continue to support FireStar, Axcess, and WellGen. We are excited by the prospects for the development of FireStar's new product platform and hope that we can get that on the runway in 2018.  As we look to the future beyond the horizon for these particular programmes, we will begin to consider how best to build on the platform we have created and maintained, in order to capitalise on our experience and knowledge in supporting emerging life science companies.

 

 

 

 

Richard C.E. Morgan

Chief Executive Officer

 

 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

 

Consolidated statement of Comprehensive Income

 

 

 

 

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

 

 

 

 

 

 

 

Year ended

 

 

Year ended

 

 

 

31 December 2016

 

 

31 December 2015

Continuing operations

 

 

 US $

 

 

 US $

 

 

 

 

 

 

 

Revenue

4

 

                  139,633

 

 

                   519,855

Cost of sales

 

 

                               -  

 

 

                               -  

Gross profit

 

 

                  139,633

 

 

                   519,855

 

 

 

 

 

 

 

Administrative expenses

 

 

              (3,474,045)

 

 

              (4,680,212)

 

 

 

 

 

 

 

Operating loss

 

 

              (3,334,412)

 

 

              (4,160,357)

 

 

 

 

 

 

 

Fair value (losses)/gains on investments

14

 

            (12,702,464)

 

 

                8,512,215

Realized (losses)/gains on sale of investment

14

 

              (1,642,029)

 

 

                1,595,429

Interest income

8

 

                   776,244

 

 

                   678,824

Other gains and losses

 

 

                1,507,321

 

 

                   505,015

Finance costs

9

 

              (1,446,659)

 

 

              (1,187,427)

 

 

 

 

 

 

 

(Loss)/profit before tax

6

 

            (16,841,999)

 

 

               5,943,699

 

 

 

 

 

 

 

Tax on (loss)/profit

10

 

                      (1,235)

 

 

                      (1,900)

 

 

 

 

 

 

 

(Loss)/profit for the year

 

 

            (16,843,234)

 

 

                5,941,799

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange differences arising on translation

 

 

 

 

 

 

   of foreign operations

 

 

                               -  

 

 

                                -  

 

 

 

 

 

 

 

Other comprehensive income for the year

 

 

                               -  

 

 

                                -  

 

 

 

 

 

 

 

Total comprehensive (loss)/income for the year

            (16,843,234)

 

 

                 5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Directors consider that all results derive from continuing activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss)/profit per share

11

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

US

 $                     (0.09)

 

US

 $                        0.03

 

 

 

 

 

 

 

Diluted

 

US

 $                     (0.09)

 

US

 $                        0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes on pages 28 - 59 are an integral part of these financial statements.

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

 

Company statement of Comprehensive Income

 

 

 

 

 

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

Notes

 

31 December 2016

 

31 December 2015

 

 

 

 

US $

 

US $

 

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

 

              (1,952,662)

 

                (2,068,530)

 

 

 

 

 

 

 

 

Operating loss

 

 

              (1,952,662)

 

                (2,068,530)

 

 

 

 

 

 

 

 

Fair value (losses)/gains on investments

14

 

              (9,800,095)

 

                  5,654,608

 

Realized (loss)/gain on sale of investments

14

 

              (1,642,029)

 

                  1,595,429

 

Impairment of subsidiary investment

 

 

                 (116,831)

 

                     114,540

 

Interest income

8

 

                  706,837

 

                     557,123

 

Other gains and losses

 

 

               1,507,126

 

                     505,015

 

Finance costs

9

 

              (1,400,136)

 

                (1,138,455)

 

 

 

 

 

 

 

 

(Loss)/profit before tax

6

 

            (12,697,790)

 

                  5,219,730

 

 

 

 

 

 

 

 

Tax on profit/(loss)

10

 

                             -

 

                             -  

 

 

 

 

 

 

 

 

(Loss)/profit for the year

 

 

            (12,697,790)

 

                  5,219,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income for the year

 

 

                              -

 

                             -  

 

 

 

 

 

 

 

 

Total comprehensive (loss)/income for the year

 

            (12,697,790)

 

                  5,219,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Directors consider that all results derive from continuing activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes on pages 28 - 59 are an integral part of these financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

Consolidated statement of Financial Position

 

 

 

 

As at 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

31 December 2016

 

31 December 2015

 

 

 

US $

 

US $

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Intangible assets

12

 

                   119,932

 

                     275,016

Security deposit

15

 

                     20,000

 

                       22,008

Investments

14

 

             22,844,324

 

               37,444,316

 

 

 

             22,984,256

 

               37,741,340

 

 

 

 

 

 

Current assets

 

 

 

 

 

Prepaid expenses and other receivables

15

 

               1,150,619

 

                 1,206,843

Cash and cash equivalents

15

 

                  313,826

 

                    936,981

 

 

 

               1,464,445

 

                 2,143,824

 

 

 

 

 

 

Total assets

 

 

             24,448,701

 

               39,885,164

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

15, 16

 

             10,148,353

 

               10,346,011

Notes payable

15, 17

 

             12,960,670

 

               10,334,901

Convertible promissory notes

15, 17

 

               7,226,059

 

                 8,312,180

 

 

 

             30,335,082

 

               28,993,092

 

 

 

 

 

 

Total liabilities

 

 

             30,335,082

 

               28,993,092

 

 

 

 

 

 

Net (liabilities)/assets

 

 

              (5,886,381)

 

               10,892,072

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

18

 

               3,465,082

 

                 3,460,880

Share premium account

 

 

             38,677,056

 

               38,667,074

Retained earnings

 

 

            (48,028,519)

 

              (31,235,882)

 

 

 

 

 

 

Total equity

 

 

              (5,886,381)

 

               10,892,072

 

 

 

 

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors and authorised for issue on

27 June 2017.  They were signed on its behalf by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director

Director

 

 

 

 

Richard C.E. Morgan

Robert J. Bertoldi

 

 

 

 

 

 

 

 

The notes on pages 28 - 59 are an integral part of these financial statements.

 

 

 

 

               

 

 

 

Amphion Innovations plc

 

 

 

 

 

Company statement of Financial Position

 

 

 

 

 

At 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

31 December 2016

 

31 December 2015

 

 

 

 US $

 

 US $

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Security deposit

 

 

                                -  

 

                              -  

Investments

14

 

             20,141,701

 

            31,839,324

Investment in subsidiaries

13

 

                   525,153

 

                 641,984

 

 

 

             20,666,854

 

            32,481,308

 

 

 

 

 

 

Current assets

 

 

 

 

 

Prepaid expenses and other receivables

15

 

               8,097,236

 

              6,099,021

Cash and cash equivalents

15

 

                  303,807

 

                 883,074

 

 

 

               8,401,043

 

              6,982,095

 

 

 

 

 

 

Total assets

 

 

             29,067,897

 

            39,463,403

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

15, 16

 

               4,149,448

 

               3,491,093

Notes payable

15, 17

 

             12,055,170

 

               9,389,901

Convertible promissory notes

15, 17

 

               7,226,059

 

               8,312,180

 

 

 

             23,430,677

 

             21,193,174

 

 

 

 

 

 

Total liabilities

 

 

             23,430,677

 

             21,193,174

 

 

 

 

 

 

Net assets

 

 

               5,637,220

 

             18,270,229

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

18

 

               3,465,082

 

               3,460,880

Share premium account

 

 

             38,677,056

 

             38,667,074

Retained earnings

 

 

            (36,504,918)

 

            (23,857,725)

 

 

 

 

 

 

Total equity

 

 

                5,637,220

 

             18,270,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Directors and authorised

 

 

for issue on 27 June 2017.  They were signed on its behalf by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director

 

 

Director

 

 

Richard C.E. Morgan

 

 

Robert J. Bertoldi

 

 

 

 

 

 

 

 

The notes on pages 28 - 59 are an integral part of these financial statements.

 

 

 

 

               

 

 

 

Amphion Innovations plc

 

 

 

 

 

 

 

 

 

Consolidated statement of changes in equity

 

 

 

 

 

 

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

Share

 

premium

 

Retained

 

 

 

Notes

capital

 

account

 

earnings

 

Total

 

 

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2014

 

 

 2,716,656

 

 36,070,864

 

  (37,201,341)

 

    1,586,179

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

             -  

 

               -  

 

    5,941,799

 

    5,941,799

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year

 

             -  

 

               -  

 

                   -  

 

                    -  

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

             -  

 

               -  

 

    5,941,799

 

   5,941,799

 

 

 

 

 

 

 

 

 

 

Issue of share capital

18

 

    744,224

 

   2,596,210

 

                   -  

 

    3,340,434

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

20

 

             -  

 

               -  

 

          23,660

 

         23,660

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2015

 

 

 3,460,880

 

 38,667,074

 

  (31,235,882)

 

 10,892,072

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

             -  

 

               -  

 

  (16,843,234)

 

(16,843,234)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year

 

             -  

 

               -  

 

                   -  

 

                   -  

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the year

 

 

             -  

 

               -  

 

  (16,843,234)

 

(16,843,234)

 

 

 

 

 

 

 

 

 

 

Issue of share capital

18

 

        4,202

 

          9,982

 

                   -  

 

         14,184

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

20

 

             -  

 

                  -  

 

         50,597

 

         50,597

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2016

 

 

 3,465,082

 

 38,677,056

 

  (48,028,519)

 

  (5,886,381)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

 

 

 

 

Company statement of changes in equity

 

 

 

 

 

 

 

 

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

Share

 

premium

 

Retained

 

 

 

Notes

 

capital

 

account

 

earnings

 

Total

 

 

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2014

 

 

2,716,656

 

  36,070,864

 

(29,101,115)

 

     9,686,405

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

                -

 

                   -  

 

   5,219,730

 

     5,219,730

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

                -

 

                   -  

 

   5,219,730

 

    5,219,730

 

 

 

 

 

 

 

 

 

 

Issue of share capital

18

 

   744,224

 

    2,596,210

 

                   -  

 

     3,340,434

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

20

 

                -

 

                   -  

 

        23,660

 

           23,660

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2015

 

 

3,460,880

 

  38,667,074

 

(23,857,725)

 

   18,270,229

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

                -

 

                   -  

 

(12,697,790)

 

  (12,697,790)

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the year

 

 

                -

 

                   -  

 

(12,697,790)

 

  (12,697,790)

 

 

 

 

 

 

 

 

 

 

Issue of share capital

18

 

       4,202

 

            9,982

 

                 -  

 

           14,184

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

20

 

                -

 

                   -  

 

        50,597

 

           50,597

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2016

 

 

3,465,082

 

  38,677,056

 

(36,504,918)

 

      5,637,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

Consolidated cash flow statement

 

 

 

 

 

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

Notes

 

31 December 2016

 

31 December 2015

 

 

 

US $

 

US $

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

(Loss)/profit

 

 

           (16,843,234)

 

              5,941,799

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

   Amortisation of intangible assets

12

 

                  155,084

 

                  155,084

   Recognition of share-based payments

 

 

                    64,781

 

                    98,881

   Receivables reclassified to investments

14

 

                               -  

 

                (432,420)

   Change in fair value of investments

 

 

             12,702,464

 

             (8,512,215)

   (Loss)/gain on sale of investments

 

 

               1,642,029

 

             (1,595,429)

   Issue notes to settle interest expense

 

 

                  395,687

 

                  439,524 

   Gain from change in foreign exchange rate on convertible

 

 

 

 

 

      promissory notes

 

 

             (1,392,038)

 

                 (444,126) 

   Received investment shares for interest income

 

 

                (265,517)

 

                              -  

   Transfer of assets to settle interest expense

 

 

                              -  

 

                    89,480

   (Increase)/decrease in security deposit

 

 

                      2,008

 

                     (8,408)

   Decrease in prepaid & other receivables

 

 

                    56,224

 

              1,362,537

   Increase/(decrease) in trade and other payables

 

 

                 (197,658)

 

                    75,427

 

 

 

 

 

 

Net cash used in operating activities

 

 

             (3,680,170)

 

             (2,829,866)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Purchases of investments

14

 

                 (395,015)

 

                 (402,015)

Proceeds from disposition of investment

 

 

                  916,031

 

                               -  

 

 

 

 

 

 

Net cash provided by/(used in) investing activities

 

 

                  521,016

 

                 (402,015)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds on issue of shares, net of costs

 

 

                              -  

 

               3,265,213

Proceeds on issue of promissory notes

17

 

               4,865,000

 

               3,300,000

Repayments of promissory notes

17

 

             (2,329,001)

 

             (2,609,167)

 

 

 

 

 

 

Net cash from financing activities

 

 

               2,535,999

 

               3,956,046

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

                 (623,155)

 

                   724,165

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

 

                   936,981

 

                   212,816

 

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

 

                   313,826

 

                   936,981

 

 

 

 

 

 

Interest received

 

 

                   314,205

 

                             43

Interest paid

 

 

                   316,447

 

                   245,079

 

 

Amphion Innovations plc

 

 

 

 

 

Company cash flow statement

 

 

 

 

 

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

Notes

 

31 December 2016

 

31 December 2015

Operating activities

 

 

 US $

 

 US $

 

 

 

 

 

 

(Loss)/profit

 

 

           (12,697,790)

 

                5,219,730

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

   Recognition of share-based payments

 

 

                    64,781

 

                      98,881

   Receivables reclassed to investments 

14

 

                               -  

 

                  (389,587)

   Issue notes to settle interest expense

 

 

                  395,687

 

                   439,524  

   Gain from change in foreign exchange rate on convertible

 

 

 

 

      promissory notes

 

 

             (1,392,038)

 

                  (444,126)

   Received investment shares for interest income

 

 

                (265,517)

 

                                -  

   Transfer of assets to settle interest expense

 

 

                              -  

 

                      89,480

   Increase in prepaid & other receivables

 

 

             (1,998,215)

 

                  (733,261)

   Increase in trade and other payables

 

 

                  658,357

 

                    183,172

   Change in fair value of investments

 

 

               9,800,094

 

               (5,654,608)

   (Gain)/loss on sale of investments

 

 

               1,642,028

 

               (1,595,429)

   Change in value subsidiary investment

 

 

                  116,831

 

                  (114,540)

 

 

 

 

 

 

Net cash used in operating activities

 

 

             (3,675,782)

 

               (2,900,764)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Purchases of investments

14

 

                (395,015)

 

                  (402,015)

Proceeds from disposition of investment

 

 

                 916,031

 

                                -  

 

 

 

 

 

 

Net cash provided by/(used in) investing activities

 

 

                 521,016

 

                  (402,015)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds on issue of shares, net of costs

 

 

                              -  

 

                3,265,213

Proceeds on issue of promissory notes

17

 

              4,865,000

 

                3,300,000

Repayments of promissory notes

17

 

             (2,289,501)

 

               (2,572,167)

 

 

 

 

 

 

Net cash from financing activities

 

 

              2,575,499

 

                3,993,046

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

 

                (579,267)

 

                    690,267

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

 

                 883,074

 

                    192,807

 

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

 

                 303,807

 

                    883,074

 

 

 

 

 

 

Interest received

 

 

                 130,263

 

                               43

Interest paid

 

 

                 316,443

 

                     244,414

 

 

 

 

 

 

 

 

 

 

1.  General information

 

Amphion Innovations plc (the "Company") is a public limited company incorporated in the Isle of Man under the Companies Act 2006 with registered number 011472V on 29 August 2014 (formerly registered under the Companies Acts 1931 to 2004 on 7 June 2005 with registered number 113646C). The address of the registered office is Fort Anne, Douglas, Isle of Man, IM1 5PD. The principal place of business is 125 Park Avenue, 25th Floor, New York, NY, 10017, USA. The principal activity of the Company and its subsidiaries is to build shareholder value in high growth companies in the medical and technology sectors, by using a focused, hands-on company building approach, based on decades of experience in both the US and UK.        

 

The consolidated financial statements include the accounts of Amphion Innovations plc and its three wholly owned subsidiaries, Amphion Innovations US Inc. and DataTern, Inc., which are incorporated in the United States, and MSA Holding Company which is incorporated in the Kingdom of Bahrain. 

 

These financial statements are presented in US dollars because that is the currency of the primary economic environment in which the Company operates.

 

Going concern

 

The Group's business activities, together with factors likely to affect its future development, performance, and financial position and commentary on the Group's financial results, its cash flows, and liquidity requirements are set out in the CEO's Statement on pages 2 - 7 and elsewhere within the financial statements.  In addition, note 15 to the financial statements includes the Group's objectives, policies, and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to liquidity risk and credit risk.

 

These financial statements have been prepared on the basis that the Group is a going concern.  Although the Group made an operating loss and is in a net current liability position with a negative net asset position, it is forecasting future positive cash flows.

 

The Directors have prepared cash flow forecasts extending at least 12 months from the date of approval of these financial statements, which include certain key assumptions about the ability of the Group to continue to generate revenue from the realisation of the Group's investment in Partner Companies and the ability to raise external debt and equity financing.

 

The Directors are also of the view that other viable options to allow the Group to continue as a going concern include the reduction in its financial support to Partner Companies in the short-term, although this may have an impact on the ability of the Partner Companies to develop their businesses and raise additional financing, the reduction in its working capital requirements and the more aggressive realisation of the Group's investments in Partner Companies.

 

However, certain conditions exist which indicate the existence of a material uncertainty.  These conditions and the Directors' considerations in respect of these matters are discussed below:

 

• In prior years, the Group has been able to meet its obligations through fund raising (including the issue of shares, convertible promissory notes ("CPNs") and promissory notes), from revenue generated through the provision of advisory services to its Partner Companies, and from the revenue generated from the licensing of intellectual property.  During 2016 and 2015 as a result of a lack of cash being generated from these activities, the Group has had to reduce its financial support to its Partner Companies and extend the payment dates for its trade payables and its convertible and non-convertible promissory notes.  The Group has also reduced its operating costs where possible, including salary and fee reductions for employees and directors, and has obtained financial support from various related parties, through the issue of promissory notes and short-term loans (see note 22 for further detail).  The Group will need to continue to implement these measures and seek further financing as required.  The Group's primary method of financing during 2016 and 2015 was through a second loan facility, using its holdings in Kromek Group plc and Motif Bio plc as security.  Further access to additional funds under the second loan facility will be dependent on a number of factors including the appreciation in value of the ordinary shares of Motif Bio plc.  In that regard in June 2014, the Group entered into a US loan facility which is secured by 7,774,678 ordinary shares of Kromek Group plc.  The securities will be released upon repayment of the loan (see note 17 for further details). This facility was further extended in April 2016 to include Motif Bio plc shares as security.  As of the current date, 42,461,625 shares of Motif Bio plc are pledged as security.  No Kromek Group plc shares are pledged as they have been disposed of post year end.  Relations with significant trade suppliers have also been strained during the year.  Should the Group fail to generate sufficient cash to support its Partner Companies and to pay trade payables on a timely basis, the Group may see additional adverse effects on its Partner Companies and their valuations and in its relationship with its vendors.   

• As at 31 December 2016 the Group has US $20,186,729 (2015: US $18,647,081) in notes payable including US $7,226,059 (2015: US $8,312,180) of convertible promissory notes ("CPNs") that are due to mature on 31 December 2017 and US $5,665,269 from a loan facility payable in monthly installments from 1 March 2016 to 1 December 2017.  The repayment of the amounts is subject to uncertainty due to the factors noted above and below.  The Group's ability to extend repayment, if required, is also uncertain.

 

• The timing and ability of the Group to realise its investments in Partner Companies is subject to inherent uncertainty due to numerous factors including, but not limited to: the liquidity of the investment; market conditions being favourable for realisation whether through a listing or otherwise; potential for restrictions being imposed that may limit full realisation of investments sold; such as lock-in periods; and other factors that are outside the control of the Group.  The Group will realise investments where the terms of any potential arrangement are favourable to the Group and is confident of its ability to fund near term cash requirements through this process if required. 

 

• In December 2012, Berkeley Research Group, LLC ("BRG"), an expert consultant engaged by DataTern filed for arbitration claiming US $1,142,478 was owed to them.  DataTern opposed the arbitration and vigorously contested the amount owed.  In January 2015, the arbitrator found in favor of BRG and awarded them an amount totaling US $2,090,865 for the balance due and legal costs.  DataTern contested the award and filed a lawsuit seeking to overturn the award.  In March 2016, the Company reached a settlement with BRG for US $1,575,000.  The payment terms are US $100,000 paid upon signing the settlement agreement, and further payments of US $400,000 on 30 April 2016, US $500,000 on 30 June 2016 and US $575,000 on 31 December 2016.  Should Amphion fail to make a payment, the full amount of the judgement, US $2,236,286.49, will be due less any amounts paid.  As a consequence of this settlement, the liability has been transferred from DataTern Inc. to Amphion Innovations plc.  On 22 December 2016, there was an amendment to the settlement agreement that extended the payment terms for the last payment of US $575,000 on 31 December 2016.  Under the new terms, Amphion will pay US $650,000 in monthly payments from 23 December 2016 through 30 June 2017 plus interest at 10% per annum.  At 31 December 2016, US $525,000 was due BRG under the new terms.  As of the date of this report, the balance has been repaid. 

 

·  In May 2017, Richard Morgan and Robert Bertoldi, Directors of the Company, entered into a deed of postponement where they have agreed to postpone the repayment of the amounts owed to them, which total US $4,300,000, until all other debts of the company are repaid.

 

These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.  These financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

 

However, after making enquiries, and considering the uncertainties described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For these reasons they continue to adopt the going concern basis in preparing the annual report and financial statements.

 

2.  Significant accounting policies

 

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRSs"), interpretations issued by the International Financial Reporting Committee of the IASB and applicable legal and regulating requirements of Isle of Man law and the AIM rules of the London Stock Exchange. 

 

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

 

Adoption of new and revised Standards

 

The Group has adopted the following new standards and amendments to standards with a date of initial application of 1 January 2016:

 

·   Annual Improvements to IFRSs - 2010-2012 Cycle and 2011-2013 Cycle

 

The Group also elected to adopt the following two amendments early:

 

·   Annual Improvements to IFRSs 2012-2014 Cycle, and

·   Disclosure Initiative:  Amendments to IAS 1.

 

As these amendments merely clarify the existing requirements, they do not affect the Group's accounting policies or any of the disclosures.

 

Standards and interpretations issued but not yet effective

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2016 and earlier application is permitted; however, the Group and Parent Company has not early applied the following new or amended standards in preparing these financial statements.  The new standards potentially relevant to the Group and Parent Company are discussed below.  The Group and Parent Company do not plan to adopt these standards early.

New or amended standards

Summary of the requirements

Possible impact on financial statements

IFRS 9 Financial Instruments

IFRS 9, published in July 2014 and expected to be adopted by the EU in H1 2016, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement.  IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements.  It also carries forward the guidance on recognition and recognition of financial instruments from IAS 39.

 

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

Based on the initial assessment, this standard is not expected to have a material impact on the Group or Parent Company.  This is because financial instruments currently measured at FVTPL will continue to be measured at FVTPL under IFRS 9 and those currently measure at amortised cost will continue to be measured at amortised cost under IFRS 9.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive guideline for determining when to recognise revenue and how much revenue to recognise.

 

IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

Based on the initial assessment, this standard is not expected to have a significant impact on the Group's net results or net assets.

IFRS 16 Leases

IFRS 16 will replace IAS 17.  It will eliminate the distinction between classification of leases as finance or operating leases for leases. 

 

IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted.

Based on the initial assessment, this standard is not expected to have a significant impact on the Group's net results or net assets.

Amendments to IAS 7, Disclosure Initiative

The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. 

 

The Amendments are effective for annual reporting periods beginning on or after 1 January 2017, with early adoption permitted.

To satisfy the new disclosure requirements, the Group intends to present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities.

 

 

 

 

The financial statements have been prepared on the historical cost basis, except for financial instruments classified as fair value through profit and loss.  The principal accounting policies adopted are set out below.

 

Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries).  Control is achieved where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

 

The results of subsidiaries acquired during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal. 

 

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

 

All intra-group transactions, balances, income, and expenses are eliminated on consolidation.

                        

Cash and cash equivalents

 

Cash and cash equivalents include balances with banks and demand deposits, which have maturities of less than three months.

 

Investments in subsidiaries

 

Investments in subsidiaries are stated at cost less provisions for impairment where appropriate.

 

Financial instruments

 

The Group designates its assets and liabilities into the categories below.

 

(i)         Financial assets and liabilities designated at fair value through profit or loss at inception:  These include equity, warrants, options, and convertible promissory notes held in Partner Companies.  These are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Group's documented investment strategy.  These investments have been designated at fair value through profit or loss and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement, therefore IAS 28, Investments in Associates and Joint Ventures, has not been applied by the Group to the investments that it holds in associates.

 

·      Recognition

 

All regular way purchases and sales of financial instruments are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial instruments that require delivery of assets within the period generally established by regulation or convention in the market place. Realised gains and losses on disposals of financial instruments are calculated using the first-in-first-out ("FIFO") method or the average cost per share when a capital change has occurred.

 

·      Initial measurement

 

Financial instruments categorised at fair value through profit or loss, are recognised initially at fair value, with transaction costs for such instruments being recognised directly in the Statement of Comprehensive Income.

 

·      Subsequent measurement

 

"Fair value" is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date.  The fair value of a liability reflects its non-performance risk.

 

When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument.  A market is regarded as "active" if transactions for the asset or liability take place with sufficient frequency and

volume to provide pricing information on an ongoing basis.  The Group measures instruments quoted in an active market at a mid-price.

 

If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs.  The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

 

The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred.

 

The fair value of unlisted securities is established using valuation techniques.  Whenever possible the Group uses valuation techniques which make maximum use of market-based inputs.  Accordingly, the valuation methodologies and principals used most commonly by the Group are those contained in the International Private Equity and Venture Capital Valuation Guidelines (the "IPEVCV Guidelines") endorsed by the British & European Venture Capital Associations. 

 

Assets and long positions are measured at a bid price; liabilities and securities sold short are measured at an asking price.

 

Given the nature of the Group's investments in seed, start-up, and early-stage companies where there are often no current and no short-term future earnings or positive cash flows it can be difficult to gauge the probability and financial impact of the success or failure of development or research activities and to make reliable cash flow forecasts.  Consequently, the most appropriate approach to determine fair value is a methodology that is based on market data, that being the price of a recent investment.  Where the Group considers that the price of recent investment, unadjusted, is no longer relevant, and there are limited or no comparable companies or transactions from which to infer value, the Group carries out an enhanced assessment taking into consideration the key market drivers of the investee company and the overall economic environment.

 

Where the Group considers that there is an indication that the fair value has changed, an estimation is made of the required amount of any adjustment from the last price of recent investment.  Wherever possible, this adjustment is based on objective data from the investee company and the experience and judgment of the Group; however, any adjustment is, by its very nature, subjective.  Where a deterioration in value has occurred, the Group reduces the carrying value of the investment; however, in the absence of additional financing rounds or profit generation it can be difficult to determine the value that a purchaser may place on positive developments given the potential outcome and the costs and risks to achieving that outcome and accordingly caution is applied.

 

Factors that the Group considers include, inter alia, technical measures such as product development phases and patent approvals, financial measures such as cash burn rate and profitability expectations, and market and sales measures such as testing phases, product launches and, market introduction.

 

·      De-recognition

 

The Group de-recognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for de-recognition in accordance with IAS 39.  The Group de-recognises a financial liability when the obligation specified in the contract is discharged, cancelled, or expired.

 

Impairment of financial assets

 

Financial assets, other than those classified as at fair value through profit and loss, are assessed for indicators of impairment at each balance sheet date.  Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

  

Financial liabilities and equity

 

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into.  An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.  Financial liabilities are derecognised when its contractual obligations are discharged, or cancelled, or expire.  Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs.  Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

 

Compound financial instruments are required by IAS 32 Financial Instruments: Presentation, to be separated into their liability and equity components upon initial recognition.   To meet the definition of equity, the contract must be settled by a fixed amount of cash in exchange for a fixed amount of equity instruments.  Where the Company issues convertible promissory notes ("CPNs") in a currency other than its functional currency, a fixed number of shares will be delivered in exchange for a variable amount of cash, therefore the definition of equity is not met.  Consequently, the CPNs are classified wholly as liabilities at fair value through the Statement of Comprehensive Income.  Where warrants are issued with CPNs, they are accounted for as part of the same financial instrument as the CPNs in accordance with IAS 39: Financial instruments - Recognition and Measurement, since they were entered into at the same time and in contemplation of each other, they have the same counterparty, they relate to the same risk and are non-transferable.

 

Prepaid expenses and other receivables

 

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

 

Trade and other payables

 

Trade and other payables are not interest bearing and are stated at amortised cost which approximates their fair value.

 

Equity instruments      

 

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

Share-based payments

 

The Group has applied the requirements of IFRS 2 Share-based payments.

 

The Group issues equity-settled share-based payments to certain employees and consultants.  Equity-settled share-based payments are measured at fair value at the date of grant.  The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest.  The fair value of equity-settled share-based payments attributable to the issue of equity instruments is charged against equity.

 

Fair value is measured using the Black-Scholes pricing model.  The expected life used in the model has been adjusted based on management's best estimate for effects of non-transferability, exercise restrictions, and behavioral considerations.

 

Capital risk management

 

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance.  The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves, and retained earnings.

 

Revenue recognition

 

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for, and services provided, in the normal course of business, net of VAT and other sales related taxes.

 

Revenue from license agreements is recognised in accordance with the substance of the agreement and when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of the revenue can be measured reliably.

 

 

Where assignment of rights for a fixed fee under a non-cancellable contract permits the licensee to exploit those rights freely and the licensor has no remaining obligations to perform, the revenue is recognised at the time of sale.

 

Where a license fee is contingent on the occurrence of a future event, the revenue is only recognised when it is probable that the fee will be received.

 

Cost of sales

 

Revenue related costs only include the direct fees paid for strategic advisory services for licensing and enforcing various patents.

 

Interest income

 

Interest income is recognised on an accruals basis.

 

Dividend income

 

Dividend income from investments is recognised when the shareholders' right to receive payment has been established.

 

Leasing

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.  All other leases are classified as operating leases.

 

Foreign currencies

 

The individual financial statements of each company in the Group are presented in the currency of the primary economic environment in which it operates (its functional currency).  For the purpose of the consolidated financial statements, the results and financial position of each company in the Group are expressed in US dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

 

Transactions in currencies other than US dollars are recorded at the rates of exchange prevailing on the dates of the transactions.  At each Statement of Financial Position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the Statement of Financial Position sheet date.  Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. 

 

Gains and losses arising on retranslation are included in net profit or loss for the year, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.

 

On consolidation, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the Statement of Financial Position date.  Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are translated at the rate on the date of the transaction.  Exchange differences arising, if any, are recognised in the Statement of Comprehensive Income and are transferred to the Group's translation reserve.

 

Retirement benefit costs

 

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

 

Taxation

 

Income tax expense represents the sum of the tax currently payable and deferred tax.

 

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the Statement of Financial Position date.

 

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit.

 

Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset realised. 

 

Property, plant, and equipment

 

Property, plant, and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

 

Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives of 3-5 years, using the straight-line method.

 

Intangible assets

 

Intangible assets comprise patents and other intellectual property with finite useful lives and are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives of 5-10 years.

 

Impairment of tangible and intangible assets

 

At each Statement of Financial Position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).  Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.  An intangible asset with an indefinite useful life is tested for impairment annually and an intangible asset which is amortised is tested for impairment only when there is an indication that the asset may be impaired.

 

3.  Key sources of estimation uncertainty

 

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

 

Investments that are fair valued through profit or loss, as detailed in note 14, are all considered to be 'Partner Companies'.  Those 'Partner Companies' categorised as Level 3 are defined as investments in 'Private Companies'.

 

Fair value of financial instruments

 

As described in note 2, the Directors use their judgment in selecting an appropriate valuation technique for financial instruments not quoted in an active market ("Private Investments").  The estimation of fair value of these Private Investments includes a number of assumptions which are not supported by observable market inputs.  The carrying amount of the Private Investments is US $7.9 million (2015: US $5.8 million) in the Group and US $7.9 million (2015: US $5.8 million) in the Company.

 

Fair value of other receivables

 

The valuation of the Private Investments and other receivables from Partner Companies at 31 December 2016 assumes that the Partner Companies continue to receive ongoing funding in accordance with their 2017/2018 forecasts.  If this funding is not received, this would have an adverse impact on the valuation of the investments and the ability of the Partner Companies to settle their debts, which in turn would impact the valuation of other receivables.

  

 

4.  Revenue

 

An analysis of the Group's and Company's revenue for the period is as follows:

 

 

Group

 

Company

 

Group

 

Company

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December 2016

 

31 December 2016

 

31 December 2015

 

31 December 2015

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

139,633

 

-

 

459,904

 

 

-

 

                                -

 

59,951

 

                                -

 

 

 

 

 

 

 

 

 

139,633

 

                                -

 

519,855

 

-

 

 

In July 2011, DataTern, Inc. entered into a fee agreement with McCarter & English LLP ("ME").  Under this agreement, ME will represent DataTern in the assertion of all patent infringement claims, except for claims in Texas and conflicts with existing ME clients.  There were no license settlements in 2016 and 2015 relating to the ME fee agreement and as a result no fees were paid to ME. 

 

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

 

 

5.  Business and geographical segments

 

Business segments

 

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. 

 

For management purposes for 2016, the Group is organised into three business segments - advisory services, investing activities, and intellectual property.  These business segments are the basis on which the Group reports its primary segment information.

 

Segment information about these businesses is presented below:

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December

 

31 December

 

31 December

 

31 December

 

31 December

 

2016

 

2016

 

2016

 

2016

 

2016

 

US $

 

US $

 

US $

 

US $

 

US $

REVENUE

 

 

 

 

 

 

 

 

 

External advisory fees

        139,633

 

                   -

 

                   -

 

                     -

 

        139,633

External license fees

                   -

 

                   -

 

                   -

 

                     -

 

                   -

  Total revenue

        139,633

 

                   -

 

                   -

 

                     -

 

        139,633

Cost of sales

                   -

 

                  -

 

                   -

 

                     -

 

                   -

Gross profit/(loss)

        139,633

 

                  -

 

                   -

 

                     -

 

        139,633

Administrative expenses

       (701,216)

 

   (1,952,662)

 

       (820,167)

 

                     -

 

   (3,474,045)

 

 

 

 

 

 

 

 

 

 

Segment result

       (561,583)

 

   (1,952,662)

 

       (820,167)

 

                     -

 

   (3,334,412)

 

 

 

 

 

 

 

 

 

 

Fair value losses on investments

                   -

 

 (14,461,324)

 

                   -

 

         116,831

 

 (14,344,493)

Interest income

                   -

 

        776,244

 

                   -

 

                     -

 

        776,244

Other gains and losses

                195

 

     1,507,126

 

                     -

 

                     -

 

     1,507,321

Finance costs

                   (4)

 

   (1,400,136)

 

         (46,519)

 

                     -

 

   (1,446,659)

Gain/(loss) before tax

       (561,392)

 

 (15,530,752)

 

       (866,686)

 

         116,831

 

 (16,841,999)

Income taxes

           (1,448)

 

                  -

 

                213

 

                     -

 

           (1,235)

 

 

 

 

 

 

 

 

 

 

Gain/(loss) after tax

       (562,840)

 

 (15,530,752)

 

       (866,473)

 

         116,831

 

 (16,843,234)

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Segment assets

     4,577,294

 

   29,182,098

 

         152,839

 

   (9,463,530)

 

   24,448,701

 

 

 

 

 

 

 

 

 

 

Segment liabilities

     8,156,043

 

   23,450,503

 

      7,666,913

 

   (8,938,377)

 

   30,335,082

 

 

 

 

 

 

 

 

 

 

Amortisation

                   -

 

                   -

 

         155,084

 

                   -

 

        155,084

Recognition of share-based

 

 

 

 

 

 

 

 

                     - 

   payments

                    -

 

           64,781

 

                     -

 

                   -

 

          64,781

 
 

 

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

 

 

 

 

       Advisory

 

       Investing

 

   Intellectual

 

 

 

 

 

 

 

        services

 

       activities

 

    property

 

 Eliminations

 

 Consolidated

 

 

 

   Year ended

 

   Year ended

 

Year ended

 

  Year ended

 

  Year ended

 

 

 

31 December

 

31 December

 

31 December

 

31 December

 

 31 December

 

 

 

              2015

 

               2015

 

            2015

 

             2015

 

              2015

 

 

 

              US $

 

              US $

 

             US $

 

             US $

 

              US $

REVENUE

 

 

 

 

 

 

 

 

 

 

External advisory fees

 

           459,904

 

                       -  

 

                       -

 

                      -

 

            459,904

External license fees

 

                        -

 

                       -

 

            59,951

 

                      -

 

              59,951

  Total revenue

 

           459,904

 

                       -

 

            59,951

 

                      -

 

            519,855

Cost of sales

 

                        -

 

                       -

 

                      -

 

                      -

 

                        -

Gross profit/(loss)

 

           459,904

 

                       -

 

            59,951

 

                      -

 

            519,855

Administrative expenses

 

      (1,740,679)

 

      (2,068,530)

 

          (871,003)

 

                      -

 

       (4,680,212)

 

 

 

 

 

 

 

 

 

 

 

 

Segment result

 

      (1,280,775)

 

      (2,068,530)

 

          (811,052)

 

                      -

 

       (4,160,357)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gains on investments

 

                       -  

 

    10,222,184

 

                       -

 

        (114,540)

 

      10,107,644

Interest income

 

                       -

 

          678,824

 

                       -

 

                      -

 

            678,824

Other gains and losses

 

                       -

 

          505,015

 

                       -

 

                      -

 

            505,015

Finance costs

 

                 (342) 

 

      (1,138,455)

 

            (48,630)

 

                      -

 

       (1,187,427)

Gain/(loss) before tax

 

      (1,281,117)

 

      8,199,038

 

          (859,682)

 

        (114,540)

 

        5,943,699

Income taxes

 

              (1,575)   

 

                       -

 

                  (325)

 

                      -

 

               (1,900)

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(loss) after tax

 

      (1,282,692)

 

      8,199,038

 

          (860,007)

 

        (114,540)

 

         5,941,799

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Segment assets

 

       7,188,691

 

     39,694,435

 

           307,168

 

     (7,305,130)

 

       39,885,164

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

 

       7,488,470

 

     21,212,998

 

        6,954,769

 

     (6,663,145)

 

       28,993,092

 

 

 

 

 

 

 

 

 

 

 

 

Capital additions

 

                      -

 

                      -

 

                        -

 

                      -

 

                         -

Amortisation

                      -

 

                      -

 

           155,084

 

                      -

 

            155,084

Recognition of share-based      

 

 

 

 

 

 

 

 

 

   payments

 

                      -  

 

             98,881

 

                        -  

 

                      -

 

              98,881

 

 

 

 

Geographical segments

 

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

 

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

 

 

 

External advisory fees by

 

 

geographical location

 

 

 

 

 

 

 

2016

 

2015

 

 

US $

 

US $

 

 

 

 

 

United States

 

-

 

60,000

United Kingdom

 

      139,633

 

      399,904

 

 

    139,633

 

    459,904

 

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

 

 

 

External license fees by

 

 

geographical location

 

 

 

 

 

 

 

2016

 

2015

 

 

US $

 

US $

 

 

 

 

 

United States

 

     -

 

       50,551

Europe

 

-

 

9,400

 

 

     -

 

     59,951 

 

The following is an analysis of the carrying amount of segment assets and capital additions analysed by the geographical area in which the assets are located:

 

 

Carrying amount

 

Additions to fixtures, fittings,

 

of segment assets

 

equipment, and intangible assets

 

 

 

 

 

 

 

 

 

2016

 

2015

 

2016

 

2015

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

United States

   9,530,095

 

   8,229,718

 

     -

 

     -

United Kingdom

 14,918,606

 

 31,655,446

 

-

 

-

 

 24,448,701

 

 39,885,164

 

-

 

-

 

 

 

6.  Profit/(loss) before tax

 

Profit/(loss) before tax has been arrived at after crediting/(charging) the following gains and losses:

 

 

Group

 

Company

 

Group

 

Company

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December 2016

 

31 December 2016

 

31 December 2015

 

31 December 2015

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

Net foreign exchange gains

            1,507,126

 

             1,507,126

 

                 489,572

 

                  489,572

 

 

 

 

 

 

 

 

Change in fair value of financial assets designated as at fair value through profit or loss

            (14,344,493)

 

               (11,442,124)

 

            10,107,644

 

               7,250,037

 

 

 

 

 

 

 

 

Amortisation of intangible assets

                 155,084

 

                           -

 

                 155,084

 

                           -

 

 

 

 

 

 

 

 

Auditors' remuneration - audit services

                 127,760

 

                    58,151

 

                 129,388

 

                    55,474

 

 

 

 

 

 

 

 

 

 

7.  Staff costs

 

The average monthly number of employees (including Executive Directors) was:

 

 

 

2016

 

2015

 

 

Number

 

Number

 

 

 

 

 

Amphion Innovations plc, Amphion Innovations US Inc.,

 

 

 

 

and DataTern, Inc.  (some employees and costs are shared)

 

4

 

4

 

 

 

 

 

Total for the Group

 

4

 

4

 

 

 

Group

 

Company

 

Group

 

Company

 

 

2016

 

2016

 

2015

 

2015

Their aggregate remuneration comprised:

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

Wages and salaries

 

872,430

 

163,068

 

1,158,414

 

211,870

Social security costs

 

35,977

 

6,128

 

42,001

 

7,230

Other pension costs  (see note 23)

 

             -

 

-

 

               - 

 

-

 

 

 

 

 

 

 

 

 

 

 

908,407

 

169,196

 

1,200,415

 

219,100

 

 

 

8.  Interest income

 

 

Group

 

Company

 

Group

 

Company

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December

 

31 December

 

31 December

 

31 December

 

2016

 

2016

 

2015

 

2015

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

    Bank deposits

59

 

59

 

43

 

43

    Investments

776,185

 

706,778

 

678,781

 

557,080

    Other

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

776,244

 

706,837

 

678,824

 

557,123

 

At 31 December 2016, the receivable for accrued interest income from Partner Companies has been reduced by a provision for doubtful debts of US $1,981,715 (2015: US $2,256,762).

 

9.  Finance costs

 

 

Group

 

Company

 

Group

 

Company

 

Year ended

 

Year ended

 

Year ended

 

Year ended

 

31 December

 

31 December

 

31 December

 

31 December

 

2016

 

2016

 

2015

 

2015

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

Interest on promissory notes

1,446,656

 

1,400,136

 

1,187,427

 

1,138,455

 

10.  Income tax expense

 

 

Group

 

Group

 

Year ended

 

Year ended

 

31 December 2016

 

31 December 2015

 

US $

 

US $

 

 

 

 

Isle of Man income tax

                             -

 

                             -

Tax on US subsidiaries

                      1,235

 

                      1,900

 

 

 

 

Current tax

                      1,235

 

                      1,900

                                                                                                 

From 6 April 2006, a standard rate of corporate tax of 0% applies to Isle of Man companies, with exceptions taxable at the 10% rate, namely licensed banks in respect of deposit-taking business, companies that profit from land and property in the Isle of Man, and companies that elect to pay tax at the 10% rate.  No provision for Isle of Man taxation is therefore required (2015: US $nil).  The Company is treated as a Partnership for U.S. federal and state income tax purposes and, accordingly, its income or loss is taxable directly to its partners. 

 

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

 

 

 

 

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

 

 

2016

 

2015

 

 US $

 

 US $

 

 

 

 

Profit/(loss) before tax

           (16,841,999)

 

           5,943,699

 

 

 

 

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

                          -

 

                          -

 

 

 

 

Effect of different tax rates of subsidiaries

 

 

 

operating in other jurisdictions

1,235

 

1,900

 

 

 

 

Current tax/(refund)

1,235

 

1,900

 

11.  Earnings per share

 

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

 

  Earnings

 

 

 

 

Year ended

 

Year ended

 

31 December 2016

 

31 December 2015

 

US $

 

US $

 

 

 

 

(Loss)/profit for the purposes of basic and diluted earnings per share         

(16,843,234)

 

5,941,799

 

Number of shares

 

 

 

 

Year ended

 

Year ended

                                                                                                           

31 December 2016

 

31 December 2015

Weighted average number of ordinary shares for                                              

 

 

 

    the purposes of basic and diluted earnings per share

197,502,435

 

179,083,069

 

Loss per share

 

Year ended

 

Year ended

 

31 December 2016

 

31 December 2015

 

US $

 

US $

 

 

 

 

 

 

 

 

Basic

 

 

                     (0.09)

 

                     0.03

 

 

 

 

 

 

 

 

Diluted

 

 

                      (0.09)

 

                      0.02

             

 

The following potentially dilutive securities outstanding at December 31, 2016 and 2015 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

 

 

Year ended

 

Year ended

 

31 December 2016

 

31 December 2015

    Options

2,260,807

 

3,925,501

    Convertible promissory notes

73,215,318

 

56,369,051

 

75,476,125

 

60,294,552

 

 

 

12.  Intangible assets

 

 

Group

 

Patents, software,

 

trademark, and copyright

COST

US $

 

 

At 1 January 2015

                            1,610,489

Additions

                                           -

 

 

At 1 January 2016

                            1,610,489

Additions

                                           - 

 

 

At 31 December 2016

                            1,610,489

 

 

AMORTISATION

 

 

 

At 1 January 2015

                            1,180,389

Charge for the period

                               155,084 

 

 

At 1 January 2016

                   1,335,473

Charge for the period

                               155,084

 

 

At 31 December 2016

                            1,490,557

 

 

CARRYING AMOUNT

 

 

 

At 31 December 2016

                               119,932

 

 

At 31 December 2015

                               275,016

 

 

The intangible assets include certain intellectual property assets which were acquired on 20 December 2007 in a transaction between Amphion Innovations plc, DataTern, Inc. ("DataTern"), a wholly owned subsidiary of Amphion Innovations plc, and FireStar Software, Inc. ("FireStar"), a company in which Amphion Innovations plc holds an investment.  The assets were purchased for the following consideration:  discharge of debtor of US $415,000 and assumption by Amphion of certain third party payables totaling approximately US $1.8 million.  In 2009, settlements were made with certain third parties which resulted in a decrease of US $793,861 in payables assumed by Amphion and as a result intangible assets acquired from FireStar were adjusted for the amount of the decrease.  Under the terms of the purchase, FireStar retained an interest of 48.29% of any future distributions on the 502 Patent and 24.14% of any future distributions on the 402 and 077 Patents.  In August 2012, the terms were amended so that FireStar will retain an interest of 5.5% of gross settlements for the first US $40 million of gross settlements.  For gross settlements between US $40 million and up to US $80 million, payments to FireStar will be 11% of gross settlements. For settlements above US $80 million, payments to FireStar from DataTern will be 12.1% of gross settlements.  No amounts were due to FireStar at the year end (2015: US $nil).

 

In February 2016, a UCC Financing Statement was filed with the Texas Secretary of State recording DataTern Inc.'s patents as collateral to McCarter & English, LLP for any amounts due to them, which equaled US $163,000 at year end.

 

 

 

13.  Investments in subsidiaries

 

Details of the Company's subsidiaries at 31 December 2016 and 2015 are as follows:

 

 

 

Place of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

incorporation

 

Proportion of

 

Proportion of

 

 

 

 

Name of

 

(or registration)

 

ownership interest

 

voting power held

 

Share

 

 

subsidiary

 

and operation

 

2016

 

2015

 

2016

 

2015

 

class

 

Principal activity

 

 

 

 

%

 

%

 

%

 

%

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amphion Innovations US Inc.

 

Delaware, USA

 

100

 

100

 

100

 

100

 

Common

 

Advisory services

DataTern, Inc.

 

Texas, USA

 

100

 

100

 

100

 

100

 

Common

 

Intellectual property

MSA Holding Company BSC

 

Kingdom of Bahrain

 

100

 

100

 

100

 

100

 

Ordinary

 

Investments

                                     

 

The investments in subsidiaries are all stated at cost less any provision for impairment where appropriate.  MSA Holding Company BSC was dormant in 2016 and 2015.

 

14.  Investments  

 

At fair value through profit or loss

 

 

Group

 

Company

 

Level 1

Level 2

Level 3

Total

 

Level 1

Level 2

Level 3

Total

 

         US $

         US $

           US $

         US $

 

        US $

       US $

          US $

US $

At 1 January 2016

 31,655,446

                -

    5,788,870

 37,444,316

 

 26,050,454

                -

     5,788,870

31,839,324

 

 

 

 

 

 

 

 

 

 

Investments during the year

      265,517  

                -

        395,015

      660,532

 

      265,517

                -

        395,015

      660,532

Disposals

     (916,031)

                -

                     -

     (916,031)

 

     (916,031)

                -

                     -

     (916,031)

Fair value gains/(losses)

(16,086,326)

                -

    1,741,833

(14,344,493)

 

(13,183,957)

                -

     1,741,833

(11,442,124)

 

 

 

 

 

 

 

 

 

 

At 31 December 2016

 14,918,606

                -

    7,925,718

 22,844,324

 

 12,215,983

                -

     7,925,718

 20,141,701

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

  6,668,978

                -

 22,098,681

28,767,659

 

    6,668,978

                -

 19,394,128

 26,063,106

 

 

 

 

 

 

 

 

 

 

Investments during the year

     106,041  

                -

       728,394

     834,435

 

         63,210 

                -

      728,393

      791,603

Transfers between levels

13,209,624

                -

(13,209,624)

                 -

 

 10,505,071

                -

(10,505,071)

                   -

Disposals

(2,265,422)

                -

                    -

(2,265,422)

 

  (2,265,422)

                -

                    -

  (2,265,422)

Fair value gains/(losses)

13,936,225

                -

  (3,828,581)

10,107,644

 

 11,078,617

                -

  (3,828,580)

   7,250,037

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

31,655,446

                -

   5,788,870

37,444,316

 

 26,050,454

                -

   5,788,870

 31,839,324

 

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

 

The Group net decrease in fair value for the year of US $14,344,493 (2015: increase of US $10,107,644) includes a net increase of US $1,741,833 in Level 3 investments (2015: decrease of US $3,828,581) that has been estimated using valuation techniques in accordance with the International Private Equity and Venture Capital Valuation Guidelines.  The Company net decrease in fair value for the year of US $11,442,124 (2015: increase of US $7,250,037) includes a net increase of US $1,741,833 in Level 3 investments (2015: decrease of US $3,828,850) that has been estimated using valuation techniques in accordance with the International Private Equity and Venture Valuation Guidelines.

 

There were no transfers between levels in 2016.  During 2015, Group securities with a carrying value of US $13,209,624 at 31 December 2014 were transferred from Level 3 to Level 1 because the securities were listed on the AIM of the London Stock Exchange in 2015 and they are currently actively traded in that market.  The securities now have a published price quotation in an active market.  During 2015, Company securities with a carrying value of US $10,505,071 at 31 December 2014 were transferred from Level 3 to Level 1.

 

The 2016 Group and Company disposals include the sale of 2,730,000 Kromek Group plc ordinary shares for US $913,777 that was used to pay the monthly payments to the institutional lender, the sale of 2,000 Novacyt S.A. shares for US $2,254, and the write off of m2m Imaging Corp. equity with a cost of US $1,613,686 as a result of the sale of all of m2m Imaging Corp.'s assets for the forgiveness of debt and the subsequent dissolution and liquidation of m2m Imaging Corp.  As part of the transfer of assets between m2m Imaging Corp. and m2m Acquisition Inc., m2m Imaging Corp. was dissolved and the forgiveness of debt was used as consideration for shares in m2m Acquisition Inc.  The 2015 Group and Company disposals include the sale of 779,642 Kromek Group plc ordinary shares for US $392,314 as a monthly payment to the institutional lender and the exchange of 2,916,523 Kromek Group plc ordinary shares for US $1,873,108 of the Company's convertible promissory notes (see note 18).

 

Fair value determination

 

As described in note 2 the Directors have valued the investments in accordance with the guidance laid down in the International Private Equity and Venture Capital Valuation Guidelines.  The inputs used to derive the investment valuations are based on estimates and judgments made by management which are subject to inherent uncertainty.  As such the carrying value in the financial statements may differ materially from the amount that could be realised in an orderly transaction between willing market participants on the reporting date.

 

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

 

Further information in relation to the directly held private investment portfolio that are Level 3 at 31 December 2016 is set out below:

 

 Level 3

Fair value

Methodology

Unobservable inputs

 

US $

 

 

Private investments

7,925,718

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

Discount (0%-100%),

 

 

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

price of fund raising.

 

 

valuation, and valuation of planned transaction.

 

 

Further information in relation to the directly held private investment portfolio at 31 December 2015 is set out below:

 

 Level 3

Fair value

Methodology

Unobservable inputs

 

US $

 

 

Private investments

5,788,870

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.  It should be noted however that increases or decreases in any of the inputs listed above in isolation may result in higher or lower fair value measurements.

 

At the reporting date, the potential effect of using reasonably possible alternative assumptions as inputs to valuation techniques from which the fair values of the investments are determined would be an increase of approximately US $nil (2015: US $nil) to profit

or loss of the Group and the Company using more favourable assumptions and an approximate decrease of US $2,300,000 (2014: US $2,100,000 million) to profit or loss of the Group and the Company using less favorable assumptions. 

 

The Group's ownership percentages of the investments are as follows:

 

 

 

2016

 

2015

 

 

 

Fully-diluted

 

Fully-diluted

 

Country of incorporation

 

ownership %

 

ownership %

 

 

 

 

 

 

Axcess International, Inc.  *

United States of America

 

7.03

 

8.64

FireStar Software, Inc.  *

United States of America

 

11.44

 

11.44

Kromek Group plc

England & Wales

 

2.20

 

5.27

Motif Bio plc  *

United States of America

 

16.83

 

29.21

m2m Acquisition Inc. (transferred assets from m2m Imaging Corp.)*

United States of America

 

84.50

 

15.62

Novacyt S.A.

France

 

0.06

 

0.18

PrivateMarkets, Inc.   *

United States of America

 

20.55

 

20.55

WellGen, Inc.  *

United States of America

 

23.90

 

23.90

 

The ownership percentages do not include the potential conversion of convertible promissory notes issued by the Partner Companies. 

Where more than 20% of the diluted ownership is held by the Group or the Group has representation on the Board of the Partner Company the Group is considered to have significant influence.  These are indicated above by an * above.

 

15.  Other financial assets and liabilities

 

The carrying amounts of the Group's financial assets and financial liabilities at the statement of financial position date are as follows.  The accounting policies described in note 2 explain how the various categories of financial instruments are measured.

 

 

Group

 

Company

 

2016

2015

 

2016

2015

 

Carrying

Fair

Carrying

Fair

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

amount

value

amount

value

 

US $

US $

US $

US $

 

US $

US $

US $

US $

Financial assets

 

 

 

 

 

 

 

 

 

Fair value through profit or loss

 

 

 

 

 

 

 

 

 

Investments - designated

 

 

 

 

 

 

 

 

     as such upon initial recognition

  22,844,324

  22,844,324

  37,444,316

  37,444,316

 

  20,141,701

  20,141,701

  31,839,324

  31,839,324

Currents assets

 

 

 

 

 

 

 

 

 

Loans and receivables

 

 

 

 

 

 

 

 

 

Security deposit

         20,000

         20,000

         22,008

         22,008

 

                 -

                 -

                 -

                 -

Prepaid expenses and other

 

 

 

 

 

 

 

 

 

     receivables

    1,150,619

    1,150,619

    1,206,843

    1,206,843

 

    8,097,236

    8,097,236

    6,099,021

    6,099,021

Cash and cash equivalents

       313,826

       313,826

       936,981

       936,981

 

       303,807

       303,807

       883,074

       883,074

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Amortised cost

 

 

 

 

 

 

 

 

 

Trade and other payables

  10,148,353

  10,148,353

  10,346,011

  10,346,011

 

    4,149,448

    4,149,448

    3,491,093

    3,491,093

Convertible promissory notes

    7,226,059

    7,226,059

    8,312,180

    8,312,180

 

    7,226,059

    7,226,059

    8,312,180

    8,312,180

Notes payable

  12,960,670

  12,960,670

  10,334,901

  10,334,901

 

    12,055,170

    12,055,170

    9,389,901

    9,389,901

 

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

 

The financial instruments at 31 December 2016 are categorized as Level 2 in the fair value hierarchy.

 

Credit risk

 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.  The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults.

 

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.  All deposits are held with banks with an S&P rating of AA- or higher.  The maximum exposure to credit risk for the financial asset investments designated at fair value through the profit and loss is represented by their carrying value.

 

The Group's exposure to counterparty credit risk also arises from balances owed from Partner Companies relating to fees charged for services provided by Amphion.  Amphion seeks to mitigate the risk noted above through its philosophy of working with a small number of rigorously selected Partner Companies, assisting them to grow by implementing a consistent and proven methodology developed over the management team's 20 years of company building experience.  The Group's time tested model of company creation is built on a risk management process that relies on proven, defensible intellectual property sourced from some of the world's leading corporations and universities.

 

The following table is an analysis of the age of financial assets:

 

Group

                                                                                                                     Past due or impaired

 

 

 

More than 3

 

 

 

Not past due

Not more than

months and not

More than

 

 

or impaired

3 months

more than 1 year

1 year

Total

 

                 US $

                    US $

 US $

US $

US $

2016

 

 

 

 

 

Fees receivable - gross

                       -  

                         -

                                 -

          2,090,000

    2,090,000

Impairment

                       -

                          -

                                 -

         (2,090,000)

    (2,090,000)

Rebillable expenses

           523,961

                         -

                                 -

                          -

         523,961

Other receivables

           504,897

                         -

                                 -

          2,086,177

      2,591,074

Impairment

                        -

                         -

                                 -

         (1,981,715)

    (1,981,715)

Prepaid expenses 

              17,299

                         -

                                 - 

                         -

           17,299

 

        1,046,157

                          -

                                 -

              104,462

      1,150,619

 

 

 

 

 

 

2015

 

 

 

 

 

Fees receivable - gross

                       -  

                         -

                                 -

          2,720,000

    2,720,000

Impairment

                       -

                          -

                                 -

         (2,690,000)

    (2,690,000)

Rebillable expenses

           537,949 

                         -

                                 -

                          -

         537,949 

Other receivables

           497,841

                         -

                                 -

          2,361,224

      2,859,065

Impairment

                        -

                         -

                                 -

         (2,256,763)

    (2,256,763)

Prepaid expenses 

              36,592

                         - 

                                 -  

                         -

           36,592

 

        1,072,382

                          -

                                 -

              134,461

      1,206,843

 

The allowance account for fees receivable is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the fees receivable directly.

 

 

Company    

                                                                                                                     Past due or impaired

 

 

 

More than 3

 

 

 

Not past due

Not more than

months and not

        More than

 

 

 or impaired

3 months

more than 1 year

              1 year

          Total

 

                 US $

                    US $

 US $

                 US $

            US $

2016

 

 

 

 

 

Rebillable expenses

               513,216

                             -

                                   - 

                                  -

              513,216

Due from subsidiaries

            7,018,289

                            -

                                   -

                                 -

           7,018,289

Other receivables

            468,617

                            -

                                   -

                 2,076,177

           2,544,794

Impairment

           -

                            -

                                   -

                  (1,981,715)

          (1,981,715)

Prepaid expenses

                  2,652

                            -

                                   -

                                  -

                   2,652

 

            8,002,774

                            -

                                   -

                       94,462

           8,097,236

 

 

 

 

 

 

2015

 

 

 

 

 

Rebillable expenses

               525,427

                            -

                                   -

                               -

              525,427

Due from subsidiaries

            5,096,425

                            -

                                   -

                               -

           5,096,425

Other receivables

            347,027

                            -

                                   -

                 2,351,224

           2,698,251

Impairment

           -

                            -

                                   -

                  (2,256,763)

          (2,256,763)

Prepaid expenses

                  35,681

                            -

                                   -

                                 -

                 35,681

 

            6,004,560

                            -

                                   -

                       94,461

           6,099,021

 

 

 

 

 

 

 

 

Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.  The principal risk to which the Group is exposed is liquidity risk. 

 

Amphion's investments are in Partner Companies that are often development stage companies and will likely experience significant negative cash flow.  The Partner Companies may be unable to obtain financing to fund their negative cash flows due to market conditions or lack of operational progress.  In these instances, though Amphion is not obligated to do so, the Group may feel it necessary to provide additional investment to the Partner Company and also defer payment of the advisory fees due.  Amphion may also be required to spend additional management time on these companies.

 

The Group's investments in private investments are generally illiquid.  As a result, the Group may not be able to liquidate these investments in order to meet its liquidity requirements.  The Group's investments in listed securities are considered to be readily realisable because they are traded readily on stock exchanges.

 

Adverse market conditions may also delay liquidity events for the Partner Companies, thereby requiring additional rounds of financing in which Amphion may feel it necessary to participate.  During these adverse market conditions Amphion may also find it difficult to raise additional capital.

 

Liquidity risk is managed on a regular basis by the Board.  This includes the preparation of cash flow forecasts to identity any potential liquidity issues and consider potential options for resolutions of issues identified.  The Group maintains a line of credit that can be used to meet liquidity needs subject to the value of the collateral (see note 17).  The Group may also issue equity in order to meet liquidity needs.

 

 

The following table is a maturity analysis that shows the remaining contractual maturity for the Group and Company's financial liabilities:

 

Group

 

 

Less than

1-3

3 months

Over

 

 

1 month

months

to 1 year

1 year

Total

 

           US $

       US $

           US $

          US $

          US $

2016

 

 

 

 

 

Trade payables & other payables

10,148,353

    -

-

-

10,148,353

Notes payable

7,989,636

895,300

4,075,734

-

12,960,670

Convertible promissory notes

-

-

7,226,059

-

7,226,059

 

 

 

 

 

 

2015

 

 

 

 

 

Trade payables & other payables

10,346,011

    -

-

-

10,346,011

Notes payable

81,301

433,333

9,820,267

-

10,334,901

Convertible promissory notes

-

8,312,180

-

-

8,312,180

 

Company

 

 

Less than

1-3

3 months

Over

 

 

1 month

months

to 1 year

1 year

Total

 

           US $

       US $

           US $

          US $

          US $

2016

 

 

 

 

 

Trade payables & other payables

4,149,448

    -

        -

         -

4,149,448

Notes payable

7,084,136

895,300

4,075,734

-

12,055,170

Convertible promissory notes

-

-

7,226,059

-

7,226,059

 

 

 

 

 

 

2015

 

 

 

 

 

Trade payables & other payables

3,491,093

    -

        -

         -

3,491,093

Notes payable

81,301

333,333

8,975,267

-

9,389,901

Convertible promissory notes

-

8,312,180

 -

-

8,312,180

 

 

Market risk

 

Market risk is the risk that changes in interest rates, foreign exchange rates, equity prices, and other rates, prices, volatilities, correlations, or other market conditions will have an adverse impact on the Group's financial position or results.  Thus market risk comprises three elements - foreign currency risk, interest rate risk, and other price risk.  Information to enable an evaluation of the nature and extent of these three elements of market risk are shown below.

 

Foreign currency risk

 

The Group undertakes certain transactions denominated in foreign currencies.  Hence, exposures to exchange rate fluctuations arise.  Exchange rate exposures are managed by minimising the balance of foreign currencies to cover expected cash flows during periods where there is strengthening in the value of the foreign currency.  The Group has two UK Partner Companies which are denominated in GBP.  The Group have convertible promissory notes issued in GBP.  The valuations of these two companies and the convertible promissory notes fluctuate along with the US dollar/Sterling exchange rate.  No hedging of this risk is undertaken. 

 

The carrying amounts of foreign currency denominated monetary net assets at the reporting date are as follows:

 

 

Group

 

Company

 

2016

2015

 

2016

2015

 

US $

US $

 

US $

US $

 

 

 

 

 

 

Sterling - Cash equivalent

                    -

                    -

 

                   -

                    -

Sterling - Investment

   14,905,730

   31,612,738

 

   12,203,107

   26,007,746

Convertible promissory notes

    (7,226,059)

    (8,312,180)

 

    (7,226,059)

    (8,312,180)

 

A 5% (2015: 5%) strengthening of the US dollar against the British pound sterling at the reporting date would have decreased profit or loss of the Group by approximately US $384,000 (2015: decreased US $1.2 million).  A 5% (2015: 5%) weakening of the US dollar against the British pound sterling would have increased profit or loss of the Group by approximately US $384,000 (2015: increased US $1.2 million).  A 5% (2015: 5%) strengthening of the US dollar against the British pound sterling at the reporting date would have decreased profit or loss of the Company by approximately US $249,000 (2014: decreased US $885,000).  A 5% (2015: 5%) weakening of the US dollar against the British pound sterling would have increased profit or loss of the Company by approximately US $249,000 (2015: increased US $885,000).  The GBP/USD rate used at 31 December 2016 was 1.2337 (2015: 1.4746).  In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the sensitivity analysis is based on balances at the end of the year and does not reflect the exposure during the year.

 

Interest rate risk

 

The Group's exposure to interest rate risk is restricted to the cash and cash equivalent balance of US $313,826 (2015: US $936,981).  The Company's exposure to interest rate risk is restricted to the cash and cash equivalent balance of US $303,807 (2015: US $883,074).  At 31 December 2016, the Group's and Company's bank accounts were in general not interest bearing due to the low base rate.  Changes in interest rates would have no significant impact on the profit or losses of the Company. 

 

Other price risks

 

The Group is exposed to equity price risks arising from equity investments.  Equity investments are held for strategic, rather than trading purposes.  The Group does not actively trade these investments.

 

A reasonable movement in equity market prices of 10% would increase/decrease profit or loss for the Group by US $1,491,861 (2015: US $3,165,545) and the Company by US $1,221,598 (2015: US $2,605,045).

 

The amounts generated from the sensitivity analysis are estimates of the impact of market risk assuming that specified changes occur.  Actual results in the future may differ materially from these results due to developments in the global financial markets which may cause exchange rates to vary from the hypothetical amounts disclosed above, which therefore should not be considered a projection of likely future events and losses.

 

16.  Trade and other payables

 

Group

 

Trade and other payables principally comprise amounts outstanding for purchases and ongoing costs. 

Company

 

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. 

 

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

 

In December 2012, Berkeley Research Group, LLC ("BRG"), an expert consultant engaged by DataTern filed for arbitration claiming US $1,142,478 was owed to them.  DataTern opposed the arbitration and vigorously contested the amount owed.  In January 2015, the arbitrator found in favor of BRG and awarded them an amount totaling US $2,090,865 for the balance due and legal costs.  DataTern contested the award and filed a lawsuit seeking to overturn the award.  In March 2016, the Company reached a settlement with BRG for US $1,575,000.  The payment terms are US $100,000 paid upon signing the settlement agreement, and further payments of US $400,000 on 30 April 2016, US $500,000 on 30 June 2016 and US $575,000 on 31 December 2016.  Should Amphion fail to make a payment, the full amount of the judgement, US $2,236,286.49, will be due less any amounts paid.  As a consequence of this settlement, the liability has been transferred from DataTern Inc. to Amphion Innovations plc.  On 22 December 2016, there was an amendment to the settlement agreement that extended the payment terms for the last payment of US $575,000 on 31 December 2016.  Under the new terms, Amphion will pay US $650,000 in monthly payments plus interest at 10% per annum.  The payments will be made as follows:  US $125,000 on 23 December 2016; US $100,000 on each of 31 January 2017, 28 February 2017, 31 March 2017, 28 April 2017; US $125,000 on 31 May 2017 and the accrued interest on 30 June 2017.  As of this date, the US $650,000 has been paid.

 

17.  Promissory notes

 

Convertible promissory notes

 

During 2016, US $395,687 (£275,378) additional convertible promissory notes were issued in payment of the accrued interest payable on the notes as of 31 December 2015 and the quarters ended 31 March 2016, 30 June 2016, and 30 September 2016.  In addition, US $89,771 (£66,549) of convertible promissory notes were redeemed for cash as part of the exercise of the exchange rights.  At 31 December 2016, the convertible promissory notes totaled US $7,226,059 (£5,857,225) (2015: US $8,312,180; £5,636,905) and the warrants issued totaled 11,714,453 (2015:  11,273,813). 

 

The amended and restated Unsecured Convertible Promissory Notes December 2008-December 2015 were convertible into ordinary shares of the Company at any time at a conversion price of ten pence per ordinary share, accrued interest at the rate of 7% if paid in ordinary shares or 5% if paid in cash or additional notes on a quarterly basis and were to mature on 31 December 2015.  For every £1 note, two warrants were issued with an exercise price of 12 pence per share with an expiration date of 31 December 2015.  Each noteholder had the right to exchange the whole or part of its holding into Kromek shares.  The exchange rights were exercisable from 15 December 2014 to 30 December 2014.  Holders of US $1,873,108 of the convertible promissory notes requested the exchange and in June 2015 the Company issued 2,916,523 ordinary shares of Kromek Group plc to the holders.

 

At a meeting of the holders of the convertible promissory notes on 30 December 2015, the terms of the notes were amended to extend the due date to 28 February 2016 rather than 31 December 2015.  At a meeting of the holders on 26 February 2016, the terms of the notes were further amended.  The notes will now be redeemed on 31 December 2017 unless previously converted.  The notes will be convertible into ordinary shares at a conversion price of 8 pence per share.  The notes may be converted at the option of the holder at any time prior to the earlier of redemption or maturity.  The interest terms remain the same.  For every £1 of note held, the Company will issue two warrants to subscribe for shares.  The exercise price of the warrants will be 10 pence per share with an expiration date of 31 December 2017.  Each note holder may serve at least 60 days' notice on the Company to redeem up to a proportion of the notes held by it on the following dates:  15% on 31 May 2016; 20% on 30 November 2016; 20% on 30 June 2017.  The amounts are payable within 45 days.  The balance of the notes will be redeemed in full on 31 December 2017.  In August 2016, the Company paid US $89,771 (£66,549) as part of the 31 May 2016 exercise of the exchange rights.  In January 2017, the Company paid US $30,736 (£23,952) as part of the 30 November 2016 exercise of the exchange rights.

 

The net proceeds received from the issue of the convertible promissory notes and warrants are classified as a financial liability due to the fact that the notes are denominated in a currency other than the Company's functional currency and that on any future conversion a fixed number of shares would be delivered in exchange for a variable amount of cash (see note 2).

 

Promissory notes

 

In June 2014, the Company was granted a loan facility by an institutional lender (the "Lender").  During 2014, the Company drew down US $3 million with a further draw down facility of up to a maximum of US $10 million, subject to the consent of each party.  The facility is secured by part of Amphion's holdings in Kromek Group plc ("Kromek") and Motif Bio plc and may be repaid at the Company's discretion in cash, the issue of Amphion shares, or the payment of Kromek shares.  As part of the loan terms the lender received warrants to purchase Amphion shares and Kromek simulated warrants.  The interest rate of the loan was 12% per annum of the gross amount provided to the Company.  The Company also paid a further 8% of the gross amount provided as an implementation fee.  During 2015, the Company drew down an additional US $3,300,000.  Under the terms of the November 2015 draw, the simulated warrants over Kromek Group plc were cancelled, the interest rate on the facility was reduced to 10% and no additional Amphion warrants were granted.  The proceeds were used to repay the existing amount due under the facility and for working capital for Amphion and its Partner Companies. During 2016, the Company drew down an additional US $4,865,000.   Under the terms of the additional draws, US $3,000,000 plus interest is convertible into the ordinary shares of the company at 6 pence and the remaining amount plus interest is convertible at 8 pence.  In addition, if on any trading day through 19 August 2018, the Company's closing price per share exceeds the following hurdles of 9 pence, 10 pence, 11 pence or 12 pence, the Company shall pay the Lender US $50,000 for each hurdle with the maximum amount payable as US $200,000.  The repayments under the new terms began on 1 May 2016 and the final repayment will be due on 1 December 2017.   The balance of the loan at 31 December 2016 is US $5,665,269 (2015: US $3,000,000).  As part of the loan facility, the Directors agreed to a Deed of Postponement that regulates the Directors' rights in respect to the repayment of any debt due to them from the Company.  The Directors agreed to defer payment of their debt by the Company until the loan facility is repaid in full.  The loan facility was amended in February 2017 (see note 23 for full details).

 

In July 2014, the Company issued Richard Morgan, a Director of the Company, a demand promissory note for US $81,301 for advances he made to the Company.  The promissory note has an interest rate of 5% per annum.

 

In February 2015, the Company cancelled US $6,308,600 of promissory notes issued to the former Chairman of the Company and his trust, which matured on 31 December 2014, and replaced them with promissory notes that matured on 31 December 2015.  The promissory notes accrue interest at the rate of 7% per annum.  In addition, 3,500,000 warrants issued in connection with the original notes were cancelled and replaced with warrants that expired on 31 December 2015 and had an exercise price of 8 pence per ordinary share.  In 2016, the Company issued new promissory notes to replace the US $6,308,600 of notes payable, which expired on 31 December 2015, with notes that matured on 31 December 2016.  The rate of interest on the new notes remains unchanged at 7%.  The new notes contain certain provisions for early repayment. In 2017, the Company reached an agreement with the estate of R. James Macaleer to extend the maturity of the notes payable to the end of 2017 in return for the grant of 3 million warrants (1 million at 8p, 1 million at 9p, and 1 million at 10p).  In no case will any payment be made on the new notes until the amounts outstanding under the Company's existing loan facility are fully repaid.  The final payment under the facility is currently scheduled for 1 December 2017.  Refer to note 22 for further details.

 

During 2013, Amphion Capital Management LLC, a related party, advanced DataTern Inc., a subsidiary of the Company, US $222,000 under promissory notes.  The promissory notes accrue interest at 5% and are payable three years from issuance.  Terms include a requirement that 50% of the gross profits (defined as gross settlement revenue, less direct expenses, contingency fees, and FireStar's profit share) will be dedicated to repayment of the note.  There is an additional contingent return of 1.002% of the gross profits up to 100% return on the note and thereafter 0.498% of gross profits up to a total return of 300% on the note.  The balance of this note at 31 December 2016 is US $115,500 (2015: US $155,000).

 

During 2013, Richard Morgan, a Director of the Company, advanced DataTern Inc., a subsidiary of the Company, US $190,000 under promissory notes.  The promissory notes accrue interest at 5% and are payable three years from issuance.  Terms include a requirement that 50% of the gross profits (defined as gross settlement revenue, less direct expenses, contingency fees, and FireStar's profit share) will be dedicated to repayment of the note.  There is an additional contingent return of 0.501% of the gross profits up to 100% return on the note and thereafter 0.249% of gross profits up to a total return of 300% on the note.  The balance of this note at 31 December 2016 is US $190,000 (2015: US $190,000).

 

During 2013, R. James Macaleer, the former Chairman of the Company, advanced DataTern Inc., a subsidiary of the Company, US $600,000 under promissory notes.  The promissory notes accrue interest at 5% and are payable three years from issuance.  Terms include a requirement that 50% of the gross profits (defined as gross settlement revenue, less direct expenses, contingency fees, and FireStar's profit share) will be dedicated to repayment of the note.  There is an additional contingent return of 2.00% of the gross profits up to 100% return on the note and thereafter 1.00% of gross profits up to a total return of 300% on the note.  The balance of this note at 31 December 2016 is US $600,000 (2015: US $600,000).

 

18.  Share capital

 

2016

 

2015

 

£

 

£

 

 

 

 

Authorised:

 

 

 

   500,000,000 ordinary shares of 1p each

      5,000,000

 

  5,000,000

 

 

 Number

 

£

 

US $

 

 

 

 

 

 

Balance as at 31 December 2014

148,278,506

 

1,482,785

 

2,716,656

 

 

 

 

 

 

Issued for cash or services:

 

 

 

 

 

   Ordinary shares of 1p each

344,471

 

3,445

 

5,288

   Ordinary shares of 1p each

2,148,243

 

21,482

 

33,060

   Ordinary shares of 1p each

1,298,646

 

12,986

 

19,599

   Ordinary shares of 1p each

15,239,477

 

152,395

 

225,904

   Ordinary shares of 1p each

29,311,230

 

      293,112

 

451,087

   Ordinary shares of 1p each

598,850

 

5,989

 

9,286

 

 

 

 

 

 

Balance as at 31 December 2015

197,219,423

 

1,972,194

 

3,460,880

 

 

 

 

 

 

Issued for cash or services:

 

 

 

 

 

   Ordinary shares of 1p each

291,806

 

2,918

 

4,202

 

 

 

 

 

 

Balance as at 31 December 2016

197,511,229

 

1,975,112

 

3,465,082

 

Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting.

 

During the year ended 31 December 2016, the following changes occurred to the share capital of the Company:

 

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

 

19.  Operating lease arrangements

 

At the balance sheet date, the Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:

 

2016

 

2015

 

US $

 

US $

 

 

 

 

Within one year

50,000

 

96,000

In the second to fifth years inclusive

-

 

40,000

After five years

-

 

-

 

 

 

 

 

50,000

 

136,000

 

 

 

Operating lease payments represent rentals payable by the Group for certain of its office properties.  On 27 October 2015, the Company entered into a license agreement for the New York office for a term of 18 months beginning on 1 December 2015.  The agreement automatically renews for an additional term of one year unless either party gives notice to the other that it elects not to renew the agreement at least 60 days prior to the expiration date.  The Group recognised expenses of US $98,877 in respect of operating lease arrangements in the year ended 31 December 2016. 

 

20.  Share-based payments

 

2006 Unapproved Share Option Plan

In 2006 the Group established the 2006 Unapproved Share Option Plan ("the Plan") and it was adopted pursuant to a resolution passed on 8 June 2006.  Under this plan, the Compensation Committee may grant share options to eligible employees, including Directors, to subscribe for ordinary shares of the Company.  The number of shares over which options may be granted under the Plan cannot exceed 10% of the ordinary share capital of the Company in issue on a fully diluted basis.  The Plan will be administered by the Compensation Committee.  The number of shares, terms, performance targets, and exercise period will be determined by the Compensation Committee.  The Plan ended on 8 June 2016.

 

The options issued under the Plan total 31,244,250 and 20,000,000 have been forfeited or expired.  At 31 December 2016, a total of 7,049,514 options under the Plan were vested (2015: 6,916,667).  No options were issued in 2016 and 2015.

 

2016 Long Term Incentive Plan

On 31 October 2016, the Group established the 2016 Long Term Incentive Plan ("LTIP") to replace the 2006 Unapproved Share Option Plan that expired in June 2016.  The LTIP's purpose is to increase the interest of the employees in the Company's business goals and results through share ownership.  Under this plan, the Compensation Committee may, at its discretion, grant an award in the form of options or restricted stock to any eligible employee.  An award may be an invested shares award, a deferred bonus share award, a performance award, or a matching award.  The number of shares which may be allocated under the LTIP shall not, when added to the aggregate of the number of shares which have been allocated in the previous 10 years under the LTIP and any other employees' share scheme, exceed that number of shares that represents 10% of the ordinary share capital of the Company in issue immediately prior to that day. 

 

Under the LTIP, the Company granted 1,913,000 options to certain of its directors on 8 December 2016.  The options have an exercise price of 2.38 pence per share and expire ten years from the date of grant.  Vesting is monthly over a 36 month period for 600,000 of the options and the remaining 1,313,000 options vest monthly over a 12 month period.  On 15 December 2015, the Company granted 681,250 options to two of its directors.  The options have an exercise price of 2.12 pence per share and expire ten years from the date of grant.  Vesting is monthly over a 36 month period for 400,000 of the options and monthly over a 30 month period for 281,250 of the options. 

 

On 28 July 2016, the Company issued 300,000 warrants to a consultant with an exercise price of 3.5 pence per share that expire 3 years from the date of grant.

 

As of 31 December 2016, a total of 45,173,119 options and warrants have been issued (2015: 42,278,869) and 32,328,869 have been forfeited or expired (2015: 29,828,869). 

 

 

2016

 

2015

 

Number of

 

Weighted

 

Number of

 

Weighted

 

share options

 

average

 

share options

 

average

 

 

 

exercise

 

 

 

exercise

 

 

 

price (in £)

 

 

 

price (in £)

 

 

 

 

 

 

 

 

Outstanding at beginning of period

    12,450,000

 

0.07

 

    15,950,000

 

0.07

Granted during the period

     2,894,250

 

0.02

 

                    -

 

-

Forfeited during the period 

                     -

 

-

 

                     -

 

-

Expired during the period

(2,500,000)

 

0.08

 

(3,500,000)

 

0.08

Outstanding at the end of the period

    12,844,250

 

0.07

 

    12,450,000

 

0.07

Exercisable at the end of the period

     8,649,514

 

0.06

 

     8,716,667

 

0.09

 

The options are recorded at fair value on the date of grant using the Black-Scholes model.  The inputs into the model are as follows:

 

 

 2016

 

 2015

 

£  

 

£

 

 

 

 

Weighted average share price

0.024

 

-

Weighted average exercise price

0.024

 

-

Expected volatility

89%-111%

 

-

Expected life

3-10 years  

 

-

Risk free rate

0.73%-2.40%

 

-

Expected dividends

                    -  

 

                    -

 

Expected volatility was determined by calculating the historical volatility of the Group's share price from the date listing to the end of the year. 

 

In 2016, options were granted on 8 December 2016 and 15 December 2016 and warrants were granted on 28 July 2016.   No options were granted in 2015.  The aggregate of the estimated fair value of the options granted is US $72,958.

 

The Company and Group recognised share based payments of US $50,597 and US $23,660 relating to equity-settled share-based payment transactions in 2016 and 2015 respectively. 

 

21.  Retirement benefit plans

 

The Company established a defined contribution plan under Section 401(k) of the Internal Revenue Code.  The plan enables qualified employees to reduce their taxable income by contributing up to 15% of their salary to the plan.  The Company may elect to make a matching contribution to the plan.  The Company has elected not to make a contribution for the years ended 31 December 2016 or 2015.

 

22.  Related party transactions

 

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

During the year, the Group paid miscellaneous expenses on behalf of Motif BioSciences, Inc. ("Motif") such as office expenses and expenses related to their initial public offering.   At 31 December 2016, the amount owed by Motif to the Group was US $190 (2015: US $1,599). 

 

Amphion Innovations US Inc., a subsidiary of the Company, has entered into an agreement with Axcess International, Inc. ("Axcess") to provide advisory services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Chairman and Director of Axcess, respectively.  Amphion Innovations US Inc. will receive a monthly fee of US $10,000 pursuant to this agreement.  The agreement was effective until 1 March 2016 and will renew thereafter on an annual basis until terminated by one of the parties.  The monthly fee is suspended for any month in which Axcess' cash balance falls below US $500,000.  Amphion Innovations US Inc. received US $nil for the year ended 31 December 2016 (2015: US $nil) on the basis that the cash has fallen below the US $500,000 level. 

 

Amphion Innovations US Inc. entered into an agreement with Motif BioSciences, Inc. ("Motif") to provide advisory and consulting services.  Richard Morgan, a Director of the Company, is also the Chairman of Motif.  The annual fee for the services was US $240,000.  The agreement was effective until 1 April 2015.  Amphion Innovations US Inc.'s fee for the period ended 31 December 2015 was US $60,000. 

 

On 1 April 2015, Motif Bio plc entered into an advisory and consultancy agreement with Amphion Innovations US Inc.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Chairman and Director of Motif Bio plc.  The consideration for the services is US $120,000 per annum.  In the event that Motif Bio plc raises a minimum of £5,000,000 in gross proceeds on AIM admission or a secondary raise, a one-time payment of US $300,000 will be paid to Amphion Innovations US Inc.  This amount was paid on 21 July 2015.  The agreement is for an initial period of twelve months and will automatically renew each year on the anniversary date unless

 

either party notifies the other by giving 90 days written notice prior to expiration. The agreement was amended in December 2016 so that either party may terminate the agreement at any time, for any reason, upon giving the other party 90 days advance written notice. Amphion Innovations US Inc.'s fee for the period ended 31 December 2016 was US $120,000 (2015: US $399,904).

 

On 1 April 2015, Motif Bio plc entered into a consultancy agreement with Amphion Innovations plc for Robert Bertoldi, a Director of the Company, to provide services to Motif Bio plc.  The consideration for the services is US $5,000 per month.  On 1 November 2015, the consideration increased to US $180,000 annually.  On 1 July 2016, the consideration decreased to US $75,000.  The agreement was for an initial period of twelve months and would automatically renew each year on the anniversary date unless either party notified the other by giving 90 days written notice prior to expiration.  The agreement was amended in December 2016 so that either party may terminate the agreement at any time, for any reason, upon giving the other party ninety days advance written notice.

 

On September 7, 2016, Motif Bio plc entered into an Advisory and Consultancy Agreement with Amphion Innovations US Inc., pursuant to which Amphion Innovations US Inc. will, following and subject to the closing of the November 2016 Motif Bio plc offering, provide consultancy services in relation to Motif Bio plc's obligation as a NASDAQ listed company.  The consideration for the services is US $15,500 per month.  The agreement is for an initial period of 12 months, after which the agreement will terminate automatically unless renewed by the parties by mutual agreement.  The fee for the period ended 31 December 2016 was US $19,633 (2015: US $nil).

 

Amphion Innovations US Inc. entered into an agreement with m2m Imaging Corp. ("m2m") to provide advisory and consulting services.  Robert Bertoldi, a Director of the Company, was also the Chairman of m2m.  The monthly fee under this agreement was US $15,000.  This agreement renewed on an annual basis until terminated by either party.  Amphion Innovations US Inc.'s fee for the periods ended 31 December 2016 and 2015 were suspended.  At 31 December 2016, Amphion Innovations US Inc. wrote off the balance receivable of US $630,000 (2015: US $630,000).  This balance was reduced by a provision for doubtful debts in the amount of US $600,000 in 2015.

 

Amphion Innovations US Inc. has entered into an agreement with WellGen, Inc. ("WellGen") to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Chairman and Director of WellGen, respectively.  The fee under this agreement is US $60,000 per quarter.  The agreement renews annually until terminated by either party.  The subsidiary's fee for the year ended 31 December 2016 and 2015 was suspended.  At 31 December 2016 US $1,320,000 (2015: US $1,320,000) remains payable.  This balance has been reduced by a provision for doubtful debts in the amount of US $1,320,000 (2015: US $1,320,000).

 

Amphion Innovations US Inc. has entered into an agreement with PrivateMarkets, Inc. ("PrivateMarkets") to provide advisory services.  Richard Morgan, a Director of the Company, is also the Chairman of PrivateMarkets.  The fee under this agreement is US $30,000 per quarter until the successful sale of at least US $3,000,000 of equity and thereafter, US $45,000 per quarter.  This agreement will renew annually unless terminated by either party.  The subsidiary's fee for the years ended 31 December 2016 and 2015 were suspended.  At 31 December 2016, US $770,000 (2015: US $770,000) remains payable by PrivateMarkets.  This balance has been reduced by a provision for doubtful debts in the amount of US $770,000 (2015: US $770,000).

 

Amphion Innovations US Inc. has entered into an agreement with DataTern, Inc. ("DataTern") (a wholly owned subsidiary of the Company) to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of DataTern.  The quarterly fee under this agreement is US $60,000 and renews annually unless terminated by either party.  The subsidiary's fee for the years ended 31 December 2016 and 2015 was suspended. 

 

During 2013 Richard Morgan, a Director of the Company, advanced US $190,000 to a subsidiary of the Company under a promissory note.  The promissory note accrues interest at 5% per annum and is payable March 2016.  (See note 18).  In 2010 Richard Morgan, a Director of the Company, advanced US $352,500 to the Company.  In July 2014, the balance of this advance was converted into a demand note that accrues interest at 5% per annum.  At 31 December 2016, US $81,301 (2015: US $81,301) remains outstanding.  The net amount payable by the Company at 31 December 2016 to Richard Morgan is US $2,159,433 (2015: US $2,249,714).  The amount payable includes a voluntary salary reduction of US $1,849,687 (2015:  US $ 1,753,533), US $341,779 of which will be payable at the discretion of the Board at a later date.

 

On 31 December 2015, US $6,308,600 of promissory notes payable issued to R. James Macaleer, the former Chairman of the Company, and his trust matured and 3,500,000 warrants expired.  The Company replaced the US $6,308,600 of notes payable with the issue of promissory notes that matured on 31 December 2016.  The rate of interest on the new notes will remain unchanged at 7%.  The new notes also contain certain provisions for early repayment.  In no case will any payment be made on the new notes until

the amounts outstanding under the Company's existing loan facility are fully repaid.  The final payment under the facility is currently scheduled for 1 December 2017.  During 2013, R. James Macaleer advanced US $600,000 to a subsidiary of the Company under a promissory note.  The promissory note accrues interest at 5% per annum and is payable three years from issuance.  (See note 18).  At 31 December 2016, the estate of Mr. Macaleer was due US $2,330,717 (2015: US $1,859,115) for accrued interest on the promissory notes.

 

The Company entered into a consulting agreement with Fifth Capital Limited for the term 1 January 2015 to 31 March 2015.  The term continues for subsequent periods of 90 days unless either the consultant or Amphion terminates the agreement.  Miroslaw Izienicki, a Director of the Company, is also the Director of Fifth Capital Limited.  The fee under this agreement is £3,000 per month, £400 of which may be paid in the Company's stock.  This agreement was terminated on 31 July 2016. 

 

At 31 December 2016, US $110,273 (2015: US $110,666) was due to Gerard Moufflet, a retired Director of the Company, for Director's fees and US $8,337 (2015: US $8,337) for expenses.

 

At 31 December 2016, US $5,962 (2015: US $6,672) was due to Anthony Henfrey, a retired Director of the Company, for expenses. 

 

At 31 December 2016, US $23,535 (2015: US $23,535) was due to Richard Mansell-Jones, a Director of the Company for Director's fees.

 

At 31 December 2015, US $1,021,427 (2015: US $947,293) was due to Robert Bertoldi, a Director of the Company, for voluntary salary reductions in 2009 through 2016 of which US $188,769 is payable at the discretion of the Board.

 

Directors' interests

 

The Directors' direct ownership in the Partner Companies is as follows:

 

 

 

Fully diluted %

Investment company

 

owned by Directors

 

 

2016

 

2015

 

 

 

 

 

Axcess International, Inc.

 

6.45%

 

5.46%

FireStar Software, Inc.

 

0.71%

 

0.71%

Kromek Group plc

 

0.14%

 

0.22%

Motif Bio plc

 

0.44%

 

0.80%

m2m Acquisition Inc.

 

0.00%

 

0.00%

m2m Imaging Corp. (transferred assets to m2m Acquisition Inc.)

 

0.00%

 

1.66%

Novacyt S.A.

 

0.00%

 

0.00%

PrivateMarkets, Inc.

 

2.92%

 

2.92%

WellGen, Inc.

 

1.21%

 

3.10%

 

The Directors who held office at 31 December 2016 had the following interests in the Company's ordinary share capital:

 

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

 

Number of

 

Number of

 

Convertible

 

Convertible

 

 

 

 

 

 

ordinary

 

ordinary

 

promissory

 

promissory

 

Number of

 

Number of

 

 

shares

 

shares

 

notes

 

notes

 

warrants

 

warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

Richard C.E. Morgan

 

        23,642,499

 

        23,642,499

 

    £1,031,817

 

     £981,666

 

   2,063,633

 

   1,963,331

Robert J. Bertoldi

 

          6,436,431

 

          6,436,431

 

                   -

 

                   -

 

                  -

 

                  -

Gerard Moufflet

 

          1,273,958

 

          1,180,208

 

                   -

 

                   -

 

                  -

 

                  -

Miroslaw Izienicki

 

             601,489

 

             403,433

 

                   -

 

                   -

 

                  -

 

                  -

Richard Mansell-Jones

 

3,785,530

 

-

 

-

 

-

 

-

 

-

Paul Kennedy

 

-

 

-

 

-

 

-

 

-

 

-

 

 

Aggregate Directors' remuneration

 

The total amounts for Directors' remuneration was as follows:

 

 

 

 

 

Year ended

 

Year ended

 

31 December 2016

 

31 December 2015

 

US $

 

US $

Emoluments

820,416

 

1,014,987

 
Directors' emoluments and compensation

 

 

Group

 

 (1) Group

 

Group

 

Year ended

 

Year ended

 

Fees/Basic

 

Fees/Basic salary

 

Benefits

 

31 December

 

31 December

 

salary paid

 

accrued

 

In kind

 

2016 total

 

2015 total

 

US $

 

US $

 

US $

 

US $

 

US $

Name of Director

 

 

 

 

 

 

 

 

 

Executive-salary

 

 

 

 

 

 

 

 

 

Richard C.E. Morgan

254,808

 

                 99,038

 

            20,109

 

373,955

 

478,895

Robert J. Bertoldi

229,327

 

                   74,134

 

            20,109

 

          323,570

 

          406,299

Non-executive - fees

 

 

 

 

 

 

 

 

 

R. James Macaleer

        -

 

                           -

 

            -

 

            -

 

            38,512

Gerard Moufflet

        16,901

 

                           -

 

            -

 

            16,901

 

            36,461

Miroslaw Izienicki

        48,404

 

                           -

 

            -

 

            48,404

 

            54,820

Richard Mansell-Jones

33,894

 

-

 

-

 

33,894

 

-

Paul Kennedy

23,692

 

-

 

-

 

23,692

 

-

 

 

 

 

 

 

 

 

 

 

Aggregate e    Aggregate emoluments

      607,026

 

                 173,172

 

            40,218

 

       820,416

 

       1,014,987

                                          

(1)   Deferred fees/basic salary refers to voluntary salary reductions taken by the Executive Directors in 2016 which were recorded as a liability in 2016 in the Group accounts and are subject to the deed of postponement entered into in May 2017.

 

Directors' share options

 

Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors.  Details of options for Directors who served during the year are as follows:

 

 

 

1

 

31

 

Date from

 

Name of

 

 January

 

December

Exercise

which

         Expiry

Director

Scheme

2016

Granted

2016

price

exercisable

            date

 

 

 

 

 

 

 

 

Richard Morgan

2006 Unapproved Share Option Plan

500,000

             -

  500,000

£0.1075

24 Mar 2010

24 Mar 2019

Richard Morgan

2006 Unapproved Share Option Plan

2,500,000   

-

 2,500,000

£0.02225

23 Sep 2014

23 Sep 2024

Robert Bertoldi

2006 Unapproved Share Option Plan

350,000

             -

  350,000

£0.1075

24 Mar 2010

24 Mar 2019

Robert Bertoldi

2006 Unapproved Share Option Plan

2,500,000

-

2,500,000

£0.02225

23 Sep 2014

23 Sep 2024

Miroslaw Izienicki

2016 Long Term Incentive Plan

-

375,000

375,000

£0.0238

8 Dec 2016

8 Dec 2026

Miroslaw Izienicki

2016 Long Term Incentive Plan

-

281,250

281,250

£0.0212

15 Dec 2016

15 Dec 2026

Richard Mansell-Jones

2016 Long Term Incentive Plan

-

600,000

600,000

£0.0238

8 Dec 2016

8 Dec 2026

Richard Mansell-Jones

2016 Long Term Incentive Plan

-

563,000

563,000

£0.0238

8 Dec 2016

8 Dec 2026

Paul Kennedy

2016 Long Term Incentive Plan

-

375,000

375,000

£0.0238

8 Dec 2016

8 Dec 2026

Paul Kennedy

2016 Long Term Incentive Plan

-

400,000

400,000

£0.0212

15 Dec 2016

15 Dec 2026

 

 

5,850,000

2,594,250

8,444,250

 

 

 

 

 

23.  Subsequent events

 

In February 2017, the Company borrowed an additional US $500,000 under the YA Global Master SPV Ltd. Loan facility increasing the amount borrowed under the facility to US $5.8 million.  Under the terms of the additional draw, the interest rate will be 10% with repayment to be added to the outstanding balance and amortized over the remaining life of the loan, which matures on 1 December 2017.  The proceeds are to be used for working capital for Amphion and its Partner Companies.  The additional draw may be converted into ordinary shares of the Company in accordance with the additional terms of the facility announced on 22 August 2016. 

 

The Company has received redemption requests on its convertible promissory notes totaling approximately £54,923 for the 30 June 2017 redemption date.  The amounts are payable by 14 August 2017.

 

In May 2017, the Company drew-down an addition US $1,500,000 under the YA Global Master SPV Ltd. Loan facility.  The draw-down is in two tranches of US $750,000.  The first tranche was received in May 2017 and the second tranche will become available on 1 July 2017.  The loan balance under the facility after both tranches of the additional draw will be US $6,149,011.  Of this total amount, US $3,000,000 may be converted into ordinary shares in the Company at 6 pence per share and US $3,149,011 may be converted into ordinary shares at 8 pence per share.  The interest rate will be 10% with repayment to be added to the outstanding balance and amortised over the remaining life of the loan, which matures on 15 December 2017.  Under the terms of the additional draw, the Company issued 10,000,000 new ordinary shares to the lender for nil consideration.

 

In May 2017, the Company's Partner Company, m2m Acquisition Inc. signed a merger agreement with Polarean, Inc. in a cash and share-based transaction to create Polarean Imaging Limited, a newly incorporated company in England, UK.  In addition to the merger, Polarean Imaging Limited completed a pre-IPO fundraise of US $2 million.  Following the merger and pre-IPO raise, Amphion will hold approximately 26% of Polarean.

 

In May 2017, Richard Morgan and Robert Bertoldi, Directors of the Company, entered into a deed of postponement where they have agreed to postpone the repayment of the amounts owed to them, which total US $4.3 million, until all other debts of the company are repaid.

 

As of 26 June 2017, Motif Bio plc's share price has increased to 29.75 pence which has increased the Group's valuation by approximately US $3.2 million.

 

On 27 June 2017, Paul Kennedy resigned as Non-executive Director of the Company.

 

Notice

The financial information set out above does not constitute the Group's statutory accounts for the year ended 31 December 2016 or 2015, but is derived from those accounts.  The auditors have reported on those accounts; their report was unqualified, but did draw attention to matters by way of emphasis relating to significant uncertainty in respect of going concern and valuation of Partner Company investments and other receivables from Partner Companies for both the 2016 and 2015 year ends, and did not contain statements under s. 15(4) or (6) Companies Act 1982 of the Isle of Man.

 

Approval

This statement was approved by the Board of Directors on 27 June 2017.

 

Copies of the Annual Report and Accounts

Copies of the Annual Report and Accounts will be sent to all shareholders.  Further copies will be obtainable from the Company's primary office: Amphion Innovations plc, Attn: Investor Relations, 125 Park Avenue, 25th Floor, New York, NY 10017, USA.

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR OKODNOBKDDAB