TIDMJIL
RNS Number : 8065J
Juridica Investments Limited
04 April 2018
Juridica Investments Limited
("Juridica," "JIL" or the "Company")
Results for the year ended 31 December 2017
Juridica announces its results for the year ended 31 December
2017.
Summary of results
During 2017, the Net Asset Value ("NAV") per share has changed
by US$0.0977 per share from US$0.2541 per share at 31 December 2016
to US$0.1563 per share at 31 December 2017. The change in NAV was
due to the following:
-- Payment of dividends during 2017 amounting to US$11.9 million (US$0.1074 per share); and
-- Total comprehensive profit during 2017 of US$1.1 million (US$0.0097 per share)
Investment results
During the twelve-month period ended 31 December 2017:
-- Final settlement was received from Case 2709-E, which was
fully resolved, delivering a total of US$181,000 to the
Company.
-- A total of US$12.9 million in reserves was received from the
Company's large antitrust and competition investment.
-- Proceeds received from Investment 114107 totalling US$893,000
upon exercise of counterparty's option to buy out the Company's
interest. Over the two-year life of the investment, the Company
received proceeds of US$2.6 million on an investment of US$1.3
million.
A total of seven investments remain active with three being
litigation related and four relating to special purpose vehicles
("SPV").
Dividend
The Board announces that an interim dividend of 4p per share
will be paid on 25 May 2018 to shareholders on the register at 13
April 2018. This brings the total dividend paid since inception to
115.6p per share.
Corporate update
The Board of Directors announced on 18 November 2015 that it
would not make any new investments (other than further funding of
existing investments where such funding was reasonably required in
the interests of shareholders) and that it would seek to make
distributions to shareholders in the most appropriate manner,
following the completion of investments.
The Board of Directors and the Company's Manager continue to
work to monetise all of the Company's remaining investments by 31
December 2018.
- Ends -
This report contains forward looking statements, which are based
on the current expectations and assumptions of the Manager and
involve known and unknown risks and uncertainties that could cause
actual results or performance to differ materially from those
expressed or implied in such statements. It is believed that the
expectations reflected in these statements are reasonable but they
may be affected by a number of variables that could cause actual
results or trends to differ materially. Each forward looking
statement speaks only as of the date of this report. Except as
required by the AIM Rules or otherwise by law, the Company and the
Manager expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward looking
statements contained herein to reflect any change in the Company's
or Manager's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
For further information contact:
Brickell Key Asset Management
LLC - Manager +1 (866) 443
William Yuen 1080
Cenkos Securities PLC - Nominated
Adviser and Joint Broker
Nicholas Wells +44 (0) 20
Camilla Hume 7397 8900
Investec Bank PLC - Joint Broker +44 (0) 20
Darren Vickers 7597 5970
Vistra Guernsey - Company Secretary +44 01481
Chris Bougourd 754 145
CHAIRMAN'S STATEMENT
FOR THE YEARED 31 DECEMBER 2017
On behalf of the Board, I present the results of Juridica
Investments Limited ("JIL" or the "Company") for the year ended 31
December 2017.
Financial Results
-- Total comprehensive income during 2017 of US$1.1 million (US$0.0097 per share)
-- Payment of dividends during 2017 amounting to US$11.9 million (US$0.1074 per share)
-- Resulting from the above, the Net Asset Value ("NAV") per
share fell by US$0.0978 per share from US$0.2541 per share at 31
December 2016 to US$0.1563 per share at 31 December 2017
Corporate Run-Off Strategy
The Board explained the Company's run-off strategy in its 2016
Annual Report. Since the strategy began, the Company completed
several of its remaining investments (including its latest largest
investment), received proceeds from the liquidation of the
Company's investment in its old manager (JCML 2007), paid US$11.9
million (2017) and US$60.3 million (2016) in dividends, wrote off
certain investments, and reduced its operating costs in 2017 by
approximately a half. The Company currently is managing two
litigation investments and a consequential provision in a third
litigation investment with a total NAV of US$6.13 million and four
non-litigation investments with a total NAV of US$2.19 million. The
Company remains committed to realise investments in an efficient
and reasonably expeditious manner mindful that litigation
investments depend on the administrative/ decision timings within
the Court systems, and reasonably balancing a trade-off between the
speed and proceeds of monetising illiquid investments.
While the Company cannot control the timing of the litigation
outcomes, the Board and Manager continue to take significant
measures in reducing and eliminating costs while managing the
run-off in an optimal fashion. As announced on 10 January 2018, the
Company agreed with Brickell Key Asset Management Limited ("BKAM")
to continue to manage our remaining investments for a total fee of
$125,000 per quarter.
Investment Results
Litigation investments:
During the year ended 31 December 2017, Case 2709-E was fully
resolved and delivered a total of $181,000 to the Company, far
below our expectation when the Company made its investment in
2009.
In addition, a total of US$12.9 million in reserves related to
Investment 3608-A was released to the Company as described more
fully in the Investment Manager's Report.
Two active cases remain within the Company's litigation
investments:
-- Case 5009-S continues and, during the first half of 2017, saw
success with its appeal and a direction for the trial judge to
consider a new trial on damages. The valuation for this investment
has been increased from the year end figure accordingly.
-- Case 1410 investment had its damages award increased during
the first half of 2017, after a successful appeal. Both sides are
now appealing that decision.
On investment 3608-A represents the residual of five underlying
litigation cases. All the cases are resolved with only a US$3.0
million escrow reserve remaining. This escrow reserve was
established to cover certain possible contingencies stemming from
the investment. Proceeds from this reserve, should any be
available, will be remitted to the Company (expected by or shortly
after September 2020).
Special Purpose Vehicles ("SPV"):
There are four active investments held as SPVs, all of which
relate to the patent sector. Monetisation of these investments are
actively pursued.
-- In ACK, the Company continues to hold a note related to its interest in an invention.
-- In Grandios, of the patent applications filed with the United
States Patent and Trademark Office ("USPTO"), 28 have been issued
or allowed as of 31 December 2017.
-- In ProSports, of the patent applications filed with the
USPTO, 33 have been issued or allowed as of 31 December 2017 and 10
are pending.
-- In Rich Media, of the patent applications filed with the
USPTO, 2 have been issued or allowed as of 31 December 2017.
In addition to the four active SPV investments, one retains
approximately $500,000 which will be returned to the Company during
2018.
Other investments:
The Company began 2017 with three other open investments. During
2017, two of these investments were wound down with the third
investment written off. Further details are provided in the
Investment Manager's Report:
-- JCML 2007 Limited ("JCML 2007"): JIL was a 36.17% shareholder
in this previous manager to the fund. JCML 2007 was liquidated in
January 2018 returning a final distribution of GBP72,540.
-- Activity has ceased in Investment 6609-S. A remaining value
of US$20,000 has been determined reflecting expected remaining cash
to be transferred to the Company.
-- Investment 7313 was written off during 2017.
Dividends
As part of the Company's run-off strategy, the Company paid a
total of US$11.9 million (8 pence per share) to investors during
2017 bringing life-to-date dividends paid to US$179.1 million
(120.1 pence per share (at 31 December 2017 United States Dollar to
Sterling exchange rate).
The Board has today declared a dividend of 4 pence per share
(US$6.1 million approximately)
Conclusion
The Board will seek to continue the run-off strategy with
efficiency and with reasonable expedition wherever commercially
appropriate, and will announce progress in the run-off of the
Company as events warrant.
Lord Daniel Brennan QC
Chairman
3 April 2018
INVESTMENT MANAGER'S REPORT
FOR THE YEARED 31 DECEMBER 2017
During the year ended 31 December 2017, the Company continued to
move forward in its strategy to monetise its remaining investments.
This strategy, which was announced on 18 November 2015, directs us
to manage the Company's existing investments by balancing the speed
of monetisation with what we believe is each investment's potential
value and to make distributions to shareholders in the most
appropriate manner.
The Company began 2017 with 12 open investments. During 2017,
three investments were completed or wound down leaving nine
remaining investments as of 31 December 2017.
On 29 September 2017, the Company paid a dividend totalling
US$11.9 million (8 pence per share)
We continue to seek resolution and monetisation of all the
remainder of the Company's assets.
Financial Performance During 2017
The NAV per ordinary share decreased from US$0.2541 (21 pence
per share) as at 31 December 2016 to US$0.1563 (12 pence per share)
as at 31 December 2017. This decrease of US$0.0978 in NAV per
ordinary share was attributable to a dividend payment totalling
US$11.9 million and total comprehensive gain of US$1.1 million.
The Company's US$1.1 million total comprehensive gain for 2017
was due to US$2.2 million in realised gains primarily from the
receipt of proceeds held in reserve by Fields Law Firm PLLC
("Fields Law"), the law firm that was the counterparty to the
Company's antitrust and competition portfolio investment, a net
unrealised loss of US$1.0 million, intangible impairment and
amortisation expenses of intangible of US$114,000, net operating
expenses of US$2.5 million, and foreign exchange gain and other
income of US$464,000.
The Company's net unrealised loss resulting from a net decrease
in the valuation of the Company's investments of US$1 million was
attributable to the following:
-- US$591,000 decrease in value associated with the Company's
contractual interests. This was due to a change in expectations
with respect to the probability of a successful resolution and
changes in projected quantum and timing of a successful resolution.
The value for certain contractual interests (principally the patent
Special Purpose Vehicles ("SPV"), include the application of
additional risk factors to incorporate the potential of monetising
those investments within a shortened time frame following the
Board's instructions in accordance with the Company's run-off
strategy. The risk factors associated with monetising the Company's
investments within a shorter time frame were increased from the
level determined for the Company's 2016 annual accounts and may be
adjusted in future reporting periods based on our ongoing
monetisation efforts.
-- US$1,884,000 increase in value associated with the Company's
debt securities, consisting exclusively of the valuation related to
reserves associated with our antitrust and competition
portfolio.
-- US$262,000 reduction in value associated with the Company's
equity investments. This change was due to the application of
additional risk factors on one equity investment to incorporate the
potential of monetising this investment within a shortened growth
period following the Board's instructions in accordance with the
Company's run-off strategy. The risk factors associated with
monetising the investment within a shorter growth period was
increased from the level determined for the Company's 2016 annual
accounts and may be adjusted in future reporting periods based on
our ongoing monetisation efforts.
Investment Results During 2017
Proceeds Received:
Investment 114107: In March 2015, the Company invested US$1.3
million in a patent portfolio. As part of the investment terms, the
counterparty was provided with an option to buy out the Company's
interest within two years after ensuring the Company received a
100% return on its investment. During 2017, this option was
exercised and the Company received gross proceeds of US$893,000
which finalised the investment. Over the two-year duration of the
investment, the Company received a total of US$2.6 million on an
investment of US$1.3 million.
Investment 2709-E: In March 2009, the Company approved this
investment to fund litigation related to three patents against
three defendants. The ultimate investment totalled US$1.9 million.
After a protracted re-examination, one patent was abandoned. During
2016, an unexpected event occurred which severely impacted one of
the remaining patents and resulted in partial settlements relating
to this patent. These proceeds were reinvested into the case to
further the legal proceedings on the remaining patent. A Markman
hearing on the remaining patent completed during 2016 with the
plaintiff prevailing on validity but losing on infringement. The
plaintiff filed an appeal which was lost during 2017. Activity for
this investment has ended and US$85,000 held in escrow from an
earlier settlement was released to the Company in September
2017.
Investments Written Off:
Investment 7313: As part of the Company's 2014 revised patent
strategy, the Company acquired a 7.8% preferred ownership in
ipCreate, Inc. ("ipCreate") for US$2.0 million. The expectation was
to monetise this investment as part of future capital raising by
ipCreate. In the second half of 2016, ipCreate underwent a
restructuring that severely diluted the Company's interest but
positioned ipCreate for a potential sale. The valuation of this
investment at 31 December 2016 reflected this dilution and the risk
adjusted valuation of the Company's investment in ipCreate was
determined to be approximately US$22,000. During the second half of
2017, ipCreate liquidated all its assets. The liquidation value did
not result in sufficient funds to pay any equity holders after debt
holders and the Company has written off this investment.
Fair Value of Investments
The fair value of the Company's investments at 31 December 2017
was US$8.3 million. From an accounting standpoint, these
investments are categorised as contractual interests, debt
securities, or equity investments. These categories reflect the
following changes from the carrying value as at 31 December
2016:
Realised
Gain Attributable
to the
Year Ended
31 Dec
2017
Additions $USM
During
the Net
Fair Value
Proceeds Change
Attributable During
31 December to the the Year 31 Dec
2016 Year Ended Year Ended Ended 2017
Fair 31 Dec 31 Dec 31 Dec Fair
Value 2017 2017 2017 Value
$USM $USM $USM $USM $USM
-------------------- ------------- ------------- --------------- -------------------- ----------- --------
Contractual
Interests:
includes
assets
from the
Company's
patent
and commercial
claims
portfolio 7.79 0.04 (0.98) 0.15 (0.59) 6.41
-------------------- ------------- ------------- --------------- -------------------- ----------- --------
Debt Securities:
includes
assets
from our
antitrust
and competition
portfolio
(1) 10.50 - (12.92) 2.07 1.88 1.53
-------------------- ------------- ------------- --------------- -------------------- ----------- --------
Equity
Investments:
includes
assets
from our
patent
and commercial
claims
portfolios
as well
as other
investments
(2, 3) 0.62 0.03 - - (0.26) 0.39
-------------------- ------------- ------------- --------------- -------------------- ----------- --------
Total 18.91 0.07 (13.90) 2.22 1.03 8.33
-------------------- ------------- ------------- --------------- -------------------- ----------- --------
-- (1) During 2016, the Company's interest in each of the
underlying cases for this investment were finalised and the loan
and swap arrangements that served as the Company's facility
agreement with Field's Law were terminated and replaced with
termination agreements that provide for additional proceeds to
ultimately be remitted to the Company, if additional proceeds
become available. Additional proceeds became available after Fields
Law's 2016 tax returns were filed in August 2017 and as a result,
US$12.92 million was remitted to Riverbend Investments Limited
("Riverbend"), a wholly owned subsidiary of the Company. An
additional US$3.0 million in proceeds is being held in escrow until
certain contingencies related to the investment are cleared (which
is expected by or shortly after September 2020). At 31 December
2017, the risk and time adjusted value of expected additional
proceeds to be released from the escrow account were determined to
be US$1.53 million.
-- (2) Includes the Company's investment in JCML 2007 which was liquidated in January 2018.
-- (3) Excludes US$111,000 write-off of an intangible that is
related to an equity investment that was written-off during
2017.
As discussed in previous reports, we value JIL's investments
using valuation and accounting methods that are applied in a manner
that follows International Financial Reporting Standards' ("IFRS")
accounting principles. In particular, we follow guidance provided
by IFRS 13 in establishing the method of applying fair value
accounting. Under this guidance, we develop a fair value of a case
or investment by discounting its expected terminal value from its
expected completion date.
We determine our initial expectations on quantum and timing of
case results by assigning a probability of various scenarios coming
to fruition and applying risk factors that: i) are intrinsic to the
specific case; and ii) reflect general risks within and outside of
the legal process. Our assumptions behind an investment's fair
value are revisited on a semi-annual basis (to coincide with the
Statement of Financial Position date). If needed, we will re-run
the investment's valuation model and revise its expected future
cash flow which we then discount to the reporting date. The
discount rate used for valuation purposes is the Company's cost of
equity. All due diligence and transaction costs related to an
investment are expensed.
Unlike an investment that is backed by a physical asset,
litigation assets are subject to certain legal hurdles each of
which has the potential to cause the litigation portion of any
investment to be worthless. A key element in selecting investment
worthy cases is the likelihood of a particular case overcoming any
remaining hurdles and generating either a settlement or trial
victory.
For the Company's litigation investments, we consider the
current legal merits of each underlying case, the legal history of
the case, the current legal environment, and any other factors we
feel are relevant as of the date of our valuation. Working with the
lawyers assigned to each case, we develop scenarios of potential
outcomes, including the various situations that can generate
outsized returns, moderate returns, or a complete loss, and assign
each scenario a probability. For one of the Company's remaining
litigation investments, we then run a Monte Carlo simulation
providing for a statistically relevant number of iterations and
providing us with an expected value and timing. These results are
then discounted to the reporting date at the Company's cost of
equity.
For the remainder of the Company's investments, the Investment
Manager determined fair value at 31 December 2017 by either: (i)
determining a risk adjusted liquidation value, applied to
investments considered to be of short duration; or (ii) developing
a risk adjusted discounted cash flow model. This latter methodology
is used primarily for the Company's patent SPVs (accounted for as
contractual interests) where a critical input is the price per
patent.
Beginning in 2016 and in response to the Company's run-off
strategy, as part of us reaching a fair value assessment of the
Company's investments, we have considered the potential likelihood
of monetising certain investments within a shortened time frame.
Further in response to the Company's run-off strategy, certain
investments have been assigned a fair value at 31 December 2017
based on the investments liquidation value.
Our accounting fair value on the Company's investments is not
intended to express our prediction about the ultimate outcome of
any investment, but rather our fair value estimate based on the
best information available to us at the Statement of Financial
Position date using a range of possible outcomes.
Portfolio Update
As the Company's portfolio has progressed, it has evolved into
three types of investments: litigation related investments; SPV
related investments; and other investments. As such, our investment
update will be grouped in the same manner.
Litigation investments
The Company began 2017 with five remaining investments in
litigation. During 2017, one investment, Investment 114107, came to
full resolution and one investment, Case 2709-E was written-off,
leaving three investments in litigation remaining active as of 31
December 2017.
Case summaries:
-- Investment 3608-A: This investment originally included six
cases of which five were related to antitrust and competition and
one was related to statutory claims against an international bank.
The investment was initiated in 2008 with terms that required
funding obligations by the Company through 2016 with an annual
option providing for the Company to extend the funding obligation
beyond 2016. During 2016, the Company declined to exercise its
option to continue funding the investment.
Under the terms of the facility agreement (consisting of a
consolidated loan agreement and a swap agreement), gross proceeds
generated from the investment are received and held by Fields Law,
which is the law firm that is the counterparty to the Company's
investment. Deducted from the gross proceeds are taxes and reserves
required for certain contingencies. Per the terms of the facility
agreement, the Company received net proceeds at the end of each
calendar year, or earlier if approved by JIL and Fields Law.
As of 31 December 2016, all of the Company's interest in the
underlying cases came to a conclusion. Although the Company's
interest in the underlying cases in Investment 3608-A ended,
additional proceeds were to be delivered once Fields Law's 2016 tax
returns were filed. These returns were filed in August 2017 and
US$12.92 million was remitted to Riverbend. An additional US$3.0
million in proceeds is being held in escrow until certain
contingencies related to the investment are cleared (which is
expected by or shortly after September 2020). As of 31 December
2017, the risk and time adjusted value of expected additional
proceeds to be released from the escrow account was factored into
the fair value for the investment.
-- Case 5009-S: This case completed its trial by jury during
2015. Although the Plaintiff fully won on liability, the jury only
awarded an amount of damages which will result in proceeds to the
Company of approximately US$2.0 million as compared to an
investment of approximately US$3.5 million. Both sides filed
post-trial motions for a new trial with the Plaintiff requesting a
new trial on damages only and the Defendant requesting a new trial
on all issues as well as dismissal of the case due to lack of
standing by the Plaintiff. These motions were decided in favour of
the Defendant; however, the Plaintiff appealed this adverse
decision of the trial court.
During 2017, a request filed by the Plaintiff for a new trial on
damages was denied. Plaintiff has requested judgement and approval
of their revised prejudgment interest. Defendant is seeking a
decision on a remaining issue and approval of a revised interest
calculation. A decision by the Court remains pending as of 31
December 2017. Valuation of this investment reflects a risk
weighted calculation of pending damages value.
-- Case 1410: This case completed its trial during 2014 with a
positive ruling on liability but damages awarded were less than
expected. Cross-appeals on liability and Plaintiff's appeal on
damages were filed after the ruling. In early 2016, the Plaintiff's
appeal received a favourable appeals court ruling overturning the
trial court's damages award and subsequent to 31 December 2016, the
trial court judge added punitive damages to the award. Although the
total award has increased, the Plaintiffs and their counsel still
believe damages should be higher. Both parties filed further legal
appeals. Although risk remains, especially with regards to timing,
we believe there is the possibility of a new award on damages.
SPVs
In early 2014, we identified a changing patent market whereby
value was maximised by developing operating entities around a
portfolio of patents. We identified several existing patent
investments in which the underlying patents were at risk of not
realising their full potential. Working with subject matter
experts, new inventions were developed with the intention of
obtaining patents, developing commercial applications, and
monetising each SPV through litigation or other commercial
strategies. These investments were funded through SPVs in order to
facilitate monetisation of each developed entity.
This enhanced patent strategy was described in each of the
Company's published set of accounts since 30 June 2014.
A total of four SPVs were created. Three of these SPVs were
developed around existing core patents. The fourth SPV was
developed in partnership with the National Football League's
Players Association ("NFLPA").
SPV summaries:
-- Rich Media: This investment originated with litigation
involving an underlying patent for which the Company previously
received proceeds. In 2014, we began to develop a portfolio of
related patents in the areas of rich media and multimedia. The
inventor of the patent that was the subject of the original
litigation, along with other subject matter experts, developed 25
additional inventions all of which were filed as patent
applications in early 2016. At 31 December 2017, two patents have
been issued or allowed and 21 are still under review by the United
States Patent and Trademark Office ("USPTO"). Minimal additional
spending is occurring on this investment and we are working with
several parties to monetise the SPV.
-- ACK / Smooth3D: This investment originally consisted of three
components of which one remains active:
o Litigation component: The investment originated with
litigation that resulted in a judgment of liability but low damages
and which provided no proceeds to the Company. Although elements of
the case continue, it became clear during 2015 that there was no
prospect of generating any proceeds and the Company ceased
assigning any value to the litigation component.
o Patent development component: During 2014, we worked with the
inventor of the patents that were the subject of the original
litigation and other subject matter experts to develop a portfolio
of related inventions with the intention of procuring patents. In
early 2016, it was determined that the underlying inventions had no
commercial value and all work on these inventions ceased.
o Collateral component and related deal restructuring: As
collateral for the Company's original investment in the litigation,
JIL received an equity interest in a company that has developed
energy-saving software for electrical motors. A major industrial
conglomerate has been testing the energy-saving software and has
made ongoing equity contributions to further its development.
During 2016, JIL exchanged its equity interest in the company for a
note subject to agreed discounts if redeemed early. As part of our
on-going efforts to monetise the Company's investments, the
investment was restructured enabling the Company to receive a
payment of $200,000 in exchange for a reduced note amount. This
restructuring was finalised in January 2018 and a related
liquidation discount, along with other risk factors, have been
factored into the Company's reported fair value for this investment
at 31 December 2017.
-- GrandiOS: This investment consists of two components:
o The investment originated with litigation surrounding core
computer technology. Although prior settlements have provided the
Company with some small return, in 2016 we learned of new hurdles
related to the original litigation which we believe put severe
doubt on the ability of the Company to generate any further
proceeds. As such, the Company ceased assigning any value to the
litigation component during 2016.
o The original investment included an interest in certain mobile
phone related patents. In 2014, we worked with subject matter
experts to develop a portfolio of patents related to mobile phone
technology and a total of 37 patent applications were filed with
the USPTO. At 31 December 2017, a total of 28 patents have either
been issued or granted by the USPTO. We continue to market this
developing portfolio of patents to several buyers.
-- ProSports: This SPV was established to develop and monetise a
large portfolio of patents in the technology and sports market. The
Company has partnered with the NFLPA in this endeavour. As of 31
December 2017, a total of 55 patent applications have been filed
with the USPTO. At 31 December 2017, a total of 30 patents have
either been granted or been allowed by the USPTO. We continue to
market this developing portfolio of patents and inventions to
prospective buyers.
Other investments:
The Company began 2017 with three investments that are not
directly related to litigation and are not specific to a particular
SPV. During 2017, one of these investments was written off (as
detailed above).
-- Investment in JCML 2007: At admission of the Company's shares
to AIM on 21 December 2007, the Company acquired 15 per cent
(subsequently diluted to 13.6 per cent) of JCML 2007 for US$2.9
million. In 2012, the Company acquired a further holding in JCML
2007, its then investment manager, for US$4.3 million, bringing its
overall holding in JCML 2007 to 36.17%. As a result of its interest
in JCML 2007, the Company is entitled to its percentage share of
any performance fees paid to JCML 2007 as well as its percentage
share of any assets distributed. In 2015, the Company received
dividend income of approximately US$5.4 million from a combination
of performance fees and a distribution of the Company's shares held
by JCML 2007. No further performance fees are expected and in
January 2018, JCML 2007 was liquidated providing a final
distribution of GBP72,540.
-- Investment 6609-S: Beginning in 2010, the Company made a
series of investments in a large, multi-party pre-litigation
settlement opportunity that we believed had the potential to
generate significant proceeds for the Company. This highly complex
investment had significant activity in 2016 with increased prospect
for a partial settlement to occur. However, just prior to the end
of 2016, these prospects had a significant setback and the
investment was significantly reduced in value, representing only
US$250,000 (including US$111,000 amortised balance in a related
intangible) of the Company's NAV at 31 December 2016. Activity
during 2017 failed to produce tangible results and as a result, at
31 December 2017, we have ceased all activity related to this
investment. This investment represents US$20,000 of the Company's
NAV at 31 December 2017 consisting of residual cash related to the
investment that is to be returned to the Company.
Outlook
We will continue to work with the Company's Board of Directors
to maximise shareholder value and to make distributions to
shareholders in the most appropriate manner, following the
completion of investments.
Disclaimer on Forward Looking Statements
This report contains forward looking statements, which are based
on the current expectations and assumptions of the Investment
Manager and involve known and unknown risks and uncertainties that
could cause actual results or performance to differ materially from
those expressed or implied in such statements. It is believed that
the expectations reflected in these statements are reasonable but
they may be affected by a number of variables that could cause
actual results or trends to differ materially. Each forward-looking
statement speaks only as of the date of this report. Except as
required by the AIM Rules or otherwise by law, the Company and the
Manager expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's
or Manager's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
Brickell Key Asset Management Limited
3 April 2018
DIRECTORS' REPORT
FOR THE YEARED 31 DECEMBER 2016
The Directors present their report together with the audited
financial statements of Juridica Investments Limited (the
"Company") for the year ended 31 December 2017, with comparative
information for the year ended 31 December 2016.
Principal activities
The Company is an authorised closed-ended investment company
incorporated under The Companies (Guernsey) Law, 2008 (the "Law").
The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a
market operated by the London Stock Exchange, on 21 December 2007.
The address of the Company's registered office is 11 New Street, St
Peter Port, Guernsey, GY1 2PF.
Corporate update
The investment objective of the Company had been to build a
diversified portfolio of investments in claims and to provide
shareholders with an attractive level of dividends and capital
growth through investing directly and indirectly in litigation and
arbitration cases, claims, disputes and patents. These investments
have been made predominantly in the United States. On 18 November
2015, the Company announced that it would not make new investments
(other than for funding existing investments in the Company's
portfolio where such funding is reasonably required to realise
maximum shareholder value) but, instead, would make distributions
to shareholders in the most appropriate manner following the
completion of investments.
Results and dividend
The results for the year are shown in the Statement of
Comprehensive Income on page 21. The Company declared a dividend of
8 pence per share on 22 August 2017 which was paid on 29 September
2017 to shareholders on the register at 1 September 2017. This
dividend was funded by the cash proceeds of US$10.9 million from
settlements that were transferred to the Company during the year.
On 3 April 2018, the Board declared a dividend of 4 pence per share
to be paid on 11 May 2018 to shareholders on the register at 6
April 2018.
Audit Committee
The Audit Committee consists of Richard Battey, Lord Daniel
Brennan and Kermit Birchfield. The Audit Committee is chaired by Mr
Battey, and meets to review the financial statements, audit
timetable, and other risk management and governance matters.
Statement of Directors' responsibilities in respect of financial
statements
The Directors are responsible for preparing financial statements
for each financial year which give a true and fair view, in
accordance with applicable Guernsey law and International Financial
Reporting Standards, of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
those financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The maintenance and integrity of the Company's website is the
responsibility of the Directors. The work carried out by the
Auditor does not involve consideration of these matters and,
accordingly, the Auditor accepts no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website. Legislation in the United
Kingdom and Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
To the best of our knowledge, and in accordance with the
applicable reporting principles, the financial statements give a
true and fair view of the assets, liabilities, financial position,
comprehensive income and cash flows of the Company, although there
is uncertainty around valuation of the Company's investments in the
absence of an established market. The Investment Manager's report
includes a fair review of the development and performance of the
business and the position of the Company, together with a
description of the principal opportunities and risks associated
with the expected development of the Company.
Furthermore, to the best of our knowledge and belief, this
annual report includes a fair review of the development and
performance of the business and the position of the Company as at
31 December 2017 together with a description of the principal risks
and uncertainties that the Company faces.
Auditor confirmation
Each of the Directors, at the date of approval of the financial
statements, confirms that:
1. So far as the Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
2. Each Director has taken all steps he ought to have taken to
make himself aware of any relevant audit information and to
establish that the Company's auditor is aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 249 of The Companies
(Guernsey) Law, 2008.
Independent Auditor
The Auditor, PricewaterhouseCoopers CI LLP, have expressed their
willingness to continue in office and a resolution for their
re-appointment will be proposed at the forthcoming Annual General
Meeting.
Continuation and going concern
In accordance with the Company's Admission Document of 17
December 2007, the Directors convened an extraordinary general
meeting of the Company, on 14 November 2013, at which a resolution
was proposed (as required) that the Company be wound up
voluntarily. The resolution was not passed by the Company's
members.
The Company's members resolved to remove the requirement to
convene an extraordinary general meeting for the voluntary wind-up
of the Company every three years from the date of the original
meeting, at the Annual General Meeting held on 10 May 2016.
The Board of Directors confirmed that the going concern basis of
preparation for the financial statements is no longer suitable for
the Company. As noted in the 2016 annual financial statements, a
run off strategy was applied however in light of the board's
intention for an orderly wind down of the Company in 2018, discount
factors applied to the valuation of residual investments have been
deepened to increase the likelihood of monetising any remaining
investments held. In applying this strategy the Board of Directors
remain focused in seeking the best value for the shareholders of
the Company.
Approved by the Board of Directors on 3 April 2018 and signed on
their behalf:
RJ Battey
Director
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED
FOR THE YEARED 31 DECEMBER 2017
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair
view of the financial position of Juridica Investments Limited (the
"Company") as at 31 December 2017, and of its financial performance
and its cash flows for the year then ended in accordance with
International Financial Reporting Standards and have been properly
prepared in accordance with the requirements of The Companies
(Guernsey) Law, 2008.
What we have audited
The Company's financial statements comprise:
-- the statement of financial position as at 31 December 2017;
-- the statement of comprehensive income for the year then ended;
-- the statement of changes in equity for the year then ended;
-- the statement of cash flows for the year then ended; and
-- the notes to the financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our
report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants ("IESBA Code"). We have
fulfilled our other ethical responsibilities in accordance with the
IESBA Code.
Our audit approach
Overview
Materiality
-- Overall materiality for the Company was $0.43 million which represents 2.50% of net assets.
Audit scope
-- The financial statements consist of the standalone parent
company financial information and includes the investments into
subsidiaries, which are held at fair value. The financial
statements are not consolidated.
-- We conducted all our audit work in Guernsey. We have
communicated with certain members of the Investment Manager to
discuss the events of the year including the portfolio of
investments and also to obtain supporting documentation. In
addition, we held discussions with the underlying lawyers for each
of the litigation investments on a sample basis.
Key audit matters
-- Valuation of Investments
-- Realisation of Investments
Audit scope
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the directors made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Our understanding of the controls environment was informed by
our review of the controls report available on Vistra Fund Services
(Guernsey) Limited (the "Administrator").
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which the Company operates.
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Company materiality for the financial statements as a whole as set
out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Overall Company materiality $0.43 million (2016: $0.70
million)
------------------------------ ------------------------------
How we determined it 2.5% of Net Assets
------------------------------ ------------------------------
Rationale for the materiality We believe that net assets
benchmark is the most appropriate
benchmark because, being
an investment fund, we
believe this to be the
key metric of interest
to investors. It is also
a generally accepted measure
used for companies of
a similar structure within
the same industry.
------------------------------ ------------------------------
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above $21,500, as well as
misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key audit matter How our audit addressed
the Key audit matter
Valuation of Investments Our audit of the investment
We draw your attention valuation was fully substantive
to Notes 2(d), 3 and 15(a) in nature and focused
to the financial statements on understanding the portfolio
surrounding the fair value movements during the year
of investments. The financial and assessing the reasonableness
assets at fair value through of the significant assumptions
profit or loss are included driving the fair value
as current assets stated model for each investment.
at their fair value of
US$8,329,496. We selected a sample of
investments from across
The Company's investment the portfolio based on
portfolio is split between our materiality level.
contractual interests, For each investment selected,
equity investments and we agreed the valuation
debt securities and constitutes model for mathematical
a significant element accuracy, considered the
of the financial statements. appropriateness of the
methodology used and the
The investments are highly consistency of the model
complex and include but with prior years.
are not limited to interests
in intellectual property, Litigation claims (Contractual
patents and active litigation. interests and equity investments)
Investments are either For contractual interests,
held directly or through we held discussions with
a Special Purpose Vehicle the lawyers involved in
("SPV"), and are measured the underlying litigation
at fair value. to ascertain key developments
Fair value is determined and the expected future
through the use of models outcome of each case.
which take into account We compared these findings
various inputs. to our previous knowledge,
The level of subjectivity our conversations with
involved, and the significance management, the fair value
of the investments balance models prepared by management
in the statement of financial and supporting agreements
position, meant that this and documentation.
was a key audit matter
for us. We also considered the
The key assumptions used professional competency
in the fair value model and objectivity of the
include but are not limited lawyers involved in each
to: case.
* Forecasting future expected developments; Patent investments (Contractual
interests and equity investments)
For patent investments,
* Forecasting timings, amounts and probability of we corroborated the assumptions
future cash flows; in the valuation of the
patent portfolios through
discussion with the Investment
* Considering amounts that may be paid by market Manager and by reference
participants to purchase the investment; and to an external industry
report. The assumptions
included the status of
* Estimating future tax liabilities that may be each underlying patent
incurred at the investment level. application, the probability
of successfully filing
and monetising the patent
and the associated impact
Valuing these investments on the estimated net future
therefore requires significant cash flows. We also agreed
judgement by management. a sample of successful
patent applications to
the US patent register
to confirm ownership by
the Company.
Due to the published realisation
policy, management revised
some of the assumptions
and expectations applied
to the valuation of the
investments from the prior
year. This resulted in
a significant net decrease
in the fair value of these
investments. We understood
and validated the current
year assumptions and expectations
with reference to the
directors' stated realisation
strategy as documented
in the statutory minutes
of the Company and through
discussion with management.
For the patents, we compared
the assumed aggregated
price per patent applied
by management at a portfolio
level to available market
information within similar
industries for reasonableness.
Debt securities
The significant unobservable
input in the calculation
of debt securities was
the potential tax liability
and estimated professional
costs to be incurred on
receiving gross settlement
proceeds. We obtained
the model prepared by
management estimating
future settlement proceeds
to be received net of
expected tax liabilities
and professional expenses
deducted at the investment
level. Our testing involved
an assessment of the key
assumptions, including
the probability of future
tax liabilities being
incurred, by reference
to source documentation
and advice received by
the Company from external
tax lawyers.
Conclusion
Inputs and assumptions
used by management in
the valuation model of
the investments are deemed
reasonable. We continue
to emphasise however that
due to the inherent uncertainty
associated with the valuation
of the investments and
the absence of a liquid
market, the fair values
may differ from their
realisable value, and
the differences could
be material.
Realisation of Investments Our audit testing focused
Realised gains and losses on the criteria required
and disposal proceeds to recognise a realisation.
from investments are disclosed We challenged management
in Note 5 to the financial to ensure that any realisations
statements. are appropriately related
to 'disposals' and also
whether any other investments
The realisation of investments should be realised where
is also determined to a decision has been made
be a key audit matter to no longer invest /
as legal agreements exist pursue. Our work in this
that contain complex distribution area consisted of corroborating
hierarchies governing board minutes, discussions
the payment of proceeds with the board of directors
to the Company. and the Investment Manager,
In addition, the esoteric considering the results
nature of the legal agreements of our discussions with
creates uncertainty over the case lawyers and also
the de-recognition of considering other supporting
investments, the rights documentation.
to any future proceeds
that may be generated Where the de-recognition
and whether the Company criteria was met, we understood
is entitled to those proceeds and recalculated the associated
following a decision to distribution hierarchy
no longer invest in that governing payments in
investment. line with the relevant
Proceeds received from agreements up from the
the realisation of investments underlying gross proceeds
for the year ended 31 through to the Company.
December 2017 is material, This included assessing
with a significant realised any amounts held back
gain recognised only on for future tax liabilities
the debt securities held. (see Valuation of Investments
Recognising a realisation above).
is not always a straightforward We tested the mathematical
process, as there is no accuracy of the realised
physical asset or note/shares gains and losses in the
that are being disposed year by tracing the historic
of. In many cases, there cost of the investments
are cash receipts received to the original investment
yet an interest in the amount. Where proceeds
investment remains but were received, we agreed
the extent of that interest the amounts to cash receipts.
continues to be uncertain. We reconciled the above
testing to the realised
gain of $2,221,822 in
the statement of comprehensive
income.
Where significant judgment
was used, we have reviewed
the disclosures of the
financial statements to
ensure these judgements
are sufficiently disclosed.
Conclusion
Judgements made by management
over the de-recognition
of investments and the
calculation of realised
gains and losses are deemed
to be reasonable.
Other information
The directors are responsible for the other information. The
other information comprises the Corporate Information, the
Chairman's Statement, the Investment Manager's Report, and the
Directors' Report (but does not include the financial statements
and our auditor's report thereon).
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of the directors for the financial
statements
The directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards, the requirements of
Guernsey law and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters relating to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
See note 2 to the financial statements, which refers to the
intention of the directors to commence an orderly wind down of the
Company in 2018, and that the directors have therefore determined
that the going concern basis of preparation is no longer suitable
for the Company.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the director's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit;
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this
responsibility.
This report, including the opinion, has been prepared for and
only for the members as a body in accordance with Section 262 of
The Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Joanne Peacegood
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognized Auditor
Guernsey, Channel Islands
3 April 2018
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2017
2017 2016
---------- ---------------------
Notes US$ US$
INCOME
Finance income 2,260 1,029
Foreign exchange gain 461,360 -
463,620 1,029
---------- ---------------------
EXPENSES
Management fees 14(a) 1,750,000 3,000,000
Due diligence and transaction
costs 2(e) - 65,723
Directors' fees and expenses 14(f) 227,197 345,953
Audit fees 107,395 156,569
Legal and professional
expenses 53,061 199,639
Administration fees 14(e) 131,852 151,593
Foreign exchange loss - 233,179
Other expenses 265,079 339,015
2,534,584 4,491,671
---------- ---------------------
INVESTMENT MOVEMENTS
Amortisation of intangible
asset 4 (103,204) (1,069,398)
Impairment of intangible
asset 4 (11,138) (1,078,011)
Realised gains/(losses)
on financial assets and
financial liabilities at
fair value through profit
or loss 5 2,221,822 (10,417,718)
Movement in unrealised
loss on financial assets
and financial liabilities
at fair value through profit
or loss 5 1,030,145 (20,257,942)
Impairment of settlement
proceeds 8 - (533,171)
3,137,625 (33,356,240)
---------- ---------------------
Profit/(loss) and total
comprehensive income/(expense)
for the year 1,066,661 (37,846,882)
========== =====================
Earnings/(deficit) per
Ordinary Share 17
Basic Cents 0.97 (34.30)
Diluted Cents 0.97 (34.16)
The notes on pages 25 to 46 form an integral part of these
financial statements.
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017
2017 2016
------------ -------------------
Notes US$ US$
ASSETS
Non-current assets
Intangible assets 4 - 111,387
Financial assets at fair
value through profit or
loss 5 - 18,913,238
- 19,024,625
------------ -------------------
Current assets
Financial assets at fair
value through profit or
loss 5 8,329,496 -
Other receivables and prepayments 8 3,267,545 4,167,210
Cash and cash equivalents 5,786,476 5,017,077
17,383,517 9,184,287
------------ -------------------
TOTAL ASSETS 17,383,517 28,208,912
============ ===================
EQUITY AND LIABILITIES
Equity
Capital and reserves 13 17,250,584 28,036,878
Total assets attributable
to ordinary shareholders 17,250,584 28,036,878
------------ -------------------
Current liabilities
Other payables 10 132,933 172,034
Total liabilities 132,933 172,034
------------ -------------------
TOTAL EQUITY AND LIABILITIES 17,383,517 28,208,912
============ ===================
Number of ordinary shares 110,340,019 110,340,019
Net asset value per Ordinary
Share 16 $0.1563 $0.2541
These financial statements were approved and authorised for
issue by the Board of Directors on 3 April 2018 and signed on its
behalf by:
RJ Battey
Director
The notes on pages 25 to 46 form an integral part of these
financial statements
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
Capital Treasury Total
and Reserves Shares
------------------ --------------------- ---------------------
Notes US$ US$ US$
Balance at 1 January
2016 126,783,917 (645,459) 126,138,458
Changes in equity
for 2016
Loss and total comprehensive
income for the year (37,846,882) - (37,846,882)
Total comprehensive
expense (37,846,882) - (37,846,882)
Treasury shares cancelled (645,459) 645,459 -
Dividend 9 (60,254,698) - (60,254,698)
Balance at 31 December
2016 28,036,878 - 28,036,878
================== ===================== =====================
Changes in equity
for 2017
Profit and total
comprehensive income
for the year 1,066,661 - 1,066,661
Total comprehensive
income 1,066,661 - 1,066,661
Dividend 9 (11,852,955) - (11,852,955)
Balance at 31 December
2017 17,250,584 - 17,250,584
================== ===================== =====================
The notes on pages 25 to 46 form an integral part of these
financial statements.
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2017
2017 2016
------------- ---------------------
US$ US$
Cash flows from operating activities
Profit/(loss) and total comprehensive
income/(expense) for the year 1,066,661 (37,846,882)
Adjusted for:
Realised (gains)/losses on financial
assets and financial liabilities
at fair value through profit or
loss (2,221,822) 10,417,718
Movement in unrealised losses
on financial assets and financial
liabilities at fair value through
profit or loss (1,030,145) 20,257,942
Impairment of intangible asset 11,138 1,078,011
Amortisation of intangible asset 103,204 1,069,398
Finance income (2,260) (1,029)
Impairment of settlement proceeds - 533,171
Foreign exchange (gains)/losses (461,360) 233,179
Changes in working capital
Purchases of current/non-current
assets at fair value through profit
or loss (32,535) (30,574,299)
Settlement of current/non-current
assets and financial liabilities
at fair value through profit or
loss 14,753,423 72,301,200
Decrease in other receivables
and prepayments 11,531 769,278
Decrease in other payables and
performance fee (39,101) (118,004)
Net cash flow from operating activities 12,158,734 38,119,683
Cash flows from investing activities
Interest received 2,260 1,029
Net cash flow from investing activities 2,260 1,029
------------- ---------------------
Cash flows from financing activities
Dividends paid (11,852,955) (59,017,109)
Net cash flow from financing activities (11,852,955) (59,017,109)
Net increase/(decrease) in cash
and cash equivalents 308,039 (20,896,397)
------------- ---------------------
Cash and cash equivalents at the
beginning of the year 5,017,077 27,384,242
Effect of foreign exchange rate
changes 461,360 (1,470,768)
Cash and cash equivalents at the
end of the year 5,786,476 5,017,077
============= =====================
The notes on pages 25 to 46 form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2017
1. LEGAL FORM AND PRINCIPAL ACTIVITY
The Company is an authorised closed-ended investment company
incorporated under The Companies (Guernsey) Law, 2008 (the "Law").
The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a
market operated by the London Stock Exchange, on 21 December 2007.
The address of the Company's registered office is 11 New Street, St
Peter Port, Guernsey, Channel Islands, GY1 2PF.
The investment objective of the Company had been to build a
diversified portfolio of investments in claims and patents and to
provide Shareholders with an attractive level of dividends and
capital growth through investing directly and indirectly in
litigation and arbitration cases, claims and disputes. These
investments have been made predominantly in the United States. On
18 November 2015 the Company announced that it would not make new
investments (other than for funding existing investments in the
Company's portfolio where such funding is reasonably required to
realise maximum shareholder value) but, instead, would seek to
return capital to shareholders in the most appropriate manner
following the completion of investments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
(a) Basis of preparation
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and all applicable requirements of The Companies
(Guernsey) Law, 2008. They have been prepared on a non-going
concern basis, under the historical cost convention as modified by
the revaluation of financial assets and financial liabilities at
fair value through profit or loss.
The Board of directors confirmed that the going concern basis of
preparation for the financial statements is no longer suitable for
the Company. As noted in the 2016 annual financial statements, a
run off strategy was applied however in light of the board's
intention for an orderly wind down of the Company in 2018, discount
factors applied to the valuation of residual investments have been
deepened to increase the likelihood of monetizing any remaining
investments held. In applying this strategy the Board of directors
remain focused in seeking the best value for the shareholders of
the Company.
The following primary statements and notes were adjusted as a
result of the change in basis of preparation;
Statement of Financial Position in which the Non-current assets
were reclassified as Current assets
Note 3 Critical accounting estimates and judgements
Note 6 Fair value estimation
Note 15 Capital risk management
Other than the adjustments outlined above the accounting
policies have been applied consistently throughout the year under
audit and, where relevant, accounting policies have been amended to
reflect the non-going concern basis.
The comparative financial statements and associated notes remain
unchanged and are prepared on a going concern basis.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the
process of applying the Company's accounting policies. The areas
involving a degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in Note 3.
For the financial year beginning 1 January 2013, the Company
early adopted IFRS 9 'Financial instruments', which is otherwise
effective for periods beginning on or after 1 January 2018.
For the financial year ended 31 December 2017, the following
IFRS standards or interpretations were adopted by the Company. Upon
review, it was the opinion of the Directors that Amendments to IAS
7 had no impact on the Statement of Cash flows and the
implementation of Annual improvements 2014 - 2016 Cycle had not had
a significant impact on the financial statements presentation.
-- Amendment to IAS 7 'Statement of Cash Flows', effective for
periods commencing on or after 1 January 2017. Amendments requiring
entities to disclose information about changes in their financing
liabilities; and
-- Annual Improvements 2014 -2016 Cycle, effective for periods
commencing on or after 1 January 2017.
The following IFRS standards or interpretations have been issued
but are not yet effective, and have not been adopted by the
Company:
-- Amendments to IFRS 9 'Financial Instruments' effective for
periods commencing on or after 1 January 2018. This IFRS introduces
a new approach to the classification of financial assets, which is
driven by the business model in which the asset is held and their
cash flow characteristics.
-- IFRS 15, "Revenue from Contracts with Customers" (effective
for periods beginning on or after January 2018).
The standard and amendment to standard, reported above will be
adopted when they become effective however upon review, it is the
opinion of the Directors that neither will have a material impact
on the Financial Statements.
In accordance with the Company's Admission Document of 17
December 2007, the Directors convened an extraordinary general
meeting of the Company, on 14 November 2013, at which a resolution
was proposed that the Company be wound up voluntarily. The
resolution was not passed by the Company's members.
(b) Investment entity
The Company has multiple unrelated investors and indirectly
holds multiple investments through the subsidiary companies.
Ownership interests in the Company are in the form of redeemable
shares which are classified as equity in accordance with IAS 32 and
which are exposed to variable returns from changes in the fair
value of the Company's net assets. The Company has been deemed to
meet the definition of an investment entity per IFRS 10, and
therefore does not prepare consolidated financial statements, as
the following conditions exist:
(a) The Company has obtained funds for the purpose of providing
investors with investment management services.
(b) The Company's business purpose, which was communicated
directly to investors, is investing solely for returns from capital
appreciation and investment income.
(c) The performance of investments made through the Company are
measured and evaluated on a fair value basis.
(c) Geographical and segmental reporting
Since the Company is engaged in the provision of similar
products and services within a particular economic environment,
being subject to similar risks and returns, management considers
that the Company has only one business segment and geographical
focus, being investments in legal claims and patents primarily in
the United States ("US"), and accordingly does not present
additional business and geographical segment information. The
Investment Manager is responsible for the investment decisions for
the Company's entire portfolio and considers the business to have a
single operating segment. The Investment Manager's asset allocation
decisions are based on a single, integrated investment strategy,
and the Company's performance is evaluated on an overall basis.
(d) Financial assets at fair value through profit or loss
(i) Contractual interests
Classification
Unless otherwise determined by the Company, investments in
claims will be categorised as contractual interests held at fair
value through profit or loss. These financial assets will initially
be measured as the cash sum provided to acquire an interest in a
plaintiff's claim or as the cash advanced to law firms under loan
agreements. Attributable due diligence costs are expensed when they
occur.
Recognition and measurement
Subsequent measurement of contractual interests will be at fair
value utilising a fair value model developed by the Investment
Manager. The principal assumptions to be used in the fair value
model are as follows:
-- Estimated duration of each contractual interest; and
-- Best estimate of anticipated outcome.
Movements in fair value arising on all performing contractual
interests are recognised in the Statement of Comprehensive Income,
as determined by utilising the fair valuation model.
The fair value model is a way of calculating the fair value of a
financial asset or liability and of recognising the fair value
gains and losses in that period.
Fair value estimation
Fair value will be reviewed semi-annually on an individual case
basis. Events that will trigger changes to the fair value of each
contractual interest include the following:
-- Changes in general US dollar interest rate assumptions
(market assumption) and the time value of money;
-- Changes in any variable relating to a claim including:
assessment of probability of successful judgement; range of
settlement or award; expected timing until claim resolution; and
extrinsic risks related to a claim;
-- Successful judgement of a claim in which the Company has a contractual interest;
-- Unsuccessful judgement of a claim in which the Company has a contractual interest;
-- Outstanding appeals against both successful and unsuccessful judgements;
-- A contractual interest to be sold at a discount or to be
settled out of Court by a binding agreement;
-- Legal impediments to collectability of claims (in the US
Chapter 7 Bankruptcy or Chapter 11 Court Protection from
Creditors); and
-- A case is dismissed with prejudice (meaning, it can never be re-filed anywhere).
De-recognition - Partial settlement
Partial settlement of contractual interests occurs when one or
more parties, but not all parties, involved in the matter agree to
terms on a settlement amount. Proceeds received by the Company are
allocated between return of original principal and any gain based
on the following process:
-- Proceeds are discounted at a rate equal to the Company's cost of equity;
-- This discounted value represents the portion of proceeds
attributable to a return of investment with the remainder
representing a gain associated with the partial settlement; and
-- The amount representing the gain is then compared against any
prior gain recognised on the portion of the proceeds attributed to
a return of investment (calculated by using the fair valuation
model) with the difference reflected as current year realised gain
or loss.
De-recognition - Full settlement
Full settlement of contractual interests occurs when all parties
involved in the matter agree to terms on a settlement amount or the
full legal process has concluded with either proceeds being awarded
or dismissal (no proceeds awarded). Proceeds received by the
Company are first allocated to the return of any remaining
principal with the remainder allocated to gain. The amount
representing the gain is then compared against any prior gain
recognised on the portion of the proceeds attributed to a return of
investment (calculated by using the fair valuation model) with the
difference reflected as current year realised gain or loss.
(ii) Equity investments
Classification
The Company classifies its equity investments at fair value
through profit or loss at inception. These financial assets will
initially be measured as the cash sum provided to acquire the
investment. Attributable due diligence costs are expensed when they
occur.
Equity investments are intended to be held for an indefinite
period of time, and that may be sold in response to needs for
liquidity or changes in interest rates, exchange rates or equity
prices. The Company could be seen to have significant influence
over certain of its equity investments as a result of its stake in
each of those assets. If significant influence exists, that
investment, under IFRS, should be accounted for as an 'Associate'
and hence the equity accounting method should be applied. However,
the Board has taken the view that (a) there is no material
difference in accounting for these investments as associates and
accounting for them as financial assets at fair value; (b) there is
no material difference in the disclosure; and (c) the strategy of
the Company is to hold investments as part of an investment
portfolio with a view to the ultimate realisation of capital gains
rather than as a medium to carry out its own business, hence
accounting for these investments as non-current assets is the most
appropriate method.
Recognition, derecognition and measurement
Equity investments will initially be measured at cost and are
subsequently carried at fair value. Gains and losses arising from
changes in the fair value are recognised in the Statement of
Comprehensive Income.
Fair value estimation
The assessment of fair value is determined by the level of
assets of the investments (including intellectual property), the
quality of income and earnings and the present value of future cash
flows of the equity investments, discounted at the cost of equity.
The estimates and assumptions made by the Investment Manager in
determining this fair value have been outlined in Note 3.
Settlement
When equity investments are sold or impaired, the movement in
fair value will be recognised in the Statement of Comprehensive
Income.
(iii) Debt securities
Classification
Debt security investments are classified at fair value through
profit or loss at inception. These financial assets will initially
be measured as the cash sum advanced to the law firm.
Recognition, derecognition and measurement
The debt security investments will initially be measured at cost
and are subsequently carried at fair value. Gains and losses
arising from changes in the fair value are recognised in the
Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the present value of future cash
flows, at the discount rate of the Company. The estimates and
assumptions made by the Investment Manager in determining this fair
value have been outlined in Note 3.
Settlement
When debt security investments are sold, the movement in fair
value will be recognised in the Statement of Comprehensive
Income.
(e) Due diligence and transaction costs
The due diligence and transaction costs attributable to
investments in contractual interests, equity investments and debt
securities, and any other due diligence and transaction costs not
directly relating to an investment, have been expensed immediately
in the Statement of Comprehensive Income.
Due diligence and transaction costs associated with investments
characterised as intangible assets are expensed until such time as
the following has been affirmed: i) the technical feasibility of
completing the intangible so that it will be available for use or
sale; ii) the intention to complete the intangible asset and use or
sell it; iii) the ability to use or sell the intangible asset; iv)
how the intangible asset will generate probable future economic
benefits; v) the availability of adequate technical, financial and
other resources to complete the development and to use or sell the
asset; and vi) the ability to measure reliably the expenditure
attributable to the intangible asset during its development, at
which time they are capitalised as an intangible asset and held at
cost less accumulated amortisation and any impairment loss.
(f) Foreign currency
Functional and presentation currency
Items included in the financial statements are measured using
the currency of the primary economic environment in which the
entity operates (the "functional currency"). The functional
currency of the Company as determined in accordance with IFRS is
the United States Dollar ("US Dollar") because this is the currency
that best reflects the economic substance of the underlying events
and circumstances of the Company. The financial statements are
presented in US Dollars, the presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rate prevailing at the date of the
transaction. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
(g) Finance income
Finance income arising on cash and cash equivalents is
recognised in the Statement of Comprehensive Income on the
effective interest basis.
(h) Cash and cash equivalents
Cash and cash equivalents comprised of cash balances and
deposits held at banks with a maturity profile of 3 months or
less.
(i) Taxation
The Company has obtained exempt company status in Guernsey. The
Company is, therefore, only liable to an annual exemption fee of
GBP1,200 (2016: GBP1,200). The Company's subsidiaries are subject
to income tax in their respective jurisdictions.
To the extent that any foreign withholding taxes or any form of
profits taxes become payable, these will be accrued on the basis of
the event that created the liability to taxation.
(j) Expenses
Expenses are accounted for on an accruals basis. Expenses for
monitoring claims will generally be paid by the Investment Manager
except in extraordinary circumstances approved by the Board of
Directors of the Company.
(k) Dividends
Dividends declared during the period will be disclosed directly
in equity via the Statement of Changes in Equity. A final dividend
proposed by the Board and approved by the shareholders prior to the
year-end will be disclosed as a liability. Dividends proposed and
not approved will be disclosed in the Notes.
(l) Other receivables and prepayments
Other receivables and prepayments are recognised initially at
fair value and subsequently measured at cost less provision for
impairment.
(m) Other payables
Other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest rate method.
(n) Capital and reserves
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown in
equity via the reserves as a deduction from the issue proceeds.
Where the Company purchases the Company's own equity share
capital (treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income taxes) is
deducted from equity attributable to the Company's equity holders
until the shares are cancelled or reissued. Where such ordinary
shares are subsequently reissued, any consideration received, net
of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to
the Company's equity holders. Where such ordinary shares are
cancelled their value is transferred to reserves.
(o) Intangible asset
Where the Company has entered into an agency agreement involving
licensing of intellectual property, the resulting transaction will
be categorised as an intangible asset (see Note 4). The cost of the
intangible asset will be capitalised once it is possible to
demonstrate that the intangible asset will generate probable future
economic benefit. Intangible assets will be held at cost less any
accumulated amortisation and any accumulated impairment losses.
Amortisation will be on a systematic basis over the asset's useful
life.
(p) Impairment of intangible assets
The carrying amounts of intangible assets are assessed on a
semi-annual basis to determine whether there is any indication of
impairment. If such indication exists, the Company estimates the
recoverable amount of the asset, being the higher of the asset's
net selling price and its value in use. Any impairment loss is
recognised for the amount which the asset's recoverable amount is
lower than its carrying value and the difference being taken to the
Statement of Comprehensive Income.
The Company first assesses whether objective evidence of
impairment exists. In assessing value in use, the estimated future
cash flows are discounted to their present value using the discount
rate that reflects current assessment of the time value of money
and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
The amount of the loss is measured as the difference between the
asset's carrying amount and the present value of estimated future
cash flows. The carrying amount of the asset is reduced and the
amount of the loss is recognised in the Statement of Comprehensive
Income.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the reversal of the
previously recognised impairment loss is recognised in the
Statement of Comprehensive Income. In the year ended 31 December
2017 an impairment of US$0.01 million was determined and is
reflected in the Statement of Comprehensive Income (2016: US$1.1
million).
(q) Share-based payments transactions
The Company engages in equity settled share-based payment
transactions in respect of the services received from one of its
Directors and from Cenkos Securities PLC ("Nominated Adviser and
Broker") as set out in the Company's Admission Document. The fair
value of the services received is measured by reference to the fair
value of the shares or share options granted on the date of the
grant. The fair value of the share options is recognised in the
Statement of Comprehensive Income over the period that the services
are received, which is the vesting period.
The fair value of the options granted is determined using the
Black-Scholes option pricing model, which takes into account the
exercise price of the option, the current share price, the risk
free interest rate, the expected volatility of the share price over
the life of the option and other relevant factors. Except for those
which include terms relating to market conditions, vesting
conditions included in the terms of the grant are not taken into
account in estimating the fair value.
Non-market vesting conditions are taken into account by
adjusting the number of shares or share options included in the
measurement of the cost of the services so that, ultimately, the
amount recognised in the Statement of Comprehensive Income reflects
the number of vested shares or share options. Where vesting
conditions are related to market conditions, the charges for the
services received are recognised regardless of whether or not the
market conditions-related vesting condition is met, provided that
the non-market vesting conditions are met.
(r) Earnings/deficit per share
The basic earnings/deficit per share value is calculated by
taking the total comprehensive income/loss for the period and
dividing it by the weighted average number of ordinary shares in
issue over the period. The diluted earnings per share figure is
calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential
ordinary shares (see Note 17).
(s) Net asset value per share
Net asset value per share is calculated by taking the net assets
attributable to ordinary shareholders and dividing it by the number
of shares in issue at the year-end (see Note 16).
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Investment Manager makes estimates and assumptions
concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities are
outlined below.
Critical accounting judgements in applying the Company's
accounting policies
The Company makes investments in claims and patents that may
involve litigation. The nature of the investments made by the
Company reduces by some predetermined amount the cost of litigating
a matter to a plaintiff and/or a law firm. A typical investment by
the Company will include cash and may also include cash commitments
subject to certain restrictions. In most arrangements, the Company
is paid only from proceeds generated from the litigation and any
related settlement or award. If a lawsuit fails to generate any
proceeds and all legal remedies are exhausted, the Company will
often not be entitled to reimbursement of the facility they
advanced to the counterparty for the specific claim. In these cases
the Company will write off their investment in the claim as a loss.
The Company is compensated for this risk through the return
structure built into the investment. The Company mitigates this
risk through the use of their Investment Manager which is
experienced in evaluating the investment worthiness of a particular
opportunity.
In the process of applying the Company's accounting policies,
which are described in Note 2, the Directors have reviewed the
Investment Manager's assessment of the fair value of contractual
interests including the probability of success on the merits of
each claim, likelihood of settlement and claim duration. This is
most evident in the assessment of the fair value applied to
contracts entered into by the Company, as disclosed in Note 5.
For one of the Company's litigation investments (accounted for
as a contractual interest), the Investment Manager determined fair
value at 31 December 2017 by following a formal process of
developing a set of scenarios for the case and assigning
probabilities to each potential outcome. The probabilities were
phased based on the expected progression path of the case. In
addition, each potential successful scenario has a range of likely
settlement proceeds assigned to it as well as a most likely
resolution or settlement date. The scenarios not only incorporate
the merits of the case but also consider known risks intrinsic to
the particular matter, as well as general risks found in any
litigation matter.
For the remainder of the Company's investments, the Investment
Manager determined fair value at 31 December 2017 by either: (i)
determining a risk adjusted liquidation value, applied to
investments considered to be of short duration; or (ii) developing
a risk adjusted discounted cash flow model. This latter methodology
is used primarily for three of the Company's patent SPVs where a
critical input is the price per patent. Risk factors considered
include some or all of the following: quantum risk; timing risk;
execution risk and for certain investments, consideration of
monetising an investment within a shortened timeframe (following
the Company's intention to seek resolution and monetisation of the
remaining investments if possible by the end of 2018).
Determining whether intangible assets are impaired requires an
estimation of the future cash flows of the intangible assets, and
the use of a suitable discount rate in order to calculate present
value. During the year, the Company's intangible asset was written
off as explained further in Note 4.
4. INTANGIBLE ASSET
31 December 31 December
2017 2016
----------------- -------------------
US$ US$
Balance at start of the year 111,387 2,058,796
Additions 2,955 200,000
Amortisation (103,204) (1,069,398)
Impairment of Intangible
Asset (11,138) (1,078,011)
Balance at end of the year - 111,387
================= ===================
The Company's intangible asset comprises an investment
structured as an agency agreement. Additions to the intangible
asset during the first half of the year are deemed to have occurred
at 30 June 2017 and additions during the second half of the year
are deemed to have occurred at 31 December 2017. The Company
amortises the intangible asset on a straight-line basis so that the
balance is US$Nil by 31 December 2017. The Directors consider that
the straight-line basis of amortisation most accurately reflects
the pattern in which the asset's future economic benefits are
expected to be consumed by JIL.
In addition, the Company purchased common and preferred stock
related to the intangible asset, which has been classified as a
financial asset at fair value through profit or loss (Note 5).
As at 31 December 2017 the Intangible Asset and related common
and preferred stock was entirely amortised and impaired, having no
residual value.
5. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
2017
---------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at proceeds in fair gains at
1 Jan value 31 Dec
2017 2017
------------ ---------- ------------- ---------- ---------- ----------
Financial US$ US$ US$ US$ US$ US$
assets
Contractual
interests 7,791,562 32,535 (978,607) (590,885) 147,866 6,402,471
Equity investments 621,676 35,000 - (262,476) - 394,200
Debt securities 10,500,000 - (12,924,637) 1,883,506 2,073,956 1,532,825
Total 18,913,238 67,535 (13,903,244) 1,030,145 2,221,822 8,329,496
============ ========== ============= ========== ========== ==========
As outlined in Note 2 Summary of Significant Accounting
Policies, the 2017 audited financial statements of the Company have
been prepared on a non-going concern basis. The financial assets at
fair value through profit and loss have been reclassified as
current assets. The classification of the comparative financial
assets at fair value through profit and loss as non-current assets
remains unchanged.
2016
----------------------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at proceeds in fair losses at
1 Jan value 31
2016 Dec
2016
----------- ------------ ---------------- -------------- -------------- -----------
Financial US$ US$ US$ US$ US$ US$
assets
Contractual
interests 29,435,299 997,274 (748,210) (15,159,640) (6,733,161) 7,791,562
Equity investments 5,950,296 100,000 - (1,744,063) (3,684,557) 621,676
Debt securities 55,392,082 30,431,136 (71,968,979) (3,354,239) - 10,500,000
Total 90,777,677 31,528,410 (72,717,189) (20,257,942) (10,417,718) 18,913,238
=========== ============ ================ ============== ============== ===========
(a) Contractual interests
Fair value movements of contractual interests are due to
amendments in estimated cash flows arising from changes in
expectations surrounding each case. The valuation of the Company's
contractual interests decreased by approximately US$1.4 million
reflecting US$0.9 million of disposal proceeds, US$0.1 million of
realised profit on disposals and US$0.6 million net decrease due to
each investment's individual change in fair value.
(b) Equity investments
The valuation of the Company's equity investments decreased by
US$0.2 million reflecting the US$0.2 million net decrease due to
each investment's individual change in fair value, after additions
adjustment.
The Company's equity investments include a holding in JCML 2007
(See note 7). The fair value of the Company's investment in JCML
2007 was assessed as at 31 December 2017 to be US$100,000 (2016:
US$9,240). This assessment of fair value is deemed appropriate
given the investment in the company, the level of net assets, and
the expected distributions receivable once the JCML liquidation is
concluded.
(c) Debt securities
Historically the facility agreement with Fields Law (consisting
of a consolidated loan agreement and a swap agreement) have been
aggregated and treated as a single claim asset. Returns on the loan
and the swap are dependent on returns in claims financed by Fields
Law. In accordance with provisions under the swap, proceeds
previously paid by Fields Law to Riverbend Investments Limited
("Riverbend") can be clawed back by Fields Law if needed to meet
funding obligations within the antitrust and competition portfolio
or to prepay accrued interest and principal if agreed to by Fields
Law and the Company.
Additions to the Company's debt securities during 2017 totalled
US$Nil (2016: US$30.4 million) and consisted of the following: i) a
clawback of US$Nil (2016: US$5.0 million) paid to Fields Law to
fund the underlying investment; ii) a clawback of US$Nil (2016:
US$11.1 million) paid to Fields Law enabling Fields Law to prepay a
portion of accrued interest and principal owed under the loan; and
iii) US$Nil (2016: US$14.3 million) enabling Riverbend to fulfil
its obligation under the swap and allowing for Fields Law to pay
all remaining accrued interest and principal on the loan coinciding
with the termination of the loan and swap.
The facility agreement described above was replaced and
superseded by an Agreement relating to the termination of a Swap
Agreement dated 25 August 2016. This agreement was considered to
constitute and continue the remaining debt security held.
During 2017, the Company was due payments under the Swap
Termination Agreement totalling US$12.9 million (2016: US$72.0
million) consisting of (i) US$12.9 (2016: US$46.5 million) million
from proceeds received by Fields Law from settlements in the cases
financed through Fields Law and (ii) a total of US$Nil (2016:
US$25.5 million) paid by Fields Law to settle any remaining
Riverbend obligations under the Swap Agreement. Under the terms of
the Swap Termination Agreement, Fields Law settled all remaining
accrued interest and principal owed under the loan in 2016.
Fair value movements of debt securities are due to amendments in
estimated cash flows arising from changes in expectations
surrounding each investment. The fair value at 31 December 2017
solely includes an estimate of reserves that may be released by
Riverbend after all contingencies are cleared (expected to be no
later than end of year 2020).
To the extent proceeds received by the Company in any year
exceeds the excess of the total prior unrealised gain, a realised
gain equal to the excess will be reflected in the financial
statements. At completion of the investment, any residual
unrealised gain or loss will be reclassified to a realised gain or
loss.
6. FAIR VALUE ESTIMATION
For instruments for which there is no active market and for
which reliable pricing sources cannot be obtained, the Company may
use internally developed models, which are usually based on
valuation methods and techniques generally recognised as standard
within the industry. Valuation models are used primarily to value
unlisted equity, debt securities and other debt instruments for
which markets are or have been inactive during the financial year.
Some of the inputs to these models may not be market observable and
are therefore estimated based on assumptions.
In response to the Company's run-off strategy and considering
the non-going concern basis of financial statement preparation, as
part of the fair value assessment of the Company's investments in
the current year, the potential likelihood of monetising certain
investments within the forthcoming calendar year has been
considered.
The carrying value less impairment provision of other
receivables and payables are assumed to approximate their fair
values.
IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or
updated, reliable and verifiable, not proprietary, and provided
by independent sources that are actively involved in the relevant
market.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include equity investments. As observable prices are
not available for these investments, the Company has used valuation
techniques to derive their fair value.
All of the Company's other financial assets and liabilities are
classified as level 3. There were no transfers between levels for
the year ended 31 December 2017 (2016: Nil).
In previous periods, the Company had identified three key
unobservable inputs to the valuation model used in the valuation of
investments held at fair value through profit or loss: expected
quantum, expected duration, and cost of equity although not all of
these unobservable inputs were applicable to every investment.
These unobservable inputs were:
-- Expected quantum: The greater the quantum expected at
conclusion, the greater the valuation at any point in time. The
reduction of the quantum expected at conclusion, will reduce the
valuation at any point in time.
-- Expected duration: The greater the expected duration of an
investment, the lower the valuation at any point in time, other
than at conclusion. The reduction of the expected duration of an
investment will increase the valuation at any point in time, other
than at conclusion.
-- Cost of equity: The Company's cost of equity was determined
to be 11%. As the Company's cost of equity decreases, the
valuations at any point in time will increase, other than at
conclusion. As the Company's cost of equity increases, the
valuations at any point in time will decrease, other than at
conclusion.
The Company is now valuing its investments based primarily on
expected proceeds either from an investment successfully completing
its duration or from the Company selling its investment at a risk
adjusted value. The Company believes this is a more accurate
approach given the maturity of the Company's investments and the
Company's run-off strategy. As such, the Company has identified two
key unobservable inputs to the valuation models used in the
valuation of investments held at fair value through profit or loss
for the year ended 31 December 2017. These unobservable inputs
are:
-- Expected proceeds at monetisation: As the level of expected
proceeds at monetisation increases, the valuation at any point in
time will increase. As the level of expected proceeds at
monetisation decreases, the valuation at any point in time will
decrease. For certain investments, the level of expected proceeds
at monetisation is based on certain pricing assumptions for key
components applicable to the particular investment.
-- Liquidity discount: As the Company proceeds through its
run-off strategy, the Company may look to liquidate certain
investments to a third party at a discount to its potential
terminal value. As the liquidity discount increases, the valuation
at any point in time will decrease. As the liquidity discount
decreases, the valuation at any point in time will increase.
The following table summarises the sensitivities:
Reasonable Change in valuation
Unobservable possible (due to +/- change
input shift (+/-) in input)
------------- ------------- --------------------
Expected
proceeds 10% 9.60% / (9.93%)
Liquidity 10 basis
discount points (21.94%) / 21.94%
7. UNCONSOLIDATED SUBSIDIARY AND ASSOCIATE INVESTMENTS
The following subsidiary and associate investments are held by
the Company but have not been consolidated, following the
Investment Entities exemption per IFRS 10 (see Note 2 (b)):
% Share holdings
Date Country 31 December 31 December
incorporated of incorporation 2017 2016
-------------------- ------------ ------------
JCML 2007 Limited
(#*) 28-Nov-07 Guernsey - 36.2%
Riverbend Investments
Limited 08-Oct-08 Guernsey 100.0% 100.0%
GrandiOs Technologies, United
LLC 25-Feb-09 States 100.0% 100.0%
Juridica Ventures
KFT 02-Mar-09 Hungary 100.0% 100.0%
Juridica Ventures United
(US) Inc. 31-May-09 States 100.0% 100.0%
Escon Capital, Inc. United
(#) 26-Apr-10 States 38.6% 38.6%
United
Spinal Spot LLC 28-Feb-11 States 65.9% 65.9%
United
Spinal Ventures LLC 25-Mar-11 States 100.0% 100.0%
Juridica Sports Technology United
LLC 22-Apr-14 States 100.0% 100.0%
ProSports Technologies, United
LLC 22-Apr-14 States 81.3% 81.3%
Juridica RMIP Holdings, United
LLC 31-Jul-14 States 100.0% 100.0%
Rich Media Ventures, United
LLC 31-Jul-14 States 86.6% 86.6%
Juridica Holdings United
LLC () 15-Jun-16 States 100.0% 100.0%
Turtle Bay Technologies United
Limited ^ 22-Oct-08 Kingdom 100.0% 100.0%
Eleven Engineering United
Game Control LLC(@) 05-Aug-09 States N/A 100.0%
There are no outstanding commitments with these unconsolidated
subsidiaries and associates at the year end, other than those
disclosed in Note 11.
(#) JCML 2007 Limited and Escon Capital, Inc. are not
subsidiaries however, Juridica Investments Limited had or has a
significant interest in them.
(*) JCML 2007 Limited was placed in liquidation on 29 November
2017 (See Note 18 Subsequent Events)
() Juridica Holdings LLC, a Delaware limited liability company
formed and registered on 15 June 2016, is 100% owned by JIL. Its
only asset is a US$7.25 million note received in exchange for the
shares of AC Kinetics.
(^) Turtle Bay Technologies Limited ("Turtle Bay"), previously
owned by JCML 2007, became 100% owned by JIL during 2016. Turtle
Bay was the sole owner of Eleven Engineering Game Control LLC. Any
residual assets held by Turtle Bay were transferred to JIL during
December 2017. Turtle Bay was dissolved on 16 January 2018.
(@) Eleven Engineering Game Control LLC ("EEGC") was wound up
and dissolved on 31 August 2017. Any residual assets held by EEGC
were transferred to JIL, prior to dissolution.
8. RECEIVABLES AND PREPAYMENTS
31 December 31 December
2017 2016
------------ --------------------
US$ US$
Settlement proceeds 3,247,025 4,135,159
Management fees 366 366
Prepayments and accrued
bank interest 20,154 31,685
3,267,545 4,167,210
============ ====================
Settlement proceeds has been reduced by US$Nil (2016:
US$533,171) to reflect expected collectability of outstanding
receivable.
9. DIVID
The following dividend was declared and paid during the
year:
Declaration Payment Dividend Total dividends
date date per share US$
22 August 29 September
2017 2017 8 pence 11,852,955
11,852,955
================
During the year ended 31 December 2017, dividends totalling
US$11,852,955 (2016: US$60,254,698) had been declared. No dividends
remained payable as at 31 December 2017 (2016: US$Nil).
10. OTHER PAYABLES
31 December 31 December
2017 2016
------------ ---------------
US$ US$
Payable on investment
purchases - 9,460
Audit fees 60,828 59,216
Other creditors 72,105 103,358
132,933 172,034
============ ===============
11. COMMITMENTS & GUARANTEES
Under the terms of some of its contracts, the Company provides a
line of credit to counterparties. As at 31 December 2017, the
maximum commitment under these lines of credit was US$Nil (2016:
US$7,000). A portion of commitment may be fulfilled from investment
returns.
12. FUNCTIONAL AND PRESENTATION CURRENCY / EXCHANGE RATES
The financial statements are presented in United States Dollar
("US$") which is also the Company's functional currency. The
following rate was applicable:
Closing rate
--------------------------
31 December 31 December
2017 2016
------------ ------------
US$ US$
British pounds
(GBP) 1.3517 1.2337
============ ============
13. CAPITAL AND RESERVES
Authorised share capital: Unlimited number of ordinary shares of
no par value ("shares").
Issued share capital: 110,340,019 shares as at 31 December 2017
(2016: 110,340,019 shares).
Issuance of shares included 80,000,000 shares issued at a
premium of GBP1 per share on admission, and 30,701,754 shares
issued at a premium of GBP1.14 on 6 April 2009. On 4 June 2015, the
Company received 361,735 of its own shares as a result of an
in-specie dividend received from JCML 2007 at GBP1.16. During 2016
these shares were cancelled.
Under a Share Buyback Programme, the Company acquired 6,000,000
shares at a price of GBP1.02 per share on 3 November 2010 and the
Company also received 126,607 of its own shares subsequent to an
in-specie dividend received from the previous Investment Manager,
JCML 2007 on 27 November 2013. These shares were held in treasury,
however were subsequently sold for a premium at GBP1.39.
The Company's capital is represented by ordinary shares of no
par value and share premium. Each share carries one vote and is
entitled to dividends when declared. The relevant movements in
capital are shown on the Statement of Changes in Equity through
reserves.
The Company has authority to make market purchases of up to
14.99 per cent of its own issued ordinary shares. This authority
was renewed at the annual general meeting of the Company held on 30
April 2014. A renewal of the authority to make purchases of
ordinary shares will be sought from Shareholders at each annual
general meeting of the Company. The timing of any purchases will be
decided by the Board.
13. RELATED PARTY TRANSACTIONS
Richard Battey, as investor representative and non-executive
director of the Company, was also a non-executive director of JCML
2007. JCML 2007 was placed into voluntary liquidation on 29
November 2017. The principal of JCML 2007 was Richard Fields, who
owns 103,000 Ordinary Shares in the Company (0.09 per cent equity
interest) (2016: 103,000). JCML 2007 owns 118,254 Ordinary Shares
in the Company (0.107 per cent equity interest) (2016: 118,254
shares). Mr Fields was also sole beneficial owner of Juridica Asset
Management Limited ("JAML") until 11 January 2017 when Mr Fields
sold the entire issued share capital of JAML.
(a) Management fee
The Investment Manager changed its name from Juridica Asset
Management Limited to Brickell Key Asset Management Limited
("BKAML") on 19 January 2017.
Previously, BKAML was entitled to a management fee of 2 per cent
of the adjusted net asset value of the Company.
The adjusted net asset value is the net asset value of the
Company at the relevant time and will be calculated, after accruing
for the annual management fee but not taking into account any
liability of the Company for accrued performance fees, and
after:
(i) deducting any unrealised gains on non-current assets; and
(ii) adding the amount of any write downs with respect to
contractual interests which have not been written off.
On 8 February 2016, the Company entered into an amended
management agreement with BKAML. Under the terms of the amendments
the existing arrangements for management fees to BKAML as stated
above were altered to state that from 1 January 2016, the Company
will pay US$3,000,000 in management fees for the year ending 31
December 2016 and US$1,750,000 in management fees for the year
ending 31 December 2017. In January 2018, the Board agreed the fee
would be revised to US$500,000 for the year ending 31 December
2018. As at 31 December 2017 a receivable from BKAML of US$366
remained outstanding, for overpaid management fees (2016:
US$366).
(b) Investment in JCML 2007 Limited
The Company acquired 15 per cent of JCML 2007 on Admission,
which was subsequently diluted to 13.6 per cent by the exercise of
share options by certain of JCML 2007's employees. In 2012, the
Company acquired a further holding in JCML 2007, taking the
Company's overall holding in JCML 2007 to 36.17 per cent. JCML 2007
Limited was placed into voluntary liquidation on 5 December 2017
(See Note 18 Subsequent Events). Following the appointment of a
liquidator for JCML 2007 Limited the periodic impairment review of
the company was ended.
(c) Performance fee
Under the terms of the Management Agreement, JCML 2007, as
former Investment Manager, was entitled to a performance fee based
on the Adjusted Net Asset Value ("ANAV") (being the NAV of the
Company before taking into account any performance fee payable less
any unrealised gains on investments plus the value of any write
downs in any investments that have been written down but not
written off) of the Company. The performance fee payable was for an
amount equal to the sum of: (i) 20 per cent of the amount by which
the ANAV exceeded a 8 per cent annually compounding hurdle but was
less than an amount equal to a 20 per cent annually compounding
hurdle; (ii) 35 per cent of the amount by which the ANAV exceeded a
20 per cent annually compounding hurdle but was less than an amount
equal to a 40 per cent annually compounding hurdle; and (iii) 50
per cent of the amount by which the ANAV exceeded a 40 per cent
annually compounding hurdle.
The performance fee was subject to a high water mark such that
no performance fee will be paid if the performance of the Company
does not exceed the ANAV at the end of the previous year in which
the performance fee was paid.
As at 31 December 2017, the ANAV was below the high water mark
and no performance fee is payable for the year ended 31 December
2017 (2016: US$Nil).
BKAML replaced JCML 2007 as Investment Manager with effect from
1 January 2014. For financial periods following this date, any
performance fee payable on investments will be calculated based on
the date on which investments were made, and attributable to JCML
2007 for investments held at 31 December 2013, and to BKAML for all
new investments. BKAML will become entitled to a performance fee of
20 per cent of the annualised increase in the adjusted net asset
value over the hurdle rate. As at 31 December 2017, this hurdle
rate had not been achieved on investments attributable to
BKAML.
(d) Facility agreement and collateral account
The Company had entered into a facility agreement (the
"Facility") with which it agreed to loan to Fields Law, a law firm
in which Richard Fields is a partner, money for funding cases in
which Fields Law is to act under a Co-counsel Agreement. Prior to
adopting its run-off strategy, the Company expected to enter into
loan arrangements with other law firms (which could have included
other law firms established by the Principal of the Company) on
terms and conditions similar to those contained in the Facility.
The Facility available to Fields Law was to be for up to
approximately 50 per cent of the net proceeds of the capital raised
by the Company less any loans made to other law firms.
On 25 August 2016, the Facility (consisting of a consolidated
loan agreement and a swap agreement) was terminated with the
receipt by the Company of US$71.9 million in respect of the loan,
which was funded by the following: (i) payment by Fields Law to JIL
of US$46.5 million from proceeds received from settlements in the
underlying cases; and ii) a total of US$25.4 million paid by Fields
Law from the US$11.1 million clawback of prior year swap payments
made to Riverbend and US$14.3 million provided by Riverbend
fulfilling its obligation under the swap agreement and allowing
Fields Law to pay all remaining accrued interest and principal on
the facility once the Company's interest in the underlying cases
was deemed complete. The series of transactions resulted in a net
cash gain to JIL of US$46.5 million.
(d) Facility agreement and collateral account (continued)
On 20 December 2016, and in conjunction with the termination of
the Facility and planned wind-up of Fields Law, an additional
US$3.0 million was placed on escrow with a third party agent by
Fields Law. This amount is to be held in escrow for certain
contingencies relating to JIL's investment in Fields Law. The
escrow requirements will terminate three years after the filing of
Fields Law's final tax return. Upon termination of the escrow
requirements (which is expected to occur by the end of 2020), any
unused funds in the escrow will be paid to JIL.
In addition to the reserves held under the escrow arrangement
described above, at 31 December 2017, Fields Law holds reserves
from the settlement proceeds described above for expected tax
payments. Once Fields Law determines and pays its final tax
obligation, all remaining funds held in reserve at Fields Law will
be returned to Riverbend.
(e) Administration fees
The Company has an administration agreement with Vistra Fund
Services (Guernsey) Limited (the "Administrator"). Fees payable to
the Administrator for the year were US$131,852 (2016: US$151,593),
of which US$61,014 remained payable as at 31 December 2017 (2016:
US$50,961).
(f) Directors' fees and expenses
31 December 31 December
2017 2016
------------ ------------
Directors' remuneration US$ US$
Lord Daniel Brennan (GBP50,000 per
annum, 2016: GBP90,000 per annum) 63,787 121,817
Richard Battey (GBP50,000 per annum,
2016: GBP50,000 per annum) 63,787 68,825
Kermit Birchfield (US$65,000(1) per
annum, 2016: US$110,000 per annum) 48,500 110,000
-------- --------
176,074 300,642
Director expenses 51,123 45,311
227,197 345,953
======== ========
No pension contributions were paid or were payable on behalf of
the Directors.
(1) Mr Birchfield was paid $65,000 for Director's fees for the
year ended 31 December 2017 however the charge for 2017 shown above
is lower due to the write-back of an over-accrual of Mr
Birchfield's Director's fees for the year ended 31 December
2016.
Lord Daniel Brennan had an interest in 447,817 shares (2016:
447,817 shares) under a Share Option Agreement, details of which
were disclosed in the Admission Document. The share option
arrangement expired on 17 December 2017 with no share options
exercised. The other Directors have no beneficial interest in the
share capital of the Company.
(g) Escon Capital Inc.
The Company has an interest of 38.6% (2016: 38.6%) in the voting
common stock and 100% (2016: 100%) of the issued preference shares
of Escon Capital, Inc. ("Escon"), a Delaware corporation of which
Kermit Birchfield is a director. Richard Fields resigned as a
director in June 2017.
During the year ended 31 December 2017, Kermit Birchfield
received a director's fee of US$50,000 from Escon (2016:
US$50,000).
(h) Eleven Engineering Game Control LLC
As part of the investment, a loan of $575,000 had been made to
Eleven Engineering Game Control LLC, a company ultimately owned and
controlled by JIL. Prior to 2016, Eleven Engineering Game Control
LLC was owned and controlled by JCML 2007. As of 31 December 2017,
JIL had written down the carried investment value, including the
loan of $575,000 to $nil (2016: $42,514) in light of the closure of
EEGC, as described in Note 7 Unconsolidated subsidiaries and
associate investments, with no further investment proceeds expected
from this case.
(i) Special purpose vehicles
As compensation for providing management services, Kermit
Birchfield received a fee from Rich Media Ventures, LLC and
GrandiOs Technologies, LLC. In the prior year this included
management services provided to Smooth 3D IP LLC, a portfolio
company. For the year ended 31 December 2017, Kermit Birchfield
received fees totalling US$35,000 for provision of these services
(2016: US$90,000).
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
(a) Investment risk
There is no established market for the Company's assets. The
Investment Manager's assessment of the quantum and timing of
returns is subjective and based on the Investment Manager's
experience and due diligence. The estimates of the outcome and
financial effect on the Company of the assets are determined by the
judgement of the Investment Manager. In coming to its best estimate
of fair value, the Investment Manager has estimated the
probability, timing and quantum of particular outcomes.
(b) Cash flow and fair value interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing levels of market interest rate on the fair value of
financial assets and liabilities and future cash flows. The Company
holds fixed and variable rate interest securities that expose the
Company to fair value interest rate risk. For 2017, debt securities
were fixed at a regular interest rate of Nil% (2016:15.0%).
The Company is exposed to interest rate risk related to its cash
balances. The Company does not actively manage this risk.
2017
Fixed Variable Non-interest Total
interest interest bearing
----------- ---------- ------------- -----------
US$ US$ US$ US$
Assets
Intangible assets - - - -
Contractual interests - - 6,402,471 6,402,471
Equity investments - - 394,200 394,200
Debt securities - - 1,532,825 1,532,825
Other receivables
and prepayments - - 3,267,545 3,267,545
Cash and cash
equivalents - 5,786,476 - 5,786,476
Total assets 5,786,476 11,597,041 17,383,517
---------- ------------- -----------
Liabilities
Other payables - - (132,933) (132,933)
Total liabilities - - (132,933) (132,933)
---------- ---------- ------------- -----------
Total exposure to
interest sensitivity 5,786,476 11,464,108 17,250,584
=========== ========== ============= ===========
2016
Fixed Variable Non-interest Total
interest interest bearing
---------------- --------------- ----------------- -----------------
US$ US$ US$ US$
Assets
Intangible assets - - 111,387 111,387
Contractual interests - - 7,791,562 7,791,562
Equity investments - - 621,676 621,676
Debt securities - - 10,500,000 10,500,000
Other receivables
and prepayments - - 4,167,210 4,167,210
Cash and cash
equivalents - 5,017,077 - 5,017,077
Total assets - 5,017,077 23,191,835 28,208,912
--------------- --------------- ----------------- -----------------
Liabilities
Other payables - - (172,034) (172,034)
Total liabilities - - (172,034) (172,034)
--------------- --------------- ----------------- -----------------
Total exposure to
interest sensitivity - 5,017,077 23,019,801 28,036,878
================ =============== ================= =================
At 31 December 2017, if variable interest rates had moved by 75
basis points with all other variables remaining constant, the
change in net assets attributable to holders of ordinary shares for
the year would amount to approximately +/- US$43,399 (2016: +/-
US$37,628), arising substantially from the cash and cash
equivalents. No interest was receivable on the collateral cash
deposit.
(c) Credit risk
The Company is exposed to credit risk, which is the risk that a
counter-party will be unable to pay amounts in full when they fall
due.
The Company has in place various policies and procedures to
guide the Investment Manager's evaluation and management of
investment opportunities and, particularly, the credit risk
associated with investment counterparties (law firms and claim
interest holders) and investments. The policies include Investment
Restrictions (which contain prohibitions on pursuing investments
with certain kinds of claims and claim holders, those being
prosecuted by certain law firms, and those where collection,
counterparty or compliance risk is significant), Investment
Policies (which contain guidelines for diversification of the
Company's portfolio based on certain claimholder characteristics,
jurisdiction(s) involved, prosecuting law firm, claim size and
investment structure), and Investment Process Guidelines (which
define the due diligence, investment and investment monitoring
processes to be followed by the Investment Manager in claim
evaluation, valuation and investment completion). Collectively,
these Investment Parameters are designed to guide the investment
opportunity analysis so to limit credit, collection and portfolio
concentration risks associated with Company investments. In
addition, the Investment Manager has, pursuant to its own
Underwriting Guidelines, developed and implemented systems and
procedures to analyse and (pursuant to investment contracts) manage
credit risk associated with Company investments.
The main concentration to which the Company was exposed arose
from the Company's loan to Fields Law. This loan was terminated
during 2016 however the Company remains exposed to credit risk from
Fields Law to the extent that case proceeds have been held back,
under an escrow arrangement, to provide for tax and legal
contingencies (see Note 14 (d) Related Party Transactions, Facility
agreement and collateral account. The Company is also exposed to
counter-party credit risk on trading contractual interests, cash
and cash equivalents and other receivables.
In accordance with the Company's policy, the Investment Manager
monitors the Company's credit position on a daily basis, and the
Board of Directors reviews it on a quarterly basis.
The Company is also exposed to material credit risk in respect
of the contractual interests and cash and cash equivalents. The
credit risk of the cash and cash equivalents is mitigated as all
cash is placed with reputable banking institutions with a sound
credit rating. The maximum credit risk exposure represented by
total assets excluding intangible assets amounted to US$17,383,517
(2016: US$28,097,525).
(c) Concentration risk
The Company has sought to minimise concentration risk by
investing in a diverse portfolio of contractual interests through a
number of different law firms, including interests in antitrust,
patent, property damage, insurance subrogation, shareholder
dispute, contract claim and arbitration cases.
The Company further sought to minimise concentration risk by
utilising a variety of Investment Parameters which are designed to
guide the investment opportunity analysis so as to minimise,
amongst other things, concentration risk. These Investment
Parameters are further detailed in Note 15(c).
As the Company will no longer make new investments in line with
the run-off strategy and planned orderly wind down, the level of
concentration of investments will increase as number of investments
in the existing portfolio reduce.
(d) Liquidity risk
The Company is exposed to liquidity risk. The contractual
interests are acquisition of claims, as well as loans to lawyers to
fund participation in claims on a contingency fee basis, and
therefore require significant capital contribution with little or
no immediate return and no guarantee of return or repayment. The
market for such contractual interests is not active. In the opinion
of the Directors the current liquidity risk at 31 December 2017 is
low as cash and cash equivalents exceed unmatched liabilities or
other contractual commitments.
Maturity analysis 2017
------------------------------------------
< 3 < 6 < 12 months Total
months months
-------- -------- ------------ --------
US$ US$ US$ US$
Audit fees 60,828 - - 60,828
Other creditors 72,105 - - 72,105
132,933 - - 132,933
-------- -------- ------------ --------
Maturity analysis 2016
----------------------------------------
< 3 < 6 < 12 months Total
months months
-------- -------- ------------ ------
US$ US$ US$ US$
Investment purchases
payable 9,460 - - 9,460
Audit fees 59,216 - - 59,216
Other creditors 103,358 - - 103,358
172,034 - - 172,034
-------- --------- -------------------- --------
(e) Capital risk management
The capital of the Company is represented by the net assets
attributable to holders of ordinary shares. As the Company is
winding down, the Company's objectives when managing this risk are
to safeguard the Company's ability to settle liabilities arising
during this lifecycle period, protect liquidity and to maximise the
investment portolio returns for shareholders and benefits for other
stakeholders in the Company.
The Company is closed-ended and therefore the capital risk is
reduced as shareholder funds are locked in until the closure of the
Company. The level of capital funding is monitored by the Board of
Directors, who will ensure adequate solvency is in place prior to
making distributions.
(f) Foreign currency risk
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate because of changes in foreign exchange
rates.
The Company's policy, generally, is not to manage exposure to
foreign exchange movements (both monetary and non-monetary) by
entering into any foreign exchange hedging transactions.
The Company holds assets denominated in currencies other than
the functional currency. It is therefore exposed to currency risk,
as values of the assets denominated in other currencies will
fluctuate due to changes in exchange rates. The Company may hedge
future investment opportunities in the functional currency.
As at 31 December 2017, a proportion of the net financial
assets/(liabilities) of the Company are denominated in currencies
as follows:
2017 2016
------------------ -----------
US$ US$
USD 17,330,068 27,485,151
GBP (79,484) 551,727
17,250,584 28,036,878
================== ===========
At 31 December 2017, if exchange rates had moved by 5% with all
other variables remaining constant, the change in net assets
attributable to holders of ordinary shares for the year would
amount to approximately +/- US$3,974 (2016: +/- US$27,586).
Management assesses the risk of exposure to the general banking
system, and specific banks, and invests cash in US government
securities when there is perceived risk to principal.
During the year ended 31 December 2017 the Company was subject
to foreign exchange risk. This was primarily attributable to the
dividend payment, detailed in note 9 which was converted into
Sterling on or shortly after the declaration date, in advance of
settlement. During the period from dividend declaration to dividend
payment, the United States Dollar strengthened against Sterling,
generating the bulk of the foreign exchange gains noted in the
Statement of Comprehensive Income on page 21.
(g) Fair value estimation
The fair value of financial assets and liabilities that are not
traded in an active market is determined by using valuation
techniques. See Note 6 for further details.
The carrying value less impairment provision of other
receivables and payables is assumed to approximate their fair
value. The fair value of financial liabilities for disclosure
purposes is not discounted as the Company does not expect there to
be any material differences.
16. NET ASSET VALUE ATTRIBUTABLE TO EACH ORDINARY SHARE
The net asset value attributable to each ordinary share is
calculated by dividing the net asset value attributable to ordinary
shareholders of US$17,250,584 (2016: US$28,036,878) by the
110,340,019 ordinary shares in issue at 31 December 2017 (2016:
110,340,019).
17. EARNINGS/(DEFICIT) PER SHARE
Basic earnings/(deficit) per share is calculated by dividing the
Total Comprehensive Income/(Expense) for the Year of US$1,066,661
(2016: (US$37,846,882)) by the weighted average number of ordinary
shares during the year.
For basic earnings/(deficit) per share, the weighted average
number of ordinary shares excludes treasury shares for the period
in which they are held in treasury during the year. The basic
weighted average number of ordinary shares for the year is
110,340,019 (2016: 110,340,019).
As disclosed in note 14 the available share option agreement
expired on 17 December 2017 and the measure diluted
earnings/(deficit) per share is no longer relevant. The diluted
number of ordinary shares as at 31 December 2017 is 110,340,019,
matching the basic number of shares in issue (2016:
110,787,836).
18. SUBSEQUENT EVENTS
On 23 January 2018, Juridica Holdings LLC ("Juridica") a
subsidiary of the Company entered into an agreement with ACK NLO,
LLC ("ACK") which superseded an existing subordination agreement
dated 27 June 2016 between Juridica and Koch Minerals, LLC. In
consideration for the agreement, Juridica receives an upfront
payment of US$200,000 and a contingent payment of $800,000, due
immediately upon the occurrence of a change in control in ACK. The
upfront fee was received by the Company on 16 February 2018.
On 15 January 2018, JCML 2007 Limited disposed of its 118,254
shares in the Company for GBP12,180. Subsequent to this disposal,
JCML 2007 Limited liquidated it's remaining net assets for which
the Company, as a shareholder in JCML 2007 received GBP72,540 as
distributions during January 2018.
In January 2018, Fields Law Firm ("FLF") received a 2016 Tax
refund of US$85,103 from the District of Columbia in the United
States and this amount was transferred to Riverbend on 26 January
2018 representing further realised gains on the Debt Securities
investment held.
On 16 January 2018, Turtle Bay Technologies Limited, a
subsidiary company referred to in Note 7 was dissolved.
On 3 April 2018, the Board declared a dividend of 4 pence per
share to be paid on 25 May 2018 to shareholders on the register at
13 April 2018.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAELLEAEPEFF
(END) Dow Jones Newswires
April 04, 2018 06:30 ET (10:30 GMT)
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