30th Jun 2011 07:00
30 June 2011
Amphion Innovations plc
Preliminary Results for the year to 31 December 2010
Amphion Innovations plc and its subsidiaries (LSE: AMP) ("Amphion" or "the Group") today announces its preliminary results for year ended 31 December 2010.
Highlights
·; Net Asset Value ("NAV") per Share was £0.14 as at 31 December 2010 (2009: £0.26). In dollars, NAV per Share was US $0.22 as at 31 December 2010 (2009: US $0.42)
·; The progress of Amphion's Partner Companies has been adversely affected by the difficulty of raising outside capital and Amphion was also forced to reduce its financial support to the Partner Companies due to the shortage of cash. As a result, the valuation of several of the Partner Companies has been reduced.
·; The Board decided to use a different approach to valuation in the case of Partner Companies where new outside capital has not been raised for over a year. The new valuation methodology includes discounted cash flow projections, planned transactions and in the case of Myconostica Ltd, the stated value of shares received in a subsequent sale of the company after the year end.
·; Despite recovery of DataTern's IP licensing programme in the second half
Ø Revenue for the full year decreased by 53% to US $4.1 million (2009: US $8.7 million)
Ø Operating loss increased to US $1.9 million (2009: US $892,937)
Ø Total loss for the year increased to US $26.9 million (2009: US $3.0 million) due in large part to the write down in the carrying value of the investments
·; Restructuring of IP programme activities (DataTern) has resulted in
Ø Improved gross margin
Ø Improved control of programme activity
·; 7 new licenses concluded in the second half bringing the total to 28 through December 2010
Ø Total revenue generated from licensing rose to US $15.5 million since inception
Ø Improvement has continued in the first half of 2011
·; New patents recently issued on key technology to both FireStar and m2m
·; Kromek raised £7 million (US $10.6 million) in the second close of a £12.3 million financing
Richard C.E. Morgan, Amphion's Chief Executive Officer said:
"The recovery of our IP licensing activities in the second half of the year has continued into the current year. This programme has become a central part of Amphion's business and the key source of revenue and cash flow, allowing the Group to continue to provide some support for our Partner Companies, despite the difficult overall funding environment. We continue to explore new ways of extracting value from the intellectual property assets in DataTern and elsewhere in the Group. In this regard it is gratifying to see new patents being issued to both FireStar and m2m, covering critical technologies being commercialised in messaging (in healthcare and financial services) and in the use of cryogenics in imaging. While the general funding climate for our type of Partner Companies remains difficult, we continue to focus on preserving and extracting value from our assets. In this regard it is important to note that we continue to carry the DataTern assets on the books of the Group at the depreciated historical cost."
Enquiries
Amphion Innovations +1 212 210 6224
Charlie Morgan
Cardew Group +44 020 7930 0777
Tim Robertson/ Jamie Milton
Seymour Pierce Limited +44 020 7107 8000
Freddy Crossley/ Mark Percy
Chairman and CEO's Statement
Results
2010 proved to be a challenging year for Amphion Innovations plc and its subsidiaries (together "the Group" or "Amphion") and our Partner Companies. The reorganisation of Amphion's intellectual property (IP) licensing programme (which is implemented through its wholly owned subsidiary DataTern, Inc.) in the second quarter of 2010 had a negative impact on the revenue for the first half of the year, with a number of settlements delayed. Despite the recovery in the second half of the year, the revenue for 2010 as a whole fell by 53% from US $8,658,271 to US $4,090,071. The restructuring of the programme resulted in improved gross profit margin to Amphion and, as a result of the improved margin combined with lower administrative expenses, the operating loss in the second half of 2010 was actually slightly lower than in the second half of 2009. Despite the recovery in the second half, the overall operating loss from operations for 2010 increased from US $892,937 in 2009 to US $1,914,001 in 2010. These overall results were reflected in the intense pressure on operating cash flow throughout the year which only started to ease with the recovery of the IP licensing programme in the second half, supplemented by the additional loans contributed by board members during the year in the amount of US $992,500.
The environment for raising capital directly into our Partner Companies remained negative throughout the year. A total of US $16.3 million was raised directly by the eight companies, with most of this (US $10.6 million) being raised by Kromek early in the year in a final closing of a programme that ran for almost two years. During the course of 2010, Amphion contributed US $2.9 million to the Partner Companies in the form of various convertible loans. The capital drought took its toll on Myconostica Ltd. in particular, which recently agreed to be acquired by another company at a valuation below Amphion's carrying value as at the year ended 31 December 2009.
Our reported Net Asset Value (NAV) per Share was £0.14 (US $0.22) as at 31 December 2010 compared to £0.26 (US $0.42) at 31 December 2009. Many of the Partner Companies have been unable to raise new capital in an outside financing event for the better part of two years. As a result, the Board decided to use a different approach to valuation in the case of these companies. Amphion continues to follow the International Private Equity and Venture Capital Guidelines but in those instances where the length of time makes the application of the last round of financing inappropriate, the equity valuations are now based on management's estimate of value. The new valuation methodology in these cases includes the use of discounted cash flow projections, planned transactions and in the case of Myconostica, the stated value of shares received in a subsequent sale of the company after the year end. The overall impact of the application of the new methodology and other changes has resulted in a reduction in the carrying value of the investments of US $24.7 million. The total loss for the year reported in the financial statements shows an increase to US $29.6 million from US $3.0 million in 2009, due in large part to the write down in the carrying value of the investments. In most cases, Amphion's individual holdings in the Partner Companies consist of both convertible debt and equity, which have been valued separately. Following the reduction in value of the equity holdings in many cases, the convertible debt comprised 41.7% of total investments at 31 December 2010 (16.8% at 31 December 2009). Amphion's holding of intellectual property assets continues to be valued at amortised cost, which is now about US $1.1 million. The progress of many of the Partner Companies has been adversely impacted by the shortage of capital and the poor economic and financial environment. However, in most cases we believe that some recovery should be seen and that progress will resume if and when the companies are able to get access to new capital.
Intellectual Property Licensing Programme
In the two years to the end of 2009, Amphion's IP licensing programme became a central component in the Group's business and became the main source of operating cash flow. Therefore the Board made some important changes to the programme with the goal of establishing more direct control of the management process and an improvement in the economics. The programme was put under new leadership and was significantly restructured in the second quarter of 2010, with a short term negative impact on our financial performance, resulting from delays in the number and level of settlements. The recovery in the second half of 2010 resulted in seven license agreements, bringing to 28 the total number concluded since the first agreement was signed in June 2008. Since inception, the programme has generated about US $15.5 million in total revenue and contributed approximately US
Chairman and CEO's Statement (continued)
$5.7 million in gross cash flow to Amphion through the end of 2010. The recovery seen in the second half has continued in the first few months of the current year and an additional seven settlements have been concluded so far in 2011.
Amphion's wholly owned subsidiary, DataTern Inc., which owns the ObjectSpark patent is subject to lawsuits which have been brought by Microsoft Corporation, SAP AG and SAP America, Inc. in April 2011. The lawsuits claim that the ObjectSpark patents (U.S. Patents 5,937,402 and 6,101,502) are invalid and the MicroSoft and SAP technologies do not infringe on the patents. Amphion will strongly refute these claims by Microsoft and SAP and continue to enforce these patents against other infringers. These patents are entitled to a presumption of validity and the 6,102,502 patent successfully completed a re-examination procedure in the U.S. Patent and Trademark Office in 2009. All 18 claims of this patent were reaffirmed and 26 new claims were added. While it is possible that these lawsuits may have a negative impact on generating revenue from the ObjectSpark patents, we believe that we have the resources to vigorously defend these lawsuits and that we have developed strategies which will allow us to continue to successfully generate revenue from the ObjectSpark patents.
Our confidence in the fundamental strength of the ObjectSpark technology and IP remains strong and our capabilities in this area continue to improve. We continue to look for new ways to extract additional value from the ObjectSpark technology assets and to apply our knowledge and resources to other similar programmes that emanate either from our Partner Companies or elsewhere. Thus we continue to believe that we have established a solid second leg to our business, which we expect to continue to grow and have a positive impact on our primary business. Until June of 2008, we were investing in these capabilities and most of the costs associated with establishing this business have been expensed as incurred. Like much of the IP underlying our Partner Companies, we believe the ObjectSpark patents are fundamental and important and that many companies managing complex data in an IT setting should require a license to use the technology to continue to "practice the art". We believe that there remain a large number of additional potential licensees and that we should be able to generate a significant amount of additional revenue from this asset over the next few years. In due course, once Amphion has recovered its sunk costs, we will start sharing this revenue stream with FireStar Software, Inc. (where the technology and patents were originally developed), so FireStar should then benefit directly as well.
Extracting Value for Shareholders
Since flotation, our basic business model was to start and build high potential companies based on innovative and proprietary, but basically proven, technology. Each one of our companies was carefully selected to address established markets in excess of US $1 billion and to have target exit values in excess of US $100 million. Our ability to select good IP and to develop the IP portfolios in each of our Partner Companies is a critical success factor and is getting steadily stronger as we deepen our knowledge and experience in this area. This underpins Amphion's investment in each Partner Company at the outset and as it develops. Fortunately the development of the IP licensing programme and its overall success, despite the difficulties in the first half of 2010, has provided us with sufficient resources to survive the last three difficult years. However, the broader capital shortage brought about by the continuing financial crisis has led us to conduct a thorough re-examination of the viability of our model in current circumstances.
We cannot predict with any certainty whether, and if so how and when, the capital markets for emerging growth technology companies will revive. For the last two years we have been operating in a defensive mode, with an intense focus on cutting costs and concentrating on securing the long term future of the Group. Even as conditions start to improve we believe it is appropriate that we maintain this focus on survival and potential revival from our current activities and assets and work to extract value from our asset base.
Kromek continues to be the company which has enjoyed some success in raising capital and it continues to make good progress. We are actively working on programmes to reposition each one of our Partner Companies to improve its access to capital or to execute on a modified business plan requiring fewer resources. In the case of Motif, we have radically changed the business focus to one based on a proven model of drug discovery and we believe we remain on track to raise the capital
Chairman and CEO's Statement (continued)
needed to execute on this new business plan. FireStar is another good case study in this regard. Despite severe financial challenges, the company managed to get its key products and technology adopted as standard by the Object Management Group and managed to be included in a consortiumthat is developing important connectivity and interoperability products for the US government. The key technology assets remain intact and FireStar has just been informed that its patent application covering some of its critical messaging technologies has been granted by the US Patent Office. With some additional capital provided by Amphion, FireStar is now starting to attract additional capital from other investors to supplement the cash flow expected from its contract awards. While the last three years have been incredibly hard on the company and its leadership team, the opportunity remains very much alive and the size of the potential return is significant.
Prospects for 2011 and Beyond
We continue to expect our IP licensing programme to be a key source of financial support for the Company in the current year and beyond. Until we can take one of our Partner Companies to the public market through an Initial Public Offering ("IPO") or through an exit via a trade sale, we have to rely on internally generated capital, supplemented where possible by outside capital if we can raise it on terms that make sense to our shareholders. In this regard in June 2011, the Company's Chairman, R. James Macaleer, agreed to advance the Company up to an additional US $2,000,000 evidenced by a promissory note. Proceeds from this financing will be to support the Company's activities in general and the IP licensing programme in particular and the cost to the Company of this financing will be partly based on the success of the IP programme over the next eighteen months.
For our business model to work we need access to an adequate supply of capital, whether from internally generated sources or from the outside. Capital for early stage emerging technology companies remained very scarce throughout 2010, as it was in 2009. For the broader economic recovery to make a positive impact on Amphion, we also need to see the return of a viable IPO market as this tends to dictate conditions in the private capital market for tech and medtech companies.
We remain cautious and believe that conditions will improve slowly, if at all, during 2011. Nevertheless, we believe there is significant inherent value to be developed and extracted from DataTern and our Partner Companies. Our focus now is on value extraction from our IP programme and from each of our Partner Companies and we have a clear set of goals to return value to our shareholders.
Partner Company Summaries
Below we provide a summary of developments made with each of our Partner Companies during 2010. (Note 15 provides further details).
Axcess International, Inc. launched its new Dot MicroWireless ID Platform at the International Security Conference in March in the partner booths of HID and Tyco/ADT. Axcess initiated its own IP monetisation programme and also launched its next generation Dot Wireless Credential, based on new processor and radio components which now comprise a robust platform for expanded tracking capabilities in local area tracking and sensing. Revenue for the year declined from the level of the previous year due in part to the company's need to reduce costs and cut back on sales and marketing activities.
FireStar Software, Inc.'s strategic partnership bore fruit when Southeast Michigan Health Information Exchange (SEMHIE) was successful in receiving a Beacon Community Grant from the US Department of Health and Human Services for US $16 million. The grants were awarded to a select few who proposed innovative healthcare technology and FireStar will be a critical component of the total solution. In addition SEMHIE received a US $3 million contract to implement a pilot project for automating the Social Security Administration disability claims processing for Southeast Michigan. FireStar is actively working on both projects. FireStar recently received notice from the US Patent Office that the first of the Company's patent applications covering the EdgeNode messaging technology has been issued.
Kromek successfully consolidated NOVA, a California-based chip company it acquired in 2010, and obtained EU certification and made initial commercial sales of its bottle scanner product for liquid explosives in aviation security. The company has continued to achieve key milestones in its contract with the US Department of Defense and has made progress on two medical applications with a large OEM and an emerging medical diagnostics company. In early 2010, Kromek closed a further round of financing of over £7 million.
m2mImaging Corp. managed to grow the business top line by 8.5% and improve total operating performance by 16%. The company has just received notice from the US Patent Office that its fourth patent on key technologies protecting the next generation of coils has been allowed and will soon be issued. The company introduced a wide range of new products during the year in both the preclinical MR and PET/CT markets.
Motif BioSciences, Inc. moved forward with its transition to a new business model with a focus on a novel approach to drug discovery. The company has assembled an experienced scientific and technical team with a track record of successful drug development in the pharmaceutical industry. Motif has reached an agreement in principle with a provider of drug discovery services to support the company's lead hopping programme on a deeply discounted and risk-shared basis. The provider has a global perspective and reputation and will work collaboratively with the scientific leadership at Motif to drive the programmes forward rapidly, with first milestones expected to be met within two years.
Myconostica, Ltd. was acquired by Lab21 in May 2011 when the company was unable to raise the further capital required in order to establish itself in the fungal diagnostics market and execute on the full business plan. Following the sale, Amphion's holding in Lab21 is now valued at US $200,000.
PrivateMarkets, Inc. completed the successful pilot of its proprietary "virtual private market" platform technology in the US Electricity market and began looking into strategic partnerships with the potential to open up new international markets. The company's relationship with Tulane University's Energy Trading Institute will result in the use of the PrivateMarkets platform by faculty and students of Tulane's Masters of Management in Energy programme. The company has recently refined its business model to be a supplier of trading platforms, based on its patented technology, to market operators in energy and other specialised (usually low liquidity) markets.
WellGen, Inc.'s operations were significantly curtailed and the staff was terminated in September 2010 as a direct result of the lack of capital. New management came on board and activity recommenced and resulted in the filing of an SBIR grant to further develop two of their lead products in type 2 diabetes. The company continues to look for opportunities to exploit its lead products, but is operating on a very low base.
Amphion Innovations plc | |||||
Consolidated statement of comprehensive income | |||||
For the year ended 31 December 2010 | |||||
Notes | |||||
Year ended | Year ended | ||||
31 December 2010 | 31 December 2009 | ||||
Continuing operations | US $ | US $ | |||
Revenue | 4 | 4,090,071 | 8,658,271 | ||
Cost of sales | (1,012,581) | (2,867,253) | |||
Gross profit | 3,077,490 | 5,791,018 | |||
Other operating income | - | - | |||
Administrative expenses | (4,991,491) | (6,683,955) | |||
Operating loss | (1,914,001) | (892,937) | |||
Fair value losses on investments | (24,715,925) | (1,792,349) | |||
Interest income | 8 | 564,638 | 415,780 | ||
Other gains and losses | (103,416) | (5,377) | |||
Finance costs | 9 | (649,205) | (332,722) | ||
Loss before tax | 6 | (26,817,909) | (2,607,605) | ||
Tax on loss | 10 | (37,570) | (350,005) | ||
Loss for the year | (26,855,479) | (2,957,610) | |||
Other comprehensive income | |||||
Exchange differences arising on translation | |||||
of foreign operations | (3,035) | 24,431 | |||
Other comprehensive (loss)/income for the year | (3,035) | 24,431 | |||
Total comprehensive loss for the year | (26,858,514) | (2,933,179) | |||
Earnings per share | 11 | ||||
Basic | US | $ (0.20) | US | $ (0.02) | |
Diluted | US | $ (0.16) | US | $ (0.02) | |
Amphion Innovations plc | |||||
Company statement of comprehensive income | |||||
For the year ended 31 December 2010 | |||||
Year ended | Year ended | ||||
Notes | 31 December 2010 | 31 December 2009 | |||
US $ | US $ | ||||
Continuing operations | |||||
Administrative expenses | (1,626,110) | (2,362,301) | |||
Operating loss | (1,626,110) | (2,362,301) | |||
Fair value losses on investments | (24,915,787) | (1,554,053) | |||
Interest income | 8 | 564,594 | 413,751 | ||
Other gains and losses | (138,011) | (5,377) | |||
Finance costs | 9 | (646,369) | (322,173) | ||
Loss before tax | 6 | (26,761,683) | (3,830,153) | ||
Tax on loss | 10 | - | - | ||
Loss for the year | (26,761,683) | (3,830,153) | |||
Other comprehensive income for the year | - | - | |||
Total comprehensive loss for the year | (26,761,683) | (3,830,153) |
Amphion Innovations plc | |||||
Consolidated statement of financial position | |||||
At 31 December 2010 | |||||
Notes | 31 December 2010 | 31 December 2009 | |||
US $ | US $ | ||||
Non-current assets | |||||
Intangible assets | 12 | 1,095,372 | 1,269,034 | ||
Property, plant and equipment | 13 | 14,427 | 15,624 | ||
Security deposit | 70,735 | 70,735 | |||
Investments | 15 | 39,123,683 | 60,938,995 | ||
40,304,217 | 62,294,388 | ||||
Current assets | |||||
Prepaid expenses and other receivables | 16 | 1,924,412 | 1,701,914 | ||
Cash and cash equivalents | 605,127 | 3,266,221 | |||
2,529,539 | 4,968,135 | ||||
Total assets | 42,833,756 | 67,262,523 | |||
Current liabilities | |||||
Trade and other payables | 16, 17 | 4,207,393 | 4,390,924 | ||
Non-current liabilities | |||||
Convertible promissory notes | 18 | 8,968,555 | 7,518,290 | ||
Notes payable | 500,000 | - | |||
9,468,555 | 7,518,290 | ||||
Total liabilities | 13,675,948 | 11,909,214 | |||
Net assets | 29,157,808 | 55,353,309 | |||
Equity | |||||
Share capital | 19 | 2,476,890 | 2,457,657 | ||
Share premium account | 38,047,601 | 37,403,821 | |||
Translation reserve | (16,992) | (13,957) | |||
Retained earnings | (11,349,691) | 15,505,788 | |||
Total equity | 29,157,808 | 55,353,309 | |||
The financial statements were approved by the Board of Directors and authorised for issue on | |||||
29 June 2011. They were signed on its behalf by: | |||||
Director | Director | ||||
R. James Macaleer | Robert J. Bertoldi | ||||
Amphion Innovations plc | |||||
Company statement of financial position | |||||
At 31 December 2010 | |||||
Notes | 31 December 2010 | 31 December 2009 | |||
US$ | US$ | ||||
Non-current assets | |||||
Property, plant and equipment | 13 | - | - | ||
Security deposit | 70,735 | 70,735 | |||
Investments | 15 | 37,337,634 | 59,044,515 | ||
Investment in subsidiaries | 14 | 720,518 | 1,915,518 | ||
38,128,887 | 61,030,768 | ||||
Current assets | |||||
Prepaid expenses and other receivables | 16 | 1,793,186 | 1,971,692 | ||
Cash and cash equivalents | 77,059 | 1,411,079 | |||
1,870,245 | 3,382,771 | ||||
Total assets | 39,999,132 | 64,413,539 | |||
Current liabilities | |||||
Trade and other payables | 16, 17 | 1,812,477 | 2,078,479 | ||
Non-current liabilities | |||||
Convertible promissory notes | 18 | 8,968,555 | 7,518,290 | ||
Note payable | 500,000 | - | |||
9,468,555 | 7,518,290 | ||||
Total liabilities | 11,281,032 | 9,596,769 | |||
Net assets | 28,718,100 | 54,816,770 | |||
Equity | |||||
Share capital | 19 | 2,476,890 | 2,457,657 | ||
Share premium account | 38,047,601 | 37,403,821 | |||
Retained earnings | (11,806,391) | 14,955,292 | |||
Total equity | 28,718,100 | 54,816,770 | |||
The financial statements were approved by the Board of Directors and authorised | |||||
for issue on 29 June 2011. They were signed on its behalf by: | |||||
Director | Director | ||||
R. James Macaleer | Robert J. Bertoldi | ||||
Amphion Innovations plc | |||||||||||||||||||||||||||
Consolidated statement of changes in equity | |||||||||||||||||||||||||||
For the year ended 31 December 2010 | |||||||||||||||||||||||||||
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Share |
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Share | premium | Translation | Retained |
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Notes | capital | account | reserve | earnings | Total |
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US $ | US $ | US $ | US $ | US $ |
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Balance at 31 December 2008 | 2,429,342 | 36,291,262 | (38,388) | 18,463,398 | 57,145,614 |
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Loss for the year | - | - | - | (2,957,610) | (2,957,610) |
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Other comprehensive income for the year | - | - | 24,431 | - | 24,431 |
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Total comprehensive loss for the year | - | - | 24,431 | (2,957,610) | (2,933,179) |
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Issue of share capital | 19 | 28,315 | 306,807 | - | - | 335,122 |
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Recognition of share-based payments | 21 | - | 805,752 | - | - | 805,752 |
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Balance at 31 December 2009 | 2,457,657 | 37,403,821 | (13,957) | 15,505,788 | 55,353,309 |
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Loss for the year | - | - | - | (26,855,479) | (26,855,479) |
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Other comprehensive loss for the year | - | - | (3,035) | - | (3,035) |
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Total comprehensive loss for the year | - | - | (3,035) | (26,855,479) | (26,858,514) |
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Issue of share capital | 19 | 19,233 | 220,506 | - | - | 239,739 |
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Recognition of share-based payments | 21 | - | 423,274 | - | - | 423,274 |
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Balance at 31 December 2010 | 2,476,890 | 38,047,601 | (16,992) | (11,349,691) | 29,157,808 |
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Amphion Innovations plc | ||||||||||||
Company statement of changes in equity | ||||||||||||
For the year ended 31 December 2010 | ||||||||||||
Share | ||||||||||||
Share | premium | Retained | ||||||||||
Notes | capital | account | earnings | Total | ||||||||
US $ | US $ | US $ | US $ | |||||||||
Balance at 31 December 2008 | 2,429,342 | 36,291,262 | 18,785,445 | 57,506,049 | ||||||||
Loss for the year | - | - | (3,830,153) | (3,830,153) | ||||||||
Total comprehensive loss for the year | - | - | (3,830,153) | (3,830,153) | ||||||||
Issue of share capital | 19 | 28,315 | 306,807 | - | 335,122 | |||||||
Recognition of share-based payments | 21 | - | 805,752 | - | 805,752 | |||||||
Balance at 31 December 2009 | 2,457,657 | 37,403,821 | 14,955,292 | 54,816,770 | ||||||||
Loss for the year | - | - | (26,761,683) | (26,761,683) | ||||||||
Total comprehensive loss for the year | - | - | (26,761,683) | (26,761,683) | ||||||||
Issue of share capital | 19 | 19,233 | 220,506 | - | 239,739 | |||||||
Recognition of share-based payments | 21 | - | 423,274 | - | 423,274 | |||||||
Balance at 31 December 2010 | 2,476,890 | 38,047,601 | (11,806,391) | 28,718,100 | ||||||||
Amphion Innovations plc | |||||
Consolidated cash flow statement | |||||
For the year ended 31 December 2010 | |||||
Year ended | Year ended | ||||
Notes | 31 December 2010 | 31 December 2009 | |||
US $ | US $ | ||||
Operating activities | |||||
Operating loss | (1,914,001) | (892,937) | |||
Adjustments for: | |||||
Depreciation of property, plant and equipment | 13 | 8,888 | 10,296 | ||
Amortisation of intangible assets | 12 | 173,662 | 87,520 | ||
Adjustment to intangible assets | 12 | - | 793,861 | ||
Recognition of share-based payments | 663,013 | 1,140,874 | |||
Increase in prepaid & other receivables | (222,498) | (135,003) | |||
Decrease in security deposit | - | 50,959 | |||
(Decrease)/increase in trade & other payables | (183,531) | 1,297,406 | |||
Interest expense | (649,205) | (332,722) | |||
Other gains & losses | (22,425) | - | |||
Income tax | (37,570) | (350,005) | |||
Net cash (used in)/from operating activities | (2,183,667) | 1,670,249 | |||
Investing activities | |||||
Interest received | 564,638 | 415,780 | |||
Proceeds from repayment of notes | - | 160,000 | |||
Purchases of investments | (2,900,613) | (3,861,412) | |||
Purchases of equipment | 13 | (7,874) | (5,774) | ||
Acquisition of subsidiary | - | 19,824 | |||
Net cash used in investing activities | (2,343,849) | (3,271,582) | |||
Financing activities | |||||
Proceeds on issue of promissory notes | 500,000 | - | |||
Proceeds on issue of convertible promissory notes | 1,450,265 | 4,238,340 | |||
Net cash from financing activities | 1,950,265 | 4,238,340 | |||
Net (decrease)/increase in cash and cash equivalents | (2,577,251) | 2,637,007 | |||
Cash and cash equivalents at the beginning of the year | 3,266,221 | 630,404 | |||
Effect of foreign exchange rate changes | (83,843) | (1,190) | |||
Cash and cash equivalents at the end of the year | 605,127 | 3,266,221 | |||
Amphion Innovations plc | |||||
Company cash flow statement | |||||
For the year ended 31 December 2010 | |||||
Year ended | Year ended | ||||
Notes | 31 December 2010 | 31 December 2009 | |||
Operating activities | US $ | US $ | |||
Operating loss | (1,626,110) | (2,362,301) | |||
Adjustments for: | |||||
Depreciation of property, plant and equipment | 13 | - | 2,397 | ||
Recognition of share-based payments | 663,013 | 1,140,874 | |||
Decrease/(increase) in prepaid & other receivables | 178,506 | (222,706) | |||
Decrease in security deposit | - | 50,959 | |||
(Decrease)/increase in trade & other payables | (266,002) | 1,412,760 | |||
Interest expense | (646,369) | (322,173) | |||
Other gains and losses | (57,020) | - | |||
Net cash used in operating activities | (1,753,982) | (300,190) | |||
Investing activities | |||||
Interest received | 564,594 | 413,751 | |||
Purchases of investments | (2,013,906) | (3,861,412) | |||
Proceeds from repayment of notes | - | 387,949 | |||
Net cash used in investing activities | (1,449,312) | (3,059,712) | |||
Financing activities | |||||
Proceeds on issue of promissory notes | 500,000 | - | |||
Proceeds on issue of convertible promissory notes | 1,450,265 | 4,238,340 | |||
Net cash from financing activities | 1,950,265 | 4,238,340 | |||
Net (decrease)/increase in cash and cash equivalents | (1,253,029) | 878,438 | |||
Cash and cash equivalents at the beginning of the year | 1,411,079 | 538,018 | |||
Effect of foreign exchange rate changes | (80,991) | (5,377) | |||
Cash and cash equivalents at the end of the year | 77,059 | 1,411,079 | |||
1. General information
Amphion Innovations plc (the "Company") is a public limited company incorporated in the Isle of Man under the Companies Acts 1931 to 2004 on 7 June 2005 with registered number 113646C. The address of the registered office is Fort Anne, Douglas, Isle of Man, IM1 5PD. The principal place of business is 330 Madison Avenue, New York, NY, 10017, USA. The principal activity of the Company and its subsidiaries (the "Group") is to build shareholder value in high growth companies in the medical and technology sectors, by using a focused, hands-on company building approach, based on decades of experience in both the US and UK.
The consolidated financial statements include the accounts of Amphion Innovations plc and its four wholly owned subsidiaries, Amphion Innovations US Inc. and DataTern, Inc., which are incorporated in the United States, Amphion Innovations UK Ltd., which is incorporated in the United Kingdom, and MSA Holding Company which is incorporated in the Kingdom of Bahrain.
These financial statements are presented in US dollars because that is the currency of the primary economic environment in which the Company operates.
Going concern
The Group's business activities, together with factors likely to affect its future development, performance, and financial position and commentary on the Group's financial results, its cash flows and liquidity requirements are set out in the Chairman and CEO's Statement on pages 1-3 and elsewhere within the financial statements. In addition, note 16 to the financial statements includes the Group's objectives, policies, and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to liquidity risk and credit risk.
These financial statements have been prepared on the basis that the Group is a going concern. Although the Group is loss making and in a net current liabilities position, it is forecasting future positive cash flows.
However, certain conditions exist which indicate the existence of a material uncertainty. These conditions and the Director's considerations in respect of these matters are discussed below:
·; In prior years, the Group has been able to meet its obligations through fund raising (issue of shares and convertible promissory notes ("CPNs")), from revenue generated through the provision of advisory services to its Partner Companies, and from the revenue generated from the licensing of intellectual property. During 2010 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. 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 CPNs and promissory notes and short-term loans (see Note 24 for further detail). The progress of many of the Partner Companies has, as a result of reduced financial support from the Group and current economic conditions been adversely impacted, resulting in a reduction in their valuations (see Note 15 for further detail). A number of the Partner Companies have also been unable to settle advisory fees owed to the Group or raise finance externally which would have resulted in a financing fee being generated for the Group. 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. 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 following: the licensing of intellectual property; partner advisory fees and financing fees on fund raising activities; essential funds advanced through promissory note arrangements with one director on the Board (see Notes 23 and 24); and from continued financial support from Board members more generally (see Note 24) which is also considered essential for the Group to be able to continue to operate for the foreseeable future. The Directors are also of the view that other viable options to allow the Group to continue as a going concern includes the reduction in its financial support to Partner Companies in the short-term, although this may have an impact on the ability of the Partner companies to develop their businesses and raise additional finance, which in turn may have an impact on the partner advisory fees and financing fees that the Group will receive; the reduction in its working capital requirements, although trade supplier relationships are already strained as mentioned above; or from the sale of its intellectual property.
1. General information, (continued)
·; One of the Group's wholly owned subsidiary companies, DataTern Inc., ('Datatern') is subject to lawsuits which were brought by Microsoft Corporation, SAP AG and SAP America, Inc. in April 2011. The lawsuits claim that the DataTern patents are invalid and that Microsoft and SAP technologies do not infringe on the DataTern patents. The Group will strongly refute these claims by Microsoft and SAP and continue to enforce these patents against other infringers. It is possible that these lawsuits may have a negative impact on the Group's ability to generate revenue from the licensing of DataTern's intellectual property in the future. However the Directors believe that they have the financial resources to vigorously defend these lawsuits and that they have developed strategies which will allow the Group to continue to successfully generate revenue from the licensing of DataTern's intellectual property.
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 ("IFRS") issued by the International Accounting Standards Board ("IASB"), interpretations issued by the International Financial Reporting Committee of the IASB and applicable legal and regulating requirements of Isle of Man law and the AIM rules of the London Stock Exchange.
Adoption of new and revised Standards
The Group has adopted the following new and amended IFRSs as of 1 January 2010:
First-time adoption of IFRSs (IFRS 1): amendments to IFRS 1. Amendments issued in July 2009 and January 2010. These amendments are effective for annual periods beginning on or after 1 January 2010 and July 2010, respectively, with earlier application permitted.
Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures)
The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with transitional reliefs offered in these amendments.
The adoption of these Standards has not had a material impact on the financial statements of the Group.
As of the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:
Amendment to IFRIC 14: Prepayments of a Minimum Funding Requirement was issued in November 2009. The amendment is effective for annual periods, beginning on or after 1 January 2011, with earlier application permitted.
IFRIC 19 Extinguishing Financial Liabilities with Equity was issued in November 2009. The interpretation is effective for annual periods, beginning on or after 1 July 2010, with earlier application permitted.
IFRS 9 Financial Instrumentswas issued in November 2009. The standard is effective for annual periods, beginning on or after 1 January 2013, with earlier application permitted.
Related Party Disclosures. Revised IAS 24 Related Party Disclosures was issued in November 2009. The revised standard is effective for annual periods beginning on or after 1 January 2011, with earlier application permitted.
Classification of rights issues. Classification of Rights Issues (Amendment to IAS 32) issued in October 2009. Entities are required to apply the amendment for annual periods beginning on or after 1 February 2011, but earlier application is permitted.
IFRS for SMEs. IFRS issued in July 2009.
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.
The financial statements have been prepared on the historical cost basis, modified by the revaluation of investments. The principal accounting policies adopted are set out below.
2. Significant accounting policies, (continued)
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 has the power to govern the financial and operating policies of any entity so as to obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the consolidated income statement 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, where appropriate, provisions for impairment.
Financial instruments
The Group designates its assets and liabilities into the categories below in accordance with IAS 39 Financial instruments: Recognition and Measurements.
(i) Financial assets and liabilities designated at fair value through profit or loss at inception: These include equity, warrants, options and convertible promissory notes. 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. 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, has not been applied by the Group to the investments that it holds in associates.
·; Recognition
All regular way purchases and sales of financial instruments are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial instruments that require delivery of assets within the period generally established by regulation or convention in the market place. Realised gains and losses on disposals of financial instruments are calculated using the first-in-first-out ("FIFO") method.
·; Initial measurement
Financial instruments categorised at fair value through profit or loss, are recognised initially at fair value, with transaction costs for such instruments being recognised directly in the Statement of Comprehensive Income.
·; Subsequent measurement
After initial measurement, the Group measures financial instruments which are classified at fair value through profit or loss at their fair values. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The fair value of financial instruments is based on their quoted market prices on a recognised exchange or sourced from a reputable broker/counterparty in the case of non-exchange traded instruments at the date of the Statement of Financial Position without any deduction for estimated future selling costs. Financial assets are priced at their current bid prices, while financial liabilities are priced at their current offer prices.
If a quoted market price is not available on a recognised stock exchange or from a reputable broker/counterparty, the fair value of the financial instruments may be estimated by the Directors using valuation techniques, including
2. Significant accounting policies, (continued)
Financial instruments, (continued)
use of recent arm's length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions.
Unlisted investments are valued at the Directors' estimate of their fair value in accordance with the requirements of IAS 39 and guidelines issued in August 2010 by the International Private Equity and Venture Capital Association ("IPEVCA".) In estimating fair value for an investment, the Directors will apply a methodology that is appropriate in light of the nature, facts and circumstances of the investment and its materiality in the context of the total investment portfolio and will use reasonable assumptions and estimations. An appropriate methodology will incorporate available information about all factors that are likely to materially affect the fair value of the investment. Valuation methodologies include the use of discounted cash flows and consideration of prices relating to the original transaction, recent transactions in the same or similar instruments and completed third party transactions in comparable instruments. Discounted cash flow models are based on projected cash flow or earnings of the partner companies and in many cases audited financial information is not available. The discount rate used is based on the risk free rate of the economic environment in which the portfolio companies operate adjusted for other factors such as liquidity, credit and market risk (including consideration of the relative growth stage of the company). These methodologies are applied consistently from year to year, except where a change would result in a more accurate estimate of the fair value of the investment, which may be up or down (see note 15 for further details).
·; 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 derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires. An analysis of the fair value of financial instruments is set out in note 15.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Convertible promissory notes
Compound financial instruments are required by IAS 32 Financial Instruments: Presentation, to be separated into their liability and equity components upon initial recognition. To meet the definition of equity, the contract must be settled by a fixed amount of cash in exchange for a fixed amount of equity instruments. However, since the Company issued the convertible promissory notes ("CPNs") in a currency other than its functional currency, a fixed number of shares will be delivered in exchange for a variable amount of cash, therefore the definition of equity is not met. Consequently, the CPNs are classified wholly as liabilities at fair value through the statement of comprehensive income. The warrants that were issued with the CPNs have been accounted for as part of the same financial instrument as the CPNs in accordance with IAS 39: Financial instruments - Recognition and Measurement, since they were entered into at the same time and in contemplation of each other, they have the same counterparty, they relate to the same risk and are non-transferable.
Prepaid expenses and other receivables
Prepaid expenses and other receivables are stated at their amortised cost which approximates their fair value. Other receivables are reduced by appropriate allowances for estimated irrecoverable amounts and do not carry any interest.
Trade and other payables
Trade and other payables are not interest bearing and are stated at amortised cost which approximates their fair value.
2. Significant accounting policies, (continued)
Financial instruments, (continued)
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payments.
The Group issues equity-settled share-based payments to certain employees and consultants. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest. The fair value of equity-settled share-based payments attributable to the issue of equity instruments is charged against equity.
Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted based on management's best estimate for effects of non-transferability, exercise restrictions, and behavioral considerations.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves, and retained earnings.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for and services provided in the normal course of business, net of VAT and other sales related taxes.
Revenue from license agreements is recognised in accordance with the substance of the agreement and when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of the revenue can be measured reliably.
Where assignment of rights for a fixed fee under a non-cancellable contract permits the licensee to exploit those rights freely and the licensor has no remaining obligations to perform, the revenue is recognised at the time of sale.
Where a license fee is contingent on the occurrence of a future event, the revenue is only recognised when it is probable that the fee will be received.
Cost of sales
Revenue related costs only include the direct fees paid for strategic advisory services for licensing and enforcing various patents.
Interest income
Interest income is recognised on an accruals basis.
Dividend income
Dividend income from investments is recognised when the shareholders' right to receive payment has been established.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
2. Significant accounting policies, (continued)
Foreign currencies
The individual financial statements of each group company 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 group company are expressed in US dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
Transactions in currencies other than US dollars are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.
Gains and losses arising on retranslation are included in net profit or loss for the year, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.
On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the balance sheet 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 income statement because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.
Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset realised.
Property, plant, and equipment
Property, plant, and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives of 3-5 years, using the straight-line method.
Intangible assets
Intangible assets comprise patents and other intellectual property with finite useful lives and are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives of 5-10 years.
Impairment of tangible and intangible assets
At each balance sheet 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 uncertainty and the effect on the Group's financial statements of changes in estimates in future periods could be significant.
Investments that are fair valued through profit or loss, as detailed in note 15, are all considered to be 'Partner Companies'. Those 'Partner Companies' categorised as Level 3 are defined as investments in 'Private Companies'.
Fair value of financial instruments
As described in note 2, the Directors use their judgment in selecting an appropriate valuation technique for financial instruments not quoted in an active market ('Private Investments'). Valuation techniques commonly used by market practitioners are applied including discounted cash flow models. 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 $37.4 million (2009: US $58.3 million) in the Group and US $35.6 million (2009: US $56.5 million) in the Company. Details of the assumptions used and the uncertainties associated with these assumptions are provided in note 15.
The Company and Group also have an investment in another Partner Company, Axcess International Inc. which is a Level 1 investment with a quoted price of US $1.8m (2009: US $2.6m), however, the Company is experiencing liquidity issues. Details of the uncertainty associated with this valuation are also detailed in note 15.
Fair value of other receivables
As described in note 2, other receivables are stated at their amortised cost which approximates their fair value and are reduced by appropriate allowances for estimated irrecoverable amounts and do not carry any interest. Note 16 describes how the Group mitigates the counterparty credit risk associated with advisory fees due from Partner Companies including those that are past due at 31 December 2010. The recovery of the advisory fees due at 31 December 2010 of US $1.4m (2009: US $ 1.3m) is dependent on a number of uncertain factors including the ability of the Partner Companies to raise finances (through current investors and new financing rounds) in order to support their future growth plans and therefore generate enough cash to be able to settle any outstanding debts.
The valuation of the Private Investments and other receivables from Partner Companies at 31 December 2010 assumes that the Partner Companies continue to receive ongoing funding in accordance with their 2011/2012 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 (see note 15 for further details).
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 2010 | 31 December 2010 | 31 December 2009 | 31 December 2009 | |||||
US $ | US $ | US $ | US $ | |||||
Continuing operations | ||||||||
Advisory fees | 1,558,021 | - | 1,044,171 | - | ||||
License fees | 2,532,050 | - | 7,614,100 | - | ||||
Fee income | 4,090,071 | - | 8,658,271 | - |
In February 2008, DataTern, Inc., a wholly owned subsidiary of the Company, entered into an agreement with IP Navigation Group, LLC which provides strategic advisory services including licensing and enforcement of various patents held by DataTern, Inc. Under this agreement, LSC Holdings LLC ("LSC") could advance up to US $2,000,000 to DataTern, Inc. under a promissory note to pay the expenses related to the licensing and enforcement of the patents. The promissory note has an 8% interest rate with repayment coming exclusively from the proceeds of the licensing and enforcement programme. The note is due 18 February 2013 and is secured by the assets of DataTern, Inc. The promissory note had a US $75,000 balance outstanding at 31 December 2010 (2009: US $nil). In July 2009, the Company also entered into an agreement with LSC entitling it to subscribe to a maximum of 1,000,000 warrants in the Company of one ordinary share subject to certain milestones being met. Under the terms of the agreement, the Company will issue the warrants in tranches of 100,000 upon LSC meeting each milestone. The milestones are linked to the net proceeds received by the Group under the terms of the agreement between IP Navigation and DataTern. As at 31 December 2010, the Company had issued 300,000 (2009: 300,000) warrants to LSC.
During 2010, IP Navigation Group, LLC assisted in obtaining non-exclusive licenses of DataTern's key database patents to various companies totaling US $1,125,000 (2009: US $7,600,000). As part of the agreement, IP Navigation Group, LLC received advisory fees of fifty percent of the gross proceeds less the repayment of expenses funded by IP Navigation Group, LLC and related interest which amounted to US $97,137, and expenses of third parties which totaled US $272,572. The advisory fees paid to IP Navigation Group, LLC totaled US $340,081 (2009: US $2,867,253).
In June 2010, DataTern, Inc. and IP Navigation Group LLC agreed to terminate the advisory services agreement effective as of 31 October 2010. DataTern Inc.'s obligations to IP Navigation Group LLC will be due when the gross proceeds received by DataTern, Inc. after the date of the amendment exceed US $300,000. The balance at 31 December 2010 was US $75,000. DataTern has entered into agreements with new lawyers and technical experts where they will receive 46% of the gross proceeds. During 2010, the new lawyers assisted in obtaining non-exclusive licenses of DataTern's key database patents to various companies totaling US $1,400,000. The new lawyers received advisory fees of US $672,500.
As part of the agreement for DataTern, Inc. to purchase certain of the intangible assets in December 2007, a portion of future revenues from these patents will be retained by FireStar Software, Inc. No amounts have become payable to FireStar Software, Inc. to date.
5. Business and geographical segments
Business segments
The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. 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. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments. There has been no change to the identification of the Group's reportable segments as a result of the adoption of IFRS 8.
For management purposes for 2010, 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 | |||||||
2010 | 2010 | 2010 | 2010 | 2010 | |||||||
US $ | US $ | US $ | US $ | US $ | |||||||
REVENUE | |||||||||||
External advisory fees | 1,558,021 | - | - | - | 1,558,021 | ||||||
External license fees | - | - | 2,532,050 | - | 2,532,050 | ||||||
Inter-segment fees | 240,000 | 107,422 | - | (347,422) | - | ||||||
Total revenue | 1,798,021 | 107,422 | 2,532,050 | (347,422) | 4,090,071 | ||||||
Cost of sales | - | - | (1,012,581) | - | (1,012,581) | ||||||
Gross profit/(loss) | 1,798,021 | 107,422 | 1,519,469 | (347,422) | 3,077,490 | ||||||
Administrative expenses | (1,809,542) | (1,777,340) | (1,752,031) | 347,422 | (4,991,491) | ||||||
Segment result | (11,521) | (1,669,918) | (232,562) | - | (1,914,001) | ||||||
Fair value losses on investments | - | (24,715,925) | - | - | (24,715,925) | ||||||
Interest income | - | 564,594 | 44 | - | 564,638 | ||||||
Other gains and losses | - | (138,011) | 34,595 | - | (103,416) | ||||||
Finance costs | - | (646,369) | (2,836) | - | (649,205) | ||||||
Loss before tax | (11,521) | (26,605,629) | (200,759) | - | (26,817,909) | ||||||
Income taxes | - | - | (37,570) | - | (37,570) | ||||||
Loss after tax | (11,521) | (26,605,629) | (238,329) | - | (26,855,479) | ||||||
OTHER INFORMATION | |||||||||||
Segment assets | 3,179,487 | 41,852,095 | 1,639,053 | (3,836,879) | 42,833,756 | ||||||
Segment liabilities | 3,114,351 | 11,512,740 | 969,908 | (1,921,051) | 13,675,948 | ||||||
Capital additions | 2,835 | 1,799 | 3,240 | - | 7,874 | ||||||
Depreciation | 5,719 | 1,464 | 1,705 | - | 8,888 | ||||||
Amortisation | - | - | 173,662 | 173,662 | |||||||
Recognition of share-based | |||||||||||
payments | - | 663,013 | - | - | 663,013 | ||||||
5. Business and geographical segments, (continued)
Business segments (continued)
For management purposes for 2009, 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 | |||||||
2009 | 2009 | 2009 | 2009 | 2009 | |||||||
US $ | US $ | US $ | US $ | US $ | |||||||
REVENUE | |||||||||||
External advisory fees | 1,044,171 | - | - | - | 1,044,171 | ||||||
External license fees | - | - | 7,614,100 | - | 7,614,100 | ||||||
Inter-segment fees | 240,000 | 117,097 | - | (357,097) | - | ||||||
Total revenue | 1,284,171 | 117,097 | 7,614,100 | (357,097) | 8,658,271 | ||||||
Cost of sales | - | - | (2,867,253) | - | (2,867,253) | ||||||
Gross profit/(loss) | 1,284,171 | 117,097 | 4,746,847 | (357,097) | 5,791,018 | ||||||
Administrative expenses | (1,723,186) | (2,482,275) | (2,835,591) | 357,097 | (6,683,955) | ||||||
Segment result | (439,015) | (2,365,178) | 1,911,256 | - | (892,937) | ||||||
Fair value losses on investments | - | (1,792,349) | - | - | (1,792,349) | ||||||
Interest income | 1 | 413,751 | 5,797 | (3,769) | 415,780 | ||||||
Other gains and losses | - | (5,377) | - | - | (5,377) | ||||||
Finance costs | - | (322,174) | (14,317) | 3,769 | (332,722) | ||||||
(Loss)/profit before tax | (439,014) | (4,071,327) | 1,902,736 | - | (2,607,605) | ||||||
Income taxes | - | (9,610) | (340,395) | - | (350,005) | ||||||
(Loss)/profit after tax | (439,014) | (4,080,937) | 1,562,341 | - | (2,957,610) | ||||||
OTHER INFORMATION | |||||||||||
Segment assets | 1,875,497 | 66,080,798 | 3,442,772 | (4,136,544) | 67,262,523 | ||||||
Segment liabilities | 1,960,044 | 9,631,247 | 2,535,299 | (2,217,376) | 11,909,214 | ||||||
Capital additions | 3,081 | 807 | 1,886 | - | 5,774 | ||||||
Depreciation | 5,814 | 3,768 | 714 | - | 10,296 | ||||||
Amortisation | - | - | 87,520 | 87,520 | |||||||
Recognition of share-based | |||||||||||
payments | - | 1,140,874 | - | - | 1,140,874 | ||||||
5. Business and geographical segments, (continued)
Geographical segments
The Group's operations are located in the United States and the United Kingdom.
The following table provides an analysis of the Group's external advisory fees by geographical location of the investment:
External advisory fees by | ||||
geographical location | ||||
2010 | 2009 | |||
US $ | US $ | |||
United States | 945,000 | 780,000 | ||
United Kingdom | 613,021 | 264,171 | ||
1,558,021 | 1,044,171 | |||
The following table provides an analysis of the Group's external license fees by geographical location:
External license fees by | ||||
geographical location | ||||
2010 | 2009 | |||
US $ | US $ | |||
United States | 2,525,000 | 7,600,000 | ||
Europe | 7,050 | 14,100 | ||
2,532,050 | 7,614,100 | |||
The following is an analysis of the carrying amount of segment assets and capital additions analysed by the geographical area in which the assets are located:
Carrying amount | Additions to fixtures, fittings and | ||||||
of segment assets | equipment, and intangible assets | ||||||
2010 | 2009 | 2010 | 2009 | ||||
US $ | US$ | US $ | US$ | ||||
United States | 28,880,966 | 49,993,595 | 6,075 | 4,967 | |||
United Kingdom | 13,952,790 | 17,268,928 | 1,799 | 807 | |||
42,833,756 | 67,262,523 | 7,874 | 5,774 | ||||
6. Loss before tax
Loss before tax has been arrived at after crediting/(charging) the following gains and losses:
Group | Company | Group | Company | ||||
Year ended | Year ended | Year ended | Year ended | ||||
31 December 2010 | 31 December 2010 | 31 December 2009 | 31 December 2009 | ||||
US $ | US $ | US $ | US $ | ||||
Net foreign exchange losses | (80,991) | (80,991) | (5,377) | (5,377) | |||
Change in fair value of financial assets designated as at fair value through profit or loss | (24,715,925) | (24,915,787) | (1,792,349) | (1,554,053) | |||
Depreciation of equipment | 8,888 | - | 10,296 | 2,397 | |||
Amortisation of intangible assets | 173,662 | - | 87,520 | - | |||
Auditors' remuneration - audit services | 178,969 | 71,972 | 120,739 | 43,893 | |||
Auditors' remuneration - taxation services | 52,000 | 52,000 | 48,000 | 48,000 | |||
7. Staff costs
The average monthly number of employees (including Executive Directors) was:
2010 | 2009 | |||
Number | Number | |||
Amphion Innovations plc, Amphion Innovations | ||||
US Inc., and DataTern, Inc. (some employees and costs are shared) | 7 | 7 | ||
Amphion Innovations UK Ltd. | 1 | 1 | ||
Total for the Group | 8 | 8 |
Group | Company | Group | Company | |||||
2010 | 2010 | 2009 | 2009 | |||||
Their aggregate remuneration comprised: | US $ | US $ | US $ | US $ | ||||
Wages and salaries | 2,147,052 | 694,905 | 1,648,124 | 772,579 | ||||
Social security costs | 72,387 | 4,908 | 65,034 | 13,087 | ||||
Other pension costs (see note 22) | 22,267 | - | 22,549 | - | ||||
2,241,706 | 699,813 | 1,735,707 | 785,666 |
8. Interest income
Group | Company | Group | Company | ||||
Year ended | Year ended | Year ended | Year ended | ||||
31 December | 31 December | 31 December | 31 December | ||||
2010 | 2010 | 2009 | 2009 | ||||
US $ | US $ | US $ | US $ | ||||
Interest income: | |||||||
Bank deposits | 49 | 5 | 2,127 | 98 | |||
Investments | 564,589 | 564,589 | 413,653 | 413,653 | |||
Other | - | - | - | - | |||
564,638 | 564,594 | 415,780 | 413,751 |
9. Finance costs
Group | Company | Group | Company | ||||
Year ended | Year ended | Year ended | Year ended | ||||
31 December | 31 December | 31 December | 31 December | ||||
2010 | 2010 | 2009 | 2009 | ||||
US $ | US $ | US $ | US $ | ||||
Interest on promissory notes | 649,205 | 646,369 | 332,722 | 322,173 |
10. Income tax expense
Group | Group | ||
Year ended | Year ended | ||
31 December 2010 | 31 December 2009 | ||
US $ | US $ | ||
Isle of Man income tax | - | - | |
Tax on US subsidiaries | 37,570 | 340,395 | |
Tax on UK subsidiary | - | 9,610 | |
Current tax | 37,570 | 350,005 |
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 (2009: 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 four subsidiaries, two in the USA, one in the UK, and one in the Kingdom of Bahrain. The US subsidiaries, Amphion Innovations US Inc. and DataTern, Inc., are Corporations and therefore taxed directly. The US subsidiaries suffer US federal tax, state tax, and New York City tax on their taxable net income. The UK subsidiary, Amphion Innovations UK Ltd., is liable to UK Corporation tax at rates of up to 28% on its taxable profits and gains.
The Group charge for the year can be reconciled to the profit per the consolidated income statement as follows:
2010 | 2009 | ||
US $ | US $ | ||
Loss before tax | (26,817,909) | (2,607,605) | |
Tax at the Isle of Man income tax rate of 0% | - | - | |
Effect of different tax rates of subsidiaries | |||
operating in other jurisdictions | 37,570 | 350,005 | |
Current tax | 37,570 | 350,005 |
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 2010 | 31 December 2009 | ||
US $ | US $ | ||
Loss for the purposes of basic and diluted earnings per share | (26,855,479) | (2,957,610) |
Number of shares | |||
Year ended | Year ended | ||
31 December 2010 | 31 December 2009 | ||
| |||
Weighted average number of ordinary shares for | |||
the purposes of basic earnings per share | 132,797,826 | 131,459,042 | |
Effect of dilutive potential ordinary shares: | |||
Share options | 102,243 | 421,968 | |
Convertible promissory notes | 31,990,100 | 26,990,361 | |
Weighted average number of ordinary shares for | |||
the purposes of diluted earnings per share | 164,890,169 | 158,871,371 |
Shareoptions that could potentially dilute basic earnings per share in the future have not been included in the calculation of dilute earnings per share because they are antidilutive.
12. Intangible assets
Patents, software, | |
trademark, and copyright | |
COST | US $ |
At 1 January 2009 | 2,404,350 |
Adjustment for settlements | (793,861) |
At 31 January 2010 | 1,610,489 |
Additions | - |
At 31 December 2010 | 1,610,489 |
AMORTISATION | |
At 1 January 2009 | 253,935 |
Charge for the period | 87,520 |
At 1 January 2010 | 341,455 |
Charge for the period | 173,662 |
At 31 December 2010 | 515,117 |
CARRYING AMOUNT | |
At 31 December 2010 | 1,095,372 |
At 31 December 2009 | 1,269,034 |
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 retains 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. No amounts were due to FireStar at the year end (2009: $nil).
13. Property, plant, and equipment
Group | Company | ||
Property, plant, | Property, plant, | ||
and equipment | and equipment | ||
COST | US $ | US $ | |
At 1 January 2009 | 55,891 | 19,986 | |
Additions | 5,774 | - | |
At 1 January 2010 | 61,665 | 19,986 | |
Additions | 7,874 | - | |
At 31 December 2010 | 69,539 | 19,986 | |
ACCUMULATED DEPRECIATION | |||
At 1 January 2009 | 36,165 | 17,589 | |
Charge for the period | 10,296 | 2,397 | |
Exchange difference | (420) | - | |
At 1 January 2010 | 46,041 | 19,986 | |
Charge for the period | 8,888 | - | |
Exchange difference | 183 | - | |
At 31 December 2010 | 55,112 | 19,986 | |
CARRYING AMOUNT | |||
At 31 December 2010 | 14,427 | - | |
At 31 December 2009 | 15,624 | - |
14. Investments in subsidiaries
Details of the Company's subsidiaries at 31 December 2010 and 2009 are as follows:
Place of |
| |||||||||||||||||||||
incorporation | Proportion of | Proportion of | ||||||||||||||||||||
Name of | (or registration) | ownership interest | voting power held | Share | ||||||||||||||||||
subsidiary | and operation | 2010 | 2009 | 2010 | 2009 | Class | Principal activity |
| ||||||||||||||
% | % | % | % |
| ||||||||||||||||||
Consolidated |
| |||||||||||||||||||||
Amphion Innovations US Inc. | Delaware, USA | 100 | 100 | 100 | 100 | Common | Advisory services |
| ||||||||||||||
Amphion Innovations UK Ltd. | England & Wales | 100 | 100 | 100 | 100 | Ordinary | 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 |
| ||||||||||||||
14. Investments in subsidiaries, (continued)
The investments in subsidiaries are all stated at cost less any provision for impairment where appropriate.
With effect from 1 July 2009, the Company's ownership in MSA Holding Company BSC ("MSA") increased from 50% to 100% and at this date MSA became a subsidiary of the Company. No goodwill arose on this acquisition.
15. Investments
At fair value through profit or loss
Group | Company |
| ||||||||||||||
31 December 2010 | 31 December 2010 |
| ||||||||||||||
Unrealised | Unrealised | |||||||||||||||
Fair Value | Cost | gain/(loss) | Fair Value | Cost | gain/(loss) | |||||||||||
US $ | US $ | US $ | US $ | US $ | US $ | |||||||||||
Level 1: Public companies: | ||||||||||||||||
Axcess International, Inc. | 1,762,048 | 4,015,447 | (2,253,399) | 1,762,048 | 4,015,447 | (2,253,399) | ||||||||||
Level 3: Private companies: | ||||||||||||||||
FireStar Software, Inc. | 2,912,111 | 4,714,283 | (1,802,172) | 2,912,111 | 4,714,283 | (1,802,172) | ||||||||||
Kromek | 13,718,138 | 3,274,915 | 10,443,223 | 13,718,138 | 3,274,915 | 10,443,223 | ||||||||||
Motif BioSciences, Inc. | 12,201,521 | 11,832,887 | 368,634 | 10,544,292 | 9,446,180 | 1,098,112 | ||||||||||
m2m Imaging Corp. | 3,890,248 | 2,878,685 | 1,011,563 | 3,761,428 | 2,878,685 | 882,743 | ||||||||||
Myconostica Ltd. | 200,000 | 3,051,366 | (2,851,366) | 200,000 | 3,051,366 | (2,851,366) | ||||||||||
PrivateMarkets, Inc. | 3,350,197 | 4,729,746 | (1,379,549) | 3,350,197 | 4,729,746 | (1,379,549) | ||||||||||
WellGen, Inc. | 1,089,420 | 5,479,936 | (4,390,516) | 1,089,420 | 5,479,936 | (4,390,516) | ||||||||||
39,123,683 | 39,977,265 | (853,582) | 37,337,634 | 37,590,558 | (252,924) | |||||||||||
Group | Company |
| ||||||||||||||
31 December 2010 | 31 December 2010 |
| ||||||||||||||
Unrealised | Unrealised |
| ||||||||||||||
Fair Value | Cost | gain/(loss) | Fair Value | Cost | gain/(loss) |
| ||||||||||
US $ | US $ | US $ | US $ | US $ | US $ |
| ||||||||||
| ||||||||||||||||
Shares | 21,829,504 | 23,275,215 | (1,445,711) | 21,524,504 | 21,775,215 | (377,051) |
| |||||||||
Promissory notes | 16,321,400 | 13,076,592 | 3,244,808 | 14,969,171 | 12,189,885 | 2,779,286 |
| |||||||||
Warrants & options | 972,779 | 3,625,458 | (2,652,679) | 843,959 | 3,625,458 | (2,655,159) |
| |||||||||
| ||||||||||||||||
39,123,683 | 39,977,265 | (853,582) | 37,337,634 | 37,590,558 | (252,924) |
| ||||||||||
15. Investments, (continued)
At fair value through profit or loss, (continued)
Group | Company |
| ||||||||||||||
31 December 2009 | 31 December 2009 |
| ||||||||||||||
Unrealised | Unrealised | |||||||||||||||
Fair Value | Cost | gain/(loss) | Fair Value | Cost | gain/(loss) | |||||||||||
US $ | US $ | US $ | US $ | US $ | US $ | |||||||||||
Level 1: Public companies: | ||||||||||||||||
Axcess International, Inc. | 2,589,613 | 4,026,947 | (1,437,334) | 2,589,613 | 4,026,947 | (1,437,334) | ||||||||||
Level 3: Private companies: | ||||||||||||||||
FireStar Software, Inc. | 4,517,283 | 4,751,783 | (234,500) | 4,517,283 | 4,751,783 | (234,500) | ||||||||||
Kromek | 14,302,945 | 3,274,915 | 11,028,030 | 14,302,945 | 3,274,915 | 11,028,030 | ||||||||||
Motif BioSciences, Inc. | 17,779,810 | 10,472,418 | 7,307,392 | 16,279,810 | 8,972,418 | 7,307,392 | ||||||||||
m2m Imaging Corp. | 6,939,550 | 2,593,685 | 4,345,865 | 6,545,070 | 2,593,685 | 3,951,385 | ||||||||||
Myconostica Ltd. | 2,905,464 | 3,051,366 | (145,902) | 2,905,464 | 3,051,366 | (145,902) | ||||||||||
PrivateMarkets, Inc. | 5,230,102 | 3,985,102 | 1,245,000 | 5,230,102 | 3,985,102 | 1,245,000 | ||||||||||
WellGen, Inc. | 6,674,228 | 4,957,936 | 1,716,292 | 6,674,228 | 4,957,936 | 1,716,292 | ||||||||||
60,938,995 | 37,114,152 | 23,824,843 | 59,044,515 | 35,614,152 | 23,430,363 | |||||||||||
Group | Company |
| ||||||||||||||
31 December 2009 | 31 December 2009 |
| ||||||||||||||
Unrealised | Unrealised |
| ||||||||||||||
Fair Value | Cost | gain/(loss) | Fair Value | Cost | gain/(loss) |
| ||||||||||
US $ | US $ | US $ | US $ | US $ | US $ |
| ||||||||||
| ||||||||||||||||
Shares | 42,852,579 | 23,275,216 | 19,577,363 | 41,352,579 | 21,775,216 | 19,577,363 |
| |||||||||
Promissory notes | 10,175,978 | 10,175,978 | - | 10,175,978 | 10,175,978 | - |
| |||||||||
Warrants & options | 7,910,438 | 3,662,958 | 4,247,480 | 7,515,958 | 3,662,958 | 3,853,000 |
| |||||||||
| ||||||||||||||||
60,938,995 | 37,114,152 | 23,824,843 | 59,044,515 | 35,614,152 | 23,430,363 |
| ||||||||||
Group:
Level 3 Private Companies: | ||||
Promissory | Warrants | |||
Shares | notes | and options | Total | |
US $ | US$ | US$ | US$ | |
Fair value 1 January 2010 | 41,934,217 | 8,558,552 | 7,856,613 | 58,349,382 |
Additions | - | 2,912,112 | - | 2,912,112 |
Disposals | - | - | (37,500) | (37,500) |
Fair value movements | (20,260,835) | 3,244,810 | (6,846,334) | (23,862,359) |
Fair value 31 December 2010 | 21,673,382 | 14,715,474 | 972,779 | 37,361,635 |
15. Investments, (continued)
Company:
Level 3 Private Companies: | ||||
Promissory | Warrants | |||
Shares | notes | and options | Total | |
US $ | US$ | US$ | US$ | |
Fair value at 1 January 2010 | 40,434,217 | 8,558,552 | 7,462,133 | 56,454,902 |
Additions | - | 2,025,405 | - | 2,025,405 |
Disposals | - | - | (37,500) | (37,500) |
Fair value movements | (19,065,835) | 2,779,288 | (6,580,674) | (22,867,221) |
Fair value at 31 December 2010 | 21,368,382 | 13,363,245 | 843,959 | 35,575,586 |
As required by IFRS 7: Financial instruments - Disclosures, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. In the case of the Company, the investment in Axcess has been classified as level 1 as the valuation is based on a quoted price in an active market. The other private investments have been classified as level 3 since the inputs to the valuation are not based on observable market data.
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 (August 2010).
In previous years all level 3 investments (the "Private Investments") were valued based on the Price of Recent Investment ("PORI"), however, in the current year due to the length of time that has lapsed since the PORI, a number of different methodologies have been adopted by the Directors as described below. (* Denotes Level 3 Private Investments). A number of the companies are not audited, including those where the discounted cash flow valuation model has been used.
i. Axcess International Inc.
Axcess International, Inc. has been valued at US $1,762,048 (US $0.068 per share) based on its quoted bid price less a discount of 15% to reflect the illiquid nature of the shares.
The Group's investment in Axcess is made up of US $156,122 in equity and US $1,605,926 in convertible promissory notes (2009: US $918,362 in equity, US $1,617,426 in convertible promissory notes and US $53,825 in warrants).
ii. FireStar Software, Inc. *
FireStar Software, Inc. has been valued at US $2,912,111(US $4.50 per share) based on a discounted cash flow model of projected operating results. The discounted cash flow is based on an assumed realisation of the investment in FireStar in 2015 and applying a 20 times multiple to the estimated pre-tax profit to arrive at an exit valuation at that time. The projections of future revenue are dependent on FireStar's ability to obtain additional financing and to market its products to the US Healthcare and Insurance markets. The exit valuation was then discounted by 25% and the net present value was further reduced by an estimate of additional financing and the total of the convertible promissory notes to reflect the equity discount for small business valuation and takes into account the risk premium associated with an equity investment in an early stage company. An additional 50% discount has then been applied to take into account the current financial position of the Company. The company has obtained certain additional financing, secured certain government contracts and has a sharing agreement with the Group through which a portion of future revenues from DataTern's patents will be retained by them.
The Group's investment in FireStar is made up of US $2,351,111 in equity and US $561,000 in convertible promissory notes (2009: US $3,657,283 in equity, US $561,000 in convertible promissory notes and US $299,000 in warrants).
15. Investments, (continued)
iii. Kromek Limited *
Kromek Limited ("Kromek") has been valued at US $13,718,138 (£7.20 per share) based on the value of the latest offering price from the most recently executed financing transaction which occurred in January 2010.
The Group's investment in Kromek is made up of US $13,718,138 in equity (2009: US $14,302,945 in equity).
iv. Motif BioSciences Inc. *
Motif BioSciences, Inc. ('Motif') has been valued at US $12,201,521 ($0.61 per share) based on a planned financing of US $0.46 per share and a separate strategic partnership that are expected to be closed in 2011. As part of the planned financing transaction the Group will be required to convert the convertible promissory notes to equity. The value of Motif's equity as a result of the strategic partnership has been increased to US $0.61 per share based on the estimated contributed value of this partnership. The strategic partnership will provide services at discounted rates which will allow Motif to complete its research with less equity financing and in a shorter period of time. Other factors that provide a basis for an increase in valuation over the value of the planned financing include the commitment of funds by the financing source in certain circumstances and the progress that the company has made to date in identifying its drug discovery projects. The additional financing commitment is not guaranteed and is subject to certain requirements being met by the company. As the financing and strategic partnership has not closed there is a risk that they will not be completed or a different price agreed. The Group believes that should these transactions not be completed Motif would have other alternatives to obtain financing and entering strategic partnerships at similar values although these alternatives have not been identified yet. As a result the Directors believe the current valuation to be the most appropriate measure of fair value.
The Group's investment in Motif is made up of US $2,573,165 in equity, US $9,425,397 in convertible promissory notes and US $202,959 in warrants and options (2009: US $12,654,906 in equity, US $4,820,119 in convertible promissory notes and US $304,785 in warrants).
v. m2m Imaging Corp. *
m2m Imaging Corp. has been valued at US $3,890,248 (US $3.89 per share) based on a discounted cash flow model of projected operating results. The discounted cash flow is based on an assumed realisation of the investment in m2m in 2014 and applying a 20 times multiple of the estimated pre-tax profit to arrive at an exit valuation at that time. The projections of future revenue are dependent on m2m's ability to obtain additional financing and to develop and market its cryogenically cooled coils to the pre-clinical research market place. The exit valuation was then discounted by 25% and the net present value was further reduced by an estimate of additional financing, the total of convertible promissory notes, accrued interest, and certain other expenses to reflect the equity discount for small business valuation and takes into account the risk premium associated with an equity investment in an early stage company. m2m has existing revenue from its sales of conventional coils to the pre-clinical research market and as a result of this sales track record no further discounting of the net present value of the equity was considered necessary.
The Group's investment in m2m is made up of US $1,830,428 in equity, US $1,290,000 in convertible promissory notes and $769,820 in warrants and options (2009: US$ 3,293,835 in equity, US $1,005,000 in convertible promissory notes and US $2,640,715 in warrants and options).
vi. Myconostica Ltd. *
Myconostica Ltd. has been valued at US $200,000 based on the sale of the investment in 2011. In May 2011, Myconostica was purchased by Lab 21, an independent company, as a result, the Group's entire investment in Myconostica was sold. The Group will receive shares in Lab 21 that are being valued at £30 which was the price of the latest Lab 21 investment. (2009: US $2,784,100 in equity and US $121,364 in options).
vii. PrivateMarkets, Inc. *
PrivateMarkets, Inc. has been valued at US $3,350,197 (US $0.18 per share) based on a discounted cash flow model of projected operating results. The discounted cash flow is based on an assumed realisation of the investment in PrivateMarkets in 2013 and applying a 20 times multiple to the estimated pre-tax profit to arrive at an exit valuation at that time. The projections of future revenue are dependent on PrivateMarkets' ability to obtain additional financing, and to develop a product to provide its technology to allow others to create marketplaces in shipping, energy, petroleum and financial products which will generate revenue. The company has signed an agreement to investigate the shipping
15. Investments, (continued)
vii. PrivateMarkets, Inc.*, (continued)
market. The exit valuation was then discounted by 25% and the net present value was further reduced by an estimate of additional financing, the convertible promissory notes and certain additional expenses to reflect the equity discount for small business valuation and takes into account the risk premium associated with an equity investment in an early stage company. PrivateMarkets has changed its strategy which was to create its own trading solution in the US electricity market, to one of providing its technology to others looking to create markets in shipping, energy, petroleum and financial products. As a result of the current financial position of the company and its change in strategy, a further 50% discount has then been applied to the present value of the equity to arrive at an estimated equity value for PrivateMarkets at 31 December 2010.
The Group's investment in PrivateMarkets is made up of US $576,120 in equity and US $2,774,077 in convertible promissory notes (2009: US $3,200,669 in equity and US $2,029,433 in convertible promissory notes).
viii. WellGen Inc. *
WellGen, Inc. has been valued at US $1,089,420 (US $0.52 per share) based on a discounted cash flow model of projected operating results. The discounted cash flow is based on an assumed realisation of the investment in WellGen in 2014 and applying a 30 times multiple to the estimated pre-tax profit to arrive at an exit valuation at that time. Projections of future revenue are dependent on WellGen's ability to obtain additional financing and to develop a product which can be marketed to the US Type 2 diabetic population. The exit valuation was then discounted by 25%, and the net present value was further reduced by an estimate of additional financing, the total of the convertible promissory notes and accrued interest and certain other expenses to reflect the equity discount for small business valuation, and takes into account the risk premium associated with an equity investment in an early stage company. WellGen has significantly curtailed its operations and terminated its staff due to lack of capital. WellGen is required to obtain additional financing in order to maintain its license agreement and to carry out future research and is dependent on obtaining a portion of that financing through a government grant that is still pending. It is also dependent on obtaining further investments from Amphion. As a result of these factors an additional 50% discount has been applied to the net present value of the equity to arrive at an estimated equity value for WellGen at 31 December 2010.
The Group's investment in WellGen is made of US $424,420 in equity and US $665,000 in convertible promissory notes (2009: US $2,040,478 in equity, US $143,000 in convertible promissory notes and US $4,490,750 in warrants).
Convertible promissory notes in all investments are carried at cost. The Directors believe that should the Group's holdings in convertible promissory notes be converted, they will be converted at the current value of the equity and therefore there would be no reduction in value from current cost. In addition given that the convertible promissory notes have priority in repayment ahead of the equity and the equity value in each of the Group's investments is positive the valuing of convertible promissory notes and accrued interest at cost without discounting is appropriate.
Warrants for all companies are valued at the valuation price less the warrant exercise price plus a factor for the time value of the warrant. The time value factor is based on the premise that an in-the-money ten year warrant is worth half the exercise price.
As detailed in Notes 2 and 3, a significant degree of judgment is required in establishing fair values for the Level 3 Private Investments which are dependent on non-market observable inputs. Significant uncertainty also exists in the assumptions that have been applied in relation to the planned financing and strategic partnership and in the discounted cash flow valuation models as described above. Axcess, which is a Level 1 Partner Company investment is also experiencing liquidity issues. Accordingly the valuation of all of these investments are subject to inherent uncertainty and therefore the amount realised on disposal may differ materially from the amount at which they are stated in the financial statements.
15. Investments, (continued)
The Group's ownership percentages of the investments are as follows:
2010 | 2009 | |||||
Fully-diluted | Fully-diluted | |||||
Country of incorporation | ownership % | ownership % | ||||
Axcess International, Inc. | United States of America | 10.72 | 9.99 | |||
FireStar Software, Inc. | United States of America | 14.59 | 14.15 | |||
Kromek (formerly Durham Scientific Crystals Ltd.) | England & Wales | 15.29 | 18.88 | |||
Motif BioSciences, Inc. | United States of America | 32.95 | 43.14 | |||
m2m Imaging Corporation | United States of America | 25.08 | 24.96 | |||
Myconostica Ltd. | England & Wales | 16.79 | 19.08 | |||
PrivateMarkets, Inc. (formerly Energy Trading) | United States of America | 25.33 | 25.34 | |||
WellGen, Inc. | United States of America | 15.30 | 14.94 |
The ownership percentages do not include the potential conversion of convertible promissory notes issued by the Partner Companies.
16. Other financial assets and liabilities
The carrying amounts of the Group's financial assets and financial liabilities at the balance sheet date are as follows. The accounting policies described in note 2 explain how the various categories of financial instruments are measured.
Group | Company | ||||||||
2010 | 2009 | 2010 | 2009 | ||||||
Carrying | Fair | Carrying | Fair | Carrying | Fair | Carrying | Fair | ||
amount | value | amount | value | amount | value | amount | value | ||
US $ | US $ | US $ | US $ | US $ | US $ | US $ | US $ | ||
Financial assets | |||||||||
Fair value through profit or loss | |||||||||
Fixed asset investments - designated | |||||||||
as such upon initial recognition | 39,123,683 | 39,123,683 | 60,938,995 | 60,938,995 | 37,337,634 | 37,337,634 | 59,044,515 | 59,044,515 | |
Currents assets | |||||||||
Loans and receivables | |||||||||
Security deposit | 70,735 | 70,735 | 70,735 | 70,735 | 70,735 | 70,735 | 70,735 | 70,735 | |
Prepaid expenses and other | |||||||||
receivables | 1,924,412 | 1,924,412 | 1,701,914 | 1,701,914 | 1,793,186 | 1,793,186 | 1,971,692 | 1,971,692 | |
Cash and cash equivalents | 605,127 | 605,127 | 3,266,221 | 3,266,221 | 77,059 | 77,059 | 1,411,079 | 1,411,079 | |
Financial liabilities | |||||||||
Amortised cost | |||||||||
Trade and other payables | 4,207,393 | 4,207,393 | 4,390,924 | 4,390,924 | 1,812,477 | 1,812,477 | 2,078,479 | 2,078,479 | |
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 2010 and 2009.
16. Other financial assets and liabilities, (continued)
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults.
The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. 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 robust risk management process that relies on proven, defensible intellectual property sourced from some of the world's leading corporations and universities.
Included in the Group's other receivables are debtors of which US $1.4 million (2009: US $1.3 million) are past due at the reporting date and for which the Group has not provided as there has not been a significant change in credit quality of the Partner Companies and the Group believes that the amounts are still considered recoverable. (See note 3 for further details). The Group does not hold any collateral over these balances.
The following table is an analysis of the age of financial assets:
Group
More than 3 | |||||
Not past due | Not more than | months and not | More than | ||
or impaired | 3 months | more than 1 year | 1 year | Total | |
US$ | US$ | US$ | US$ | US$ | |
2010 | |||||
Fees receivable | - | 150,000 | 450,000 | 800,000 | 1,400,000 |
Rebillable expenses | 20,447 | - | - | - | 20,447 |
Other receivables | 426,640 | 9,106 | - | 44,536 | 480,282 |
Prepaid expenses | 23,683 | - | - | - | 23,683 |
470,770 | 159,106 | 450,000 | 844,536 | 1,924,412 | |
2009 | |||||
Fees receivable | - | 219,251 | 465,000 | 635,000 | 1,319,251 |
Rebillable expenses | - | 16,024 | 1,724 | 7,117 | 24,865 |
Other receivables | 208,544 | 27,570 | - | 48,283 | 284,397 |
Prepaid expenses | 73,401 | - | - | - | 73,401 |
281,945 | 262,845 | 466,724 | 690,400 | 1,701,914 |
Company
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$ | |
2010 | |||||
Rebillable expenses | 880 | - | - | - | 880 |
Due from subsidiaries | 1,401,965 | - | - | - | 1,401,965 |
Other receivables | 353,537 | - | - | 34,536 | 388,073 |
Prepaid expenses | 2,268 | - | - | - | 2,268 |
1,758,650 | - | - | 34,536 | 1,793,186 | |
2009 | |||||
Rebillable expenses | - | - | 880 | - | 880 |
Due from subsidiaries | 1,737,788 | - | - | - | 1,737,788 |
Other receivables | 158,786 | - | - | 38,283 | 197,069 |
Prepaid expenses | 35,955 | - | - | - | 35,955 |
1,932,529 | - | 880 | 38,283 | 1,971,692 | |
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.
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.
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 robust risk management process that relies on proven, defensible intellectual property sourced from some of the world's leading corporations and universities. (See note 3 and 15 for further details).
16. Other financial assets and liabilities, (continued)
The following table is a maturity analysis that shows the remaining contractual maturity for the Group and Company's financial liabilities:
Group | |||||
Less than | 1-3 | 3 months | Over | ||
1 month | months | to 1 year | 1 year | Total | |
2010 | |||||
Trade payables & other payables | 4,207,393 | - | - | - | 4,207,393 |
Convertible promissory notes | - | - | - | 8,968,555 | 8,968,555 |
Promissory note | - | - | - | 500,000 | 500,000 |
2009 | |||||
Trade payables & other payables | 4,390,924 | - | - | - | 4,390,924 |
Convertible promissory notes | - | - | - | 7,518,290 | 7,518,290 |
Company | |||||
Less than | 1-3 | 3 months | Over | ||
1 month | months | to 1 year | 1 year | Total | |
2010 | |||||
Trade payables & other payables | 1,812,477 | - | - | - | 1,812,477 |
Convertible promissory notes | - | - | - | 8,968,555 | 8,968,555 |
Promissory note | - | - | - | 500,000 | 500,000 |
2009 | |||||
Trade payables & other payables | 2,078,479 | - | - | - | 2,078,479 |
Convertible promissory notes | - | - | - | 7,518,290 | 7,518,290 |
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.
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 robust risk management process that relies on proven, defensible intellectual property sourced from some of the world's leading corporations and universities. (See note 3 and 15 for further details).
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 valuations of these two companies fluctuate along with the US dollar/Sterling exchange rate. No hedging of this risk is undertaken.
16. Other financial assets and liabilities, (continued)
The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
Group | Company | ||||||||||
Liabilities | Assets | Liabilities | Assets | ||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||
US$ | US$ | US$ | US$ | US$ | US$ | US$ | US$ | ||||
Sterling - Cash equivalent | - | 4,730 | 31,256 | 1,369,671 | - | - | 18,870 | 1,374,657 | |||
Sterling - Investment | - | - | 13,718,138 | 17,208,410 | - | - | 13,718,138 | 17,208,410 | |||
A 5% (2009: 10%) strengthening of the US dollar against the British pound sterling at the reporting date would have increased profit or loss of the Group by approximately US $687,000 (2009: US $1,857,000). A 5% (2009: 10%) weakening of the US dollar against the British pound sterling would have decreased profit or loss of the Group by approximately US $687,000 (2009: US $1,857,000). A 5% (2009: 10%) strengthening of the US dollar against the British pound sterling at the reporting date would have increased profit or loss of the Company by approximately US $687,000 (2009: US $1,858,000). A 5% (2009: 10%) weakening of the US dollar against the British pound sterling would have decreased profit or loss of the Company by approximately US $687,000 (2009: US $1,858,000). The GBP/USD rate used at 31 December 2010 was 1.5471 (2009: 1.6167). 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 $605,127 (2009: US $3,266,221). At 31 December 2010, the Group's bank accounts were in general not interest bearing due to the low base rate. An increase of 100 basis points in interest rates would have increased profit or loss of the Group by US $3,600 (2009: US $7,000). A decrease of 100 basis points in interest rates would have decreased profit or loss of the Group by US $nil (2009: US $nil). An increase of 100 basis points in interest rates would have increased profit or loss of the Company by US $1,400 (2009: US $4,000). A decrease of 100 basis points in interest rates would have decreased profit or loss of the Company by US $nil (2009: US $nil). The Group manages its exposure to interest rate risk by managing its cash balances and deposits to maximise its return while ensuring the Group has sufficient available cash to meet its needs. The Group does not enter into interest rate derivatives.
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.
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 $3.4 million (2009: US $0.7 million) to profit or loss of the Group and the Company using more favourable assumptions and an approximate decrease of US $6.5 million (2009: US $9 million) to profit or loss of the Group and the Company using less favorable assumptions. The more favorable assumption used in 2010 was an increase in the price of Kromek based on the current offer price of £10 less 10% as the transaction has not closed (2009: 5%). The less favourable assumptions used were a reduction in price of 15% to 20% (2009: 10% to 15%) except for Myconostica Ltd for which no less favourable assumption was used. The determination of reasonably possible alternative assumptions is subject to considerable judgment.
The amounts generated from the sensitivity analysis are estimates of the impact of market risk assuming that specified changes occur. Actual results in the future may differ materially from these results due to developments in the global financial markets which may cause exchange rates to vary from the hypothetical amounts disclosed above, which therefore should not be considered a projection of likely future events and losses.
17. Trade and other payables
Group
Trade and other payables principally comprise amounts outstanding for purchases and ongoing costs.
Company
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
18. Convertible promissory notes
During 2010, £899,953 (2009: £2,667,365) of convertible promissory notes were issued of which £20,618 (2009: £33,215) were subscribed for by Directors of the Company (See note 24). The notes are convertible into ordinary shares of the Company at any time prior to 31 December 2013 at a conversion price of eighteen pence per ordinary share. In the event that the closing market price of the ordinary shares is equal to or greater than 25 pence per ordinary share for 25 consecutive trading dates at any time prior to 31 December 2013, the notes will automatically be converted into fully paid ordinary shares.
If the notes have not been converted, they will be repaid on 31 December 2013. Interest of 7% will be paid quarterly until the date of repayment.
For each note issued, the Company also issued 1.11 warrants. Each warrant will entitle the holder to subscribe for one ordinary share at 20 pence per ordinary share during the subscription period which began on 30 December 2008 and expires on the fifth anniversary of that date.
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).
19. Share capital
2010 | 2009 | ||
£ | £ | ||
Authorised: | |||
250,000,000 ordinary shares of 1p each | 2,500,000 | 2,500,000 |
Number | £ | US $ | |||
Balance as at 31 December 2008 | 130,378,857 | 1,303,789 | 2,429,342 | ||
Issued for cash: | |||||
Ordinary shares of 1p each | 874,977 | 8,750 | 12,874 | ||
Ordinary shares of 1p each | 221,037 | 2,210 | 3,142 | ||
Ordinary shares of 1p each | 207,189 | 2,072 | 2,945 | ||
Ordinary shares of 1p each | 273,976 | 2,740 | 4,507 | ||
Ordinary shares of 1p each | 302,861 | 3,028 | 4,847 | ||
Balance as at 31 December 2009 | 132,258,897 | 1,322,589 | 2,457,657 | ||
Issued for cash: | |||||
Ordinary shares of 1p each | 167,188 | 1,672 | 2,705 | ||
Ordinary shares of 1p each | 162,838 | 1,628 | 2,473 | ||
Ordinary shares of 1p each | 160,000 | 1,600 | 2,392 | ||
Ordinary shares of 1p each | 500,000 | 5,000 | 7,733 | ||
Ordinary shares of 1p each | 249,820 | 2,498 | 3,930 | ||
Balance as at 31 December 2010 | 133,498,743 | 1,334,987 | 2,476,890 |
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 2010, the following changes occurred to the share capital of the Company:
On 12 January 2010, the Company issued 167,188 ordinary 1p shares at a premium of 15.25p per share (US $41,255) to Directors in lieu of 2009 fourth quarter Directors' fees.
On 25 May 2010, the Company issued 162,838 ordinary 1p shares at a premium of 14.30p per share (US $35,362) to Directors in lieu of first quarter Directors' fees.
On 5 July 2010, the Company issued 160,000 ordinary 1p shares at a premium of 12.5p per share (US $29,894) to its German public relations firm in lieu of fees.
On 13 September 2010, the Company issued 500,000 ordinary 1p shares at a premium of 10.625p per share (US $82,163) to its German public relations firm in lieu of fees.
On 22 October 2010, the Company issued 249,820 ordinary 1p shares at a premium of 8.10p per share (US $31,832) to Directors in lieu of second and third quarter Directors' fees.
20. Operating lease arrangements
At the balance sheet date, the Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:
2010 | 2009 | |||
US$ | US$ | |||
Within one year | 239,295 | 294,262 | ||
In the second to fifth years inclusive | - | 239,295 | ||
After five years | - | - | ||
239,295 | 533,557 |
Operating lease payments represent rentals payable by the Group for certain of its office properties. The term of the New York lease is seven years of which one year is remaining. The UK lease was terminated in 2010. The New York rental is fixed for one year. The Group recognised expenses of US $295,855 in respect of operating lease arrangements in the year ended 31 December 2010.
21. Share-based payments
In 2006 the Group established the 2006 Unapproved Share Option Plan ("the Plan") and it was adopted pursuant to a resolution passed on 8 June 2006. Under this plan, the Compensation Committee may grant share options to eligible employees, including Directors, to subscribe for ordinary shares of the Company. The number of shares over which options may be granted under the Plan cannot exceed ten percent of the ordinary share capital of the Company in issue on a fully diluted basis. The Plan will be administered by the Compensation Committee. The number of shares, terms, performance targets, and exercise period will be determined by the Compensation Committee.
The performance criteria for the options issued in September 2007 that must be met requires the Company's NAV per share as measured in US dollars to increase by 10% compounded annually for the four years starting 1 July 2007 and ending 30 June 2011 and continued employment. If those conditions are met, the full number of options granted will be eligible to be exercised on 1 July 2011. The options in 2009 vest a year after grant.
As of 31 December 2010, a total of 15,528,869 options have been issued (2009: total of 13,528,869) of which 12,400,000 options were issued under the Plan (2009: 10,400,000) and 2,375,000 options have been forfeited (2009: 1,025,000).
The 2,000,000 options issued under the Plan in 2010 have a four year vesting period. At 31 December 2010, a total of 8,101,557 options under the Plan were vested (2009: 5,875,618).
As of 31 December 2010, a balance of 2,628,869 options not in the Plan have been issued (2009: 2,628,869) and at 31 December 2010, 2,237,218 of these options were vested (2009: 2,137,222). These options have expiration dates that range from five to nine years from the date of grant.
2010 | 2009 | ||||||
Number of | Weighted | Number of | Weighted | ||||
Share options | average | share options | average | ||||
exercise | exercise | ||||||
price (in £) | price (in £) | ||||||
Outstanding at beginning of period | 12,503,869 | 0.20 | 10,170,536 | 0.23 | |||
Granted during the period | 2,000,000 | 0.12 | 3,358,333 | 0.13 | |||
Forfeited during the period | (1,350,000) | 0.22 | (1,025,000) | 0.25 | |||
Outstanding at the end of the period | 13,153,869 | 0.19 | 12,503,869 | 0.20 | |||
Exercisable at the end of the period | 9,738,775 | 0.20 | 8,012,840 | 0.20 | |||
21. Share-based payments, (continued)
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:
2010 | 2009 | ||
US$ | US$ | ||
Weighted average share price | 0.18 | 0.21 | |
Weighted average exercise price | 0.17 | 0.21 | |
Expected volatility | 60% | 57%-58% | |
Expected life | 10 years | 5-10 years | |
Risk free rate | 3.24% | 2.32% - 3.90% | |
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 2010, options were granted on 28 May. The aggregate of the estimated fair value of the options granted is $264,800. In 2009, options were granted on 24 March, 12 May, 7 August, 17 September, 3 November, 9 December, and 28 December. The aggregate of the estimated fair value of the options granted on those dates was US $461,073.
The Company and Group recognised total costs of US $423,274 and US $805,752 relating to equity-settled share-based payment transactions in 2010 and 2009 respectively. In 2010, US $423,274 was expensed in the statement of comprehensive income during the year.
22. Retirement benefit plans
The Company established a defined contribution plan under Section 401(k) of the Internal Revenue Code. The plan enables qualified employees to reduce their taxable income by contributing up to 15% of their salary to the plan. The Company may elect to make a matching contribution to the plan. The Company has elected not to make a contribution for the years ended 31 December 2010 or 2009.
The UK subsidiary has a defined contribution pension scheme. The total pension expense recognised in the income statement of US $22,267 (2009: US $22,549) represents contributions paid by the Company to the plan.
23. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
During the year, the Group paid miscellaneous expenses on behalf of Motif BioSciences, Inc. ("Motif") such as office expenses. Motif paid miscellaneous expenses during 2009 relating to the Kuwait activity on behalf of the Company. At 31 December 2010, Motif owed US $46,707 which was converted into a convertible promissory note. At 31 December 2009, the net amount owed by the Group to Motif was US $4,860.
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 is effective until 1 March 2011 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 2010 (2009: US $nil) on the basis that the cash has fallen below the US $500,000 level.
Amphion Innovations US Inc. has entered into an agreement with Kromek (formerly Durham Scientific Crystals, Ltd.) to provide advisory and consulting services. Richard Morgan and Jerel Whittingham, Directors of the Company, are also Chairman and Director of Kromek, respectively. The monthly fee under this agreement is the lesser of US $10,000 and 50% of the gross compensation paid to Directors and management of Kromek in that month. The agreement renews annually unless terminated by one of the parties. The subsidiary's fee for the year ended 31 December 2010 was US $120,000 (2009: US $120,000).
23. Related party transactions, (continued)
Amphion Innovations US Inc. also received US $403,703 as a fund raising fee for the year ended 31 December 2010 (2009: US $69,368). At 31 December 2010, US $10,000 (2009: US $10,000) remains payable.
Amphion Innovations US Inc. entered into an agreement with FireStar Software, Inc. ("FireStar") to provide advisory and consulting services. Richard Morgan, a Director of the Company, is also the Chairman of FireStar. The annual fee under this agreement was US $120,000. The agreement expired on 31 December 2009.
Amphion Innovations US Inc. has entered into an agreement with Motif BioSciences, Inc. ("Motif") to provide advisory and consulting services. Richard Morgan, a Director of the Company, is also a the Chairman of Motif. The annual fee for the services is US $240,000. The agreement is effective until 1 April 2011 and shall automatically renew for successive one year periods. Amphion Innovations US Inc.'s fee for the period ended 31 December 2010 was US $240,000 (2009: US $240,000). At 31 December 2010, the US $840,000 advisory fee that was payable (2009: US $600,000) was converted into a convertible promissory note.
Amphion Innovations US Inc. has entered into an agreement with Myconostica Ltd. ("Myconostica") for Jerel Whittingham to act as Executive Chairman of Myconstica. Richard Morgan, a Director of the Company, is also a Director of Myconostica. The monthly fee for the services is £5,000. The agreement is effective on a month to month basis subject to two months notice prior to cancellation. The subsidiary's fee for the year ended 31 December 2010 is £60,000 or US $91,586 (2009: £49,500 or US $75,761). In May 2011 Myconostica was acquired by Lab 21 and as a result, Richard Morgan and Jerel Whittingham are no longer Directors of Myconostica. (See note 24).
Amphion Innovations US Inc. has entered into an agreement with m2m Imaging Corp. ("m2m") to provide advisory and consulting services. Robert Bertoldi, a Director of the Company, is also the Chairman of m2m. The monthly fee under this agreement is US $15,000. This agreement renews on an annual basis until terminated by either party. Amphion Innovations US Inc.'s fee for the period ended 31 December 2010 was US $180,000 (2009: US $180,000) of which US $450,000 remains payable at 31 December 2010 (2009: US $270,000).
Amphion Innovations US Inc. has entered into an agreement with WellGen, Inc. ("WellGen") to provide advisory and consulting services. Richard Morgan and Robert Bertoldi, Directors of the Company, are also Chairman and Directors of WellGen, respectively. The fee under this agreement is US $60,000 per quarter. The agreement renews annually until terminated by either party. The subsidiary's fee for the year ended 31 December 2010 was US $240,000 (2009: US $240,000) of which US $360,000 (2009: $120,000) remains payable at 31 December 2010.
Amphion Innovations US Inc. has entered into an agreement with PrivateMarkets, Inc. ("PrivateMarkets") (formerly Energy Trading Intl.) 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 year ended 31 December 2010 was US $285,000 (2009: US $120,000). At 31 December 2010, US $590,000 (2009: US $305,000) remains payable by PrivateMarkets.
Amphion Innovations US Inc. has entered into an agreement with DataTern, Inc. ("DataTern") (a wholly owned subsidiary of the Company) to provide advisory and consulting services. Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of DataTern. The quarterly fee under this agreement is US $60,000 and renews annually unless terminated by either party. The subsidiary's fee for the year ended 31 December 2010 is US $240,000 (2009: US $240,000).
In 2010 Richard Morgan, a Director of the Company, advanced US $352,500 (2009: US $250,000) to the Company. This advance is interest free and repayable on demand. The net amount payable by the Company at 31 December 2010 to Richard C.E. Morgan is US $1,201,466 (2009: US $479,746). The amount payable includes a voluntary salary reduction of US $734,654, US $341,779 of which will be payable at the discretion of the Board at a later date.
In 2010 R. James Macaleer, a Director of the Company, advanced US $640,000 to the Company of which US $500,000 is under a promissory note. The promissory note accrues interest at the rate of five percent per annum and is payable on 31 January 2012. At 31 December 2010, US $8,305 (2009: US$ 14,334) was due to Mr. Macaleer for Director's fees.
At 31 December 2010, US $28,288 (2009: US $25,434) was due to Gerard Moufflet, a Director of the Company, for Director's fees and US $7,027 for expenses.
23. Related party transactions, (continued)
At 31 December 2010, US $3,909 was due to Anthony Henfrey, a Director of the Company, for expenses (2009: US $14,334 for director's fees). Dr. Henfrey waived his entitlement to receive his director's fees for 2010.
At 31 December 2010, US $23,535 (2009: US $21,646) was due to Richard Mansell-Jones, a retired Director of the Company for Director's fees.
In 2010, the Company recognised voluntary salary reductions in 2009 and 2010 for Jerel Whittingham and Robert Bertoldi, Directors of the Company, of US $178,407 and US $217,211, respectively of which US $154,705 and US $188,769 are payable by the discretion of the Board at a later date.
Directors' interests
The Directors' direct ownership in the Partner Companies is as follows:
Fully diluted % | ||||
Investment company | owned by Directors | |||
2010 | 2009 | |||
Axcess International, Inc. | 7.34% | 8.00% | ||
FireStar Software, Inc. | 1.52% | 1.59% | ||
Kromek | 1.33% | 1.50% | ||
Motif BioSciences, Inc. | 4.06% | 3.72% | ||
m2m Imaging Corp. | 1.47% | - | ||
Myconostica Ltd. | 0.31% | 0.38% | ||
PrivateMarkets, Inc. | 2.74% | 2.75% | ||
WellGen, Inc. | 4.62% | 4.74% | ||
The Directors who held office at 31 December 2010 had the following interests in the Company's ordinary share capital:
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||
Number of | Number of | Convertible | Convertible | |||||||||
ordinary | ordinary | promissory | promissory | Number of | Number of | |||||||
shares | shares | notes | notes | warrants | warrants | |||||||
Richard C.E. Morgan | 23,792,499 | 23,727,499 | £900,000 | £900,000 | 999,000 | 999,000 | ||||||
Robert J. Bertoldi | 6,436,431 | 6,436,431 | - | - | - | - | ||||||
R. James Macaleer | 22,740,912 | 22,501,692 | £10,027 | £6,156 | 11,130 | 6,833 | ||||||
Anthony W. Henfrey | 1,190,735 | 1,159,485 | £13,932 | £10,061 | 15,465 | 11,168 | ||||||
Gerard Moufflet | 300,000 | 100,000 | - | - | - | - | ||||||
Jerel Whittingham | 2,964,303 | - | - | - | - | - |
Aggregate Directors' remuneration
The total amounts for Directors' remuneration was as follows:
Year ended | Year ended | ||
31 December 2010 | 31 December 2009 | ||
US$ | US$ | ||
Emoluments | 1,424,460 | 783,329 |
23. Related party transactions, (continued)
Directors' emoluments and compensation
(1)Group | (2) Group | ||||||||||||
Fees/ Basic | Fees/Basic salary | ||||||||||||
Group | salary accrued | accrued Payment | Group | Group | Year ended | Period ended | |||||||
Fees/Basic | Payment subject to | not subject to | Benefits in | Annual | 31 December | 31 December | |||||||
salary paid | board discretion | board discretion | kind | bonuses | 2010 total | 2009 total | |||||||
US$ | US$ | US$ | US$ | US$ | US$ | US$ | |||||||
Name of dirc Name of Director | |||||||||||||
Executive - s Executive-salary | |||||||||||||
Richard C.E. Richard C.E. Morgan | 58,654 | 341,779 | 112,298 | 15,121 | - | 527,852 | 292,046 | ||||||
Robert J. Ber Robert J. Bertoldi | 176,066 | 188,769 | 28,442 | 20,745 | - | 414,022 | 215,986 | ||||||
Jerel WhittiJe Jerel Whittingham | 135,687 | 154,705 | 23,702 | 22,267 | - | 336,361 | - | ||||||
Non-executi Non-executive - fees | |||||||||||||
Richard M. M Richard Mansell-Jones | 48,742 | - | - | - | - | 48,742 | 103,137 | ||||||
R. James Ma R. James Macaleer | 43,263 | - | - | - | - | 43,263 | 53,929 | ||||||
Anthony W. Anthony W. Henfrey | - | - | - | - | - | - | 53,929 | ||||||
Ronald E. Th Ronald E. Thomas | - | - | - | - | - | - | 10,000 | ||||||
Gerard Mouff Gerard Moufflet | 54,220 | - | - | - | - | 54,220 | 54,302 | ||||||
Aggregate e Aggregate emoluments | 516,632 | 685,253 | 164,442 | 58,133 | - | 1,424,460 | 783,329 |
(1) Deferred fees/basic salary refers to voluntary salary reductions taken by the Executive Directors in 2009 and 2010 which were recorded as a liability in 2010 in the Group accounts and are payable at the discretion of the Board.
(2) Deferred fees/basic salary refers to voluntary salary reductions taken by the Executive Directors in 2009 and 2010 which were recorded as a liability in 2010 in the Group accounts, payment of which is not subject to the discretion of the Board.
Directors' share options
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Details of options for Directors who served during the year are as follows:
Date from |
| ||||||||||||||||||||
Name of | 1 January | 31 December | Exercise | which | Expiry |
| |||||||||||||||
Director | Scheme | 2010 | Granted | 2010 | price | exercisable | date | ||||||||||||||
| |||||||||||||||||||||
Richard Morgan | 2006 Unapproved Share Option Plan | 2,000,000 | - | 2,000,000 | £0.2300 | 1 July 2011 | 30 June 2021 |
| |||||||||||||
Richard Morgan | 2006 Unapproved Share Option Plan | 500,000 | - | 500,000 | £0.1075 | 24 Mar 2010 | 24 March 2019 |
| |||||||||||||
Robert Bertoldi | 2006 Unapproved Share Option Plan | 1,250,000 | - | 1,250,000 | £0.2300 | 1 July 2011 | 30 June 2021 |
| |||||||||||||
Robert Bertoldi | 2006 Unapproved Share Option Plan | 350,000 | - | 350,000 | £0.1075 | 24 Mar 2010 | 24 March 2019 |
| |||||||||||||
Jerel Whittingham | 2006 Unapproved Share Option Plan | 1,750,000 | - | 1,750,000 | £0.2300 | 1 July 2011 | 30 June 2021 |
| |||||||||||||
Jerel Whittingham | 2006 Unapproved Share Option Plan | 250,000 | - | 250,000 | £0.1075 | 24 Mar 2010 | 24 March 2019 |
| |||||||||||||
6,100,000 | - | 6,100,000 |
| ||||||||||||||||||
24. Events after the balance sheet date
In January, May and June 2011, the Company made advances of US $71,000 under a promissory note from Axcess International, Inc.
In January to June 2011, the Company made advances of US $58,903 under a promissory note from PrivateMarkets, Inc.
In January, March, April and June 2011, the Company made advances of US $29,100 under a promissory note from Motif BioSciences, Inc.
In April and May 2011, the Company made advances of US $50,000 under a promissory note from m2m Imaging Corp.
In April 2011 R. James Macaleer, a Director of the Company, advanced the Company US $500,000 under a promissory note. The promissory note accrues interest at the rate of 5% per annum and is payable on 31 January 2012. The promissory note was issued along with warrants for the purchase of 500,000 of the Company's ordinary shares at an exercise price of 11.25p per share and expires 12 April 2016. In June 2011, R. James Macaleer, advanced the Company US $1,000,000 under a US $2,000,000 promissory note. The Company can call down the note in several tranches by giving Mr. Macaleer no fewer than 15 business days notice. The promissory note accrues interest at the rate of 5% per annum and is payable on 31 December 2012. At Mr. Macaleer's option, should the IP assets of DataTern, Inc. be sold prior to maturity of the Note, the outstanding amount of the note and interest will be repaid within 30 days of the receipt of the proceeds from such sale. Should the DataTern, Inc. licensing program achieve gross revenues of US $10,000,000 during the term of the promissory note, Mr. Macaleer will receive an additional 20% interest per annum payable at maturity.
In April 2011, Microsoft Corporation and SAP AG commenced litigation against DataTern, Inc. with respect to the patents owned by its subsidiary, DataTern. (See note 1). In March 2011, DataTern launched a lawsuit against 11 defendants.
In May 2011, Myconostica Ltd. was purchased by Lab 21, an independent company and as a result, the Group's entire investment in Myconostica Ltd. was sold. The Group will receive shares in Lab 21 that are being valued at £30 which was the price of the latest Lab 21 investment.
In February 2011, DataTern, Inc. repaid its US $75,000 note payable and accrued interest to IP Navigation Group LLC and LSC Holdings LLC.
Notice
The financial information set out above does not constitute the group's statutory accounts for the year ended 31 December 2010 or 2009, 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 2010 and 2009 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 29 June 2011.
Copies of the Annual Report and Accounts
Copies of the Annual Report and Accounts will be sent to all shareholders today. Further copies will be obtainable from the Company's primary office: Amphion Innovations plc, Attn: Investor Relations, 330 Madison Avenue, New York, NY 10017, USA and on the company's website at www.amphionplc.com.
Related Shares:
AMP.L