15th Mar 2007 07:01
Amphion Innovations PLC15 March 2007 AMPHION INNOVATIONS PLC PRELIMINARY RESULTS 33% Increase In Net Asset Value Per Share Reflects Strong Progress with Partner Companies Significant Realisation and New Partner Company Added Strategic Gulf-Based Joint Venture Formed 15 March 2007 - Amphion Innovations plc (LSE: AMP) ("Amphion" or "the Company"),a developer of companies in technology and life sciences, today announces itsaudited preliminary results for year ended 31 December 2006. Financial Highlights • Net Asset Value Per Share up 33% to $0.34 at 31 December 2006 ($0.25 as of December 2005) • Net Asset Value in Sterling grew 16% over the past year to 17.5p from 15p, despite the 14% adverse move in the dollar/pound exchange rate • $2.9 million in proceeds realised from sale of Beijing Med-Pharm (4.2x return on purchase price in less than three years) • Revenues of $1.2 million (August 2005-December 2005: revenues of $320,000) • Net profit of $7 million (August 2005-December 2005: net profit of $2.3 million) • Operating loss of $2.9 million (August 2005-December 2005: operating loss of $1.3 million) • Earnings per share of $.07 versus $.02 for 2005 • $3.2 million raised in period and then further $156,000 raised on 8 January 2007 Operating Highlights • Heads of Agreement signed in January 2007 to establish a Gulf-based joint operating venture, called MSA Investors • Acquired 35% of Myconostica Ltd, a spin-out from the University of Manchester that develops molecular tests that detect infectious diseases • Partner Companies raised a total of $14 million worth of funding throughout 2006 Richard C.E. Morgan, Amphion's Chief Executive Officer said: "2006 saw Amphion meet or exceed its business plan on almost all counts, anachievement reflected in the 33% rise in our NAV per share. We set ourselvesthe target of one new Partner Company, and added Myconostica, an award-winningspin-out of Manchester University which we expect to begin generating revenuesthis year through European product sales. We set ourselves the target of onesignificant realisation during the year. The sale of most of our position inBeijing MedPharm has exceeded our original goals by a wide margin. The totalproceeds of $2.9 million represented a 4 x return on the purchase price paid byour predecessor company Amphion Capital Partners. "The addition of Myconostica, the realisation of Beijing MedPharm and the solidprogress in all our Partner Companies continues to demonstrate the strength ofthe Amphion model. We are currently in the process of creating new PartnerCompanies and are optimistic that we will have another significant realisationin 2007. We further believe that our strategic partnership in the Gulf willunderpin the value of our strong portfolio while significantly expanding ourcapital base. "Amphion's Partner Companies are built on strong Intellectual Property, in mostcases protected by important patents. Based on this IP, each is moving rapidlyto commercialise products that address well-defined market needs. Our avoidanceof risky and unproven technologies, and our commitment to focus on large andgrowing markets, gives us confidence in the success of this commercialisationprocess. "Our progress in 2006 reaffirms our belief in the value of the Amphion approachto create substantial shareholder value through the successful commercialisationof important and innovative inventions from leading universities, and we lookforward to another year of exciting progress." Enquiries:Amphion Innovations +1 (212) 210-6224Josh Berkman, Media Relations +1 (646) 747-7158 Financial Dynamics +44 207 831 3113Ben Atwell/John Gilbert A meeting for analysts will be held at the offices of Financial Dynamics.Holborn Gate, 26 Southampton Buildings, London WC2A 1PB at 09:30 on March 15.For more details, please call Claire Rowell at 0207 269 7285. Note to Editors: About Amphion Amphion Innovations plc is listed on the AIM Market in London under the symbolAMP. Amphion's business is the formation, financing, management and developmentof life sciences and technology companies, primarily in the US and UK, workingin partnership with corporations, governments, universities and entrepreneursseeking to commercialize their intellectual property. Amphion currently holds astake in seven Partner Companies, and is continually evaluating newopportunities. Amphion is based in New York, NY and London, England. On the web:www.amphionplc.com Overview Amphion's results for the year to 31 December 2006 show a major improvement overthe prior year with a 33% increase in net asset value per share and significantprogress made with our Partner Companies. Amphion made a significant step this year as we made our first return on one ofour Partner Companies with the exit from Beijing Med-Pharm. We realised a 4.2xreturn on our initial investment reflecting our commitment to strategic exits.The strength of our business model was also highlighted this year with theaddition of another promising company to our Portfolio, Myconostica. The Companyis a strong fit with our strategy and we believe that there is a goodopportunity for Amphion to help develop this Company to become a major player inthe field of infectious disease testing. In January 2007, we made an important development in the Gulf by signing a headsof agreement to form a joint venture investment company, MSA. MSA will provideAmphion with key business opportunities in the region as well as alternativesources of funding. We believe that the Gulf is a largely un-tapped region interms of European investment, and this new joint venture will enable Amphion andour shareholders to gain access to the vast pool of talent and investment thatexists in the region. Our Partner Companies have made excellent progress throughout the year, andAmphion remains excited about the prospects ahead in terms of futurerealisations of our investments and continuing progressions both in ourPortfolio and also with the exciting developments to come out of the Gulf. Outlook We look forward to continuing our success in 2007 with the creation of newPartner Companies and are optimistic that we will have another significantrealisation. We believe that our strategic partnership in the Arabian Gulf,which is now the world's fastest growing economy after China and India, willexpand our capital base, provide access to new markets for our PartnerCompanies, and be a rich source of new investment opportunity. Financial Summary Revenues for the year ended 31 December 2006 were $1.2 million, net profitequaled $7 million and operating loss was $2.9 million, as compared to revenueof $320,000, net profit of $2.3 million and operating loss of $1.3 million forthe period August 2005 to December 2005. The preliminary results at 31 December show a net profit for the period of $7million. This result differs from the estimated profit for the period of $7.7million noted in the Trading Statement issued on 16 January 2007. The differenceof $700,000 is due to the expensing of certain options issued to serviceproviders, certain additional expense accruals and the elimination ofinter-company revenue and gain. Existing Partner Companies' Summary Below we provide a summary of progress made with each of our Partner Companies. AXCESS International, Inc. (OTCBB: AXSI) ("AXCESS") provides active RadioFrequency Identification (RFID) and Real Time Location Systems (RTLS) solutionsthat locate, track, monitor, count and protect people, assets and vehicles. Themarkets of primary interest for the company include enterprise andmanufacturing, hospitality, government, defense, transport, logistics,education, healthcare, and banking. IDTechEX, an independent research firm,projects that AXCESS' main market for Active RFID, RTLS and multifunctionaltracking devices will sustain a 28% compounded annual growth rate through 2016and reach a global market of US $6.8 billion. This represents a 12-fold increasefor the market from its present size. Amphion's fully-diluted ownership stake in AXCESS was 8.55% as of 31 December2006. 2006 Developments On 16 October 2006, AXCESS rolled out a new wireless tracking and sensingtechnology called The Enterprise DotTM ("Dot"), the world's smallestmulti-functional, wireless sub-micro device for delivering real-time data. Dotwas designed as a System-on-a-Chip ("SoC") to capture, process, and deliverinformation previously unavailable in real time due to interoperability issues,such as, cost, size, and reliability. For the nine months ended 30 September 2006 AXCESS's sales were US $1,177,659with a gross profit of US $516,435. Sales for the same period in 2005 totaled US$652,687, with a gross profit of US $294,998. Durham Scientific Crystals, Ltd. ("DSC") is a spin out from Durham University(UK) focused on the application of patented, unique semi-conducting materials tothe field of medical imaging. DSC produces radically improved and more costeffective semiconductor materials than are currently available, which are usedin detectors for medical, security and defence digital x-ray imaging. Thesematerials have the potential to revolutionise the medical x-ray imaging marketby enabling the transition from analogue to digital, dramatically improving thescreening of baggage in airports and railways, and allowing the manufacture ofin-demand handheld scanners. DSC has a strong and growing IP (patent)portfolio. The market for crystals produced from liquid is currently US $100million per year. The addressable market, where lower quality, less expensivesolutions are currently in use, is significantly higher, and will beapproximately US $400 million by the end of 2007. Amphion's fully-diluted ownership stake in DSC was 26.24% as of 31 December2006. 2006 Developments In 2006, DSC was awarded a contract worth £676,000 by the Centre for Nano, Microand Photonics Systems. The contract covers three years and includes theproduction of cadmium zinc telluride single crystals. DSC retains all IP andexploitation rights. In addition, DSC won a contract with the European SpaceAgency for €100,000. Finally, in November, DSC completed the first part of aSeries F financing at £875,000 at a pre-money valuation of £7.4 million. The company has also signed a Memorandum of Understanding with a large UKUniversity to acquire a family of imaging systems, level IP, associatedknow-how, and the rights to any new development in the field. FireStar Software, Inc. ("FireStar") develops software that assists institutionsin automating business transactions between multiple companies. FireStaraddresses a very large, existing market for connectivity products. Their productautomatically enables various types of software systems to speak to each otherand pass data back and forth without costly and time-consuming maintenance ornew software development. Research firm Gartner, Inc. estimates the market forintegration software to be in excess of US $6.5 billion per year. The keysegments FireStar is targeting with its flagship product, called EdgeNodeTM, areelectronic trading, payment solutions, and healthcare informatics. Amphion's fully-diluted ownership stake in FireStar was 10.75% as of 31 December2006. 2006 Developments As a result of a number of key business partnerships, such as a consultingengagement with SWIFT, and numerous thought leadership opportunities, FireStarhas emerged as a leader in addressing interoperability challenges facing theglobal payments industry. This position was illustrated by the fact that, in2006, FireStar added as a customer Visa International, the worldwide leader inelectronic payments. FireStar completed its first project for VISA during thereporting period and is in discussions for a second contract. Research firmGartner, Inc. estimates the market for integration software to be in excess ofUS $6.5 billion per year. Also in 2006, FireStar developed an EdgeNode-based application, called FireStarBilateral Trading Platform ("BTP"), which is designed to automate bilateraltrading of complex originator-structured instruments, a segment of the tradingmarket not previously addressed by electronic exchanges. The first target forBTP is the North American gas and energy market, and FireStar is in the processof spinning out a separate company to focus on this opportunity. As healthcare costs rise, there is a growing demand for higher-quality care,which requires healthcare organisations to work more cooperatively, sharingconfidential patient information and clinical data in secure environments.FireStar is working with professionals from several Health Information Exchangeprojects that have potential for bookings in 2007. FireStar completed and filed six patents in 2006 relating to EdgeNodeTM andfiled a provisional patent for a method of using digital signatures to establishdigital identities for key individuals in the payments and healthcareinformatics markets. In August 2006, FireStar announced that it raised US $2 million in preferredstock in a preferred stock issuance. m2m Imaging Corporation ("m2m") A spin-out of Columbia University and Universityof Queensland (Australia), m2m specialises in developing high performancemagnetic resonance imaging ("MRI") coils and accessories, including cryogeniccoils that allow for enhanced imaging without escalating costs. Formerly knownas Supertron Technologies, Inc., the new combined company was formed in November2006 when New Jersey-based Supertron Technologies acquired Spin Systems ofAustralia. Ultimately, enhanced images are necessary for better diseasedetection and faster drug discovery, and this need has created a strong demandfor solutions, such as the cryogenic coil, that enable better images withoutcreating added cost. m2m secured US $3.5 million in an oversubscribed Series C financing in 2006 Amphion's fully-diluted ownership stake in m2m was 22.81% as of 31 December2006. 2006 Developments In 2006, m2m developed functional prototypes for both the clinical andpreclinical cryogenic coils and recently completed a US $2 million federalgrant. Supertron's acquisition of Spin Systems has allowed m2m to generaterevenue through an existing line of 'on-the-market' products, made by SpinSystems (i.e. conventional coils, and imaging accessories) while it develops thecryogenic coils. It also allows the company to leverage the Australiansubsidiary's existing distribution relationships with international equipmentmanufacturers in order to cultivate interest in the cryogenic coils and othernew products. Motif BioSciences Inc. ("Motif") is a population genetics company focused ondiscovering genes causing common diseases by utilising human genetic data fromthe Persian/Arabian Gulf region, where the populations are far less geneticallydiverse and thus much easier to analyse through applied genomics. Motif hasleveraged its resources to develop a patent-pending methodology for collectingand analysing genetic data. Over the next five years, more than half of the world's top selling drugs willgo off patent. Between 2007 and 2011, drug companies stand to lose US $28billion due to expiring patents. As a result, pharmaceutical companies arespending billions of dollars on developing new compounds, many of which nevereven make it to phase three testing. There is a significant need for drugcompanies to develop their pipelines more efficiently and by applyingdiscoveries made possible by the mapping of the human genome, researchers canbetter understand the underlying mechanisms of hard-to-treat diseases. Themarket for new type II diabetes drugs is $20 billion, the market for new cancerdrugs is $44 billion and the market for new heart disease drugs is $25 billion. Amphion's fully-diluted ownership stake in Motif was 41.17% as of 31 December2006. 2006 Developments In 2006, Motif played a spearheading role in the creation of the ShafallahMedical Genetics Center of Qatar, a state-of-the-art research facility,positioning the company as a major player in Gulf genetics and solidifying keyrelationships with social leaders. These relationships are crucial for gainingaccess to key populations. The company formed several partnerships, includingone with Harvard University to study the impact of post-traumatic stressdisorder on gene expression, a partnership with Kuwait University as well asImperial College, London to study Diabetes and a partnership with Kuwait MedicalGenetics Center and the Kuwait Center for Autism. Other corporate developments in 2006 included the appointment of Zaki Hosny, asenior executive with Merck & Company, as Motif's Chief Executive Officer andthe securing of US $1.9 million in financing. WellGen, Inc. ("WellGen") is a nutrigenomics company using proprietarytechnology to discover and develop food and dietary supplement ingredients fromplants and foods to market into the health and wellness markets. WellGen is aspin out of Rutgers University and has an exclusive worldwide license to aproprietary screening technology, known as nutrigenomics, that screens food andplant extracts for their impact on gene expression associated with the onset orproliferation of cancer, arthritis, obesity, and other human diseases. Throughthe use of its technology, the company has identified ingredients that conferquantifiable health benefits that will be the basis for evidence-based andrelevant claims for its customers in the food industry. The directors believethat WellGen is well positioned to become a significant player in the $78billion functional foods market that is growing at a rate of 8.4% per year. Amphion's fully-diluted ownership stake in WellGen was 17.39% as of 31 December2006. 2006 Developments In 2006, WellGen experienced the untimely passing of its founder and ChiefExecutive Officer, David Evans. In the spirit of continuing with his vision, thecompany appointed Dr. Kathleen P. Mullinix as its new President and CEO. Dr.Mullinix brings more than 30 years of industry experience to the CEO position atWellGen. WellGen raised US $3 million in Series B financing during 2006 and throughoutthe year WellGen continued to lead in the nutrigenomics thought leadershipsphere with published papers in the Journal of Science and Food Agriculture,Molecular Nutrition and Food Research and Life Sciences. WellGen's first product candidates are advancing in development. The first, ablack tea extract has demonstrated significant anti-inflammatory properties in awide variety of studies. WellGen is completing human studies on this productand has begun discussions with several companies concerning itscommercialisation. The second is a citrus product that is being developed forobesity and maintenance of healthy weight. This product will enter humanstudies in Q2, 2007. Meanwhile, the Company is developing its pipeline ofearlier stage product candidates and continues to build its portfolio ofintellectual property assets. New Partner Companies' Summary Myconostica, Ltd. ("Myconostica") is a spin-out from the University ofManchester that specialises in a new type of 'molecular' diagnostic test forinfectious diseases, particularly life-threatening respiratory fungalinfections, allowing much faster and more precise diagnosis. These tests willhave significant health-care benefits, such as reducing death rates, shorteningrecovery times and hospital stay, and reducing the high cost of care for thesetypes of patients. The standard diagnostic tests in clinical use today are slow,insensitive and complex, often taking several days for results that are ofquestionable accuracy. A fundamental benefit of Myconostica's tests is the factthat they are simple and can test for multiple fungi in a single process. Theexisting market for molecular testing is currently worth more than US $5.6billion per year and is expected to grow to $12 billion by 2010. Myconostica'sfocus is on testing for respiratory fungal diseases and blood infections, amarket that is currently valued at $400 million per year. Amphion's fully-diluted ownership stake in Myconostica was 32.46% as of 31December 2006. 2006 Developments In 2006, Myconostica officially became an Amphion Partner Company, securing aninvestment of £1 million in exchange for 35% ownership in the company.Myconostica was also named NorthWest (UK) Biotech Start-Up of the Year, in 2006,and acquired and filled several patents crucial to continued research anddevelopment progress. MSA Investors ("MSA") The Arabian Gulf is now the world's fastest growing economy after China andIndia. Building on Amphion's company-building strategy and its long-standingties to this region, Amphion has signed a Heads of Agreement with a Kuwaitiinvestment company, MS Holdings, backed by the prominent Al-Sayer and Al-Mutawafamilies, to create a Gulf-based joint venture, MSA Investors. The joint venture's objective will be to identify new investment opportunitiesin the region in areas of Amphion expertise, provide strong access to capitaland opportunities from both existing and new Gulf investors, and create newmarkets and strategic partnerships for Amphion's Partner Companies. The firstof these partnerships are anticipated to be built around MSA investments in twonew companies, Saydanah and Suvani. Amphion's Gulf partners have alreadycommitted US$1 million to the creation of these companies, and substantialadditional investment upon their Gulf incorporation. Saydanah is being established in order to bring "functional foods" to a sizeableand wealthy Arab market based on traditional Arab pharmacology. Saydanah willbe built upon Amphion's expertise in the field of nutrigenomics through ananticipated strategic partnership with Partner Company WellGen. Suvani will be merged with a Gulf-based RFID company with the aim of servicing agrowing Gulf RFID market, and it is expected that the new company will acquirean exclusive right to distribute Partner Company AXCESS'S products in the Gulf. The incorporation of MSA is currently underway in Bahrain. The Gulf partnershave committed to provide an additional US$3.5 million to fund the furtherdevelopment of MSA and its companies upon their formation. Amphion will alsotransfer 500,000 shares in Motif to MSA in return for a 50% interest in the newCompany. Amphion Innovations plcConsolidated income statementFor the year ended 31 December 2006 Period from Notes 7 June 2005 Year ended (date of incorporation) 31 December 2006 to 31 December 2005 ______ ______Continuing operations US $ US $ Revenue 4 1,238,040 319,673 Other operating income 1,650 8,729Administrative expenses (4,092,028) (1,632,139) ______ ______ Operating loss (2,852,338) (1,303,737) Fair value gains on investments 7,774,172 3,550,094Realized gains on sale of investments 1,906,932 -Interest income 8 170,490 90,966Other gains and losses 37,337 (34,904) ______ ______ Profit before tax 6 7,036,593 2,302,419 Tax on profit 9 (83,214) (27,000) ______ ______ Profit for the period 6,953,379 2,275,419 ______ ______ Earnings per share 10 Basic US $0.07 US $0.02 ______ ______ Diluted US $0.07 US $0.02 ______ ______ Amphion Innovations plcCompany income statementFor the year ended 31 December 2006 Period from 7 June 2005 to Year ended (date of incorporation) Notes 31 December 2006 31 December 2005 ______ ______ US $ US $Continuing operationsAdministrative expenses (2,939,317) (1,524,033) ______ ______ Operating loss (2,939,317) (1,524,033) Fair value gains on investments 7,608,888 3,527,870Realized gains on sale of investments 1,906,932Interest income 8 167,724 90,760Other gains and losses 30,017 (35,287) ______ ______ Profit before tax 6 6,774,244 2,059,310 Tax on profit 9 - - ______ ______ Profit for the period 6,774,244 2,059,310 ______ ______ Amphion Innovations plcConsolidated balance sheetAt 31 December 2006 Notes 31 December 2006 31 December 2005 ______ ______ US $ US $Non-current assetsFixtures, fittings and equipment 11 30,116 26,427Security deposit 121,694 121,694Investments 13 32,254,563 21,178,415 ______ ______ 32,406,373 21,326,536 ______ ______Current assetsPrepaid expenses and other receivables 23 1,258,941 643,488Cash and cash equivalents 1,848,539 2,448,422 ______ ______ 3,107,480 3,091,910 ______ ______ Total assets 35,513,853 24,418,446 ______ ______ Current liabilitiesTrade and other payables 15 1,349,986 354,319 ______ ______ Total liabilities 1,349,986 354,319 ______ ______ Net assets 34,163,867 24,064,127 ______ ______EquityShare capital 16 1,808,983 1,685,160Share premium account 23,114,093 20,101,328Translation reserve 11,993 2,220Retained earnings 9,228,798 2,275,419 ______ ______ Total equity 34,163,867 24,064,127 ______ ______ The financial statements were approved by the board of directors and authorisedfor issue on 14 March 2007. They were signed on its behalf by: Director DirectorRichard M. Mansell-Jones Robert J. Bertoldi Amphion Innovations plcCompany balance sheetAt 31 December 2006 Notes 31 December 2006 31 December 2005 US$ US$Non-current assetsFixtures, fittings and equipment 11 12,541 15,942Security deposit 121,694 121,694Investments 13 32,013,287 21,102,423Investment in subsidiaries 12 3 3 ______ ______ 32,147,525 21,240,062 ______ ______Current assetsPrepaid expenses and other receivables 23 988,087 579,807Cash and cash equivalents 1,797,085 2,304,365 ______ ______ 2,785,172 2,884,172 ______ ______ Total assets 34,932,697 24,124,234 ______ ______Current liabilitiesTrade and other payables 15 1,176,067 278,436 ______ ______ Total liabilities 1,176,067 278,436 ______ ______ Net assets 33,756,630 23,845,798 ______ ______EquityShare capital 16 1,808,983 1,685,160Share premium account 23,114,093 20,101,328Retained earnings 8,833,554 2,059,310 ______ ______ Total equity 33,756,630 23,845,798 ______ ______ The financial statements were approved by the board of directors and authorizedfor issue on 14 March 2007. They were signed on its behalf by: Director DirectorRichard M. Mansell-Jones Robert J. Bertoldi Amphion Innovations plcConsolidated statement of changes in equityFor the year ended 31 December 2006 Share Share premium Translation Notes Capital account reserve ______ ______ ______ US $ US $ US $Issue of share capital 1,685,160 21,568,320 -Incremental costs directly attributable to issue of shares 17 - (1,597,807) -Recognition of share-based payments 20 - 130,815 -Exchange differences arising on translation of foreign operations - - 2,220Profit for the period - - - ______ ______ ______ Balance at 31 December 2005 1,685,160 20,101,328 2,220Issue of share capital 16 123,823 3,047,600 -Incremental costs directly attributable to issue of shares 17 - (150,950) -Recognition of share-based payments 20 - 116,115 -Exchange differences arising on translation of foreign operations - - 9,773Profit for the year - - - ______ ______ ______ Balance at 31 December 2006 1,808,983 23,114,093 11,993 ______ ______ ______ (continued from table above) Retained Notes earnings Total ______ ______ US $ US $ Issue of share capital - 23,253,480Incremental costs directly attributable to issue of shares 17 - (1,597,807)Recognition of share-based payments 20 - 130,815Exchange differences arising on translation of foreign operations - 2,220Profit for the period 2,275,419 2,275,419 ______ ______ Balance at 31 December 2005 2,275,419 24,064,127Issue of share capital 16 - 3,171,423Incremental costs directly attributable to issue of shares 17 - (150,950)Recognition of share-based payments 20 - 116,115Exchange differences arising on translation of foreign operations - 9,773Profit for the year 6,953,379 6,953,379 ______ ______ Balance at 31 December 2006 9,228,798 34,163,867 ______ ______ Amphion Innovations plcCompany statement of changes in equityFor the year ended 31 December 2006 Share Share premium Retained Notes Capital account earnings Total ______ ______ ______ ______ US $ US $ US $ US $Issue of share capital 1,685,160 21,568,320 - 23,253,480Incremental costs directly attributable to issue of shares 17 - (1,597,807) - (1,597,807)Recognition of share-based payments 20 - 130,815 - 130,815Profit for the period - - 2,059,310 2,059,310 ______ ______ ______ ______ Balance at 31 December 2005 1,685,160 20,101,328 2,059,310 23,845,798Issue of share capital 16 123,823 3,047,600 - 3,171,423Incremental costs directly attributable to issue of shares 17 - (150,950) - (150,950)Recognition of share-based payments 20 - 116,115 - 116,115Profit for the year 6,774,244 6,774,244 ______ ______ Balance at 31 December 2006 1,808,983 23,114,093 8,833,554 33,756,630 ______ ______ ______ ______ Amphion Innovations plcConsolidated cash flow statementFor the year ended 31 December 2006 Period from 7 June 2005 Year ended (date of incorporation) Notes 31 December 2006 to 31 December 2005 ______ ______ US $ US $Operating activitiesOperating loss (2,852,338) (1,303,737)Adjustments for: Depreciation of fixtures, fittings and equipment 11 9,210 2,333 Advisory fees received in equity instruments - 49,192 Advisory fees settled in equity instruments 116,115 20,655 Net working capital acquired - 162,847 Increase in prepaid & other receivables (615,453) (643,488) Increase in security deposits - (121,694) Increase in trade & other payables 995,667 302,839 Income tax (75,894) (27,000) ______ ______ Net cash used in operating activities (2,422,693) (1,558,053) ______ ______Investing activitiesInterest received 170,490 90,966Cash received from acquisition of business - 325,011Proceeds on disposal of investments 13 2,905,719 -Purchases of investments (4,937,763) (5,660,826)Proceeds from repayment of note 637,000 -Purchases of equipment 11 (12,899) (15,714) ______ ______ Net cash used in investing activities (1,237,453) (5,260,563) ______ ______Financing activitiesProceeds on issue of shares, net of share issuance costs 3,020,473 9,299,723 ______ ______ Net cash from financing activities 3,020,473 9,299,723 ______ ______ Net (decrease)/increase in cash and cash equivalents (639,673) 2,481,107Cash and cash equivalents at the beginning of the year/ 2,448,422 -periodEffect of foreign exchange rate changes 39,790 (32,685) ______ ______ Cash and cash equivalents at the end of the year/period 1,848,539 2,448,422 ______ ______ Amphion Innovations plcCompany cash flow statementFor the year ended 31 December 2006 Period from 7 June 2005 to Year ended (date of incorporation) Notes 31 December 2006 31 December 2005 ______ ______Operating activities US $ US $Operating loss (2,939,317) (1,524,033) Adjustments for: Depreciation of fixtures, fittings and equipment 11 5,664 1,781 Advisory fees settled in equity instruments 116,115 20,655 Net working capital acquired - 214,326 Increase in prepaid & other receivables (408,280) (579,807) Increase in security deposits - (121,694) Increase in trade & other payables 897,631 278,433 ______ ______ Net cash used in operating activities (2,328,187) (1,710,339) ______ ______ Investing activitiesInterest received 167,724 90,760Cash received from acquisition of business - 325,011Proceeds on disposal of investments 13 2,905,719 -Purchases of investments (4,937,763) (5,660,826)Proceeds from repayment of note 637,000 -Purchases of equipment (2,263) (4,677) ______ ______ Net cash used in investing activities (1,229,583) (5,249,732) ______ ______Financing activitiesProceeds on issue of shares, net of share issuance costs 3,020,473 9,299,723 ______ ______ Net cash from financing activities 3,020,473 9,299,723 ______ ______ Net (decrease)/increase in cash and cash equivalents (537,297) 2,339,652Cash and cash equivalents at the beginning of the year/ 2,304,365 -periodEffect of foreign exchange rate changes 30,017 (35,287) ______ ______ Cash and cash equivalents at the end of the year/period 1,797,085 2,304,365 ______ ______ Amphion Innovations plc Notes to the consolidated financial statements For the year ended 31 December 2006 1. General information Amphion Innovations plc (the "Company") is a public limited company incorporatedin the Isle of Man under the Companies Acts 1931-2004 on 7 June 2005 withregistered number 113646C. The address of the registered office is 15-19 AtholStreet, Douglas, Isle of Man, IM1 1LB. The principal place of business is 330Madison Avenue, New York, NY, USA, 10017. The principal activities of theCompany and its subsidiaries (the "Group") are to create, build, operate andfinance market-leading technology companies in partnership with corporations,governments, universities and entrepreneurs seeking to commercialise theirintellectual property. The consolidated financial statements include the accounts of AmphionInnovations plc and its two wholly owned subsidiaries, Amphion Innovations USInc., which is incorporated in the United States, and Amphion Innovations UKLimited, which is incorporated in the United Kingdom. These financial statements are presented in US dollars because that is thecurrency of the primary economic environment in which the Company operates. 2. Significant accounting policies The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS). However, at 31 December 2005 thedirectors departed from IAS 27 Consolidated and Separate Financial Statementsand did not consolidate the Company's subsidiary, Motif BioSciences, Inc. ("Motif"), in the financial statements of the Group; at this date the Companyowned 51.28% of Motif. The Directors believed that the presentation of thissubsidiary on an unconsolidated basis provided a fairer presentation of theGroup's position. With effect from January 2006, the Company's ownership ofMotif fell below the 50% threshold. As at 31 December 2006, the Companycontinued to own less than 50% of Motif and therefore does not need toconsolidate. As of the date of authorisation of these financial statements, the followingStandards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective: IFRS 7 Financial Instruments: Disclosures and the related amendment to IAS 1 on capital disclosures.IFRS 8: Operating SegmentsIFRIC 7 Applying the restatement approach under IAS 29IFRIC 8 Scope of IFRS 2IFRIC 9 Reassessment of embedded derivativesIFRIC 10 Interim financial reporting and impairmentIFRIC 11 IFRS 2: group and treasury share transactionsIFRIC 12 Service concession arrangements The directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group except for additional disclosures on capital andfinancial instruments when the relevant standards come into effect for periodscommencing on or after 1 January 2007. The financial statements have been prepared on the historical cost basis,modified by the revaluation of investments. The principal accounting policiesadopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries). Controlis achieved where the Company has the power to govern the financial andoperating policies of any entity so as to obtain benefits from its activities. The results of subsidiaries acquired during the year are included in theconsolidated income statement from the effective date of acquisition. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Cash and cash equivalents Cash and cash equivalents include balances with banks and demand deposits, whichhave maturities of less than three months at the date of acquisition. Investments Investments are recognised and derecognised on a trade date where a purchase orsale of an investment is under a contract whose terms require delivery of theinvestment within the timeframe established by the market concerned, and areinitially measured at cost, including transaction costs. Investments are classified as fair value through profit and loss. Investmentsare carried at value as determined by management using the International PrivateEquity and Venture Capital Valuation Guidelines. The following broad guidelinesare generally used in security valuations: a) marketable securities which arefreely tradable and for which quotations are readily available are valued usingtheir last closing prices, (b) all other securities are valued at fair value asestimated by management in good faith. Factors generally considered indetermining fair value are the latest offering price from recently executedfinancing transactions related to the investee companies and comparison tosimilar instruments of similar companies. Investments that do not have a quotedmarket price in an active market and whose fair value cannot be reliablymeasured are valued at cost until such time as a fair value can be determined. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for and services provided in thenormal course of business. Interest income Interest income is accrued on a time basis. Dividend income Dividend income from investments is recognized when the shareholders' right toreceive payments have been established. Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Foreign currencies Transactions in currencies other than US dollars are recorded at the rates ofexchange prevailing on the dates of the transactions. At each balance sheetdate, monetary assets and liabilities that are denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date.Non-monetary assets and liabilities carried at fair value that are denominatedin foreign currencies are translated at the rates prevailing at the date whenthe fair value was determined. Gains and losses arising on retranslation areincluded in net profit or loss for the period, except for exchange differencesarising on non-monetary assets and liabilities where the changes in fair valueare recognised directly in equity. On consolidation, the assets and liabilities of the Group's overseas operationsare translated at exchange rates prevailing on the balance sheet date. Incomeand expense items are translated at the average exchange rates for the periodunless exchange rates fluctuate significantly. Exchange differences arising, ifany, are classified as equity and transferred to the Group's translationreserve. Such translation differences are recognised as income or as expensesin the period in which the operation is disposed of. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. Taxation Income tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the period. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expenditure that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted at the balance sheet date. Deferred taxation is the tax expected to be payable or recoverable ondifferences between the carrying amount of assets and liabilities in thefinancial statements and the corresponding tax basis used in the computation oftaxable profit. Deferred tax is calculated at the tax rates that are expected to apply to theperiod when the liability is settled or the asset realised. Deferred tax assetsand liabilities are not discounted. Fixtures, fittings and equipment Fixtures, fittings and equipment are stated at cost less accumulateddepreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets overtheir estimated useful lives of 3-5 years, using the straight-line method. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Prepaid expenses and other receivables Prepaid expenses and other receivables are stated at their nominal value. Otherreceivables are reduced by appropriate allowances for estimated irrecoverableamounts and do not carry any interest. Trade payables Trade payables are not interest bearing and are stated at their fair value andsubsequently measured at amortised cost using the effective interest ratemethod. Trade payables are measured at fair value. Equity instruments Equity instruments issued by the Group are recorded at the proceeds received,net of direct issue costs. Share based payments The Group has applied the requirements of IFRS 2 Share-based Payments. The Group issues equity-settled share-based payments to certain employees andconsultants. Equity-settled share-based payments are measured at fair value atthe date of grant. The fair value determined at the grant date of theequity-settled share-based payments is expensed on a straight-line basis overthe vesting period, based on the Group's estimate of the shares that willeventually vest. The fair value of equity-settled share-based paymentsattributable to the issue of equity instruments is charged against equity. Fair value is measured using the Black-Scholes pricing model. The expected lifeused in the model has been adjusted based on management's best estimate foreffects of non-transferability, exercise restrictions, and behavioralconsiderations. 3. Key sources of estimation uncertainty The preparation of the Group's financial statements requires management to makeestimates and assumptions that affect the reported amounts of assets,liabilities and contingencies at the date of the Group's financials statements,and revenue and expenses during the reporting period. Actual results coulddiffer from those estimated. Significant estimates in the Group's financialstatements include the amounts recorded for the fair value of the investments.By their nature, these estimates and assumptions are subject to measurementuncertainty and the effect on the Group's financial statements of changes inestimates in future periods could be significant. 4. Revenue An analysis of the Group's revenue for the period is as follows: Group Company Group Company Year ended Year ended Period from 7 June 2005 Period from 7 June 2005 31 December 2006 31 December 2006 to 31 December 2005 to 31 December 2005 ______ ______ ______ ______ US $ US $ US $ US $Settled in warrants - - 2,288 -Settled in cash 1,238,040 - 317,385 - ______ ______ ______ ______ Advisory fee income 1,238,040 - 319,673 - ______ ______ ______ ______ 5. Business and geographical segments Business segments For management purposes, the Group is currently organised into two businesssegments - advisory services, and investing activities. These business segmentsare the basis on which the Group reports its primary segment information. Segment information about these businesses is presented below. Advisory Investing services Activities Eliminations Consolidated Year ended Year ended Year ended Year ended 31 December 2006 31 December 2006 31 December 2006 31 December 2006 US $ US $ US $ US $REVENUEExternal advisory fees 1,238,040 - - 1,238,040Inter-segment fees - 444,027 (444,027) - ______ ______ ______ ______ Total revenue 1,238,040 444,027 (444,027) 1,238,040Other operating income 1,650 - 1,650Administrative expenses (1,040,195) (3,495,860) 444,027 (4,092,028) ______ ______ ______ ______ Segment result 199,495 (3,051,833) - (2,852,338) Fair value gain on investments - 7,774,172 - 7,774,172Realized gains on sale of - 1,906,932 1,906,932investmentsInterest income 1,152 169,338 - 170,490Other gains and losses 7,323 30,014 - 37,337 ______ ______ ______ ______Profit before tax 207,970 6,828,623 - 7,036,593Income taxes (70,899) (12,315) - (83,214) ______ ______ ______ ______ Profit after tax 137,071 6,816,308 - 6,953,379 ______ ______ ______ ______OTHER INFORMATIONSegment assets 517,470 35,055,555 (59,172) 35,513,853 Segment liabilities 162,161 1,243,148 (55,323) 1,349,986 Additions to fixtures, fittings and 7,082 5,817 - 12,899equipmentDepreciation 2,876 6,334 - 9,210Advisory fees settled in equity - 116,115 - 116,115instruments Advisory Investing services activities Eliminations Consolidated Period from Period from Period from Period from 7 June 2005 7 June 2005 to 7 June 2005 to 7 June 2005 to (date of (date of (date of (date of incorporation) to incorporation) to incorporation) to Incorporation) to 31 December 2005 31 December 2005 31 December 2005 31 December 2005 US $ US $ US $ US $REVENUEExternal advisory fees 319,673 - - 319,673Inter-segment fees - 278,052 (278,052) - ______ ______ ______ ______ Total revenue 319,673 278,052 (278,052) 319,673Other operating income 8,729 - 8,729Administrative expenses (250,048) (1,659,760) 277,669 (1,632,139) ______ ______ ______ ______ Segment result 78,354 (1,381,708) (383) (1,303,737) Fair value gain on investments 22,224 3,527,870 - 3,550,094Interest income 84 90,882 - 90,966Other gains and losses - (35,287) 383 (34,904) ______ ______ ______ ______Profit before tax 100,662 2,201,757 - 2,302,419Income taxes (27,000) - - (27,000) ______ ______ ______ ______ Profit after tax 73,662 2,201,757 - 2,275,419 ______ ______ ______ ______OTHER INFORMATIONSegment assets 420,302 24,278,188 (280,044) 24,418,446 Segment liabilities 346,642 287,721 (280,044) 354,319 Additions to fixtures, fittings and 11,037 17,723 - 28,760equipmentDepreciation 552 1,781 - 2,333Advisory fees settled in equity - 20,655 - 20,655instruments Geographical segments The Group's operations are located in the United States and the United Kingdom. The following table provides an analysis of the Group's advisory fees bygeographical location of the investment. Advisory fees by geographical location 2006 2005 ______ ______ US $ US $United States 1,092,900 304,863United Kingdom 145,140 14,810 ______ ______ 1,238,040 319,673 ______ ______ The following is an analysis of the carrying amount of segment assets, andadditions to fixtures, fittings and equipment, analysed by the geographical areain which the assets are located: Carrying amount Additions to fixtures, of segment assets fittings and equipment 2006 2005 2006 2005 ______ ______ ______ ______ US $ US$ US $ US$ United States 29,408,915 22,465,813 9,345 28,760United Kingdom 6,104,938 1,952,633 3,554 - ______ ______ ______ ______ 35,513,853 24,418,446 12,899 28,760 ______ ______ ______ ______ 6. Profit before tax Profit before tax has been arrived at after charging/(crediting): Group Company Period from Period from 7 June 2005 7 June 2005 Group Year ended Company Year (date of (date of ended incorporation) to incorporation) to 31 December 2006 31 December 2006 31 December 2005 31 December 2005 US $ US $ US $ US $Net foreign exchange losses/(gains) 30,017 30,017 (34,904) (35,287) ______ ______ ______ ______ Depreciation of equipment 9,210 5,664 2,333 1,781 ______ ______ ______ ______ Staff costs (note 7) 1,415,556 667,248 520,090 335,211 ______ ______ ______ ______ Auditors' remuneration - audit 164,607 150,000 86,000 76,000services ______ ______ ______ ______ Auditors' remuneration - auditservices, underestimated in prior 117,865 117,865 - -year ______ ______ Auditors' remuneration - advisory - - 254,246 254,246services ______ ______ ______ ______ 7. Staff costs The average monthly number of employees (including executive directors) was: 2006 2005 Number NumberAmphion Innovations plc and Amphion Innovations US Inc. (employees and costs are shared) 6 6Amphion Innovations UK Ltd. 2 1 ______ ______ Total for the Group 8 7 ______ ______ Group Company Group Company 2006 2006 2005 2005 ______ ______ ______ ______Their aggregate remuneration comprised: US $ US $ US $ US $ Wages and salaries 1,312,737 639,601 475,301 313,045Social security costs 76,281 27,647 36,307 22,166Other pension costs (see note 21) 26,538 - 8,482 - ______ ______ ______ ______ 1,415,556 667,248 520,090 335,211 ______ ______ ______ ______ 8. Interest income Group Company Group Company Period from Period from Year ended Year ended 7 June 2005 (date 7 June 2005 (date) 31 December 31 December of incorporation) to or incorporation) to 2006 2006 31 December 2005 31 December 2005 US $ US $ US $ US $Interest income 170,490 167,724 90,966 90,760 ______ ______ ______ ______ 170,490 167,724 90,966 90,760 ______ ______ ______ ______ 9. Income tax expense Group Group Period from 7 June 2005 (date of Year ended incorporation) to 31 December 2006 31 December 2005 US $ US $Isle of Man income tax - -Tax on US subsidiary 70,899 27,000Tax on UK subsidiary 12,315 - ______ ______ Current tax 83,214 27,000 ______ ______ From 6 April 2006, a standard rate of corporate tax of 0% applies to Isle of Mancompanies, with exceptions taxable at the 10% rate, namely licensed banks inrespect of deposit-taking business, companies that profit from land and propertyin the Isle of Man and companies that elect to pay tax at the 10% rate.Notwithstanding the fact that the general rate of 0% would apply to theCompany's profits for the year ended 31 December 2006, the Company has beengranted exemption from Isle of Man income tax for the fiscal year ended 5 April2007 under the terms of the Income Tax (Exempt Companies) Act 1984. Noprovision for Isle of Man taxation is therefore required. The Company istreated 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 two subsidiaries in the USA and UK, respectively. The USsubsidiary, Amphion Innovation US Inc., is a Corporation and therefore taxeddirectly. The US subsidiary suffers US federal tax, state tax and New York Citytax on its taxable net income. The UK subsidiary, Amphion Innovations UKLimited, is liable to UK Corporation tax at rates up to 30% on its taxableprofits and gains. The Group charge for the period can be reconciled to the profit per theconsolidated income statement as follows: 2006 2005 US $ US $Profit before tax 7,036,593 2,302,419 ______ ______ Tax at the Isle of Man income tax rate of 0% - - Effect of different tax rates of subsidiariesoperating in other jurisdictions 83,214 27,000 ______ ______ Current tax 83,214 27,000 ______ ______ 10. Earnings per share The calculation of the basic and diluted earnings per share attributable to theordinary equity holders of the parent is based on the following data: Earnings Period from 7 June 2005 (date of Year ended incorporation) to 31 December 2006 31 December 2005 US $ US $Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to equity holders of the 6,953,379 2,275,419parent) ______ ______ Number of shares Period from 7 June 2005 (date of Year ended incorporation) to 31 December 2006 31 December 2005 Weighted average number of ordinary shares for the purposes of basic earnings per share 95,175,992 91,305,759 Effect of dilutive potential ordinary shares: Share options 1,357,725 600,000 ______ ______Weighted average number of ordinary shares for the purposes of diluted earnings per share 96,533,717 91,905,759 ______ ______ 11. Fixtures, fittings and equipment Group Company Fixtures, fittings Fixtures, fittings and equipment and equipmentCOST US $ US $ At 1 January 2006 28,760 17,723Additions 12,899 2,263 ______ ______ At 31 December 2006 41,659 19,986 ______ ______ACCUMULATED DEPRECIATION At 1 January 2006 2,333 1,781Charge for the period 9,210 5,664 ______ ______ At 31 December 2006 11,543 7,445 ______ ______ CARRYING AMOUNT At 31 December 2006 30,116 12,541 ______ ______ At 31 December 2005 26,427 15,942 ______ ______ 12. Subsidiaries Details of the Company's subsidiaries at 31 December 2006 are as follows: Place of Proportion Proportion incorporation of ofName of (or registration) ownership votingsubsidiary and operation interest power held Principal activity % %ConsolidatedAmphion Innovations US Inc. Delaware, USA 100 100 Advisory servicesAmphion Innovations UK Limited England & Wales 100 100 Advisory services 13. Investments At fair value through profit and loss Group 31 December 2006 Unrealised Fair Value Cost gain/(loss) US $ US $ US $Public companies:Axcess International Inc. 2,686,210 2,409,521 276,689Beijing Med-Pharm Corporation 446,388 113,314 333,074 Private companies:Durham Scientific Crystals, Ltd. 4,110,000 2,134,673 1,975,327FireStar Software, Inc. 4,060,284 4,155,784 (95,500)Motif BioSciences, Inc. 10,346,655 4,252,279 6,094,376M2M Imaging Corp. 3,736,026 1,386,268 2,349,758Myconostica Ltd. 1,929,000 1,929,000 -WellGen, Inc. 4,940,000 4,549,458 390,542 ______ ______ ______ 32,254,563 20,930,297 11,324,266 ______ ______ ______ (continued from table above) Company 31 December 2006 Unrealised Fair Value Cost gain/(loss) US $ US $ US $Public companies:Axcess International Inc. 2,686,210 2,409,521 276,689Beijing Med-Pharm Corporation 446,388 113,314 333,074 Private companies:Durham Scientific Crystals, Ltd. 4,110,000 2,134,673 1,975,327FireStar Software, Inc. 4,060,284 4,155,784 (95,500)Motif BioSciences, Inc. 10,346,655 4,252,279 6,094,376M2M Imaging Corp. 3,494,750 1,332,500 2,162,250Myconostica Ltd. 1,929,000 1,929,000 -WellGen, Inc. 4,940,000 4,549,458 390,542 ______ ______ ______ 32,013,287 20,876,529 11,136,758 ______ ______ ______ Group 31 December 2006 Fair Value Cost Unrealised US $ US $ US $ Shares 25,065,759 15,683,292 9,382,467Promissory notes 1,340,278 1,340,278 -Warrants & options 5,848,526 3,906,727 1,941,799 ______ ______ ______ 32,254,563 20,930,297 11,324,266 ______ ______ ______ (continued from table above) Company 31 December 2006 Fair Value Cost Unrealised US $ US $ US $ Shares 25,065,759 15,683,292 9,382,467Promissory notes 1,340,278 1,340,278 -Warrants & options 5,607,250 3,852,959 1,754,291 ______ ______ ______ 32,013,287 20,876,529 11,136,758 ______ ______ ______ Group 31 December 2005 Unrealised Fair Value Cost gain/(loss) US $ US $ US $Public companies:Axcess International Inc. 1,277,290 1,759,521 (482,231)Beijing Med-Pharm Corporation 2,608,380 1,112,100 1,496,280 Private companies:Durham Scientific Crystals, Ltd. 1,812,673 1,812,673 -FireStar Software, Inc. 2,764,356 2,778,856 (14,500)Motif BioSciences, Inc. 6,390,859 4,451,945 1,938,914Supertron Technologies, Inc. 1,212,357 1,183,768 28,589WellGen, Inc. 5,112,500 4,529,458 583,042 ______ ______ ______ 21,178,415 17,628,321 3,550,094 ______ ______ ______ (continued from table above) Company 31 December 2005 Unrealised Fair Value Cost gain/(loss) US $ US $ US $Public companies:Axcess International Inc. 1,277,290 1,759,521 (482,231)Beijing Med-Pharm Corporation 2,608,380 1,112,100 1,496,280 Private companies:Durham Scientific Crystals, Ltd. 1,812,673 1,812,673 -FireStar Software, Inc. 2,764,356 2,778,856 (14,500)Motif BioSciences, Inc. 6,390,859 4,451,945 1,938,914Supertron Technologies, Inc. 1,136,365 1,130,000 6,365WellGen, Inc. 5,112,500 4,529,458 583,042 ______ ______ ______ 21,102,423 17,574,553 3,527,870 ______ ______ ______ Group 31 December 2005 Fair Value Cost Unrealised US $ US $ US $ Shares 15,923,825 13,028,246 2,895,579Promissory notes 693,348 693,348 -Warrants & options 4,561,242 3,906,727 654,515 ______ ______ ______ 21,178,415 17,628,321 3,550,094 ______ ______ ______ (continued from table above) Company 31 December 2005 Fair Value Cost Unrealised US $ US $ US $ Shares 15,923,825 13,028,246 2,895,579Promissory notes 693,348 693,348 -Warrants & options 4,485,250 3,852,959 632,291 ______ ______ ______ 21,102,423 17,574,553 3,527,870 ______ ______ ______ At 31 December 2006 the two publicly traded companies, Axcess International Inc.("Axcess") and Beijing Med-Pharm Corporation ("Beijing"), are valued based ontheir last quoted closing prices. In regard to the Group's valuation of Axcessand Beijing, the directors have assumed an orderly sale of the stock over anextended period of time and have therefore chosen not to apply a discount to thequoted market price. Myconostica Ltd. is valued at cost. Durham ScientificCrystals Ltd, FireStar Software, Inc., M2M Imaging Corp. (formerly SupertronTechnologies Inc.), and WellGen, Inc. are valued using the latest offering pricefrom recently executed financing transactions by those companies. MotifBioSciences, Inc. is valued based on the price per share derived from atransaction in January 2007. Warrants for all companies are valued at thevaluation price less the warrant exercise price plus a factor for the time valueof the warrant. The time value factor is based on the premise that anin-the-money ten year warrant is worth half the exercise price. During the year ended 31 December 2006, the Company sold 605,325 shares ofBeijing Med-Pharm Corporation for total proceeds of $2,905,719. The Group's ownership percentages of the investments are as follows: Fully-diluted ownership Country of incorporation % Axcess International, Inc. United States of America 8.55Beijing Med-Pharm Corporation United States of America 0.23Durham Scientific Crystals Limited England & Wales 26.24Firestar Software, Inc. United States of America 10.75Motif BioSciences, Inc. United States of America 41.17M2M Imaging Corporation United States of America 22.81Myconostica Limited England & Wales 32.46WellGen, Inc. United States of America 17.39 14. Other financial assets Cash and cash equivalents comprise cash held by the Group and short-term bankdeposits with an original maturity of three months or less. The carrying amountof these assets approximates their fair value. Credit risk The Group's principal financial assets are bank balances and cash, prepaidexpenses and other receivables and investments. The credit risk on liquid funds is limited because the counterparties are bankswith high credit-ratings assigned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spreadover a large number of counterparties and companies. Market and liquidity risk Market risk is the risk that changes in interest rates, foreign exchange rates,equity prices and other rates, prices, volatilities, correlations or othermarket conditions, such as liquidity, will have an adverse impact on the Group'sfinancial position or results. The principal market risk to which the Group isexposed is liquidity risk. Amphion's investments are in Partner Companies that are often development stagecompanies and will likely experience significant negative cash flow. ThePartner Companies may be unable to obtain financing to fund their negative cashflows due to market conditions or lack of operational progress. In theseinstances, though Amphion is not obligated to do so, the Group may feel itnecessary to provide additional investment to the Partner Company. Amphion mayalso be required to spend additional management time on these companies. Adverse market conditions may also delay liquidity events for the PartnerCompanies, thereby requiring additional rounds of financing in which Amphion mayfeel it necessary to participate. During these adverse market conditionsAmphion may also find it difficult to raise additional capital. Amphion seeks to mitigate the risk noted above through its philosophy of workingwith a small number of rigorously selected Partner Companies, assisting them togrow by implementing a consistent and proven methodology developed over themanagement team's 20 years of company building experience. The Group's timetested model of company creation is built on a robust risk management processthat relies on proven, defensible intellectual property sourced from some of theworld's leading corporations and universities. 15. Trade and other payables Group Trade and other payables principally comprise amounts outstanding for purchasesand ongoing costs. Company Trade and other payables principally comprise amounts outstanding for tradepurchases and ongoing costs. Other payables consist primarily of US$689,035 dueto Myconostica Ltd. for the purchase of 19,090 B Preference shares. The directors consider that the carrying amount of trade and other payablesapproximates to their fair value. 16. Share capital 2006 2005 £ £Authorised: 150,000,000 ordinary shares of 1p each 1,500,000 1,500,000 Number £ US $Issued for acquisition of business: Ordinary shares of 1p each 70,000,000 700,000 1,260,000Issued for cash: Ordinary shares of 1p each 23,639,455 236,395 425,160 ______ ______ ______ Balance as at 31 December 2005 93,639,455 936,395 1,685,160 Issued for cash: Ordinary shares of 1p each 4,010,769 40,108 75,844 Ordinary shares of 1p each 2,450,000 24,500 47,979 ______ ______ ______ Balance as at 31 December 2006 100,100,224 1,001,003 1,808,983 ______ ______ ______ Holders of the ordinary shares are entitled to receive dividends and otherdistributions and to attend and vote at any general meeting. A Lock-In Agreement, dated 16 August 2005, between the Company, the Company'sbroker and nominated advisor, Amphion Capital Partners LLC, the directors andcertain applicable employees holding ordinary shares states that for a period of24 months immediately following the admission to AIM, they will not make a saleor disposal except through the broker of the Company to maintain an orderlymarket in the ordinary shares. During the year ended 31 December 2006, the following changes occurred to theshare capital of the Company: On 9 August 2006, the Company issued 4,010,769 ordinary 1p shares at a premiumof 25p per share. On 29 December 2006, the Company issued 2,450,000 ordinary 1p shares at apremium of 24p per share. 17. Issue costs The Company incurred costs of US$150,950 (2005: $1,597,807) relating to theissue of shares. The costs were primarily for fees paid to agents. Theseequity transaction costs were deducted from equity in accordance with IAS 32,Financial Instruments Disclosure and Presentation. 18. Contingent liabilities The Compensation Committee has recommended that bonuses be issued for the year2006. If the total amount of the bonuses were paid out in cash, the cash chargewould amount to $308,000. The Compensation Committee has directed that eachemployee will receive a minimum of one-third of the bonus in stock or optionsunless they elect to take the entire amount in stock or options. No provisionhas been made in these financial statements for the bonuses as the payment ofthe bonuses is dependent upon the Company raising a minimum of £1,000,000capital in March 2007. 19. Operating lease arrangements At the balance sheet date, the Group has outstanding commitments undernon-cancellable operating leases, which fall due as follows: 2006 2005 US$ US$ Within one year 385,821 225,750In the second to fifth years inclusive 989,452 930,090After five years - 239,295 ______ ______ 1,375,273 1,395,135 ______ ______ Operating lease payments represent rentals payable by the Group for certain ofits office properties. The term of the New York lease is seven years and theterm of the UK lease is one year. The New York rental is fixed for two yearsand subsequently the rental is fixed for an additional three years. The UKrental varies for 6 months then is fixed for the remainder of the lease. TheCompany recognised expenses of US$340,037 in respect of operating leasearrangements in the year ended 31 December 2006. 20. Share-based payments In 2006 the Group established the 2006 Unapproved Share Option Plan and it wasadopted pursuant to a resolution passed on 8 June 2006. Under this plan, theCompensation Committee may grant share options to eligible employees, includingdirectors, to subscribe for ordinary shares of the Company. The number ofShares over which options may be granted under the Unapproved Plan cannot exceedten percent of the ordinary share capital of the Company in issue on a fullydiluted basis. The Plan will be administered by the Compensation Committee.The number of shares, terms, performance targets and exercise period will bedetermined by the Compensation Committee. As of 31 December 2006, a total of 1,357,725 options have been issued (2005:total of 600,000) of which 650,000 options were issued under the "2006Unapproved Share Option Plan" (the "Plan") (2005: nil). The options issued under the Plan have a four year vesting period in addition tobeing subject to performance criteria and at 31 December 2006, 25,000 of theseoptions were vested (2005: nil). As of 31 December 2006, a balance of 707,725 options not in the Plan have beenissued (2005: 600,000). These options expire after five years from the date ofgrant. Of these options, 107,725 options were issued fully vested in 2006(2005: 400,000 were fully vested when issued). A further 200,000 options vestedin 2006 on the first anniversary date of the admission to the AlternativeInvestment Market. 2006 2005 Number of Weighted Number of Weighted share options average share options average exercise exercise price (in £) price (in £) Outstanding at beginning of period 600,000 0.25 - -Granted during the period 757,725 0.25 600,000 0.25 ______ ______Outstanding at the end of the period 1,357,725 0.25 600,000 0.25 ______ ______Exercisable at the end of the period 732,725 0.25 400,000 0.25 The options are recorded at fair value on the date of grant using theBlack-Scholes model. The inputs into the model are as follows: 2006 2005 US$ US$Weighted average share price 0.50 0.45Weighted average exercise price 0.49 0.45Expected volatility 37% 70%Expected life 5 years 5 yearsRisk free rate 4.56% 4.30%Expected dividends - - Expected volatility was determined by calculating the historical volatility ofthe Group's share price from the date of listing to the end of the year. Theexpected volatility in 2005 was determined by the volatility used by comparablecompanies since the Company's shares were newly listed as of 23 August 2005. In 2006, options were granted on 17 February, 15 August and 29 December. Theaggregate of the estimated fair values of the options granted on those dates isUS$153,206. In 2005, options were granted on 16 August. The aggregate of theestimated fair values of the options granted on that date is $165,240. The Company and Group recognised total costs of US$116,115 and US$130,815relating to equity-settled share-based payment transactions in 2006 and 2005respectively. In 2006, US$28,990 of the total costs were charged against equityas the share-based payments were directly attributable to the issue of theequity instruments. The remaining US$87,125 was expensed in the incomestatement during the period. 21. Retirement benefit plans The Company established a defined contribution plan under Section 401(k) of theInternal Revenue Code. The plan enables qualified employees to reduce theirtaxable income by contributing up to 15% of their salary to the plan. TheCompany may elect to make a matching contribution to the plan. The Company haselected not to make a contribution for the year ended 31 December 2006 or theperiod from 7 June 2005 to 31 December 2005. The UK subsidiary has a defined contribution pension scheme. The total pensionexpense recognised in the income statement of US$26,538 represents contributionspaid by this company to the plan. 22. Events after the balance sheet date In January 2007, the Company issued 320,000 shares at 25p for cash of £77,900,net of fees. In January 2007, the Company made additional advances of $225,000 under apromissory note from FireStar Software Inc. In January and February 2007, the Company made advances of $300,000 under apromissory note from Motif BioSciences Inc. In January 2007, the Company purchased 50,000 F Preferred Shares of DurhamScientific Crystals Limited for £100,000. In January 2007, the Company signed a Heads of Agreement with MS Holdings tocreate a Gulf-based joint venture, MSA Investors. In February and March 2007, the Company advanced $220,000 under a note fromEnergy Trading International, Inc., a subsidiary of FireStar Software Inc. 23. Related party transactions Transactions between the Company and its subsidiaries, which are related partiesof the Company, have been eliminated on consolidation and are not disclosed inthis note. Details of transactions between the Group and other related partiesare disclosed below. During the year, the Group paid miscellaneous expenses for Motif BioSciences,Inc. ("Motif") such as payroll and other office expenses. At 31 December 2006,the amount owed by Motif to the Group is US$14,140. A subsidiary of the Company has entered into an agreement with AxcessInternational Inc. ("Axcess") to provide advisory services. Richard Morgan andRobert Bertoldi, directors of the company, are also directors of Axcess. AmphionInnovations US Inc. will receive a monthly fee of US$10,000 pursuant to thisagreement. The agreement is effective until 1 March 2007 and will renew on anannual basis until terminated by one of the parties. The monthly fee issuspended for any month in which Axcess' cash balance falls below $500,000.Amphion Innovations US Inc. received US$70,000 for the year ended 31 December2006. A subsidiary of the Company has entered into an agreement with Durham ScientificCrystals Inc. ("DSC") to provide advisory and consulting services. RichardMorgan, a director of the Company, is also a director of DSC. The monthly feeunder this agreement is the lesser of US$10,000 and 50% of the grosscompensation paid to directors and management of DSC in that month and expireson 21 September 2008. The subsidiary's fee for the year ended 31 December 2006was US$78,167 of which US$10,000 was due at 31 December 2006. AmphionInnovations US Inc. also received US$56,266 as a fund raising fee for the yearended 31 December 2006. A subsidiary of the Company has entered into an agreement with FireStar SoftwareInc. ("FireStar") to provide advisory and consulting services. Richard Morgan,a director of the Company, is also a director of FireStar. The annual fee underthis agreement is US$240,000 and expires 1 January 2008. Amphion Innovations USInc. received US$40,000 for the period ended 31 December 2006 and $200,000 ofthe fee was suspended and not recognized. The total of US$185,161 is still duefrom FireStar at 31 December 2006 which does not include the suspended amounts. A subsidiary of the Company has entered into an agreement with Motif BioSciencesInc. ("Motif") to provide advisory and consulting services. Richard Morgan, adirector of the Company, is also a director of Motif. The annual fee for theservices is currently US$240,000. The agreement expires on 1 April 2007 andshall automatically renew for successive one year periods. Amphion InnovationsUS Inc.'s fee for the period ended 31 December 2006 was US$249,000 whichincludes a $9,000 fee related to the Shafallah Center project. A subsidiary of the Company has entered into an agreement with MyconosticaLimited ("Myconostica") to provide advisory and consulting services. RichardMorgan, a director of the Company, is also a director of Motif. The monthly feefor the services is £4,500 and expires 1 December 2008. The subsidiary's feefor the year ended 31 December 2006 is £4,500 or US$8,293 which was still due at31 December 2006. A subsidiary of the Company has entered into an agreement with M2M Imaging Corp.("M2M") to provide advisory and consulting services. Robert Bertoldi, adirector of the Company, is also a director of M2M. The monthly fee under thisagreement is currently US$15,000 and expires on 31 December 2007. AmphionInnovations US Inc.'s fee for the period ended 31 December 2006 was US$482,500of which US$337,500 was a success fee. A subsidiary of the Company has entered into an agreement with WellGen Inc. ("WellGen") to provide advisory and consulting services. Richard Morgan, adirector of the Company, is also a director of WellGen. The fee for the firstquarter under this agreement is US$116,400 and US$45,000 for each subsequentquarter and will expire on 31 December 2006 and then be subject to renewal foreach subsequent six-month period. Directors' interests The directors' direct ownership in the Partner Companies is as follows: Fully diluted %Investment company owned by directors 2006 2005 Axcess International Inc. 5.37% 2.96%Beijing Med-Pharm Corporation 0.21% 0.42%Durham Scientific Crystals Ltd. 1.08% -Firestar Software, Inc. 1.50% 1.58%Motif BioSciences, Inc. 4.12% 4.44%WellGen, Inc. 5.37% 5.55% The directors who held office at 31 December 2006 had the following interests inthe Company's ordinary share capital: 2006 Ordinary Shares Richard M. Mansell-Jones 2,398,163Richard C.E. Morgan 16,141,531Robert J. Bertoldi 5,643,237R. James Macaleer 19,769,248Anthony W. Henfrey 858,861 Aggregate directors' remuneration The total amounts for directors' remuneration was as follows: Period from Year ended 7 June 2005 to 31 December 2006 31 December 2005 US$ US$Emoluments 835,411 298,242 Directors' emoluments and compensation Group Group Group Year ended Period ended Fees/Basic Benefits in Annual 31 December 31 December salary kind bonuses 2006 total 2005 total US$ US$ US$ US$ US$Name of directorExecutive - salaryRichard C.E. Morgan 350,000 12,851 - 362,851 133,465Robert J. Bertoldi 275,000 17,602 20,000 312,602 104,658Non-executive - feesRichard M. Mansell-Jones 70,000 - - 70,000 26,250R. James Macaleer 35,000 - - 35,000 13,125Anthony W. Henfrey 34,974 - - 34,974 13,250Ronald E. Thomas 19,984 - - 19,984 7,494 ______ ______ ______ ______ ______ Aggregate emoluments 784,958 30,453 20,000 835,411 298,242 ______ ______ ______ ______ ______ 24. Financial assets Other receivables - Company At the balance sheet date other receivables include amounts receivable from thefellow Group and Partner companies of US$231,442 (2005: US$266,047) andsubscriptions receivable of US$702,660 (2005: US$0) which were fully collectedby February 2007. The directors consider that the carrying value of otherreceivables approximates to their fair value. Notice The financial information set out above does not constitute the company'sstatutory accounts for the year ended 31 December 2006, but is derived fromthose accounts. Statutory accounts for the year ended 31 December 2006 will bedelivered to the Registrar of Companies following the Company's annual generalmeeting. The auditors have reported on those accounts; their reports werequalified and did not contain statements under s. 15(4) or (6) Companies Act1982 of the Isle of Man. Approval This statement was approved by the Board of Directors on 14 March 2007. Copies of the Annual Report and Accounts Copies of the Annual Report and Accounts will be sent to all shareholders.Further copies will be obtainable from the Company's primary office: AmphionInnovations plc, Attn: Investor Relations, 330 Madison Avenue, New York, NY10017, USA. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AMP.L