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Amphion Innovations PLC

Amphion Innovations - Interim Results

RNS Number : 9202X
Amphion Innovations PLC
03 September 2015
 

Amphion Innovations plc

Interim Results for the 6 months to 30 June 2015

 

London and New York, 3 September 2015 - Amphion Innovations plc (LSE: AMP) ("Amphion" or the "Company"), the developer of medical and technology businesses, today announces its unaudited interim results for the six months to 30 June 2015 (the "Period").

Period Highlights

·    Successful IPO of Partner Company Motif Bio plc ("Motif")

 

·    Motif share price valued at 68.75 pence at Period-end, up from 20 pence at its IPO

 

·    Net Asset Value per ordinary share in the Company ("Ordinary Shares") was 12.0p (US $0.19)* at Period-end, an increase from 0.7p ($0.01) per Ordinary Share at 31 December 2014

 

·    Raised £2.1 million through the placing of new Ordinary Shares and the exercise of warrants

 

·    Closed the Period with approximately US $1.7 million in cash

 

·    Reduced total liabilities by US $2.1 million during the Period

 

Post-Period Highlights

·    Motif raised £22 million in July following a placing of new shares with institutional investors

 

·    Independent tests on Motif's antibiotic iclaprim showed it to be effective in vitro against a range of Gram-positive bacteria and 16 times more potent than trimethoprim, an existing synthetic antibiotic used to treat bacterial infections.

 

·    Kromek Group plc ("Kromek") raised £11 million in August through a placing of new ordinary shares.

 

* Exchange rate at 30 June 2015 - 1.5727.

Richard Morgan, CEO of Amphion Innovations plc commented:

"The dramatic rise in our Net Asset Value per Share was mainly due to the increase in the value of our holdings in Motif. Following its successful IPO in April 2015, Motif concluded a financing in July to raise £22 million, before expenses, in a placing with several leading institutional investors, at a price significantly higher than the IPO price.  We believe Motif has a very bright future and is now on its way to becoming a significant player in the antibiotic market, which has a growing need for novel therapies.

"We are committed to working closely with Motif to help it achieve its goals.  In addition, we now have the opportunity to move forward one or two other Partner Companies and, for the first time in many years, to begin to explore the possibility of adding to Amphion's portfolio.  We look forward to the future with renewed confidence and to being able to report further progress with Motif, DataTern, and other Partner Companies in due course."

 

Financial Results and Net Asset Value

Following the successful IPO of Motif on London's AIM market in early April, Motif's share price rose sharply from 20 pence at the IPO to 68.75 pence at the end of the reporting period.  As a result, the value of Amphion's holdings in Motif rose from US $13.2 million at the end of December to US $46.5 million at the end of June.  During the Period, the share price of Kromek also recovered, from 34 pence to 43 pence at the end of June.  These two changes, combined with the reduction in total liabilities over the period, were the main factors behind the substantial improvement in Amphion's Net Asset Value per Ordinary Share, over the Period, to 12.3 pence at the end of June.  While the prices of both Motif and Kromek have fallen back since the end of June, the pro-forma NAV per Ordinary Share is currently approximately 10 pence per Ordinary Share.  Both companies have completed substantial financings and now have significant financial resources relative to their current operating costs.

 

Revenue for the six-month period ended 30 June 2015 was US $267,601, slightly higher than the US $240,000 recorded in the first half of 2014.  Revenue remained at about the same level as last year and below prior periods mainly due to the absence of licensing income from DataTern, the wholly-owned Amphion subsidiary. 

 

We have continued to cut costs wherever possible and the leadership team has continued to work with reduced levels of current cash compensation. Total administrative expenses were lower than last year due in part to lower expenses in DataTern.  As a result, the operating loss for the Period was US $1,254,554 compared with US $1,769,275 as reported in the same period of last year.

 

During the Period, the Company was able to raise capital from the equity capital markets for the first time in seven years.  In April, holders of warrants associated with an institutional lender elected to exercise all their warrants, generating approximately £581,000 in net proceeds to the Company.  In addition, in June, the Company raised additional capital through a placing of new Ordinary Shares, with net proceeds to the Company of circa £1.54 million before expenses.  Partly as a result of these financing activities, total liabilities decreased by over US $2 million over the Period and the cash balance at the end of June was US $1.7 million.

 

Amphion's holding of intellectual property assets is valued at amortised cost of US $352,558. In addition to the initial purchase of these IP assets from our Partner Company FireStar Software, Amphion has made additional substantial investment in these assets. That investment has been expensed as incurred and the value of those assets continues to be carried only at amortised historical cost.  The Directors believe that the realisable value of the intellectual property assets held by DataTern is substantially in excess of the carrying value and the incremental investments being made in the pursuit of infringers of the IP will generate a significant profit. We believe that if we are successful in concluding licensing agreements with the various infringing parties at levels that meet our expectations, the Company's NAV per Ordinary Share would be significantly higher.

 

Motif

 

On 2 April 2015, Motif successfully completed its IPO and admission to AIM, raising £2.8 million at 20 pence per ordinary share.  On 23 June 2015, Motif concluded a conditional placing of 44 million new ordinary shares at a placing price of 50 pence per ordinary share with institutional investors to raise £22 million. On 22 July 2015, the FDA designated iclaprim as a Qualified Infectious Diseases Product ("QIDP") for hospital acquired bacterial pneumonia ("HABP"). This satisfied the final condition of the placing, with admission of the 44 million new ordinary shares occurring on 27 July 2015. On 22 July 2015, the Company also reported that the FDA had also designated iclaprim as QIDP for acute bacterial skin and skin structure infections ("ABSSSI"), the second of two serious and life threatening infections for which Motif applied for QIDP status.  With QIDP designation, iclaprim is now eligible for a total of 10 years of market exclusivity, making this development an important step in continuing to build the value of iclaprim for Motif and our investors.

 

Recently, on 24 August 2015, Motif announced the results of an independent report from microbiology specialists, JMI Laboratories. The report showed that iclaprim is effective in vitro against a range of Gram-positive bacteria and iclaprim was found to be 16 times more potent than trimethoprim, the only other antibacterial dihydrofolate reductase inhibitor ("DHFRi") administered alone in today's market.

 

The decision by Motif to focus on its antibiotic programme has proven to be timely given the growing recognition of the worldwide problems caused by resistance.  In July 2014, Prime Minister David Cameron announced the launch of a global taskforce, under the leadership of Jim O'Neill, to coordinate an international effort to combat antibiotic resistant superbugs.  Prime Minister Cameron commented, "If we fail to act, we are looking at an almost unthinkable scenario where antibiotics no longer work and we are cast back to the dark ages of medicine where treatable infections and injuries can kill once again".  Motif's mission is to address this global health crisis by developing new antibiotics that work in different ways to those commonly used today. 

 

Iclaprim has a novel mechanism of action and enjoys a number of important clinical and commercial attributes, such as a low propensity to develop resistance, which has been demonstrated in vitro.  Iclaprim was originally developed by Hoffman-La Roche Inc. and completed comprehensive development in 2008, including two Phase 3 trials with over 900 patients being treated, half of whom were treated with this antibiotic.  Although the FDA declined to approve the drug at the time, despite having met the original goals agreed with the agency, the FDA confirmed that they were satisfied with the safety profile of iclaprim and this was confirmed in Motif's April meeting with the agency.  Motif is now planning to begin a new Phase 3 trial in the next few months and is confident the drug will meet the new endpoints.  Subject to the necessary regulatory approvals, Motif intends to begin marketing the drug in 2018.

 

DataTern and the Intellectual Property Licensing Programme

 

In April 2014, DataTern received a ruling from the Federal Circuit Court of Appeal ("FCCA"), which its legal advisers considered favorable.  Following that ruling, DataTern submitted a request to the FCCA for a reconsideration of certain aspects of the ruling, which were denied in July 2014 and so the ruling received in April became final.  As a result, the case in New York was terminated, with the result that the previously unfavorable Markman ruling of August 2012 was, in the case of Microsoft, nullified. 

 

In late December 2014, DataTern received a ruling from the FCCA of its appeal in the MicroStrategy case that our legal advisers considered to be clearly favorable.  There are seven defendants in the MicroStrategy case, which is now starting to move ahead.  In May 2015 there was a hearing on two summary judgment motions filed by the defendants and a ruling in that hearing has not yet been handed down.

 

The cases in Texas, which were on hold pending the Microsoft appeal, are expected to move ahead again in the next six months and we expect to have a Claim Construction hearing (often called a Markman hearing) in Texas in 2016.  Following some settlements and dismissals there are now 5 defendants remaining in Texas

 

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

 

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

 

Our goal is to arrive at fair licensing agreements with these and other users of the technology in order to give DataTern and FireStar a fair return on the substantial investment they have made.  If we are successful, we believe that the value of the net income to DataTern should be substantially in excess of its carrying value.

 

Building Value in Our Partner Companies

 

Since flotation, our basic business model has been to start and build companies with high value potential based on innovative and proprietary, but basically proven, technology. 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 knowledge underpins Amphion's investment in each Partner Company at the outset and as it develops. However, our primary goal in every company is the development of a successful business model and operating capabilities that can utilise the technology to provide innovative products, generate revenue, and make profits.  We continue to see a lot of opportunity to build and, in due course, extract value from our Partner Companies, in addition to the IP licensing programme being pursued directly by DataTern. 

 

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

 

m2m is poised to make good progress.  We anticipate being able to expand the core business and we can see a number of ways in which we can enlarge and improve the scope of the business by combining with other emerging companies. MRI is a medical imaging modality that is being increasingly used in pre-clinical investigations as well as for clinical diagnostics.  m2m has a number of patents on the technology which is aimed at improving the diagnostic quality of MRI images, and the company's leadership has identified a number of pathways to expand its footprint in the general area.

 

Despite repeated profit warnings since Kromek's IPO, and the disappointing performance of the share price, we continue to believe that the company's technology platform has great potential.  With the acquisition of eV Products in 2013, Kromek gained one of the leading cadmium zinc telluride ("CZT") production capabilities in the world.  As the cost of producing this material becomes competitive with scintillator technology, the opportunity exists for a lasting shift to CZT-based detector systems, bringing the benefits of multispectral imaging to CT systems and nuclear medicine where SPECT is used.  Kromek has recently completed a follow-on financing with institutional and other investors, raising approximately £11 million before expenses through a placing of new ordinary shares at 25 pence.  Following the placing, Amphion's ownership in Kromek has decreased to approximately 5.75%.

 

In April 2014, the case Axcess brought against Baker & Botts LLP, the law firm, went to the jury which returned a verdict in favour of Axcess of US $40.5 million. The judge then overruled this verdict. Axcess is in the process of pursuing an appeal to the Texas Court of Appeals, which should be heard in the next six months.  In parallel, we have worked closely with Axcess' legal advisers to evaluate the extent to which all 13 patents in its portfolio are being infringed. It is clear that many companies are now offering products or services that incorporate some of the basic wireless technology developed by Axcess over the last 15 years.  A number of companies in the transportation, security, and other sectors appear to be infringing one or more of these patents and the company has recently initiated a claim for a licence from one of the Fortune 500 companies where the analysis shows this to be the case.

 

FireStar has continued to work on the development of its patented technology, which was also the basis of the formation of PrivateMarkets and is incorporated in its EdgeNode™ product.  PrivateMarkets, an Amphion Partner Company, offers an Internet-based marketplace that links together a network of potential buyers and sellers who trade specific physical commodities. EdgeNode enables companies to facilitate low-cost, secure, machine-to-machine messaging, in a novel architecture, which is well suited to the needs of the healthcare and financial industries. The current focus is moving increasingly towards healthcare and in particular the potential productivity gains that should be possible with use of the technology in managing data and images so vital to clinical trials.  With this change in focus we may consider the opportunity to reintegrate the trading applications licensed to PrivateMarkets back into FireStar so that all the technology rights reside in the same company.

 

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

 

Prospects

 

The success of the Motif IPO and the subsequent increase in the value of our holding in Motif has been the driver behind a significant increase in our Net Asset Value.  It has also demonstrated the value of our patient and persistent approach to the development of our Partner Companies.  Despite the sharp increase in Motif's share price since the IPO, we believe that it should be valued more in-line with comparable companies trading on Nasdaq and that our holding could be worth considerably more than the level shown on the balance sheet at the end of the period.  We continue to work closely with Motif to develop the business and close the valuation gap. 

 

The Board and management have supported Amphion through several lean years but the fact that we have been able to raise fresh equity capital is an encouraging development.  Our stated goal is to reduce the level of gearing or leverage on our balance sheet and we are committed to doing so in ways that preserve as much of the shareholder value we have managed to create through this support.  Following these developments, the Board is encouraged to progress with the development of Amphion's other Partner Companies and the IP licensing programme, and looks forward to the future with confidence.

  

For further information please contact:

Amphion Innovations
Charlie Morgan
+1 212 210 6224

Yellow Jersey PR
Dominic Barretto / Charles Goodwin
+44 (0)7747 788 211

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

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

Plumtree Capital Limited
Stephen Austin
+44 020 7183 2493
+646 568 7502

 

 

Amphion Innovations plc

 

 

 

 

 

 

 

Condensed consolidated statement of comprehensive income

 

 

 

 

For the six months ended 30 June 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

 

 

 

Notes

Six months

 

Six months

 

Audited

 

 

 

ended

 

ended

 

Year ended

 

 

 

30 June 2015

 

30 June 2014

 

31 December 2014

Continuing operations

 

 

 US $

 

 US $

 

 US $

 

 

 

 

 

 

 

 

Revenue

 

4

267,601

 

240,000

 

484,700

Cost of sales

 

 

-

 

-

 

-

Gross profit

 

 

267,601

 

240,000

 

484,700

 

 

 

 

 

 

 

 

Administrative expenses

 

 

(1,522,155)

 

(2,009,275)

 

(3,494,351)

 

 

 

 

 

 

 

 

Operating loss

 

 

(1,254,554)

 

(1,769,275)

 

(3,009,651)

 

 

 

 

 

 

 

 

Fair value gains/(losses) on investments

 

8

34,807,904

 

(5,783,308)

 

(9,927,978)

Interest income

 

 

342,657

 

419,467

 

849,384

Other gains and losses

 

 

            (93,792)

 

       (426,678)

 

                 675,265

Finance costs

 

 

          (650,573)

 

       (544,893)

 

             (1,176,299)

 

 

 

 

 

 

 

 

Profit/(loss) before tax

 

 

      33,151,642

 

    (8,104,687)

 

           (12,589,279)

 

 

 

 

 

 

 

 

Tax on profit/(loss)

 

6

-  

 

                (63)

 

                       (442)

 

 

 

 

 

 

 

 

Profit/(loss) for the period

 

 

      33,151,642

 

    (8,104,750)

 

           (12,589,721)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange differences arising on translation

 

 

 

 

 

 

   of foreign operations

 

 

                      -  

 

                 18

 

                          18

 

 

 

 

 

 

 

 

Other comprehensive income/(loss) for the period

 

                      -  

 

                 18

 

                          18

 

 

 

 

 

 

 

 

Total comprehensive income/(loss) for the period

      33,151,642

 

    (8,104,732)

 

           (12,589,703)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings/(loss) per share

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$ 0.21

US

 $ (0.06)

US

 $ (0.09)

 

 

 

 

 

 

 

 

Diluted

 

 

 

$ 0.15

US

 $ (0.06)

US

 $ (0.09)

 

 

 

 

 

 

 

 

                       

Amphion Innovations plc

 

 

 

 

 

 

Condensed consolidated statement of financial position

 

 

 

 

At 30 June 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

Notes

30 June 2015

 

30 June 2014

 

31 December 2014

 

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Intangible assets

 

           352,558

 

          507,642

 

                  430,100

Security deposit

 

             13,600

 

            13,600

 

                    13,600

Investments

8

      61,602,246

 

     30,104,315

 

             28,767,659

 

 

      61,968,404

 

     30,625,557

 

             29,211,359

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Prepaid expenses and other receivables

 

        2,648,118

 

       3,634,487

 

               2,569,380

Cash and cash equivalents

 

        1,690,277

 

       1,147,354

 

                  212,816

 

 

        4,338,395

 

       4,781,841

 

               2,782,196

 

 

 

 

 

 

 

Total assets

 

      66,306,799

 

     35,407,398

 

             31,993,555

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

      10,288,182

 

       9,191,443

 

             10,270,584

Notes payable

10

        8,316,734

 

       8,308,600

 

               8,964,901

Convertible promissory notes

10

        8,694,834

 

-  

 

             10,189,891

 

 

      27,299,750

 

     17,500,043

 

             29,425,376

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Convertible promissory notes

10

-  

 

     10,914,129

 

-  

Notes payable

10

           975,000

 

       1,012,000

 

                  982,000

 

 

           975,000

 

     11,926,129

 

                  982,000

 

 

 

 

 

 

 

Total liabilities

 

      28,274,750

 

     29,426,172

 

             30,407,376

 

 

 

 

 

 

 

Net assets

 

      38,032,049

 

       5,981,226

 

               1,586,179

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Share capital

11

        3,451,594

 

       2,693,319

 

               2,716,656

Share premium account

 

      38,618,323

 

     36,042,868

 

             36,070,864

Translation reserve

 

-  

 

-  

 

-  

Retained earnings

 

       (4,037,868)

 

    (32,754,961)

 

            (37,201,341)

 

 

 

 

 

 

 

Total equity

 

      38,032,049

 

       5,981,226

 

               1,586,179

 

 

 

 

 

 

 

 

Amphion Innovations plc

 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of changes in equity

 

 

 

 

 

 

 

For the six months ended 30 June 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

Share

 

currency

 

 

 

 

 

 

Share

 

premium

 

translation

 

Retained

 

 

 

Notes

capital

 

account

 

reserve

 

earnings

 

Total

 

 

US $

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2014

 

2,693,319

 

36,042,868

 

     (13,396)

 

(24,645,286)

 

  14,077,505

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

 

              -  

 

                -  

 

-  

 

  (8,104,750)

 

   (8,104,750)

 

 

 

 

 

 

 

 

 

 

 

Exchange differences arising on

 

 

 

 

 

 

 

 

 

 

   translation of foreign operations

 

              -  

 

                -  

 

             18

 

                  -  

 

                18

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the period

              -  

 

                -  

 

             18

 

  (8,104,750)

 

   (8,104,732)

 

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

 

              -  

 

                -  

 

-  

 

          8,453

 

           8,453

 

 

 

 

 

 

 

 

 

 

 

Dissolution of subsidiary

 

              -  

 

                -  

 

      13,378

 

       (13,378)

 

-  

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2014

 

2,693,319

 

36,042,868

 

-  

 

(32,754,961)

 

    5,981,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

2,716,656

 

36,070,864

 

-  

 

(37,201,341)

 

    1,586,179

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

              -  

 

                -  

 

-  

 

 33,151,642

 

  33,151,642

 

 

 

 

 

 

 

 

 

 

 

Exchange differences arising on

 

 

 

 

 

 

 

 

 

 

   translation of foreign operations

 

              -  

 

                -  

 

-  

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

              -  

 

                -  

 

-  

 

 33,151,642

 

  33,151,642

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital

 

   734,938

 

 2,667,411

 

-  

 

-  

 

    3,402,349

 

 

 

 

 

 

 

 

 

 

 

Incremental costs directly attributable

 

 

 

 

 

 

 

 

 

 

    to issue of shares

      12

              -  

 

  (119,952)

 

-  

 

-  

 

      (119,952)

 

 

 

 

 

 

 

 

 

 

 

Recognition of share-based payments

13

              -  

 

                -  

 

-  

 

        11,831

 

         11,831

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2015

 

3,451,594

 

38,618,323

 

-  

 

  (4,037,868)

 

  38,032,049

 

 

 

 

 

 

 

 

 

 

 

                             

 

Amphion Innovations plc

 

 

 

 

 

Condensed consolidated statement of cash flows

 

 

 

 

 

For the six months ended 30 June 2015

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

 

 

Six months

 

Six months

 

Audited

 

ended

 

ended

 

Year ended

 

30 June 2015

 

30 June 2014

 

31 December 2014

 

US $

 

US $

 

US  $

Operating activities

 

 

 

 

 

 

 

 

 

 

 

Operating loss

    (1,254,554)

 

         (1,769,275)

 

             (3,009,651)

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

   Depreciation of property, plant and equipment

                 -  

 

                    308

 

                        308

   Amortisation of intangible assets

          77,542

 

               77,542

 

                 155,084

   Recognition of share-based payments

          29,015

 

                 8,453

 

                   98,377

   (Increase)/decrease in prepaid & other receivables

        (78,738)

 

               19,709

 

              1,084,816

   Increase/(decrease) in trade & other payables

          17,598

 

            (220,118)

 

                 859,021

   Interest expense

       (650,573)

 

            (544,893)

 

             (1,176,299)

   Other gains and losses

          15,443

 

                      -  

 

                   12,201

   Income tax

                 -  

 

                    (63)

 

                      (442)

 

 

 

 

 

 

Net cash used in operating activities

    (1,844,267)

 

         (2,428,337)

 

             (1,976,585)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Interest received

        342,657

 

             419,467

 

                 849,384

Purchases of investments

       (139,799)

 

            (141,536)

 

                (286,259)

Receivables reclassified to investments

       (106,041)

 

                      -  

 

             (2,663,291)

Proceeds from disposition of investment

     2,219,157

 

                      -  

 

                          -  

Adjustment to note payable for foreign exchange rate

        104,725

 

             328,293

 

                (656,340)

 

 

 

 

 

 

Net cash from/(used in) investing activities

     2,420,699

 

             606,224

 

             (2,756,506)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds on issue of shares, net of issuance costs

     3,265,213

 

                      -  

 

                          -  

Proceeds on issue of promissory notes

        300,000

 

           2,000,000

 

              3,081,301

Proceeds on issue of convertible promissory notes

        227,061

 

           1,042,165

 

              1,302,561

Repayments of promissory notes

       (955,167)

 

                      -  

 

                (455,000)

Repayments of convertible promissory notes

    (1,826,843)

 

                      -  

 

                          -  

 

 

 

 

 

 

Net cash from financing activities

     1,010,264

 

           3,042,165

 

              3,928,862

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

     1,586,696

 

           1,220,052

 

                (804,229)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

        212,816

 

             353,964

 

                 353,964

 

 

 

 

 

 

Effect of foreign exchange rate changes

       (109,235)

 

            (426,662)

 

                 663,081

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

     1,690,277

 

           1,147,354

 

                 212,816

  

Amphion Innovations plc
Notes to the condensed consolidated financial statements (Unaudited)
 
For the six months ended 30 June 2015

 

 

1.   General information

 

The condensed consolidated interim financial statements for the six months ended 30 June 2015 are unaudited and do not constitute statutory accounts within the meaning of the Isle of Man Companies Act 2006.  The statutory accounts of Amphion Innovations plc for the year ended 31 December 2014 have been filed with the Registrar of Companies and contain an unqualified audit report which includes an emphasis of matter relating to significant uncertainty in respect of going concern and valuation of Partner Company investments.  Copies are available on the company's website at www.amphionplc.com/reports.php.

2.  Accounting policies

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

The accounting policies applied by the Group are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2014.  Changes to accounting standards in the current year had no material impact.

3.  Use of judgements and estimates

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

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

Fair value of financial instruments

The Directors use their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an active market ("Private Investments").  The estimation of fair value of these Private Investments includes a number of assumptions which are not supported by observable market inputs.  The carrying amount of the Private Investments is US $9 million.

Fair value of other receivables

Other receivables are stated at their amortised cost which approximates their fair value and are reduced by appropriate allowances for estimated irrecoverable amounts and do not carry any interest.  The recovery of the advisory fees due at 30 June 2015 of US $0.9 million 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 the future growth plans and therefore generate enough cash to be able to settle any outstanding debts.

 

4.  Revenue

 

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

 

 

Six months ended

 

Six months ended

 

Year ended

 

30 June 2015

 

30 June 2014

 

31 December 2014

 

US $

 

US $

 

US $

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

Advisory fees

                 210,000

 

                 240,000

 

                 480,000

License fees

                   57,601

 

                            -

 

                     4,700

 

 

 

 

 

 

 

                 267,601

 

                 240,000

 

                 484,700

 

A provision for doubtful accounts has been set up for US $120,000 for the advisory fees accrued from Partner Companies and US $120,000 of bad debt expense was recognised in the statement of comprehensive income.

 

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

 

 

5.  Segment information

 

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

 

Information regarding these segments is presented below.

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

REVENUE

 

 

 

 

 

 

 

 

 

 

External advisory fees

 

          210,000

 

                     -  

 

                     -  

 

                    -

 

          210,000

External license fees

 

                     -

 

                     -

 

            57,601

 

                    -

 

            57,601

  Total revenue

 

          210,000

 

                     -

 

            57,601

 

                    -

 

          267,601

Cost of sales

 

                     -

 

                     -

 

                     -

 

                    -

 

                     -

Gross profit

 

          210,000

 

                     -

 

            57,601

 

                    -

 

          267,601

Administrative expenses

 

         (472,570)

 

         (668,081)

 

         (381,504)

 

                    -

 

      (1,522,155)

 

 

 

 

 

 

 

 

 

 

 

 

Segment result

 

         (262,570)

 

         (668,081)

 

         (323,903)

 

                    -  

 

      (1,254,554)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gains on

 

 

 

 

 

 

 

 

     investments

 

                     -  

 

     35,084,408

 

                     -

 

         (276,504) 

 

      34,807,904

Interest income

 

                     -

 

          342,657

 

                     -

 

                    -

 

           342,657

Other gains and losses

 

                     -     

 

           (93,792)

 

                     -

 

                    -  

 

            (93,792)

Finance costs

 

                (342)  

 

         (625,634)

 

           (24,597)

 

                    -

 

          (650,573)

Profit/(loss) before tax

 

         (262,912)

 

     34,039,558

 

         (348,500)

 

         (276,504)  

 

      33,151,642

Income taxes

 

                     -

 

                     -

 

                     -     

 

                    -  

 

                      -

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) after tax

 

         (262,912)

 

     34,039,558

 

         (348,500)

 

         (276,504) 

 

      33,151,642

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

30 June 2015

 

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

Segment assets

 

     11,705,260

 

     60,892,631

 

            396,170

 

     (6,687,262)

 

    66,306,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

 

       7,085,484

 

     20,540,316

 

         6,532,264

 

     (5,883,314)

 

    28,274,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation

                     -

 

                     -

 

              77,542

 

                    -

 

           77,542

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of share-based      

 

 

 

 

 

 

 

 

 

 

   payments

 

                     -  

 

            29,015

 

                      -  

 

                    -  

 

           29,015

 

 

 

5.  Segment information, (continued)

 

For management purposes for 30 June 2014, the Group was organised into three business segments - advisory services, investing activities, and intellectual property.

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

30 June 2014

 

30 June 2014

 

30 June 2014

 

30 June 2014

 

30 June 2014

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

REVENUE

 

 

 

 

 

 

 

 

 

 

External advisory fees

 

          240,000

 

                     -  

 

                     -  

 

                    -

 

          240,000

External license fees

 

                     -

 

                     -

 

                     -

 

                    -

 

                     -

  Total revenue

 

          240,000

 

                     -

 

                     -

 

                    -

 

          240,000

Cost of sales

 

                     -

 

                     -

 

                     -

 

                    -

 

                     -

Gross profit

 

          240,000

 

                     -

 

                     -

 

                    -

 

          240,000

Administrative expenses

 

         (593,770)

 

      (1,019,364)

 

         (396,141)

 

                    -

 

      (2,009,275)

 

 

 

 

 

 

 

 

 

 

 

 

Segment result

 

         (353,770)

 

      (1,019,364)

 

         (396,141)

 

                    -  

 

      (1,769,275)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value losses on

 

 

 

 

 

 

 

 

     investments

 

                     -  

 

      (5,783,308)

 

                     -

 

                    -  

 

       (5,783,308)

Interest income

 

                     -

 

          419,467

 

                     -

 

                    -

 

           419,467

Other gains and losses

 

                     -     

 

         (426,678)

 

                     -

 

                    -  

 

          (426,678)

Finance costs

 

                     -  

 

         (514,818)

 

           (30,075)

 

                    -

 

          (544,893)

Loss before tax

 

         (353,770)

 

      (7,324,701)

 

         (426,216)

 

                    -  

 

       (8,104,687)

Income taxes

 

                  (63)

 

                     -

 

                     -     

 

                    -  

 

                   (63)

 

 

 

 

 

 

 

 

 

 

 

 

Loss after tax

 

         (353,833)

 

      (7,324,701)

 

         (426,216)

 

                    -  

 

       (8,104,750)

 

 

 

 

Advisory

 

Investing

 

Intellectual

 

 

 

 

 

 

 

services

 

activities

 

property

 

Eliminations

 

Consolidated

 

 

 

Six months

 

 Six months

 

Six months

 

Six months

 

Six months

 

 

 

ended

 

ended

 

ended

 

ended

 

ended

 

 

 

30 June 2014

 

30 June 2014

 

30 June 2014

 

30 June 2014

 

30 June 2014

 

 

 

US $

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Segment assets

 

       3,847,271

 

     35,867,334

 

            549,897

 

     (4,857,104)

 

      35,407,398

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

 

       6,131,859

 

     22,481,869

 

         4,985,809

 

     (4,173,365)

 

      29,426,172

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

                 308

 

                     -

 

                       -

 

                    -  

 

                  308

Amortisation

                     -

 

                     -

 

              77,542

 

                    -

 

             77,542

Recognition of share-based      

 

 

 

 

 

 

 

 

 

   payments

 

                     -  

 

              8,453

 

                      -  

 

                    -  

 

               8,453

 

 

5.  Segment information, (continued)

 

Geographical segments

 

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

 

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

 

 

 

Advisory fees by

 

 

geographical location

 

 

Six months ended

 

Six months ended

 

 

30 June 2015

 

30 June 2014

 

 

US $

 

US $

 

 

 

 

 

United States

 

210,000

 

240,000

United Kingdom

 

-

 

                            -

 

 

210,000

 

240,000

 

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

 

 

License fees by

 

geographical location

 

Six months ended

Six months ended

 

30 June 2015

30 June 2014

 

US $

US $

United States

                        50,551

                               -

Europe

                          7,050 

                               -  

 

                        57,601

                               -

 

 

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

 

 

Carrying amount

 

Additions to fixtures, fittings, and

 

of segment assets

 

equipment and intangible assets

 

Six months ended

 

Six months ended

 

Six months ended

 

Six months ended

 

30 June 2015

 

30 June 2014

 

30 June 2015

 

30 June 2014

 

US $

 

US $

 

US $

 

US $

 

 

 

 

 

 

 

 

United States

13,733,409

 

25,611,034

 

-

 

-

United Kingdom

52,573,390

 

9,796,364

 

-

 

-

 

66,306,799

 

35,407,398

 

-

 

-

 

 

 
6.   Income tax expense

 

 

Six months ended

 

Six months ended

 

Year ended

 

30 June 2015

 

30 June 2014

 

31 December 2014

 

US $

 

US $

 

US $

 

 

 

 

 

 

Isle of Man income tax

                                  -  

 

                                    -  

 

                                 -

Tax on US subsidiaries

                                  -

 

                                  63

 

                            442

 

 

 

 

 

 

Current tax / refund

                                -

 

                                63

 

                            442

 

 

 

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

 

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

 

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

 

 

 US $

 

 

Profit before tax

       33,151,642

 

 

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

                        -  

 

 

Effect of different tax rates of subsidiaries

 

operating in other jurisdictions

                        -

 

 

Current tax

                        -

 

 

7.  Earnings per share

 

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

 

Earnings

 

Six months ended

 

Six months ended

 

 Year ended

 

 

30 June 2015

 

30 June 2014

 

31 December 2014

 

 

US $

 

US $

 

US $

Earnings for the purposes of basic and diluted earnings per share

 

 

 

 

 

 

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

 

            33,151,642

 

             (8,104,750)

 

           (12,589,721)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

 

 

 

 

 

 

Six months

 

Six months

 

 

 

 

ended

 

ended

 

Year ended

 

 

30 June 2015

 

30 June 2014

 

31 December 2014

 

 

 

 

 

 

 

Weighted average number of ordinary shares for

 

 

 

 

 

 

    the purposes of basic earnings per share

 

           160,917,415

 

           146,884,071

 

          147,390,887

 

 

 

 

 

 

 

Effect of dilutive potential ordinary shares:

 

 

 

 

 

 

    Share options

 

               3,671,872

 

                              -    

 

                             -

    Convertible promissory notes

 

            55,286,030

 

             63,806,662

 

            65,412,061

 

 

 

 

 

 

 

Weighted average number of ordinary shares for

 

 

 

 

 

 

    the purposes of diluted earnings per share

 

           219,875,317

 

           210,690,733

 

          212,802,948

 

Share options 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.

8.  Investments

 

At fair value through profit or loss

 

 

Group

 

Level 1

Level 2

Level 3

Total

 

         US $

         US $

           US $

         US $

At 1 January 2015

    6,668,978

                  -

  22,098,681

  28,767,659

 

 

 

 

 

Investments during the year

                  -  

                  -  

       245,840

       245,840

Disposition of investment

   (2,219,157)

                  -

                  -

   (2,219,157)

Transfers between levels

  13,315,665

                  -          

 (13,315,665)

                  -  

Fair value losses

  34,807,904

                  -

                  -

  34,807,904

 

 

 

 

 

At 30 June 2015

  52,573,390

                  -

    9,028,856

  61,602,246

 

 

 

 

 

At 1 January 2014

  15,579,671  

                  -

  20,166,416

  35,746,087

 

 

 

 

 

Investments during the year

                  -  

                  -  

    2,949,550

    2,949,550

Fair value losses

   (8,910,693)

                  -

   (1,017,285)

   (9,927,978)

 

 

 

 

 

At 31 December 2014

    6,668,978

                  -

  22,098,681

  28,767,659

 

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

 

The net increase in fair value for the six months ended 30 June 2015 of US $34,807,904 is from the change in value of the public companies and is based on quoted prices in active markets.

 

During 2015, securities with a carrying value of $46,528,082 at 30 June 2015 were transferred from Level 3 to Level 1 because the securities were listed on the AIM of the London Stock Exchange in April 2015 and are actively traded in the market.  The securities now have a published price quotation in an active market.

 

In June 2015, the Company sold 779,642 shares of Kromek Group plc for total net proceeds of US $392,314 to partially repay the loan facility.

 

In June 2015, the Company transferred 2,843,126 shares of Kromek Group plc to a noteholder in exchange of US $1,042,724 of convertible promissory notes.  The exchange rights gave the noteholder the right to exchange part or the whole note into Kromek shares.

 

Fair value determination

 

The Directors have valued the investments in accordance with the guidance laid down in the International Private Equity and Venture Capital Valuation Guidelines.  The inputs used to derive the investment valuations are based on

8.  Investments, (continued)

 

estimates and judgements made by management which are subject to inherent uncertainty.  As such the carrying value in the financial statements at 30 June 2015 may differ materially from the amount that could be realised in an orderly transaction between willing market participants on the reporting date.

 

In making their assessment of fair value at 30 June 2015, management has considered the total exposure to each entity including equity, warrants, options, promissory notes, and receivables.

 

Further information in relation to the directly held private investment portfolio at 30 June 2015 is set out below:

 

 

Fair value

Methodology

Unobservable inputs

 

US $

 

 

Private investments

9,028,856

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

Discount (30%-100%),

 

 

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

Price of fund raising.

 

 

valuation.

 

 

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

 

 

9.  Other financial assets and liabilities

 

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

 

 

 

 

       30 June 2015

      31 December 2014

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

US $

US $

US $

US $

Financial assets

 

 

 

 

Fair value through profit or loss

 

 

 

 

Fixed asset investments - designated

 

 

 

     as such upon initial recognition

  61,602,246

  61,602,246

  28,767,659

  28,767,659

Currents assets

 

 

 

 

Loans and receivables

 

 

 

 

Security deposit

         13,600

         13,600

         13,600

         13,600

Prepaid expenses and other

 

 

 

 

     receivables

    2,648,118

    2,648,118

 2,569,380

 2,569,380

Cash and cash equivalents

       1,690,277

       1,690,277

       212,816

       212,816

 

 

 

 

 

Financial liabilities

 

 

 

 

Amortised cost

 

 

 

 

Trade and other payables

    10,288,182

    10,288,182

    10,270,584

    10,270,584

Notes payable

    8,316,734

    8,316,734

    8,964,901

8,964,901

Convertible promissory notes

8,694,834

8,694,834

10,189,891

10,189,891

Notes payable

    975,000

    975,000

    982,000

    982,000

 

 

 

9.  Other financial assets and liabilities, (continued)

 

The carrying value of cash and cash equivalents, the security deposit, prepaid expenses and other receivables, and trade and other payables, in the Directors' opinion, approximate to their fair value at 30 June 2015 and 31 December 2014.

 

The following table sets out the fair values of financial instruments not measured at fair value and analyses it by the level in the fair value hierarchy into which each fair value measurement is categorized at 30 June 2015.

 

 

 

Level 1

Level 2

Level 3

Total

 

US $

US $

US $

US $

Financial assets

 

 

 

 

Security deposit

-

       13,600

-

           13,600

Prepaid expenses and

 

 

 

 

   other receivables

-

   2,648,118

-

      2,648,118

Cash and cash equivalents

-

      1,690,277

-

      1,690,277

 

-

 4,351,995

-

      4,351,995

 

 

 

 

 

Financial liabilities

 

 

 

 

Trade and other payables

-

   10,288,182

-

    10,288,182

Notes payable

-

   8,316,734

-

      8,316,734

Convertible promissory notes

-

8,694,834

 

      8,694,834

Notes payable

-

   975,000

-

         975,000

 

-

28,274,750

-

    28,274,750

  

 

10.  Promissory notes

 

Convertible promissory notes

 

During 2015, US $227,062 (£148,994) additional convertible promissory notes were issued in payment of the accrued interest payable on the notes for the quarter ended 31 December 2014 and the quarter ended 31 March 2015.  In December 2014, holders of £1,856,250 of convertible promissory notes requested to exercise their exchange rights and exchange their shares into Kromek shares.  At 30 June 2015, 2,843,126 shares of Kromek were exchanged for £1,161,597 of convertible promissory notes.  At 30 June 2015, the convertible promissory notes totaled US $8,694,834 and the warrants issued totaled 11,057,208.

 

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

 

Promissory notes

 

In June 2014, the Company was granted a loan facility by an institutional lender (the "Lender").  The Company has drawn down to date a sum of US $3.3 million with a further draw down facility of up to a maximum of US $10 million, subject to the consent of each party.  The facility is secured by part of Amphion's holding in Kromek Group plc ("Kromek") and may be repaid at the Company's discretion in cash, the issue of Amphion shares, or the payment of Kromek shares where the Lender will be subject to certain limitations including adherence to any existing lock-in and an orderly market agreement.  Repayment is on a monthly basis starting on 1 September 2014 with final payment extended to 1 January 2016.  The interest rate of the loan is 12% per annum of the gross amount provided to the Company.  To date the Lender has received 15,239,477 3-year warrants in Amphion with exercise prices ranging from 3.5 pence to 4.375 pence per share.  In April 2015, the lender exercised all of the warrants for a total of

 

10.  Promissory notes, (continued)

 

£580,843.  In addition, Amphion has issued 1,113,616 3-year simulated warrants to the lender at exercise prices ranging from 46.70 pence to 61.25 pence per share.  If the Lender exercises the warrants, Amphion will pay the difference between the exercise price and the Kromek market price.  The Company also paid a further 8% of the gross amount provided as an implementation fee.  As part of the loan facility, the Directors agreed to a Deed of Postponement that regulates the Directors' rights in respect to the repayment of any debt due to them from the Company.  The Directors agreed to defer payment of their debt by the Company until the loan facility is repaid in full.  The funds are to be used for working capital for Amphion and its Partner Companies.  At 30 June 2015, the balance of the note is US $1,926,833.

 

11.  Share capital

 

 

Number

 

£

 

US $

 

 

 

 

 

 

Balance as at 31 December 2014

  148,278,506

 

    1,482,785

 

     2,716,656

 

 

 

 

 

 

Issued and fully paid:

 

 

 

 

 

   Ordinary shares of 1p each

         344,471

 

           3,445

 

            5,287

   Ordinary shares of 1p each

      2,148,243

 

         21,482

 

          33,060

   Ordinary shares of 1p each

      1,298,646

 

         12,986

 

          19,599

   Ordinary shares of 1p each

    15,239,477

 

       152,395

 

        225,905

   Ordinary shares of 1p each

    29,311,230

 

       293,112

 

        451,087

 

 

 

 

 

 

Balance as at 30 June 2015

  196,620,573

 

    1,966,205

 

     3,451,594

 

 

 

 

 

 

 

During the six months ended 30 June 2015, the following changes occurred to the share capital of the Company:

 

On 16 February 2015, the Company issued 344,471 ordinary 1p shares at a premium of 2.25 per share (US $11,896) to Directors in payment of the 2015 first quarter Directors' fees.

 

On 3 March 2015, the Company issued 2,148,243 ordinary 1p shares at a premium of 2.14 per share (US $70,749) to the institutional lender in partial payment of the loan facility.

 

On 1 April 2015, the Company issued 1,298,646 ordinary 1p shares at a premium of 1.66 per share (US $32,535) to the institutional lender in partial payment of the loan facility.

 

On 10 April 2015, the Company issued 15,239,477 ordinary 1p shares at premiums ranging from 2.5 to 3.375 per share (US $635,114) in settlement of the exercise of warrants by the institutional lender.

 

On 10 June 2015, the Company listed 29,311,230 ordinary 1p shares at a premium of 4.25p per share (US $1,917,118).

 

12.  Issue costs

 

The Company incurred costs of US $119,952 relating to the issue of shares.  The costs were primarily for fees paid to agents.  These equity transaction costs were deducted from equity in accordance with IAS 32, Financial Instruments Disclosure and Presentation.

 

  

13.  Share based payments

 

In 2006 the Group established the 2006 Unapproved Share Option Plan ("the Plan") and it was adopted pursuant to a resolution passed on 8 June 2006.  Under this plan, the Compensation Committee may grant share options to eligible employees, including Directors, to subscribe for ordinary shares of the Company.  The number of Shares over which options may be granted under the Unapproved Plan cannot exceed ten percent of the ordinary share capital of the Company in issue on a fully diluted basis.  The Plan will be administered by the Compensation Committee.  The number of shares, terms, performance targets and exercise period will be determined by the Compensation Committee.  During 2015, no options were issued under the Plan.

 

 

2015

 

 

 

Weighted

 

 

 

average

 

Number of

 

exercise

 

share options

 

price (in £)

 

 

 

 

Outstanding at beginning of period

       15,950,000

 

           0.07

Granted during the period

                     -

 

                 -

Cancelled during the period

                     -

 

-           

Expired during the period

                     -   

 

-

Outstanding at the end of the period

       15,950,000

 

           0.07

 

 

 

 

Exercisable at the end of the period

      11,516,667

 

           0.09

 

Options are recorded at fair value on the date of grant using the Black-Scholes model.  The Group recognised total costs of US $11,831 relating to equity-settled share-based payment transactions in 2015 which were expensed in the statement of comprehensive income during the period.

 

14.  Related party transactions

 

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

 

During the period, the Group paid miscellaneous expenses for Motif BioSciences, Inc. ("Motif") such as office expenses.  At 30 June 2015, the amount due from Motif is US $2,499.

 

A subsidiary of the Company has entered into an agreement with Axcess International, Inc. ("Axcess") to provide advisory services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of Axcess.  Amphion Innovations US Inc. will receive a monthly fee of US $10,000 pursuant to this agreement. The agreement is effective until 1 March 2016 and will renew on an annual basis until terminated by one of the parties.  The monthly fee is suspended for any month in which Axcess' cash balance falls below US $500,000.  Amphion Innovations US Inc. received no fee during the period ended 30 June 2015.

 

A subsidiary of the Company has entered into an agreement with Motif BioSciences, Inc. ("Motif") to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of Motif.  The annual fee for the services is US $240,000.  The agreement was effective until 1 April 2015.  Amphion Innovations US Inc.'s fee for the period ended 30 June 2015 was US $60,000.  At 30 June 2015, US $20,000 of the advisory fees remains payable by Motif.  On 1 April 2015, Motif Bio plc entered into an Advisory and Consultancy Agreement with Amphion Innovations US Inc.  The consideration for the services is US $120,000 per annum.  In the event that Motif Bio plc raises a minimum of £5,000,000 in gross proceeds on AIM Admission or a secondary raise, a one-time payment of US $300,000 will be paid to Amphion Innovations US Inc.  The agreement is for an initial period of twelve months and will automatically renew each year on the anniversary date unless either party notifies the other by giving 90 days written notice prior to expiration.  In addition, on 1 April 2015, Motif Bio plc entered into a

14.  Related party transactions, (continued)

 

Consultancy Agreement with Amphion Innovations plc for Robert Bertoldi, an employee of Amphion Innovations plc, to provide services to the Group.  The consideration for the services is US $5,000 per month.  The agreement is for an initial period of twelve months and will automatically renew each year on the anniversary date unless either party notifies the other by giving 90 days written notice prior to expiration.  The fees for the period ended 30 June 2015 were US $45,000.  At 30 June 2015, US $15,000 of the fees was deferred.

 

A subsidiary of the Company has entered into an agreement with m2m Imaging Corp. ("m2m") to provide advisory and consulting services.  Robert Bertoldi, a Director of the Company, is also a Director of m2m.  The quarterly fee under this agreement is US $45,000.  This agreement renews on an annual basis until terminated by either party.    Amphion Innovations US Inc.'s fee for the period ended 30 June 2015 was suspended.  At 30 June 2015, US $630,000 of the advisory fees remain payable by m2m.  This balance has been reduced by a provision for doubtful debts in the amount of $600,000.

 

A subsidiary of the Company has entered into an agreement with WellGen, Inc. ("WellGen") to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of WellGen.  The fee under this agreement is US $60,000 per quarter.  The agreement renews annually until terminated by either party.  The subsidiary's fee for the period ended 30 June 2015 was US $120,000.  At 30 June 2015, US $1,440,000 of the advisory fees remain payable.  This balance has been reduced by a provision for doubtful debts in the amount of US $600,000.

 

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

 

Amphion Innovations US Inc. has entered into an agreement with DataTern, Inc. ("DataTern") (a wholly owned subsidiary of the Company) to provide advisory and consulting services.  Richard Morgan and Robert Bertoldi, Directors of the Company, are also Directors of DataTern.  The quarterly fee under this agreement is US $60,000 and renews annually unless terminated by either party.  The subsidiary's fee for the period ended 30 June 2015 was suspended.

 

During 2013 Richard Morgan, a Director of the Company, advanced US $190,000 to a subsidiary of the Company under promissory notes.  The promissory notes accrue interest at 5% per annum and are payable in three years.  In 2010, Richard Morgan advanced US $352,866 to the Company.  In July 2014, the balance of this advance was converted into a demand note that accrues interest at 5% per annum.  At 30 June 2015, US $81,301 remains outstanding.  The net amount payable by the Group at 30 June 2015 to Richard Morgan is US $2,220,590.  The amount payable includes a voluntary salary reduction of US $1,701,464, US $341,779 of which will be payable at the discretion of the Board at a later date.

 

During 2010 through 2012, R. James Macaleer, the Chairman of the Company, advanced US $6,308,600 to the Company under promissory notes.  The promissory notes accrue interest at 7% per annum and were to mature on 31 December 2014. In February 2015, the notes and warrants were cancelled and replaced by notes and warrants expiring on 31 December 2015 under the same terms.  In 2013, R. James Macaleer advanced US $600,000 to a subsidiary of the Company under a promissory note.  The promissory note accrues interest at 5% per annum and is payable three years from issuance. As part of the terms of the loan facility the Company entered into in June 2014, the Directors agreed to a Deed of Postponement that defers payment of their promissory notes by the Company until the loan facility is repaid in full (note 10).    At 30 June 2015, US $7,864 was due to Mr. Macaleer for Director's fees and US $1,621,376 was due for accrued interest on the promissory notes.

 

At 30 June 2015, US $113,217 was due to Gerard Moufflet, a Director of the Company, for Director's fees and US $8,337 for expenses. 

 

 

14.  Related party transactions, (continued)

 

At 30 June 2015, US $910,982 was due to Robert Bertoldi, a Director of the Company, for voluntary salary reductions of which US $188,769 is payable by the discretion of the Board at a later date.

 

15.  Subsequent Events

 

In July and August 2015, the Company made advances of US $35,316 under a promissory note from PrivateMarkets Inc. and FireStar Software Inc.

 

In July and August 2015, the Company made advances of US $27,171 under a promissory note from Axcess International Inc.

 


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