TIDMPSD
RNS Number : 7767O
PSource Structured Debt Limited
22 September 2011
22 September 2011
PSource Structured Debt Limited
Financial results for the period ended 30 June 2011 and Notice
of AGM
PSource Structured Debt Limited (the 'Company' or 'PSD'), the
fund investing in senior secured debt and equity warrants
predominantly issued by US-based small-cap companies, is pleased to
announce its results for the full year to 30 June 2011.
Copies of the Audited accounts will be available for download
from the Company's website www.psourcestructureddebt.comand will be
available for inspection from the National Storage Mechanism
www.hemscott.com/nsm.do.
For further information, please contact:
PSource Capital Limited +44 20 7925 3156
Soondra Appavoo
PSOURCE STRUCTURED DEBT LIMITED
ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
PSOURCE STRUCTURED DEBT LIMITED
Contents
Company Information 1
Directors 2-3
Financial Calendar 3
Investment Objective and Policy 3
Summary Information 3-5
Chairman's Statement 6-7
Directors' Report 8-15
Responsibility Statement 16
Independent Auditor's Report 17
Consolidated Statement of Financial Position 18
Consolidated Statement of Comprehensive Income 19
Consolidated Statement of Changes in Equity 20
Consolidated Statement of Cash Flows 21
Notes to the Financial Statements 22-50
Analysis of Significant Investments (unaudited) 51-55
Portfolio Analysis (unaudited) 56-57
Notice 58
Form of Proxy 59
PSOURCE STRUCTURED DEBT LIMITED
Company Information
Company Number: Financial adviser and stockbroker
47075 (Registered in Guernsey) to the Company:
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London, EC4M 7LT
Directors: Auditors to the Company:
William Scott, Independent Chairman KPMG Channel Islands Limited
Soondra Appavoo 20 New Street
Peter Niven, Independent Director St Peter Port
Tim Jenkinson, Independent Director Guernsey, GY1 4AN
Keith Dorrian, Independent Director
Company Secretary and Administrator: Solicitors to the Company:
Praxis Fund Services Limited Eversheds LLP
Sarnia House 1 Wood Street
Le Truchot London, EC2V 7WS
St Peter Port
Guernsey, GY1 4NA
Registered office of the Company: Guernsey lawyers to the Company:
Sarnia House Mourant Ozannes
Le Truchot PO Box 186
St Peter Port 1 Le Marchant Street
Guernsey, GY1 4NA St Peter Port
Guernsey, GY1 4HP
Manager: U.S. Counsel:
PSource Capital Guernsey Limited Alston & Bird LLP
Sarnia House 90 Park Avenue
Le Truchot New York, NY 10016-1387
St Peter Port USA
Guernsey, GY1 4NA
Investment Manager: Bankers:
Laurus Capital Management, LLC Bank of Scotland plc (part of the
875 Third Avenue, 3(rd) Floor Lloyds Banking Group)
New York, NY 10022 PO Box No 39900
USA 155 Bishopsgate Exchange
London, EC2M 3YB
Investment Consultant and Promoter: Custodian:
PSource Capital Limited Wells Fargo Bank
126 Jermyn Street 45 Broadway,14th Floor
London, SW1Y 4UJ New York, NY 10006
USA
Independent Valuation Consultant: Equity Custodian & Broker:
Clayton IPS Corporation Fidelity Prime Services
1700 Lincoln Street 200 Seaport Boulevard, Z2H
Suite 1600 Boston, MA 02210
Denver, Colorado 80263 USA
USA (until 26 November 2010)
Clearing Broker: Executing Broker:
Albert Fried & Company, LLC GP Nurmenkari Inc.
45 Broadway, 24th Floor 6 East 39(th) Street
New York, NY 10006 New York, NY 10016
USA USA
(from 26 November 2010) (from 1 December 2010)
Financial Public Relations: Registrar:
Weber Shandwick Financial Capita Registrars (Guernsey) Limited
Fox Court Mont Crevelt House
14 Gray's Inn Road Bulwer Avenue
London, WC1X 8WS St Sampson
Guernsey, GY2 4JN
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Directors
The Directors are responsible for the determination of PSource
Structured Debt Limited's (the "Group's or Company's") investment
policy and have overall responsibility for the Group's activities.
The Directors have put in place procedures to ensure that the Group
meets current corporate governance requirements.
The Directors of the Company, all of whom are non-executive and
who, apart from Mr Appavoo, are entirely independent of the
Manager, the Investment Manager and the Investment Consultant,
are:
William Scott, Chairman
William Scott was from 2003 to 2004 Senior Vice President with
the Financial Risk Management Group, a leading specialist manager
of funds of hedge funds. From 1989 to 2002 he worked at Rea
Brothers (subsequently part of Close Brothers) as an investment
manager specialising in fixed income portfolios and latterly in
private banking where he was a director of Close Bank Guernsey
Limited. Prior to this he was an equity sector manager with a large
public sector pension fund. He holds a number of non-executive
directorships of listed companies including AcenciA Debt Strategies
Limited and a number of funds managed by the Financial Risk
Management group where he is Chairman of the Audit, Risk Management
and Control Committee. He is also a director of several other
investment management and property companies. He is a chartered
accountant with over 25 years' experience in the funds sector, he
acts as consultant to offshore investment management organisations.
He is a resident of Guernsey.
Soondra Appavoo
Soondra Appavoo is managing director of PSource Capital Limited
and director of PSource Capital Guernsey Limited. He has 18 years
experience in the investment industry, including 4 years as
director and managing director of PSolve Alternative Investments,
the fund of hedge fund business of Punter Southall Group. He was
formerly a director at UBS Warburg investment banking and is a
chartered accountant. Mr Appavoo holds an MA in Natural Sciences
and MBA with Distinction, both from the University of Oxford. He is
the sole representative of the Manager on the Board.
Peter Niven
Peter Niven, is the part time Chief Executive of Guernsey
Finance, which is the island's promotional agency for the Guernsey
Finance industry internationally. He has over 33 years experience
in the financial services market in both the UK, offshore and
internationally having worked in a number of senior positions in
the Lloyds TSB Group until his retirement in 2004. In addition to
his work with Guernsey Finance he is also a non executive director
of several Guernsey based financial services companies listed on
the main London Stock Exchange together with a captive insurance
protected cell company. Mr Niven is a Fellow of the Chartered
Institute of Bankers and a Chartered Director.
Tim Jenkinson
Tim Jenkinson is Professor of Finance and Director of the
Private Equity Institute at the Oxford Said Business School. He is
also Chairman of the economic consulting firm Oxera. He is an
expert on corporate finance, in particular initial public
offerings, private equity and the cost of capital, and has
consulted for a wide range of companies and regulatory bodies. He
has written widely on finance and economics and his work has been
published in books and leading international journals. He initially
studied economics as an undergraduate at Cambridge University,
before going as a Thouron Fellow to the University of Pennsylvania,
where he obtained a Masters in Economics. He then returned to the
UK and obtained a DPhil in Economics from Oxford.
Keith Dorrian
Keith Dorrian has over 30 years experience in the offshore
finance industry. Joining Manufacturers Hanover in 1973 he moved to
First National Bank of Chicago in 1984. In 1989 he joined ANZ Bank
(Guernsey) where as a director of the bank and fund management
company he was closely involved in the banking and fund management
services of the group. He took up the position of Manager Corporate
Clients in Bank of Bermuda Guernsey in 1999 and was appointed Head
of Global Fund Services and Managing Director of the bank's
Guernsey fund administration company in 2001 retiring on 31
December 2003. He is currently a director of a number of funds and
fund management companies and holds the Institute of Directors
Diploma in Company Direction. He is a resident of Guernsey.
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Financial Calendar
Annual Report and Accounts sent to shareholders by 30 September
2011.
Annual General Meeting to be held on 31 October 2011.
Interim Report and Accounts sent to shareholders by 28 February
2012.
Investment Objective and Policy
The Group's investment objective is to seek to provide a total
return to shareholders of 10-15 per cent per annum over a rolling
3-year period with annual standard deviation of less than 5 per
cent.
The Group's investment policy is to invest in a diversified
portfolio of asset backed loans and debt made predominantly to, and
equity warrants and similar instruments issued predominately by,
publicly traded small and micro-cap companies in the US. The exact
number of assets and strategies in which the Group invests may vary
over time but the Directors expect that the Group will be invested
at all times in a minimum of 30 underlying companies.
The Company has one Subsidiary, PSD SPV 2, Inc ("SPV2"), which
has been established to hold certain US assets. For reasons of tax
efficiency, the Group proposes to make newly originated direct
investments and enter into co-investments through this Subsidiary.
In prior periods the Company also used another Subsidiary, being
PSource Structured Debt SPV1 Limited ("SPV1"), to make newly
originated direct investments and enter into co-investments. On 29
December 2010, when this Subsidiary no longer had any holdings,
SPV1 was voluntarily liquidated.
It is the intention of the Group to remain substantially fully
invested at all times, although the Group may use its discretion to
hold cash or short-term money market instruments (including gilts)
from time to time for the purposes of paying margin calls on
hedging, paying dividends, meeting other expenses of the Group,
funding buybacks and pending full investment. Cash will be held in
accounts with institutions which are rated A1 (or above) by
Standard & Poor's or an equivalent rating by another reputable
agency (or wholly owned subsidiary of such institutions).
The Group will be a passive investor and will not control, seek
to control, or be actively involved in the management of, any
companies or businesses in which it invests. The Group will not be
a dealer in investments.
The Group will not enter into long term borrowing. Under its
Articles of Association, the Company has the ability to borrow up
to 30 per cent of net assets in order to facilitate its intention
of remaining fully invested, to implement any hedging and buyback
strategies and to meet ongoing expenses (please refer to note 11 of
the consolidated financial statements for details on the Group's
loan and overdraft facilities).
Summary Information
There are 59,564,681 (30 June 2010: 59,564,681) Ordinary Shares
in issue and the NAV per Ordinary Share at 30 June 2011 was
US$1.6562 (30 June 2010: US$1.8922). The Company listed on 3 August
2007 with an initial NAV per Ordinary Share after launch costs of
97.75p. No dividends have been declared in respect of the year
ended 30 June 2011 (year ended 31 December 2010: zero pence per
Ordinary Share).
As at 30 June 2011 the portfolio which comprised 30 companies
(30 June 2010: 47), represented 107.60% of Net Asset Value (30 June
2010: 111.35%). The maximum position in any company was 76.47% of
the portfolio (30 June 2010: 64.92%).
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Summary Information, continued
Monthly total return performance, NAV and dividends declared
since inception is set out below:
5 June
2007 To
30 June Financial
2008 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
---------- ----- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (p) 97.37 98.53 100.17 102.13 103.81 103.13 105.06 107.21 107.54 109.40 110.19 -
Returns
(%) -0.38 1.19 2.49 1.95 1.64 0.55 1.87 2.05 1.49 1.73 0.72 16.37
Dividend
(p) - - 0.8 - - 1.25 - - 1.25 - - 3.30
1 July
2008 To
30 June Financial
2009 Jul Aug Sep Oct Nov Dec Jan* Feb Mar Apr May Jun YTD
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (p) 110.48 113.17 113.20 110.78 105.49 105.88 - - - - - - -
NAV (c)* - - - - - - 162.22 153.71 158.24 160.08 166.10 168.85 -
Returns
(%) 1.41 2.43 0.03 -2.14 -4.78 0.37 4.99 -5.25 2.95 1.16 3.76 1.66 6.20
Dividend
(p) 1.25 - - - - - - - - - - - 1.25
1 July
2009 To
30 June Financial
2010 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (c) 171.16 170.94 170.09 172.59 179.84 188.30 199.31 199.10 202.62 198.52 193.41 189.22 -
Returns
(%) 1.37 -0.13 -0.50 1.47 4.20 4.70 5.85 -0.11 1.77 -2.02 -2.57 -2.17 12.06
Dividend - - - - - - - - - - - - -
(c)
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Summary Information, continued
1 July
2010 To
30 June Financial
2011 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (c) 187.02 179.00 180.93 182.23 181.83 179.47 177.73 176.04 174.38 171.37 170.88 165.62 -
Returns
(%) -1.16 -4.29 1.08 0.72 -0.22 -1.30 -0.97 -0.95 -0.94 -1.73 -0.29 -3.08 -12.48
Dividend - - - - - - - - - - - -
(c)
1 July
2011 To
30 June Financial
2012 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
---------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
NAV (c) 164.24 162.67 -
Returns
(%) -0.83 -0.96 -1.78
Dividend - - -
(c)
* On 30 January 2009, a special resolution was passed to convert
the issued Sterling Shares into US Dollar Shares in accordance with
article 3.12 of the Company's articles of association at an
exchange rate of US$1.4593/GBP. With effect from this date the
performance of the Company is measured in US Dollars.
-- Total net return since inception as at 30 June 2011 in
reporting currency 21.21%
-- Total net return since inception as at 30 June 2011 in
reporting currency (annualised) 5.03%
-- Annualised standard deviation (volatility) 8.38%
Total Expense Ratio:
Year end 30 June 2011 Year end 30 June 2010
Expense Type: % of Average Net Assets % of Average Net Assets
------------------------ ------------------------
Net operating expenses* 3.76 4.16
Performance fees 0.00 5.03
------------------------ ------------------------
Total expense ratio** 3.76 9.19
======================== ========================
*Net operating expenses are the costs of the Group excluding
capital gains and losses, and costs associated with investment
transactions..
**The Total Expense Ratio represents total operating expenses of
the Group, expressed as a percentage of average net assets during
the accounting period.
PSOURCE STRUCTURED DEBT LIMITED
Chairman's Statement
Year ended 30 June 2011
It is my pleasure to present the annual report for PSource
Structured Debt Limited (the "Group" or "PSD") for the year ended
30 June 2011.
The past year has been characterised by a weak recovery on both
sides of the Atlantic. Whilst stock markets in the US performed
quite strongly (the S&P500 being up 28.1% in the period), since
the year end renewed uncertainty about the recovery and the
strength of US and European sovereign credit has resulted in some
retrenchment (the S&P500 being 12.6% lower than at the year end
at the time of writing).
This period has been one of some progress for PSD. Net Debt with
Bank of Scotland/Lloyds has been reduced to US$4.5 million from
US$8.5 million. In addition, PetroAlgae (the Group's largest
holding) has made substantial progress. However, the Board
recognises that progress has been slower than anticipated a year
ago and that this has impacted shareholder value. Within this
statement, I set out a discussion of NAV performance, cash flows
and the non-PetroAlgae portfolio, PetroAlgae and the share price.
Lastly, I set out the Board's proposals for the future of your
Company.
NAV Performance
NAV performance has been disappointing at -12.5% over the
period. The largest component of this loss has been impairments
taken on the advice of our independent valuation agent (-7.1%).
Cash flows and bank position
The portfolio has generated net operating cash flow of
US$4,380,684 (US$7,031,554 in 2010). As the debt portfolio has
diminished in size (from repayments, debt for equity swaps,
disposals, refinancings and write downs) the amount of regular debt
repayments and interest has gone down as a proportion of cash flows
(down from US$11,308,120 to US$2,387,370). The amount coming from
the disposals has, however, increased substantially from
US$2,510,504 to US$6,521,657. We expect this pattern to continue
during this financial year.
On 31 August 2011, the Group refinanced its existing debt with
Bank of Scotland/Lloyds. The facilities comprise a US$3.7m term
note and a US$1.5m committed overdraft. Drawings on the overdraft
are approximately US$1.0m. The key terms of these facilities are as
follows:
-- Facilities available for 6 months from 1 September 2011.
-- Interest margin of 6.5%, increasing to 7.0% with effect from
1 January 2012 if the facility has not been reduced to zero. The
margin is over 1 month US LIBOR (currently 0.22%).
-- Arrangement fee of US$25,000.
-- Redemption fee of US$25,000 if facility is repaid in full on
or before 31 December 2011; US$75,000 if facility is repaid in full
after 31 December 2011. Redemption fee is payable upon final
repayment or expiration date of the facility.
-- No fixed amortisation. The term note is amortised using a
cash sweep equal to 80% of monthly free cash flow.
-- No net debt/gross asset covenants.
-- Dividend payments subject to approval by Bank of
Scotland.
Non-PetroAlgae portfolio
The cash flows have, for the time being, continued to come from
the non PetroAlgae component of the portfolio. Excluding
PetroAlgae, at the year end, the Group's investments were valued at
US$25.0m, in 29 companies. The largest 9 of these investments
comprise 91% of this.
There are sale processes underway on approximately US$20m of
these investments. The investment manager has received offers for
approximately US$10m worth of these investments. All these offers
are subject to due diligence and financing.
However (ironically, in line with the Group's original
investment thesis), many of the groups seeking to acquire our
investee companies are finding it difficult to obtain financing
from US banks. This has delayed several of our sales, repaying the
bank and resuming dividends, as we had indicated was our
intention.
PSOURCE STRUCTURED DEBT LIMITED
Chairman's Statement, continued
Year ended 30 June 2011
PetroAlgae
Holding and valuation
The Group has a significant holding in PetroAlgae Inc, a
renewable energy company based in Florida, through its holding in
PetroTech Holdings Inc. The total value of the holding is unchanged
in the year at US$81.2 million. During the year (on 11 August 2010)
PetroAlgae filed an S-1 registration statement with the SEC.
Goldman Sachs, UBS and Citi are the lead underwriters.
Following this filing, the PSD Board continues to believe it
appropriate to hold the valuation of PetroAlgae shares in PSD
constant from the 31 January 2010 NAV at US$11.56.
In coming to this assessment of value, the board, with advice
from the Independent Valuation Agent and the Investment Consultant
have taken the following factors into account:
-- Public trading of stocks on OTC Link
-- Valuation of comparable companies
-- Model based valuations
The shares of PetroAlgae Inc are traded on OTC Link. The trading
is irregular and volumes traded are low. The Directors note the
public trading but do not solely rely upon it for valuation
purposes. The Volume Weighted Average Price of the shares traded
during the financial year was US$14.4 per share.
There are no directly comparable companies to PetroAlgae.
However, the Directors note that several IPO's have occurred in the
United States of companies in similar markets to PetroAlgae, and at
a similar stage in development.
The Directors have looked at model based valuations. Any such
valuation is sensitive to valuation inputs. In particular changes
in assumptions of license fees, royalty rates, implementation rates
and discount rates have a significant impact on valuation.
Developments during the year
PetroAlgae has strengthened its management team in the last 12
months. In particular, the company appointed Tony Tiarks as CEO on
16 June 2011. Dr John Scott, formerly Chairman and CEO, remains as
Chairman of PetroAlgae. Also during the year the Company achieved a
number of very significant commercial and technical milestones:
-- Signing of a Master Framework and Initial Licence agreement
with the Government of Suriname
-- Successful conclusion of trials of the carbohydrate product
as an Alfalfa replacement with the University of Minnesota
-- Successful conclusion of trials of the protein product as a
fishmeal replacement with the University of Idaho
-- Signing of co-development agreements with CRI (a Shell Group
company) and Haldor Topsoe
It is the Board's belief that further progress with commercial
agreements is key to any monetisation of the Group's holding in
PetroAlgae. We note that several companies in the renewable
energy/biochemical sector have successfully IPO'd on Nasdaq during
the year, including Amyris, Gevo, Kior and Solazyme. We await to
see how IPO conditions develop during the later part of this
year.
Share price
Share price performance has been very disappointing during the
year. The mid price fell from 48.5p on 30 June 2010 to 31.25p at
the end of the period, a -35.6% fall. Since the end of the period,
the price has fallen a further 4p to 27.25p. This fall reflects in
part the negative NAV performance. However, it also reflects a lack
of liquidity in the stock and uncertainty surrounding the exit from
and value of PetroAlgae.
Future of PSource Structured Debt Limited
The current position of PSD is not tenable. The Board has tried
to balance the need to monetise the portfolio, with the importance
of overall shareholder value. In the light of the issues discussed
above, the Board does not believe that a continuation of the Group
in its current form is in the interest of shareholders. The Board
does, however, believe that it is in shareholders' interests to
move closer to a resolution with PetroAlgae (if practicable, as we
believe) prior to shaping the Group's future. Accordingly, the
Board intends to present wind-up or restructuring proposals to
shareholders by 31 March 2012. The Board is unanimous in strongly
recommending that shareholders vote for the continuation of the
Company at the Annual General Meeting to be held on 31 October
2011.
William Scott (Chairman)
Date: 21 September 2011
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report
Year ended 30 June 2011
The Directors of PSource Structured Debt Limited (the "Company")
are pleased to present their fourth audited annual report and
consolidated financial statements for the year ended 30 June
2011.
The Directors submit their Report together with the Group's
Consolidated Statement of Financial Position, the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows and the
accompanying related notes for the year ended 30 June 2011, which
have been prepared in accordance with International Financial
Reporting Standards, in accordance with any relevant enactment for
the time being in force, and are in agreement with the accounting
records, which have been kept in accordance with Section 238 of the
Companies (Guernsey) Law, 2008.
The Company
The Company is a closed-ended investment company, incorporated
and registered with limited liability in Guernsey on 5 June 2007 in
accordance with The Control of Borrowing (Bailiwick of Guernsey)
Ordinance, 1959 to 2003 as amended. The Company commenced business
on 3 August 2007 when the initial 30,000,000 Ordinary Shares of the
Company were admitted to the Official List of the London Stock
Exchange. The Company is a Guernsey Authorised Closed-ended
Investment Scheme and is subject to the Authorised Closed-ended
Investment Scheme Rules 2008.
PSource Structured Debt SPV 1 Limited ("SPV1") was incorporated
in Guernsey on 27 September 2007 and commenced trading on 30 May
2008. On 29 December 2010, when this Subsidiary no longer had any
holdings, SPV1 was voluntarily liquidated.
PSD SPV 2, Inc ("SPV2") was incorporated in the State of
Delaware on 2 April 2009. The Subsidiary commenced trading on 1 May
2009. SPV2 was established to hold certain US assets. For reasons
of tax efficiency, the Group proposes to make newly originated
direct investments and enter into co-investments through this
Subsidiary.
Any references to Company relate to PSource Structured Debt
Limited whereas references to the Group include PSource Structured
Debt Limited, SPV1 and SPV2.
Results and Dividends
The results for the year are set out in the Consolidated
Statement of Comprehensive Income on page 19.
For the year ended 30 June 2011 no dividend has been paid (year
ended 30 June 2010: Nil pence per Ordinary Share). These financial
statements only reflect dividends that were paid in the year.
Measuring Performance
Details of the performance of the Company's net asset value
during the year can be found in the Summary Information on pages
3-5.
Directors
The Directors, all of whom are non-executive Directors, are as
listed on page 1. All Directors with the exception of Mr Appavoo
are independent. All the Directors, with the exception of Mr
Dorrian were appointed on registration of the Company. Mr Dorrian
was appointed on 30 July 2008. Mr Scott and Mr Appavoo were
re-elected on 19 October 2010.
Manager
Under the terms of the Management Agreement dated 31 July 2007,
between the Company and PSource Capital Guernsey Limited (the
"Manager"), the Manager is responsible for providing the Company
with management services.
The Manager is a company domiciled and incorporated in Guernsey
with company registration number 46511. The Manager is a private
company limited by shares which was incorporated on 2 March 2007
and operates under The Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended. The Manager is regulated by the
Guernsey Financial Services Commission.
With the Board's approval, the Manager is acting as an advisor
to PetroAlgae in its proposed IPO.
Investment Manager
Laurus Capital Management, LLC (the "Investment Manager")
manages the assets of the Group in accordance with the Investment
Management Agreement dated 31 July 2007, between the Company and
the Manager. The Investment Manager has been appointed by the
Company to act as discretionary investment manager of the Group,
save that the Investment Manager is required to seek the approval
of the Board for any acquisitions of investments from Laurus Master
Fund Ltd or any affiliate of it and to seek the approval of the
Investment Consultant before making any direct investment.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2011
Investment Manager, continued
The Investment Manager is a New York based investment adviser
registered, as of January 2006, with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended.
The Investment Manager was founded on 1 December 2000, is
incorporated in the state of Delaware, USA, under registration
number 3323351 as a limited liability company, employs 19 staff and
manages US$1 billion of assets (as at 30 June 2011). The
co-founders and fund managers of the Investment Manager are Eugene
and David Grin.
As at 30 June 2011, the Investment Manager held 500,000 (30 June
2010: 500,000) Ordinary Shares in the Company.
The Board were notified late in 2010 that the Investment Manager
would begin winding down its business. Having visited the
Investment Manager and assessed their situation following a
reduction in staff and assets under management, it is the belief of
the Board that their actions to date have not restricted the
ability of the Investment Manager to meet its obligations to the
Company in managing current portfolio investments.
The Investment Management Agreement may be terminated by either
party giving not less than twelve months' notice in writing, or
earlier by either party upon certain breaches of the Investment
Management Agreement or the insolvency or receivership of either
party or if the Investment Manager ceases to be qualified to act as
such.
Investment Consultant
The Manager has appointed PSource Capital Limited as Investment
Consultant under the Investment Consultancy Agreement dated 31 July
2007, between the Manager and PSource Capital Limited.
The Investment Consultant is a wholly-owned subsidiary of the
Manager and is an appointed representative of PSolve Investments
Limited which is authorised and regulated in the UK by the
Financial Services Authority. The Investment Consultant was
incorporated on 21 August 2006. The role of the Investment
Consultant is, among other things, to oversee the management of the
Group's investments and deal with investor relations.
The Investment Consultant will carry out its duties in
accordance with the Investment Consultancy Agreement.
The Investment Consultancy Agreement may be terminated by either
party giving not less than twelve months' notice in writing, or
earlier by either party upon certain breaches of the Investment
Consultancy Agreement or the insolvency or receivership of
either.
Administrator
Praxis Fund Services Limited has been appointed as Administrator
to the Group under the Administration Agreement dated 31 July 2007.
The Administrator has been appointed to provide day to day
administration and secretarial services to the Group.
The Administration Agreement may be terminated by either party
on not less than six months written notice, or earlier upon certain
breaches of the Administration Agreement or the insolvency or
receivership of either party or if the Administrator ceases to be
qualified to act as such.
Loan Notes, Warrants and Options Custodian
On 8 March 2010, Wells Fargo Bank was appointed as Custodian to
the Group under the Custodian Agreement dated 8 March 2010 between
the Company and the Custodian. Under this agreement the Custodian
agreed to provide the Group with custody services relating to loan
notes, warrants and options.
The Custodian Agreement may be terminated by either party giving
not less that ninety (90) days' prior written notice to the other
party.
Equity Custodian & Broker
Fidelity Prime Services ("Fidelity") was appointed as Custodian
and Broker to the Group under the Custodian & Broker Agreement
between the Laurus Master Fund Ltd and Fidelity, as an affiliate of
Laurus Master Fund Ltd. Under this agreement Fidelity has agreed to
provide the Group with custody and brokerage services relating to
equities.
Effective from 26 November 2010, the Company migrated its
custody and clearing services for its short term trading assets
from Fidelity Prime Services to Albert Fried & Company,
LLC.
Effective 1 December 2010, the Company migrated its trading
services from Fidelity to GP Nurmenkari Inc.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2011
Registrar
Capita Registrars (Guernsey) Limited has been appointed to act
as Registrar of the Company under the Registrar Agreement dated 31
July 2007 between the Company and the Registrar. The Registrar has
been appointed to provide electronic registration and settlement
services through CREST. The Registrar Agreement may be terminated
by either the Company or the Registrar giving not less than three
months' notice in writing or otherwise in circumstances where the
Company or the Registrar goes into liquidation or where either
party commits and fails to remedy a material breach of the
Registrar Agreement. The Registrar Agreement will also terminate if
the Registrar ceases to hold a required licence, consent, permit or
registration. The Registrar Agreement contains an indemnity in
favour of the Registrar against claims by third parties except to
the extent that the claim arises from the fraud, negligence or
wilful default of the Registrar or a breach by the Registrar of the
Registrar Agreement or the Law.
Independent Valuation Consultant
Clayton IPS Corporation ("Clayton") has been appointed as
Independent Valuation Consultant under the Independent Valuation
Consultant's Agreement dated 31 July 2007 (the "Valuation
Agreement") between the Company and Clayton. Clayton has (a)
provided a valuation of the Initial Portfolio of the Group and (b)
agreed to provide a monthly and quarterly valuation of the assets
of the Group. For these services Clayton is entitled to a fee of
(a) US$50,000 for the valuation of the Initial Portfolio and (b)
US$10,000 for each monthly valuation.
The Valuation Agreement term is for a period of one year (the
"Term") and will then renew for successive one-month terms (each a
"Renewal Term").
The Valuation Agreement may be terminated after the first 180
days of the Term of the Valuation Agreement by either party on not
less than thirty days written notice, or with respect to a Renewal
Term, by either party giving written notice no less than ten days
prior to the end of the then-current Renewal Term. If either party
materially breaches the Valuation Agreement and such breach is
either incapable of cure or not cured within ten business days of
receiving written notice of such breach from the non-breaching
party, the non-breaching party may terminate the Valuation
Agreement.
Corporate Governance
Compliance
Under The UK Listing Regime the Company is a premium listed
entity. The most significant impact of this (in addition to other
new provisions) on the Company as an overseas company, is that as a
premium listed entity the Company must report and comply with the
UK Corporate Governance Code issued by the Financial Reporting
Council in June 2010 and applicable for accounting periods
beginning on or after 29 June 2010 (the "Code"), or explain areas
it has not complied with.
Prior to being required under the UK Listing Regime to comply
with the Code, the Board placed a high degree of importance on
maintaining high standards of corporate governance and has
considered the principles and recommendations of the AIC Code by
reference to the AIC Corporate Governance Guide for investment
companies ("AIC Guide"). The AIC Code, as explained in the AIC
Guide, addresses all the principles set out in the Code. The Board
considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which
incorporates the Code), will provide better information to
shareholders.
As at 30 June 2011, the Company complied substantially with the
relevant provisions of the AIC Code and the Code (save with regard
to the following provisions listed below) and it is the intention
of the Board that the Company will comply with those provisions
throughout the year ending 30 June 2012:
-- The role of the chief executive: The Board considers that the
post of chief executive officer is not relevant for the Company as
this role has effectively been delegated by the Manager to the
Investment Consultant under the terms of the Investment Consultancy
Agreement.
-- The appointment of a Senior Independent Director: Given the
size and composition of the Board it is not felt necessary to
separate the roles of Chairman and Senior Independent Director. The
Board considers that all the independent Directors have different
qualities and areas of expertise on which they may lead where
issues arise and to whom concerns can be conveyed.
-- Executive directors' remuneration: As the Board has no
executive directors, it is not required to comply with the
principles of the Code in respect of executive directors'
remuneration and does not have a remuneration committee.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2011
Corporate Governance, continued
Compliance, continued
-- Internal audit function: The Company delegates to third
parties its day-to-day operations and has no employees. The Board
has therefore determined that there is no requirement for the
Company to have its own internal audit function. The Directors
consider annually whether a function equivalent to an internal
audit is needed and will continue to monitor its systems of
internal controls in order to provide assurance that they operate
as intended.
Chief Operating Decision Maker
The Board, as a whole, has been determined as constituting the
chief operating decision maker ("CODM") of the Group.
The Board is charged with setting the Group's investment
strategy in accordance with the Prospectus. Pursuant to the terms
set out in the Investment Management Agreement the Board have
delegated the day to day investment management of the Group to the
Investment Manager, however the Board retains the responsibility to
ensure that adequate resources of the Group are directed in
accordance with their decisions. All investment recommendations
made by the Investment Manager are reviewed by the Board for
compliance with the policies and legal responsibilities of the
Directors and the provisions of the Prospectus. Only after such
reviews have been satisfactorily conducted will the Board approve
the investments recommendations. The Board therefore retains full
responsibility for the allocation decisions made on an ongoing
basis. Pursuant to the terms of the Investment Management Agreement
the Investment Manager is obliged to comply with the investment
strategy detailed in the Prospectus. This strategy sets out
guidelines for proposed investments and the procedures that the
Investment Manager is required to follow in dealing with the
Group's assets. These guidelines and procedures are regularly
reviewed and can be altered by the Board if it considers it
appropriate to do so.
The Directors regularly monitor the corporate strategy, dividend
policy and corporate governance issues and meet at least once a
quarter to direct and monitor the business of the Company. This
includes a review of the performance and risk profile of the
Company and to monitor compliance with the Company's objectives and
legislative developments. Advisers to the Company provide the Board
with relevant and timely information within the Company's sphere of
activity to enable the Directors to make informed decisions.
Board Committees
Audit Committee
An Audit Committee, comprising the Directors apart from Mr
Appavoo (who is a director of the Manager and a director of the
Investment Consultant, and therefore not considered to be
independent), has been formed to ensure that the Group maintains
the highest standards of integrity in financial reporting and
internal control. Mr Niven acts as chairman of the Committee. The
Committee, which meets at least twice a year, operates within
clearly defined terms of reference and provides a forum through
which the Group's auditors may report to the Board.
Management Engagement Committee
A Management Engagement Committee, comprising the Independent
Directors, has been formed to ensure that the terms of the
Management Agreement are competitive, fair and reasonable. The
Committee's duties also includes reviewing and making
recommendations on any proposed amendment or material breach of the
Management Agreement and reviewing the performance and suitability
of the Investment Manager in relation to the provision of
management services to the Group. Mr Scott acts as chairman of the
Committee. Please refer to the Investment Manager section of this
report for further details on the current suitability of the
Investment Manager in relation to the provision of management
services to the Group.
Nominations Committee
A Nominations Committee, comprising the Directors, has been
formed to consider and make recommendations to the Board on its
composition and balance. Although the chairman of the Board may be
the chairman of the Committee, in the event that the Committee
considers the appointment of a successor to the chairman of the
Board, the Committee shall elect a chairman other than the chairman
of the Board. Mr Scott acts as chairman of the Committee. The
Committee shall meet at such times as it considers expedient to
carry out its duties and will operate within clearly defined terms
of reference. In accordance with Principle 9 of the AIC Code,
Soondra Appavoo volunteered to step down from the Nomination
Committee on 16 June 2011 as he is considered non-independent.
Remuneration Committee
Because the Board consists entirely of non-executive directors
it is not considered necessary to have a Remuneration Committee and
the Board as a whole will fulfill the functions of a Remuneration
Committee.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2011
Corporate Governance, continued
Board Committees, continued
Remuneration Committee, continued
On an annual basis the Chairman leads an evaluation of the Board
and its individual Directors, with the other independent Directors
evaluating the Chairman's performance. In addition, the Board as a
whole evaluates its own performance and that of its committees.
During the evaluation process the Board members confirmed that they
are able to devote such time as is necessary to discharge their
duties as Directors of the Company and indeed have sufficient
capacity to cope with any reasonable expectation of increased needs
should circumstances require it from time to time.
Independence of Directors
The Board consists of five members, all of whom are
non-executive. With the exception of Soondra Appavoo all other
Directors of the Company are independent of the Company's Manager,
PSource Capital Guernsey Limited. All Directors are independent of
the Investment Manager, Laurus Capital Management, LLC, and free of
any business or other relationship that could influence their
ability to exercise independent judgement. Mr Appavoo is a director
of the Investment Consultant, PSource Capital Limited and of the
Company's Manager. The Board also considers it an important
principle that a senior member of the Investment Consultant bears
personal responsibility as a Director of the Company. Mr Appavoo
does not take part in discussing any contractual arrangements
between the Board and the Manager or the Investment Consultant.
The Directors recognise the importance of succession planning
for Company boards and review the composition of the Board
annually. However the Board is of the view that length of service
will not necessarily compromise the independence or contribution of
Directors of an investment company where continuity and experience
can be a benefit to the Board. Furthermore, the Board agrees with
the view expressed in the AIC Code that long serving Directors
should not be prevented from forming part of an independent
majority or from acting as Chairman. Consequently no limit has been
imposed on the overall length of service.
The Directors are initially appointed by the Board, retire, and
seek reappointment at the next annual general meeting. Thereafter,
Directors retire by rotation, and seek reappointment at the annual
general meeting. As a non-independent Director Mr Appavoo stands
for re-election annually.
The Directors believe that the Board has a balance of skills and
experience which enable it to provide effective strategic
leadership and proper governance of the Company. Information about
the Directors including their relevant experience can be found on
pages 2 and 3.
The Board has contractually delegated to external agencies, the
management of the investment portfolio, the custodial services and
the day to day accounting and company secretarial requirements.
Each of these contracts was only entered into after proper
consideration by the Board of the quality and services offered.
Meetings and Committees
The table below, details the attendance at Board and Committee
meeting during the year:
Management
Audit Engagement Nominations
Board Committee Committee Committee
------------- -------------------- ------------- ------------ ------------
Management Ad hoc
------------- ----------- ------- ------------- ------------ ------------
William
Scott 4 5 3 1 1
------------- ----------- ------- ------------- ------------ ------------
Keith
Dorrian 4 4 3 1 1
------------- ----------- ------- ------------- ------------ ------------
Peter Niven 4 4 3 1 1
------------- ----------- ------- ------------- ------------ ------------
Soondra
Appavoo 3 1 N/A N/A 1*
------------- ----------- ------- ------------- ------------ ------------
Tim
Jenkinson 3 1 3 1 1
------------- ----------- ------- ------------- ------------ ------------
* Soondra Appavoo stepped down from the Nominations Committee on
16 June 2011
Directors' Interests
The interests of the Directors who held office during the year,
and their families, are set out below:
30 June 2011 30 June 2010
Ordinary Shares Ordinary Shares
---------------- ----------------
William Scott (Chairman) 50,000 50,000
Peter Niven 30,000 30,000
Soondra Appavoo 20,000 20,000
Tim Jenkinson 50,000 50,000
Keith Dorrian - -
No Director, other than those listed above, and no connected
person of any Director has any interest, the existence of which is
known to, or could with reasonable diligence be ascertained by that
Director, whether or not held through another party, in the share
capital of the Company.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2011
Corporate Governance, continued
Internal Controls
The Directors are responsible for overseeing the effectiveness
of the internal financial control systems of the Group, which are
designed to ensure proper accounting records are maintained, that
the financial information on which the business decisions are made
and which is issued for publication is reliable, and that the
assets of the Group are safeguarded. Such a system of internal
financial controls can only provide reasonable and not absolute
assurance against misstatement or loss.
The Board has reviewed the Group's internal control procedures.
These internal controls are implemented by the Group's seven main
service providers, Laurus Capital Management, LLC, PSource Capital
Limited, Praxis Fund Services Limited, Wells Fargo Bank, GP
Nurmenkari Inc., Albert Fried & Company, LLC and Bank of
Scotland plc. The Audit Committee contacts each service provider on
an annual basis to seek confirmation that each service provider had
effective controls in place to control the risks associated with
the services that they are contracted to provide to the Group. The
Board is satisfied with the internal controls of the Group.
The Directors meet on a quarterly basis ("Management" meetings
per the Meetings and Committees table) and at other unscheduled
times ("Ad hoc" meetings per the Meetings and Committees table)
when necessary to assess Group operations and the setting and
monitoring of investment strategy and investment performance. At
such meetings, the Board receives from the Manager, Investment
Manager and Investment Consultant a full report on the Group's
holdings and performance and consider the terms of transactions
with entities managed, advised or otherwise affliated with the
Investment Manager. The Board gives directions to the Investment
Manager as to the investment objectives and limitations, and
receives reports from the Manager in relation to the financial
position of the Group and the custody of its assets.
Social, ethical and environmental concerns have been considered
by the Board. Whilst the Board does not consider it appropriate to
put social, ethical and environmental policies in place within an
investment company investing in financial instruments, they do
confirm that the Group does not have any investments that are
illegal or immoral. Furthermore at the date of this report the
Group's largest investment exposure is to biofuels, which could
potentially be extremely beneficial for the environment.
The Board has considered non-financial areas of risk such as
disaster recovery and investment management staffing levels and
considers adequate arrangements to be in place.
Anti-bribery and Corruption
The Board acknowledge that the Company's international
operations may give rise to possible claims of bribery and
corruption. In consideration of the recently enacted UK Bribery
Act, at the date of this report the Board had conducted an
assessment of the perceived risks to the Company arising from
bribery and corruption to identify aspects of business which may be
improved to mitigate such risks. The Board has adopted a zero
tolerance policy towards bribery and has reiterated its commitment
to carry out business fairly, honestly and openly.
Shareholder Views
The Board regularly monitors the shareholder profile of the
Company. All shareholders have the opportunity, and are encouraged,
to attend the Company AGM at which members of the Board are
available in person to meet shareholders and answer questions. In
addition, the Company's Investment Consultant and Financial Adviser
and Stockbroker maintain regular contact with major shareholders
and report regularly to the Board on shareholder views.
Substantial Shareholdings
As at 19 August 2011, the Company was aware of the following
interests in the issued share capital of the Company that exceeded
3% of the issued share capital.
Percentage of Total
Number of Ordinary Ordinary Shares Issued
Shareholder Shares Held* Held
------------------------------- ------------------- ------------------------
Midas (inc Miton) 11,550,000 19.39
------------------------------- ------------------- ------------------------
Wirral BC 7,449,586 12.51
------------------------------- ------------------- ------------------------
SVM Asset Management 6,759,668 11.35
------------------------------- ------------------- ------------------------
Ironsides Partners 6,123,173 10.28
------------------------------- ------------------- ------------------------
Premier Asset Management 5,028,624 8.44
------------------------------- ------------------- ------------------------
Collins Stewart, stockbrokers
(ND) 3,741,954 6.28
------------------------------- ------------------- ------------------------
Brooks MacDonald Asset
Management 3,133,584 5.26
------------------------------- ------------------- ------------------------
Henderson Global Investors 2,847,965 4.78
------------------------------- ------------------- ------------------------
Berry Asset Management 2,832,382 4.76
------------------------------- ------------------- ------------------------
Reliance Mutual 1,139,917 1.91
------------------------------- ------------------- ------------------------
* Based on the Shareholder register as at 19 August 2011.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2011
Directors Statement
The Directors make the following statement:
-- so far as the Directors are aware, there is no relevant audit
information of which the Group's auditors are unaware; and
-- that all steps have been taken by the Directors to make
themselves aware of any relevant audit information and to establish
that the Group's auditors are aware of that information.
Statement of Directors' Responsibilities
The Directors are required by the Company (Guernsey) Law, 2008,
to prepare the financial statements for each financial period which
give a true and fair view of the state of affairs of the Group and
of the profit or loss of the Group for that period and are in
accordance with applicable laws. In preparing these financial
statements the Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements 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 a going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Group and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008 and the Group's principal documents. They are also responsible
for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
Dividend Policy
At inception, it was the Group's intention to pay an annual
dividend (paid gross quarterly) of not less than 5 pence (or its
equivalent in US Dollars) in its first year growing by 0.5 pence
(or its equivalent in US Dollars) per annum in its second and third
years. Although this was achieved in respect of the first
accounting period of the Group, a breach of the Group's banking
facilities has led to the suspension of dividends during the prior
and current years.
Status of Taxation
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above mentioned Ordinance entails
payment by the Company of an annual fee of GBP600. It should be
noted, however, that interest and dividend income accruing from the
Company's investments may be subject to withholding tax in the
country of origin. With effect from 1 January 2008 the standard
rate of income tax for most companies in Guernsey is zero per cent.
Tax Exempt status continues to exist and the Company has been
granted this status for 2011.
The Company has not suffered any withholding tax in the year (30
June 2010: US$nil).
PSD SPV 2, Inc is a Delaware corporation and subject to US
taxation. As such, PSD SPV 2, Inc will suffer taxes on realised
capital gains and income generated by assets which it holds, to the
extent that pre-tax earnings are not offset by expenses and
realised losses. Moreover, as generated by a business wholly-owned
by the Company, distributions of pre-tax earnings of PSD SPV 2, Inc
to the Company (e.g. any interest payments on intercompany loans)
will likely be subject to a withholding tax.
To the extent permissible, the Company will seek to minimise the
income tax and withholding tax suffered, although for accounting
purposes, no benefits have been assumed. A 35% income tax liability
is accrued against any income and capital gains accrued by PSD SPV
2, Inc, and a 30% withholding tax liability is accrued against any
interest accruals related to intercompany loans between PSD SPV 2,
Inc and the Company. An accrued asset of US$16,308 (30 June 2010:
US$8,966 accrued liability) associated with income tax rebates and
withholding tax rebates related to PSD SPV 2, Inc has been made as
at 30 June 2011.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2011
Going Concern
The current position of PSD is not tenable. The Board has tried
to balance the need to monetise the portfolio, with the importance
of overall shareholder value. In the light of the issues discussed
in the Chairman's Statement, the Board does not believe that a
continuation of the Group in its current form is in the interest of
shareholders. The Board does, however, believe that it is in
shareholders' interests to move closer to a resolution with
PetroAlgae (if practicable, as we believe) prior to shaping the
Group's future. The Board has also examined significant areas of
possible financial risk and are satisfied that no material
exposures exist that would effect the Company's ability to remain a
going concern. The Board therefore consider that the Company has
adequate resources to continue in operational existence for the
foreseeable future and after due consideration believe it is
appropriate to adopt the going concern basis in preparing the
financial statements, despite the existence of a continuation vote
to be held at the next Annual General Meeting to be held on 31
October 2011.
The Board intends to present wind-up or restructuring proposals
to shareholders by 31 March 2012.
The Board is unanimous in strongly recommending that
shareholders vote for the continuation of the Company at the Annual
General Meeting to be held on 31 October 2011.
Auditors
The auditors of the Company, KPMG Channel Islands Limited, have
expressed their willingness to continue in office and a resolution
giving authority to re-appoint them will be proposed at the
forthcoming Annual General Meeting.
Director: William Scott
Director: Peter Niven
Date:21 September 2011
On behalf of the Board of Directors
PSOURCE STRUCTURED DEBT LIMITED
Responsibility Statement
We confirm that to the best of our knowledge and in accordance
with DTR 4.1.12R of the Disclosure and Transparency Rules:
a) The financial statements have been properly prepared in
accordance with International Financial Reporting Standards
("IFRS") and give a true and fair view of the financial position
and profit and loss of the Group as at and for the year ended 30
June 2011.
b) The annual report, which includes information detailed in the
Chairman's Statement, Directors' Report and Notes to financial
statements, provides a fair review of the development and
performance of the Group during the year; and includes a
description of the principal risks and uncertainties faced as at
and for the year ended 30 June 2011.
Director: William Scott
Director: Peter Niven
Date: 21 September 2011
On behalf of the Board of Directors
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF PSOURCE
STRUCTURED DEBT LIMITED
We have audited the Group financial statements (the "financial
statements") of PSource Structured Debt Limited (the "Company") for
the year ended 30 June 2011 which comprise Consolidated Statement
of Financial Position, the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows and the related notes. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards as issued by the IASB.
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page 14, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board's (APB's) Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Board of Directors;
and the overall presentation of the financial statements. In
addition, we read all the financial and non-financial information
in the Directors' Report to identify material inconsistencies with
the audited financial statements. If we become aware of any
apparent material misstatements or inconsistencies we consider the
implications for our report.
Opinion on financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 30 June 2011 and of its result for the year then
ended;
-- are in accordance with International Financial Reporting
Standards as issued by the IASB; and
-- comply with the Companies (Guernsey) Law, 2008.
Emphasis of Matter - Going concern
We draw attention to Note 2a(iv) to the financial statements
which describes the uncertainty related to the result of the
continuation vote. Our opinion is not qualified in respect of this
matter.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the
accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the June 2008 Combined Code
specified for our review.
Mark R Thompson
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Date: 21 September 2011
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Financial Position
As at 30 June 2011
Notes 30 June 2011 30 June 2010
-------------------------------- ----- ------------ ------------
US$ US$
Investments 7
Fair value through profit and
loss 83,809,708 92,635,523
Held for trading 1,210,737 2,834,377
Loans and receivables 21,126,349 30,031,017
------------ ------------
Total investments 106,146,794 125,500,917
------------ ------------
Current assets
Cash and cash equivalents 8 280,038 194,315
Unsettled investment sales 392,930 6,839
Other receivables 9 2,423,435 1,619,955
------------ ------------
3,096,403 1,821,109
------------ ------------
Current liabilities
Bank overdraft 8&11 790,281 1,136,519
Other payables 10 5,935,327 5,993,380
Loan 11 3,867,480 7,484,003
------------ ------------
10,593,088 14,613,902
------------ ------------
Net current liabilities (7,496,685) (12,792,793)
------------ ------------
Total net assets 98,650,109 112,708,124
============
Represented by Shareholders'
equity:
Share Premium 12 47,512,742 47,512,742
Distributable reserve 12 42,793,973 42,793,973
Reserves 13 8,343,394 22,401,409
Total Shareholders' equity 98,650,109 112,708,124
============ ============
Net asset value per Ordinary 14 US$1.6562 US$1.8922
Share
============ ============
The financial statements on pages 18 to 50 were approved at a
meeting of the Board of Directors held on
21 September 2011 and signed on its behalf by:
Director: William Scott
Director: Peter Niven
The accompanying notes form an integral part of these
consolidated financial statements.
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2011
Notes 30 June 2011 30 June 2010
------------------------------------------- ----- ------------ ------------
US$ US$
Income
Loan interest income 1,737,505 3,095,381
Bank interest 2,197 1,516
Subordination fees - 79,456
Fee income 18,125 -
Other income 1,165 -
Bad debt provision 9 (255,022) (1,338,725)
Movement in net unrealised
(losses)/gains on investments 7&14 (474,686) 34,177,858
Movement in net unrealised
(losses)/gains on restructuring of
loans 7&14 (1,783,159) 994,160
Net realised losses on
disposal/restructuring of investments 7&14 (2,919,527) (14,018,499)
Impairment charge on loans and
receivables 7&14 (6,428,322) (646,633)
Net foreign exchange gains/(losses) 7,926 (11,806)
------------ ------------
Net investment income (10,093,798) 22,332,708
------------ ------------
Expenses
Management fee 4 2,115,297 2,241,752
Performance fee 4 - 5,581,184
Directors' fees and expenses 5 179,424 183,033
Administration fees 4 236,120 240,748
Custodian fees 4 33,163 23,972
Registrar fees 4 22,705 18,203
Auditor's remuneration 111,674 156,418
Loan arrangement fees 178,233 292,456
Legal and professional fees 588,459 904,428
Independent valuation consultancy
fee 119,176 130,331
US Taxation (14,870) 10,029
Other expenses 74,129 64,184
------------ ------------
Operating expenses before finance
costs 3,643,510 9,846,738
------------ ------------
Net (deficit)/return from operations
before finance costs (13,737,308) 12,485,970
------------ ------------
Finance costs
Bank interest 11 45,662 22,379
Loan interest 11 275,045 331,813
(Deficit)/return after finance
costs for the year (14,058,015) 12,131,778
Total comprehensive (deficit)/income
for the year (14,058,015) 12,131,778
============ ============
Basic & diluted (deficit)/earnings 6 US$(0.2360) US$0.2037
per Ordinary Share
============ ============
The results for the current and prior years are derived from
continuing operations.
The accompanying notes form an integral part of these
consolidated financial statements.
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Changes in Equity
For the year ended 30 June 2011
30 June 2011
Share Distributable
Premium Reserve Reserves Total
----------------------- ---------- ------------- ------------ ------------
US$ US$ US$ US$
Balance brought forward 47,512,742 42,793,973 22,401,409 112,708,124
Total comprehensive
deficit for the year - - (14,058,015) (14,058,015)
Balance carried forward 47,512,742 42,793,973 8,343,394 98,650,109
========== ============= ============ ============
30 June 2010
Share Distributable
Premium Reserve Reserves Total
----------------------- ---------- ------------- ------------ ------------
US$ US$ US$ US$
Balance brought forward 47,512,742 42,793,973 10,269,631 100,576,346
Total comprehensive
income for the year - - 12,131,778 12,131,778
Balance carried forward 47,512,742 42,793,973 22,401,409 112,708,124
========== ============= ============ ============
The accompanying notes form an integral part of these
consolidated financial statements.
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Cash Flows
For the year ended 30 June 2011
Notes 30 June 2011 30 June 2010
------------------------------------------- ----- ------------ ------------
US$ US$
Cash flows from operating activities
Loan interest received 996,894 3,019,325
Fee income received 18,125 -
Other income received 1,165 -
Operating expenses paid (3,986,986) (6,571,943)
Amounts paid for purchase of investments (560,647) (215,127)
Sale proceeds received from disposal
of investments 6,521,657 2,510,504
Amounts received on loan repayments 1,390,476 8,288,795
------------ ------------
Net cash from in operating activities 4,380,684 7,031,554
------------ ------------
Cash flows used in financing activities
Bank interest received 2,197 1,516
Bank interest paid (45,662) (22,379)
Loan interest paid (296,660) (397,137)
Loan repayments (3,616,524) (11,695,004)
Net cash used in financing activities (3,956,649) (12,113,004)
------------ ------------
Net increase/(decrease) in cash
and cash equivalents 424,035 (5,081,450)
Cash and cash equivalents, start
of year (942,204) 4,151,052
Effect of exchange rate changes
during the year 7,926 (11,806)
------------ ------------
Cash and cash equivalents, end
of year 8 (510,243) (942,204)
============ ============
Cash and cash equivalents comprise
the following amounts:
Bank deposits 280,038 194,315
Bank overdrafts (790,281) (1,136,519)
--------- -----------
(510,243) (942,204)
========= ===========
The accompanying notes form an integral part of these
consolidated financial statements.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements
For the year ended 30 June 2011
1. The Company:
The Company is a closed-ended investment company, incorporated
and registered with limited liability in Guernsey on 5 June 2007 in
accordance with The Control of Borrowing (Bailiwick of Guernsey)
Ordinance, 1959 to 2003 as amended. The Company commenced business
on 3 August 2007 when the initial 30,000,000 Ordinary Shares of the
Company were admitted to the Official List of the London Stock
Exchange. The Company is a Guernsey Authorised Closed-ended
Investment Scheme and is subject to the Authorised Closed-ended
Investment Scheme Rules 2008.
PSource Structured Debt SPV 1 Limited ("SPV1") was incorporated
in Guernsey on 27 September 2007 and commenced trading on 30 May
2008. On 29 December 2010, when this Subsidiary no longer had any
holdings, SPV1 was voluntarily liquidated.
PSD SPV 2, Inc ("SPV2") was incorporated in the State of
Delaware on 2 April 2009. The Subsidiary commenced trading on 1 May
2009. SPV2 was established to hold certain US assets. For reasons
of tax efficiency, the Group proposes to make newly originated
direct investments and enter into co-investments through this
Subsidiary.
Any references to Company relate to PSource Structured Debt
Limited whereas references to the Group include PSource Structured
Debt Limited, SPV1 and SPV2.
2. Principal Accounting Policies:
(a) Basis of Preparation:
(i) General
The financial statements give a true and fair view, they have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") and are in compliance with the Companies
(Guernsey) Law, 2008 and the Listing Rules of the UK Listing
Authority.
The financial statements of the Group have been prepared under
the historical cost convention modified by the revaluation of
investments and assets and liabilities at fair value through profit
or loss, in accordance with IFRS.
(ii) Functional and Presentation Currency
The Group's investors are mainly from the UK, however, the vast
majority of underlying investment portfolio is denominated in US
Dollars. For this reason Directors consider the presentation and
functional currency of the Group to be US Dollars. As at 30 June
2011 the performance of the Group is measured and reported to
investors in US Dollar. The financial information is presented in
US Dollars, which is the Group's functional and presentation
currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the
Consolidated Statement of Comprehensive Income. Translation
differences on the revaluation of non-functional currency financial
instruments are included in net unrealised gains and losses on
investments and are recognised in the Consolidated Statement of
Comprehensive Income.
(iii) Judgements and estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results could differ
from such estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate was revised if the revision
affects only that period or in the period of the revision and
future periods if the revision affects both current and future
periods.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
2. Principal Accounting Policies, continued:
(a) Basis of Preparation, continued:
(iii) Judgements and estimates, continued
The most critical judgements, apart from those involving
estimates, that management has made in the process of applying the
accounting policies and that have the most significant effect on
the amounts recognised in the consolidated financial statements are
the functional currency of the Group (see note 2(a)(ii)) and the
fair value of investments designated to be at fair value through
profit or loss (see note 2(d)(iii)). The valuation
methods/techniques used in valuing financial instruments involve
critical judgements to be made and therefore the actual value of
financial instruments could differ significantly from the value
disclosed in these consolidated financial statements.
(iv) Going concern
These consolidated financial statements have been prepared on a
going concern basis, despite the existence of a continuation vote
to be held at the AGM on 31 October 2011.
The Company remains susceptible to the result of this
continuation vote. Should the outcome of the vote be to discontinue
the Company there can be no certainty, particularly given current
market conditions, that the realisation of assets of the Company
would be at amounts shown in these financial statements. The
financial statements do not include any adjustments that would
result from a change of basis of preparation.
(v) IFRS
New standards and interpretations adopted
The Group has adopted the following new and amended standards
and interpretations, which are applicable to the Group's
operations, for the accounting period commencing 1 July 2010:
-- Improvements to IFRSs 2009 - various standards (effective 1
January 2010)
-- Amendments to IFRS 1 - Limited Exemption from Comparative
IFRS 7 Disclosures for First-time Adopters (effective 1 July
2010)
-- Improvements to IFRSs 2010 - various standards (effective 1
July 2010)
Significant new standards and interpretations not yet
adopted
A number of new standards, amendments to standards and
interpretations are not yet effective for the current year, and
have not been applied in preparing these financial statements. None
of these will have a significant effect on the financial statements
of the Company, with the exception of the following:
-- IFRS 9 Financial Instruments, published on 12 November 2009
(effective 1 January 2013) as part of phase I of the IASB's
comprehensive project to replace IAS 39, deals with classification
and measurement of financial assets. The requirements of this
standard represent a significant change from the existing
requirements in IAS 39 in respect of financial assets. The standard
contains two primary measurement categories for financial assets:
amortised cost and fair value. A financial asset would be measured
at amortised cost if it is held within a business model whose
objective is to hold assets in order to collect contractual cash
flows, and the asset's contractual terms give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal outstanding. All other financial assets
would be measured at fair value.
The standard eliminates the existing IAS 39 categories of held
to maturity, available for sale and loans and receivables. For an
investment in an equity instrument which is not held for trading,
the standard permits an irrevocable election, on initial
recognition, on an individual share-by-share basis, to present all
fair value changes from the investment in other comprehensive
income. No amount recognised in other comprehensive income would
ever be reclassified to profit or loss at a later date. However,
dividends on such investments are recognised in profit or loss,
rather than other comprehensive income unless they clearly
represent a partial recovery of the cost of the investment.
Investments in equity instruments in respect of which an entity
does not elect to present fair value changes in other comprehensive
income would be measured at fair value with changes in fair value
recognised in profit or loss.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
2. Principal Accounting Policies, continued:
(a) Basis of Preparation, continued:
(v) IFRS, continued
Significant new standards and interpretations not yet adopted,
continued
-- IFRS 9 Financial Instruments, continued, the standard
requires that derivatives embedded in contracts with a host that is
a financial asset within the scope of the standard are not
separated; instead the hybrid financial instrument is assessed in
its entirety as to whether it should be measured at amortised cost
or fair value.
The Directors' are currently in the process of evaluating the
potential effect of this standard. The standard is not expected to
have a significant impact on the financial statements since the
majority of the Company's financial assets are designated at fair
value through profit or loss. The amendments will become will
become mandatory for the Company's 30 June 2014 financial
statements.
Other new standards and interpretations not yet adopted
-- IAS 24 - Related Party Disclosures (Revised 2009) (effective
1 January 2011)
-- Improvements to IFRSs 2010 - various standards (effective 1
July 2010)
The Directors believe that other pronouncements, which are in
issue but not yet operative or adopted by the Company, will not
have a material impact on the financial statements of the
Group.
(b) Basis of Consolidation:
The consolidated financial statements of the Group incorporate
the financial statements of the Company and its wholly owned
subsidiary made up to 30 June 2011. There are no minority interests
in the income or assets of the subsidiaries. Control is achieved
where the Company has the power to govern the financial and
operating policies of the subsidiaries so as to benefit the
Company. The accounting policies of the Subsidiary are consistent
with those adopted by the Group. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
(c) Income
Bank interest, loan interest income and other income are
included in these consolidated financial statements on an accruals
basis, using the effective interest method.
Where interest income falls past due it is assessed for
impairment and where impairment is identified a 0-100% provision is
made, on a case by case basis after the recoverability of each
interest receipt has been assessed.
Subordination fee income is included in these consolidated
financial statements on an accruals basis and is recognised in the
Consolidated Statement of Comprehensive Income.
(d) Investments:
The Group's investments comprise loans, fees receivables,
royalties, equities, warrants (for listed equities) and options
(for listed equities).
(i) Classification
Equity investments have been designated as fair value through
profit or loss in accordance with IAS 39 (Revised) "Financial
Instruments: Recognition and Measurement".
Warrants and penny warrants investments meet the definition of
"Derivatives" under IAS 39 and have been designated as held for
trading in accordance with IAS 39 (Revised) "Financial Instruments:
Recognition and Measurement". They are accounted for as fair value
through profit or loss.
Investments in loans, royalties and fees receivable have been
classified as loans and receivables in accordance with IAS 39
(Revised) "Financial Instruments: Recognition and Measurement".
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
2. Principal Accounting Policies, continued:
(d) Investments, continued:
(ii) Measurement
Equities, warrants and penny warrants are initially recognised
at fair value. Transaction costs are expensed in the Consolidated
Statement of Comprehensive Income. Subsequent to initial
recognition, equity, warrants and penny warrants are measured at
fair value. Realised gains and losses on disposal of investments,
where the disposal proceeds are higher/lower than the book cost of
the investment are presented in the Consolidated Statement of
Comprehensive Income in the period in which they arise. Unrealised
gains and losses arising on the fair value of investments are
presented in the Consolidated Statement of Comprehensive Income in
the period in which they arise. Dividend income, if any, from
equity investments is recognised in the Consolidated Statement of
Comprehensive Income within dividend income when the Group's right
to receive payments is established.
Loans and royalties are initially recognised at fair value,
which at the point of acquisition is equal to cost, less any
directly attributable transaction cost. Subsequent to initial
recognition, loans are measured at amortised cost using the
effective interest rate method. Royalties are measured at the
discounted value of future cash flows. Fee receivables are measured
at fair value.
Loans are carried at amortised cost and reviewed for impairment
in accordance with IAS 39 (see note 2(e)).
(iii) Fair Value Estimation
Quoted equity investments at fair value through profit or loss
are valued at the bid price on the relevant stock exchange.
Unquoted investments at fair value through profit and loss are
valued in accordance with the International Private Equity and
Venture Capital valuation guidelines or any other valuation model
and techniques which can provide a reasonable estimate of fair
value of the investment involved.
(iv) Recognition/derecognition
All regular way purchases and sales of investments are
recognised on trade date - the date on which the Company commits to
purchase or sell the investment. Investments are derecognised when
the rights to receive cash flows from the investments have expired
or the Company has transferred substantially all risks and rewards
of ownership.
(e) Impairment of financial assets:
Financial assets are assessed at each reporting date to
determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that
asset.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the original effective interest rate.
Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets
are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognised in the Consolidated
Statement of Comprehensive Income.
An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognised. The reversal is recognised in the Consolidated
Statement of Comprehensive Income.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
2. Principal Accounting Policies, continued:
(f) Expenses:
Expenses are accounted for on an accruals basis.
(g) Cash and Cash Equivalents:
Cash and cash equivalents are defined as cash in hand, demand
deposits and highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in
value. For the purposes of the Consolidated Statement of Cash Flows
cash and cash equivalents consist of cash in hand, deposits in bank
and overdrafts.
(h) Other Receivables and Other Payables:
Other receivables are stated at amortised cost less any
provision for doubtful debts. Other payables are stated at
amortised cost.
(i) Segment Reporting:
The Board has considered the requirements of IFRS8. The Board,
as a whole, has been determined as constituting the chief operating
decision maker ("CODM") of the Group.
The Board is charged with setting the Group's investment
strategy in accordance with the Prospectus. They have delegated the
day to day Investment Management of the Group to the Investment
Manager, under the terms set out in the Investment Management
Agreement, but the Board retains the responsibility to ensure that
adequate resources of the Group are directed in accordance with
their decisions. All investment recommendations made by the
Investment Manager are reviewed by the Board for compliance with
the policies and legal responsibilities of the Directors and the
provisions of the Prospectus. Only after such reviews have been
satisfactorily conducted will the Board approve the investments
recommendations. The Board therefore retains full responsibility
for the allocation decisions made on an ongoing basis. Pursuant to
the terms of the Investment Management Agreement the Investment
Manager is obliged to comply with the investment strategy detailed
in the Prospectus. This strategy sets out guidelines for proposed
investments and the procedures that the Investment Manager is
required to follow in dealing with the Group's assets. These
guidelines and procedures are regularly reviewed and can be altered
by the Board if it considers it appropriate to do so.
The key measure of performance used by the Board in its capacity
of CODM, is to assess the Group's performance and to allocate
resources based on the total return of each individual investment
within the Group's portfolio, as opposed to geographic regions. As
a result, the Board is of the view that the Group is engaged in a
single segment of business, being investment in a diversified
portfolio of asset backed loans and debt made predominantly to, and
equity warrants and similar instruments issued predominately by,
publicly traded small and micro-cap companies in the US and Canada.
Therefore, no reconciliation is required between the measure of
gains or losses used by the Board and that contained in these
consolidated financial statements.
Information on realised gains and losses derived from sales of
investments are disclosed in Note 7 to the financial
statements.
The Group has no assets classified as non-current assets. An
analysis of the significant investments held by the Company is
given on page 51, in addition to the industry and geographic
location analysis of the investments which are given on page 56 and
57 respectively.
The Company has a diversified shareholder population and no
individual investor is known to own more than 19.39% (as at 19
August 2011) of the issued capital of the Company as disclosed in
the Directors' Report.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2010
3. Taxation:
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above mentioned Ordinance entails
payment by the Company of an annual fee of GBP600. It should be
noted, however, that interest and dividend income accruing from the
Company's investments may be subject to withholding tax in the
country of origin. With effect from 1 January 2008 the standard
rate of income tax for most companies in Guernsey is zero per cent.
Tax Exempt status continues to exist and the Company has been
granted this status for 2010 and 2011. The Company has not suffered
any withholding tax in the period.
PSD SPV 2, Inc is a Delaware corporation and subject to US
taxation. As such, PSD SPV 2, Inc will suffer taxes on realised
capital gains and income generated by assets which it holds, to the
extent that pre-tax earnings are not offset by expenses and
realised losses. Moreover, as generated by a business wholly-owned
by the Company, distributions of pre-tax earnings of PSD SPV 2, Inc
to the Company (e.g. any interest payments on intercompany loans)
will likely be subject to a withholding tax.
To the extent permissible, the Company will seek to minimise the
income tax and withholding tax suffered, although for accounting
purposes, no benefits have been assumed. A 35% income tax liability
is accrued against any income and capital gains accrued by PSD SPV
2, Inc, and a 30% withholding tax liability is accrued against any
interest accruals related to intercompany loans between PSD SPV 2,
Inc and the Company. An accrued asset of US$16,308 (30 June 2010:
US$8,966 liability) associated with income tax rebates and
withholding tax rebates related to PSD SPV 2, Inc has been made as
at 30 June 2011.
4. Material Agreements & Related Parties:
The Company is responsible for the continuing fees of the
Manager, the Investment Manager, the Administrator, the Registrar,
the Custodian and the Independent Valuation Consultant in
accordance with the Management, Investment Management,
Administration, Registrar, Custodian and Independent Valuation
Consultant's Agreements.
Management Agreement
Pursuant to the provisions of the Management Agreement, the
Manager is entitled to receive a management fee during the year at
2.0% per annum of the net asset value of the Company. This fee is
paid monthly in arrears. As at 30 June 2011, the management fee
creditor was US$162,453 (30 June 2010: US$185,603).
In addition the Manager is entitled to a Performance Fee in
respect of any Performance Fee Period in which the Performance
Trigger has been achieved. If the Performance Trigger is achieved,
the Performance Fee shall equal 20 per cent of the amount by which
the Total Return NAV per Ordinary Share exceeds the NAV per
Ordinary Share at the end of the previous Performance Fee Period,
multiplied by the time-weighted average number of Ordinary Shares
in issue during the relevant Performance Fee Period. If there has
not been any previous Performance Fee Period the Performance Fee
shall equal 20 per cent of the amount if any by which the Total
Return NAV per Ordinary Share exceeds the NAV per Ordinary Share
(calculated net of all initial expenses payable by the Company) on
the Effective Date (date of Admission of the Company), multiplied
by the time-weighted average number of Ordinary Shares in issue
during the relevant Performance Fee Period. As at 30 June 2011, the
Performance Fee creditor was US$5,581,184 (30 June 2010:
US$5,581,184). In January 2010, the Manager agreed to defer payment
of the Performance Fee owed by the Group until such time as the
Group has resumed dividend payments.
Administration Agreement
Pursuant to the provisions of the Administration Agreement,
Praxis Fund Services Limited is entitled to receive an
administration fee at an annualised rate of 0.16% up to GBP150
million, 0.12% for the following GBP100 million and 0.10%
thereafter, subject to a monthly minimum of GBP4,500. With regard
to company secretarial services, the Administrator is compensated
on a time cost basis. This is estimated to be in the range of
GBP30,000 to GBP35,000 per annum. As at 30 June 2011, the
administration fee creditor was US$23,421 (30 June 2010:
US$15,668).
Registrar Agreement
Pursuant to the provisions of the Registrar Agreement, Capita
Registrars (Guernsey) Limited is entitled to a maintenance fee of
GBP2.00 per shareholder (subject to an annual minimum maintenance
fee of GBP5,000) together with various per deal fees per
shareholder transactions. As at 30 June 2011, the registrar fee
creditor was US$4,302 (30 June 2010: US$3,121).
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
4. Material Agreements & Related Parties, continued:
Custodian Agreement
Pursuant to the provisions of the Custodial Agreement that was
in place during the period, Wells Fargo Bank will be entitled to
receive a custodian fee as follows:
Wells Fargo Bank
-- US$30,000 acceptance fee; plus
-- US$30,000 annual administration fee; plus
-- US$30 per asset annual custody fee; plus
-- various activity fees.
Effective from 26 November 2010, the Company migrated its
custody and clearing services for its short term trading assets
from Fidelity Prime Services to Albert Fried & Company, LLC.
Albert Fried & Company, LLC is entitled to receive various
activity based fees for its services to the Company. During the
period Albert Fried & Company, LLC were entitled to receive
US$6,004 in respect of such services.
Effective 1 December 2010, the Company migrated its trading
services from Fidelity to GP Nurmenkari Inc.. GP Nurmenkari Inc. is
entitled to receive various activity based fees for its services to
the Company. During the period GP Nurmenkari Inc. were entitled to
receive US$1,878 in respect of such services.
In addition to the above agreements, during the period the Group
paid US$6,064 to Fidelity Prime Services for custodial services
provided in respect of the Group's short term trading assets.
Independent Valuation Consultant
Pursuant to the provisions of the Independent Valuation
Consultant's Agreement between the Company and Clayton IPS
Corporation ("Clayton"). Clayton has agreed to provide a monthly
and quarterly valuation of the assets of the Company. For these
services Clayton is entitled to a fee of US$10,000 for each monthly
valuation. As at 30 June 2011, the independent valuation
consultancy fee creditor was US$9,507 (30 June 2010:
US$20,331).
Master Agreement
The Master Agreement dated 31 July 2007 (and as subsequently
amended on 1 September 2007 and 29 October 2007) between the
Company and Laurus Master Fund Ltd which governs the terms on which
Laurus Master Fund Ltd may, from time to time, offer investments
for sale to the Company and the Company may, if it wishes, accept
such offers of investments (including the Initial Portfolio). The
Company shall not be obliged to accept such an offer, but is
entitled to accept the offer in respect of one or more of the
investments offered. Investments will be offered on the basis of an
agreed valuation methodology set out in the Agreement.
The Laurus Master Fund Ltd makes a number of representations and
warranties in the Master Agreement in respect of the investments
that it offers to the Company.
Under the Master Agreement ongoing investments made by the
Company may include purchases from Laurus Master Fund Ltd and other
affiliates of the Investment Adviser, subject to approval by the
Board of Directors or a duly authorised committee of the Board.
The Company entered into a similar Master Agreement with Valens
Offshore SPV I Ltd (4 September 2007 and amended on 29 October
2007) and Valens US SPV 1, LLC (19 October 2007 and amended on 29
October 2007). Valens Offshore SPV I Ltd and Valens US SPV 1, LLC
are managed by an affiliate of the Investment Manager, Valens
Capital Management, LLC.
Related Party Transactions
During prior years the Company had undertaken investment
transactions with Laurus Master Fund Ltd, Calliope Capital
Corporation, Erato Corp, Promethean Industries, Inc and Valens
Offshore SPV I Ltd, being other affiliates of the Investment
Manager, under the terms of the Master Agreements.
There were no purchase or sales transactions with related
parties for the year ended 30 June 2011 (30 June 2010: none).
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
4. Material Agreements & Related Parties, continued:
Directors' and Other Related Parties' Interests
As at 30 June 2011, the interests of the Directors and their
families who held office during the year are set out below:
30 June 2011 30 June 2010
Ordinary Shares Ordinary Shares
---------------- ----------------
William Scott (Chairman) 50,000 50,000
Peter Niven 30,000 30,000
Soondra Appavoo 20,000 20,000
Tim Jenkinson 50,000 50,000
Keith Dorrian - -
There were no changes in the interests of the Directors prior to
the date of this report.
No Director, other than those listed above, and no connected
person of any Director has any interest, the existence of which is
known to, or could with reasonable diligence be ascertained by that
Director, whether or not held through another party, in the share
capital of the Company.
As at 30 June 2011, the Investment Manager held 500,000 (30 June
2010: 500,000) Ordinary Shares in the Company.
5. Directors' Fees:
Each of the Directors has entered into an agreement with the
Company providing for them to act as a non-executive director of
the Company. Their annual fees, excluding all reasonable expenses
incurred in the course of their duties which were reimbursed by the
Company were as follows:
30 June 2011 30 June 2010
Annual Fee Annual Fee
------------- -------------
GBP GBP
William Scott (Chairman) 30,000 30,000
Soondra Appavoo - -
Peter Niven (Audit Committee chairman) 27,000 27,000
Tim Jenkinson 25,000 25,000
Keith Dorrian 25,000 25,000
Mr Appavoo has waived his Director's fees for the year. As at 30
June 2011 the Directors' fees creditor was US$42,139 (30 June 2010:
US$1,853).
6. Basic & diluted (deficit)/earnings per Ordinary
Share:
Basic (deficit)/earnings per Ordinary Share is based on the net
deficit for the year of US$14,058,015 (30 June 2010: US$12,131,778
return) and on a weighted average of 59,564,681 (30 June 2010:
59,564,681) Ordinary Shares in issue.
Diluted (deficit)/earnings per Ordinary Share is the same as
basic (deficit)/earnings per Ordinary Share since there are no
dilutive potential Ordinary Shares arising from financial
instruments.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
7. Investments:
Fair Value Through Profit or Loss Investments: 30 June 2011 30 June 2010
------------- -------------
US$ US$
Investments listed on recognised investment
exchanges 2,285,132 5,122,205
Unlisted investments 81,524,576 87,513,318
-------------
83,809,708 92,635,523
============= =============
Opening fair value 92,635,523 46,012,447
Converted from loans 171,835 458,114
Converted to loans (2,767,279) -
Converted from fee receivables - 896,147
Converted from warrants - 2,926,747
Converted from penny warrants - 3,038,184
Exercises of warrants 488,038 -
Purchases 530,357 1,383,093
Sales - proceeds (6,555,967) (1,722,123)
Sales - realised gains/(losses) on
disposals 1,773,638 (1,641,034)
Movement in net unrealised (loss)/gain (2,466,437) 41,283,948
Closing fair value at 30 June 83,809,708 92,635,523
============= =============
Closing book cost at 30 June 16,939,089 23,298,467
Closing net unrealised gain 66,870,619 69,337,056
------------- -------------
Closing fair value at 30 June 83,809,708 92,635,523
============= =============
Held for Trading Investments: 30 June 2011 30 June 2010
------------- -------------
US$ US$
Unlisted investments 1,210,737 2,834,377
============= =============
Opening fair value 2,834,377 19,000,009
Converted to equity - (5,964,931)
Sales - proceeds (351,781) (443,508)
Sales - realised losses on disposals (2,775,572) (3,176,744)
Exercise of warrants (488,038)
Movement in net unrealised gain/(loss) 1,991,751 (6,580,449)
Closing fair value at 30 June 1,210,737 2,834,377
============= =============
Closing book cost at 30 June 27,332,055 30,947,446
Closing net unrealised loss (26,121,318) (28,113,069)
-------------
Closing fair value at 30 June 1,210,737 2,834,377
============= =============
Warrants and penny warrants are valued based on the listed price
of the equity for which the warrants and penny warrants relates and
then adjusted using the Black Scholes method. The Directors
consider it prudent to apply certain discounts (7% against the
value of penny warrants and 30% against the value of standard
warrants) when valuing warrants and penny warrants for the purposes
of calculating the Company's issued monthly NAV and for these
consolidated financial statements due to their illiquid nature and
the fact that there is no active market to trade these warrants and
penny warrants.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
7. Investments, continued:
Loans and Receivables: 30 June 2011 30 June 2010
------------- -------------
US$ US$
Loans 21,126,349 30,031,017
============= =============
Opening carrying value 30,031,017 48,475,029
Loans converted to equity (171,835) (458,114)
Loans converted from equity 2,767,279 -
Fee receivables converted to equity - (896,147)
Purchases 19,436 577,880
Repayments/restructuring of loans -
proceeds (1,390,476) (8,288,795)
Repayments/restructuring of loans/fee
receivables - realised losses on
repayments/restructuring (1,917,592) (9,200,721)
Movement in unrealised (losses)/gains on
restructuring of loans (1,783,159) 994,160
Movement in impairment charge (6,428,322) (646,633)
Movement in net unrealised loss on royalties,
fee receivables and fee/proceeds receivable - (525,641)
Closing carrying value at 30 June 21,126,349 30,031,017
============= =============
Closing book cost at 30 June 32,765,416 33,458,603
Closing unrealised gains on restructuring
of loans 1,718,200 3,501,359
Impairment charge (13,357,267) (6,928,945)
Closing carrying value at 30 June 21,126,349 30,031,017
============= =============
Total Investments: 30 June 2011 30 June 2010
------------- -------------
US$ US$
Investments listed on recognised investment
exchanges 2,285,132 5,122,205
Unlisted investments 82,735,313 90,347,695
Loans 21,126,349 30,031,017
106,146,794 125,500,917
============= =============
Opening fair/carrying value 125,500,918 113,487,485
Purchases 549,793 1,960,973
Sales - proceeds (6,907,748) (2,165,631)
Sales - realised losses on disposals (1,001,934) (4,817,778)
Repayments/restructuring of loans -
proceeds (1,390,476) (8,288,795)
Repayments/restructuring of loans/fee
receivables - realised (losses)/gains on
repayments/restructuring (1,917,592) (9,200,721)
Movement in unrealised (losses)/gains on
restructuring of loans (1,783,159) 994,160
Movement in impairment charge (6,428,322) (646,633)
Movement in net unrealised gains (474,686) 34,177,858
Closing fair/carrying value at 30 June 106,146,794 125,500,917
============= =============
Closing book cost at 30 June 77,036,560 87,704,516
Closing unrealised gains on restructuring
of loans 1,718,200 3,501,359
Impairment charge (13,357,267) (6,928,945)
Closing net unrealised gain 40,749,301 41,223,987
Closing fair value/carrying at 30 June 106,146,794 125,500,917
============= =============
As at 30 June 2011 the Directors identified impairment charges
on loans and receivables, in accordance with IAS 39, due to an
underlying investment filing for chapter 11 bankruptcy. This
resulted in the investments being written down by a further
US$6,428,322 during the year (30 June 2010: US$646,633). This
impairment charge is reflected in the Consolidated Statement of
Comprehensive Income.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
8. Cash and Cash Equivalents:
30 June 2011 30 June 2010
------------- -------------
US$ US$
Bank deposits 280,038 194,315
Bank overdrafts (see note 11) (790,281) (1,136,519)
------------- -------------
(510,243) (942,204)
============= =============
9. Other Receivables:
30 June 2011 30 June 2010
------------- -------------
US$ US$
Loan interest & fee receivables* 2,384,950 1,600,591
Prepayments 22,177 19,364
US Tax receivable 16,308 -
2,423,435 1,619,955
============= =============
The Directors consider that the carrying amount of other
receivables approximates fair value.
10. Other Payables:
30 June 2011 30 June 2010
------------- -------------
US$ US$
Management fee payable 162,453 185,603
Performance fee 5,581,184 5,581,184
Administration fee 23,421 15,668
Audit fee 86,606 104,615
Loan interest payable - 21,615
US Tax payable - 8,966
Other payables 81,663 75,729
------------- -------------
5,935,327 5,993,380
============= =============
The Directors consider that the carrying amount of other
payables approximates fair value.
11. Loan and Overdraft:
As at 30 June 2011, the Company had credit facilities with Bank
of Scotland plc ("Bank of Scotland"), in accordance with facility
agreement dated 30 November 2007 and supplemental restatement
facility agreement (utilisation date 31 May 2011). The facilities
comprise a US$6.5million term note and a US$1.5million committed
overdraft. The key terms of these facilities are as follows:
-- Facility available for 3 months from 31 May 2011;
-- Interest is chargeable at a rate of the US 3 month LIBOR plus
6% per annum;
-- No fixed amortisation;
-- Cash sweep equal to 80% of monthly free cashflow;
-- No net debt/gross asset covenants;
-- Margin ratchet applicable based on repayment schedule set out
in agreement; and
-- Dividend payments permitted by the Company, subject to
approval by Bank of Scotland.
A further condition to the amendment and restatement of the
facility agreement (utilisation date 31 May 2011), the Company's
subsidiary, PSD SPV 2, Inc. ("SPV2"), would accede to the facility
agreement as a guarantor and grant security over its assets in
favour of the Bank. In turn, the Company was required to grant
security over its shares in SPV2 in favour of the Bank.
As at 30 June 2011, the Company's outstanding loan balance was
US$3,867,480 (30 June 2010: US$7,484,003) and the overdraft balance
was US$790,281 (30 June 2010: US$1,136,519). The above credit
facility is secured against the Company's investment portfolio.
The above facility was replaced on 1 September 2011 with an
amended banking facility. See note 18 for full details.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
12. Share Capital and Distributable Reserve:
30 June 2011
&
30 June 2010
-------------
Authorised Share Capital US$
Unlimited Ordinary and Qualifying C Shares of no -
par value
-
=============
30 June 2011 30 June 2010
------------- -------------
Allotted, issued and fully paid US$ US$
59,564,681 (30 June 2010: 59,564,681)
Ordinary Shares of no par value each - -
============= =============
1 July 2010 1 July 2009
to to
30 June 2011 30 June 2010
------------- -------------
No. No.
Carried forward 59,564,681 59,564,681
============= =============
Share premium US$ US$
Brought forward & carried forward 47,512,742 47,512,742
============= =============
Distributable reserve US$ US$
Brought forward & carried forward 42,793,973 42,793,973
============= =============
The Ordinary Shareholders shall have the following rights:
(i) Dividends
During the period Shareholders (other than the Company itself
where it holds its own Shares as treasury Shares) are entitled to
receive, and participate in, any dividends or other distributions
out of the profit of the Company available for dividend and
resolved to be distributed in respect of any accounting period or
other income or right to participate therein.
(ii) Winding up
On a winding up, Shareholders (other than the Company itself
where it holds its own Shares as treasury Shares) shall be entitled
to the surplus assets remaining after payment of all the creditors
of the Company.
(iii) Voting
Shareholders (other than the Company itself where it holds its
own Shares as treasury Shares) shall have the right to receive
notice of and to attend and vote at general meetings of the Company
and each Shareholder being present in person or by proxy or by a
duly authorised representative (if a corporation) at a meeting
shall upon a show of hands have one vote and upon a poll each such
holder present in person or by proxy or by a duly authorised
representative (if a corporation) shall have one vote in respect of
every Ordinary Share held by him.
On 27 July 2007, an ordinary resolution was passed at an
extraordinary general meeting of the Shareholders approving the
cancellation of the entire amount which will stand to the credit of
the share premium account immediately after the Placing,
conditionally upon the issue of the Shares and the payment in full
thereof and with respect to any further issue of Shares. The
cancellation was confirmed by the Royal Court on 25 January 2008
that the surplus thereby created formed a distributable
reserve.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
12. Share Capital and Distributable Reserve, continued:
By a resolution dated 2 November 2009, the holders of the
Subscriber Shares in the Company granted the Company the authority
to make market purchases of up to 14.99% of its own issued Ordinary
Shares. A renewal of the authority to make purchases of Ordinary
Shares is sought from Shareholders at each annual general meeting
of the Company.
Following closing of an Offer for Subscription on 18 June 2008,
the Placing and the Offer raised GBP26.53 million (net of placing
costs) and on 20 June 2008, 24,154,681 additional Ordinary Shares
in the Company were admitted to the Official List of the London
Stock Exchange.
On 30 July 2008, the Company issued 5,410,000 Ordinary Shares of
no par value, representing 9.9% of the Ordinary Shares in issue.
These Ordinary Shares were issued and admitted to the Official List
on the London Stock Exchange for trading on the same day.
Re-Designation of Sterling Shares into US Dollar Shares
On 30 January 2009, a special resolution was passed by the
shareholders so that the sterling currency of all of the issued
Sterling Shares of the Sterling Class be re-designated into the
U.S. Dollar currency in accordance with article 3.12 of the
Company's Articles of Association at an exchange rate of
US$1.4593/GBP calculated as at 31 December 2008.
Capital Management
Under its Articles of Incorporation, The Company has the ability
to borrow up to 30% of net assets in order to implement any hedging
and buyback strategies and to meet ongoing expenses (please refer
to note 11).
13. Net Asset Value per Ordinary Share:
The net asset value per Ordinary Share is based on the net
assets attributable to Ordinary shareholders of US$98,650,109 (30
June 2010: US$112,708,124) and on the year end Ordinary Shares in
issue of 59,564,681 (30 June 2010: 59,564,681).
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
14. Financial Instruments:
(a) Categories of financial instruments:
30 June 2011 30 June 2010
Percentage Percentage
of net of net
assets assets
attributable attributable
to Ordinary to Ordinary
Fair Value Shareholders Fair Value Shareholders
-------------------------------- ------------- ------------- ------------- -------------
Assets US$ % US$ %
Financial assets at
fair value through
profit or loss:
Listed equity
securities 2,285,132 2.32 5,122,205 4.54
Unlisted equity
securities 81,524,576 82.64 87,513,318 77.65
Warrants 1,021,683 1.03 1,852,177 1.64
Penny warrants 189,054 0.19 982,200 0.87
------------- -------------
85,020,445 86.18 95,469,900 84.70
------------- ------------- ------------- -------------
Cash and cash
equivalents 280,038 0.28 194,315 0.17
------------- ------------- ------------- -------------
Loans and
receivables*:
Loans 21,126,349 21.42 30,031,017 26.65
Unsettled investment
sales 392,930 0.40 6,839 0.01
Other receivables 2,423,435 2.46 1,619,955 1.44
109,243,197 110.74 127,322,026 112.97
============= ============= ============= =============
Liabilities
Cash and cash
equivalents (bank
overdrafts) (790,281) (0.80) (1,136,519) (1.01)
Loan (3,867,480) (3.92) (7,484,003) (6.64)
Other payables (5,935,327) (6.02) (5,993,380) (5.32)
------------- ------------- ------------- -------------
(10,593,088) (10.74) (14,613,902) (12.97)
============= ============= ============= =============
*The Directors deem that the carrying value of loans and
receivables at amortised cost, written down where appropriate for
known impairments, is not considered to be materially different
from fair value.
(b) Net gains and losses on financial instruments:
Movement in
net unrealised
gains/(losses)
and unrealised Net realised Movement in
foreign (losses)/gains Movement unrealised
exchange gains on in losses on
Year ended 30 on disposals/loan Impairment restructuring
June 2011 translation repayments charge of loans
------------------------- --------------- --------------- ------------ --------------
US$ US$ US$ US$
Financial
assets at
fair value
through
profit or
loss:
Listed equity
securities (1,924,825) - - -
Unlisted
equity
securities (541,612) 1,773,638 - -
Warrants 2,660,213 (2,654,639) - -
Penny
warrants (668,462) (120,933) - -
(474,686) (1,001,934) - -
--------------- --------------- ------------ --------------
Loans and
receivables:
Loans - (1,917,592) (6,428,322) (1,783,159)
(474,686) (2,919,526) (6,428,322) (1,783,159)
=============== =============== ============ ==============
PSOURCE STRUCTURED DEBT LIMITED
Notes to the FinancialStatements, continued
For the year ended 30 June 2011
14. Financial Instruments, continued:
(b) Net gains and losses on financial instruments,
continued:
Movement in
net unrealised
gains/(losses)
and unrealised Net realised Movement in
foreign (losses)/gains Movement unrealised
exchange gains on in gain on
Year ended 30 on disposals/loan Impairment restructuring
June 2010 translation repayments charge of loans
------------------------- --------------- --------------- ------------ --------------
US$ US$ US$ US$
Financial
assets at
fair value
through
profit or
loss:
Listed equity
securities 42,335,279 (252,998) - -
Unlisted
equity
securities (1,051,331) (1,388,036) - -
Warrants (4,929,891) (3,176,744) - -
Penny
warrants (1,650,558) - - -
34,703,499 (4,817,778) - -
--------------- --------------- ------------ --------------
Loans and
receivables:
Loans - (8,404,157) (1,443,197) 994,160
Fee
receivables - - - -
Royalties (525,641) - - -
Receivable - (796,564) 796,564 -
--------------- --------------- ------------ --------------
(525,641) (9,200,721) (646,633) 994,160
--------------- --------------- ------------ --------------
34,177,858 (14,018,499) (646,633) 994,160
=============== =============== ============ ==============
(c) Derivatives:
The following tables detail the Group's aggregate investments in
derivative contracts, by maturity, outstanding as at 30 June
2011.
Penny Warrants
30 June 2011 30 June 2010
Maturity Fair Value Fair Value
----------------------- ------------- -------------
US$ US$
3-5 years 7,417 16,474
5-10 years 70,097 154,229
>20 years 111,540 811,497
------------- -------------
Total 189,054 982,200
============= =============
A penny warrant is a derivative financial instrument with
similar economic characteristics to the underlying equity
instrument which gives the right, but not the obligation to buy a
specific amount of a given stock, at a specified price (strike
price) during a specified period (American option) or on a specific
date (European option). The fair value of the penny warrants are
included in options classified as financial assets at fair value
through profit or loss disclosed in note (a) above. All the penny
warrants the Group owns have an exercise price of US$0.01 or less
(quasi equities) and are valued at a 7% discount to net intrinsic
value (see note 2(d) (iii)).
Warrants
30 June 2011 30 June 2010
Maturity Fair Value Fair Value
------------------------ ------------- -------------
US$ US$
< 1 year 363,540 381,449
1-3 years 514,362 841,142
3-5 years 31,590 357,505
5-10 years 20,714 152,664
10-15 years 91,477 119,417
------------- -------------
Total 1,021,683 1,852,177
============= =============
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
14. Financial Instruments, continued:
(d) Derivatives, continued:
Warrants, continued
A warrant is a derivative financial instrument which gives the
right, but not the obligation to buy a specific amount of a given
stock, at a specified price (strike price) during a specified
period (American option) or on a specific date (European option).
The fair value of warrants are included in warrants classified as
financial assets at fair value through profit or loss disclosed in
note (a) above. The warrants are valued at a 30% discount to Black
Scholes value (see note 2(d) (iii)).
Forward foreign currency swaps
As at 30 June 2011 and 30 June 2010, the Group had no
outstanding forward foreign currency swaps.
In accordance with the Group's scheme particulars the Group may
invest in forward foreign exchange contracts for the purpose of
efficient portfolio management.
15. Financial Risk Management:
Strategy in Using Financial Instruments:
The Group's investment objective is to seek to provide a total
return of 10-15 per cent per annum over a rolling 3-year period
with annual standard deviation of less than 5 per cent, primarily
through investing in a diversified portfolio of asset backed loans
made predominantly to publicly traded small and micro-cap companies
and equity warrants issued predominantly by publicly traded small
and micro-cap companies.
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, fair value, interest
rate risk, cash flow interest rate risk and price risk), credit
risk and liquidity risk. The Group's overall risk management
program focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Group's
financial performance. These policies include the use of certain
financial derivative instruments. The risk management policies
employed by the Group to manage these risks are discussed
below.
Market Price Risk:
Market price risk results mainly from the uncertainty about
future prices of financial instruments held. It represents the
potential loss the Group may suffer through holding market
positions in the face of price movements and changes in interest
rates or foreign exchange rates, with the maximum risk resulting
from financial instruments being determined by the fair value of
the financial instruments. The Group's investment portfolio is
monitored by the Investment Manager, Investment Consultant and the
Directors in pursuance of the investment objectives.
All investments present a risk of loss of capital. The
profitability of a significant portion of the Group's investment
program depends to a great extent upon correctly assessing the
future course of movements in interest rates, currencies and other
investments. There can be no assurance that the Investment Manager
will be able to predict accurately these price movements. The
Investment Manager moderates this risk through a careful selection
of securities and other financial instruments within specified
limits. The maximum risk resulting from financial instruments is
determined by the fair value of the financial instruments. The
Group's portfolio and investment strategy is reviewed continuously
by the Investment Manager, Investment Consultant and on a quarterly
basis by the Board and the Manager.
By their nature, the Group's equity investments at fair value
through profit and loss, and, warrants and penny warrants
investments held for trading are directly exposed to market price
risk. The Group's investments in loans and receivables are not
directly subject to market price risk in the same way as equities
and derivatives. By their nature there is no upside in the value of
loans and receivables. However market conditions may dictate that
loan investments need to be impaired. The Group's exposure to this
risk is dealt with under credit risk.
The following details the Group's sensitivity to a 5% increase
and decrease in market prices of equities, with 5% being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management's assessment of
the possible changes in market prices.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Market Price Risk, continued:
At 30 June 2011, the Group's market risk is affected by four
main components: changes in actual market prices, credit risk,
interest rate and foreign currency movements. Credit risk, interest
rate and foreign currency movements are covered below. A 5%
increase in the value of equity investments, with all other
variables held constant, would bring about 4.25% or US$4,190,485
(30 June 2010: 4.11% or US$4,631,776) increase in net assets
attributable to equity shareholders. If the value of equity
investments had been 5% lower, with all other variables held
constant, net assets attributable to equity shareholders would have
fallen by 4.25% or US$4,190,485 (30 June 2010: 4.11% or
US$4,631,776). Warrants and penny warrants by their nature may be
more sensitive to changes in the value of the underlying equity
instrument dependent upon a number of factors including time to
expire and whether or not they are in the money or not. A 5%
increase in the value of underlying equity prices for derivatives
held, with all other variables held constant, would bring about a
0.14% or US$133,712 (30 June 2010: 0.17% or US$192,761) increase in
net assets attributable to equity shareholders. A 5% decrease in
the value of underlying equity prices for derivatives held, with
all other variables held constant, would bring about a 0.13% or
US$125,154 (30 June 2010: 0.16% or US$185,945) decrease in net
assets attributable to equity shareholders.
Credit Risk:
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group, resulting in financial loss to the Group.
To the extent the Group invests in derivative instruments,
certain types of options or other customised financial instruments
or non-UK securities, the Group takes the risk of non-performance
by the other party to the contract. This risk may include credit
risk of the counterparty and the risk of settlement default. This
risk may differ materially from those entailed in UK
exchange-traded transactions which generally are supported by
guarantees of clearing organisations, daily marking-to-market and
settlement, and segregation and minimum capital requirements
applicable to intermediaries. Transactions entered directly between
two counterparties generally do not benefit from such protections
and expose the parties to the risk of counterparty default. In
addition, there are risks involved in dealing with the custodians
or brokers who settle trades particularly with respect to non-UK
investments.
At the reporting date financial assets exposed to credit risk
include loan instruments, receivables and derivatives. It is the
opinion of the Board of Directors that the maximum exposure to
credit risk that the Group faces is equal to the carrying value of
these financial instruments held by the Group.
The loan and receivable instruments are private loans and
receivables with the underlying counterparties and as such do not
have associated agency credit ratings. To mitigate the credit risk
on these loan and receivable instruments the Directors consider
impairment on an ongoing basis also taking into consideration the
results of any reviews performed by Clayton. Clayton is employed to
review a sample the of loan and receivable instruments on a monthly
basis and report to the Board of Directors/Investment Manager any
issues with regards to the valuation of the loan and receivable
instruments in accordance with the Independent Valuation
Consultant's Agreement. Any impairment on the loan and receivable
instruments is written off to the Consolidated Statement of
Comprehensive Income. As at 30 June 2011, impairment charges
totaling US$13,357,267 (30 June 2010: US$6,928,945) had been
written off to the Consolidated Statement of Comprehensive Income
since the Group commenced trading (see note 2(e)).
The credit risk on cash transactions and transactions involving
derivative financial instruments is mitigated by transacting with
counterparties that are regulated entities subject to prudential
supervision, or with high credit-ratings assigned by international
credit-rating agencies.
In accordance with the investment restrictions as described in
its Placing Document, the Group may not invest more than 10% of its
total assets in any one underlying company (calculated at the time
of any relevant investment being made).
As at 30 June 2011, the following amounts on debt instruments
were past due:
30 June 2011 30 June 2010
------------- -------------
US$ US$
Principal default 4,912,865 2,150,820
Interest default 61,811 140,187
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Credit Risk:
The Group has entered into certain agreements with affiliates of
the Investment Manager in which the Group and the affiliates have
investments in the same loan instruments. The Group has agreed to
alter the allocation of cash principal and interest repayments in
the event of a restructuring or liquidation of the entity in which
the Group and affiliate(s) are invested. The agreements provide for
the Group to receive upfront consideration from the affiliate(s) in
exchange for reallocating the cash liquidation proceeds received by
the Investment Manager in respect of the loan securities first to
the affiliate(s) and secondly to the Group. This reallocation
applies only to regular principal and interest, and not to any
contingent amounts including default interest and fees.
The Group has mitigated the credit risk of these certain
agreements by only entering into agreements related to loan
instruments in which the collateral and/or operating strength of
the invested companies was sufficiently in excess of the loan
amounts outstanding such that doing so did not materially alter the
credit risk of the loan instruments held by the Group. This
determination of whether the loan instruments were sufficiently
collateralised was made by Clayton IPS Corporation at the time of
the agreements, and Clayton IPS Corporation continues to evaluate
the loan instruments in the context of these agreements.
As at 30 June 2011, of the total loans held by the Group of
US$21,126,349 (30 June 2010: US$30,031,017), US$9,270,719 (30 June
2010: US$10,902,976) were subordinated.
Liquidity Risk:
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
The Group invests in loan notes and warrants that are not liquid
and there may not be any secondary market for these instruments.
Even though the warrants are generally convertible into securities
listed on the national securities exchanges, quoted on NASDAQ or
traded in the over-the counter markets or other markets (eg pink
sheets), the instruments themselves are not liquid. In addition,
the Group's assets (including the loan notes) may, at any given
time, include securities and other financial instruments or
obligations which are very thinly traded or for which no market
exists or which are restricted as to their transferability under
applicable securities laws. The sale of any such investments may be
possible only at substantial discounts. Further, such investments
may be extremely difficult to value with any degree of
certainty.
The Group may also invest in private placements and other
similar issues of securities (including investments in privately
held companies). This may involve a high degree of business and
financial risk that can result in substantial losses. In addition,
there is no existing market for the purchase and sale of such
investments and the Group may not be able to readily sell such
investments. Such investments may be subject to greater economic,
business and market risks than the marketable securities of more
well-established companies.
While the Investment Manager will attempt to spread the Group's
assets among a number of investments in accordance with the
investment policies adopted by the Group, at times the Group may
hold a relatively small number of investments each representing a
relatively large portion of the Group's net assets. Losses incurred
in such investments could have a materially adverse effect on the
Group's overall financial condition. Whilst the Group's portfolio
is diversified in terms of the companies in which it invests, the
investment portfolio of the Group may be subject to more rapid
change in value than would be the case if the Group were required
to maintain a wide diversification among types of securities,
countries and industry groups.
In particular the Group is exposed to its large holdings in
Petrotech Holdings/PetroAlgae which constitutes 76.47% (30 June
2010: 64.92%) of the investment portfolio as at 30 June 2011.
At any given time, the Group may have significant investment in
smaller and medium sized companies of a less seasoned nature whose
securities are traded in the over-the-counter market. These
"secondary" securities often involve significantly greater risks
than the securities of larger, better known companies. Such
securities may not be liquid and there may be only a limited market
for such securities.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Liquidity Risk, continued:
The Group's liquidity risk exposure is moderated by the careful
selection of securities and other financial instruments by the
investment Manager. The Group's portfolio and investment strategy
is reviewed continuously by the Investment Manager and on a
quarterly basis by the Board. In addition the Directors will seek
to review capital requirements on an annual basis.
The Group's principal financial commitment is its indebtedness
to Bank of Scotland plc which facilities are due to expire on 29
February 2012, if it has not previously been reduced to zero. In
the event that a replacement facility is not agreed with effect
from that date, there is a risk that the Bank could enforce its
security over the Group's portfolio which could result in losses
for shareholders. Given the significant reduction in the size of
the banking facility required by the Company during the financial
year, the Board currently anticipate that the facilities will be
renewed.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Liquidity Risk, continued:
The following table details the maturity profile of the Group's
financial instruments:
Maturity Analysis
At 30 June less than 3-5 5-10 > 10 No fixed
2011 1 year 1-3 years years years years maturity Total
--------------------- ------------- ---------- -------- ------- -------- ----------- -------------
Assets US$ US$ US$ US$ US$ US$ US$
Financial
assets at fair
value through
profit or
loss:
Listed equity
securities - - - - - 2,285,132 2,285,132
Unlisted
equity
securities - - - - - 81,524,576 81,524,576
Warrants 363,540 514,362 31,590 20,714 91,477 - 1,021,683
Penny warrants - - 7,417 70,097 111,540 - 189,054
363,540 514,362 39,007 90,811 203,017 83,809,708 85,020,445
------------- ---------- -------- ------- -------- ----------- -------------
Cash and cash
equivalents 280,038 - - - - - 280,038
Loans and
receivables:
Loans 11,100,719 5,114,482 312,750 - - 4,598,398 21,126,349
Unsettled
investment
sales 392,930 - - - - - 392,930
Other
receivables 2,423,435 - - - - - 2,423,435
14,560,662 5,628,844 351,757 90,811 203,017 88,408,106 109,243,197
============= ========== ======== ======= ======== =========== =============
Liabilities
Cash and cash
equivalents
(Bank
overdraft) (790,281) - - - - - (790,281)
Loans and
receivables:
Loans (3,867,480) - - - - - (3,867,480)
Other payables (5,935,327) - - - - - (5,935,327)
(10,593,088) - - - - - (10,593,088)
============= ========== ======== ======= ======== =========== =============
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Liquidity Risk, continued:
The following table details the maturity profile of the Group's
financial instruments:
Maturity Analysis
At 30 June less than 3-5 5-10 > 10 No fixed
2010 1 year 1-3 years years years years maturity Total
--------------------- ------------- ---------- -------- -------- -------- ------------ -------------
Assets US$ US$ US$ US$ US$ US$ US$
Financial
assets at fair
value through
profit or
loss:
Listed equity
securities - - - - - 5,122,205 5,122,205
Unlisted
equity
securities - - - - - 87,513,318 87,513,318
Warrants 381,449 841,142 357,505 152,664 119,417 - 1,852,177
Penny warrants - - 16,474 154,229 811,497 - 982,200
381,449 841,142 373,979 306,893 930,914 92,635,523 95,469,900
------------- ---------- -------- -------- -------- ------------ -------------
Cash and cash
equivalents 194,315 - - - - - 194,315
Loans and
receivables:
Loans 12,140,217 6,677,336 329,096 - - 10,884,368 30,031,017
Unsettled
investment
sales 6,839 - - - - - 6,839
Other
receivables 1,619,955 - - - - - 1,619,955
14,342,775 7,518,478 703,075 306,893 930,914 103,519,891 127,322,026
============= ========== ======== ======== ======== ============ =============
Liabilities
Cash and cash
equivalents
(Bank
overdraft) (1,136,519) - - - - - (1,136,519)
Loans and
receivables:
Loans (7,484,003) - - - - - (7,484,003)
Other payables (5,993,380) - - - - - (5,993,380)
(14,613,902) - - - - - (14,613,902)
============= ========== ======== ======== ======== ============ =============
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Interest Rate Risk:
The Group is exposed to risks associated with the effects of
fluctuations in the prevailing levels of market interest rates on
its financial instruments and future cash flows.
The Group is exposed to interest rate risk as it invests in loan
instruments bearing interest at both fixed and floating interest
rates. Other financial assets and liabilities exposed to interest
rate risk include borrowings which are invested at long term
interest rates and cash and cash equivalents which are invested at
short term rates. The Investment Manager manages the Group's
exposure to interest rate risk daily in accordance with the Group's
investment objectives and policies, as disclosed on page 3. The
Group's overall exposure to interest rate risk is monitored
regularly by the Board of Directors.
The table below summarises the Group's exposure to interest rate
risk:
30 June 2011 30 June 2010
Weighted Weighted
average average
effective effective
interest interest
rate Total rate Total
-------------------- ------------- ------------ ------------- ------------
Assets % US$ % US$
Fixed rate
equity
(preference
share
holdings) 9.00 7,198,510 9.48 11,086,618
Fixed
interest
rate
unlisted
loan
instruments 6.14 8,135,236 0.80 12,574,303
Floating
interest
rate
unlisted
loan
instruments 5.30 12,991,113 6.38 17,456,714
Floating
interest
rate cash
and cash
equivalents 0.23 280,038 0.32 194,315
Non-interest
bearing - 80,638,300 - 86,010,076
------------ ------------
Total assets 109,243,197 127,322,026
============ ============
Liabilities
Floating
interest
rate cash
and cash
equivalents 5.41 790,281 3.50 1,136,519
Floating
interest
rate loan 6.19 3,867,480 3.85 7,484,003
Non-interest
bearing - 5,935,327 - 5,993,380
------------ ------------
Total
liabilities 10,593,0889 14,613,902
============ ============
The analysis below has been determined based on the Group's
exposure to interest rates for interest bearing assets and
liabilities (included in the interest rate exposure table above) at
the reporting date.
The Group's interest bearing assets are comprised of fixed rate
equity preference share instruments, fixed and floating rate loan
instruments and floating rate cash and cash equivalents. The
floating rate assets are generally indexed on US Prime. As of 30
June 2011, 59% (30 June 2010: 70%) of the floating rate loans have
an interest rate floor, with an average floor of 7.48% (30 June
2010: 8.00%). In contrast, the interest rate of these loans in
absence of the floor provisions would have been 2.28% (30 June
2010: 2.67%) lower. Therefore, the majority of the interest income
generated by the Group is not sensitive to normal changes in
interest rates. An immediate 200 basis point drop in US Prime would
cause the yield on the interest bearing assets to fall by 0.1 basis
points or US$644 (30 June 2010: 0.1 basis points or US$622).
Conversely, an immediate 200 basis point increase in US Prime would
cause the yield on the interest bearing assets to increase by 0.6
basis points or US$5,601 (30 June 2010: 0.3 basis points or
US$3,886).
The Group's interest bearing liabilities are comprised of
floating rate cash and cash equivalents and floating rate loans.
The floating rate loans are comprised of loans that are indexed on
US LIBOR with a margin of 600 basis points, and reset either
monthly or quarterly. The change in yield on these liabilities
therefore changes directly with changes in US LIBOR. The 3 month US
LIBOR as at 30 June 2011 was 0.19% (30 June 2010: 0.35%) an
immediate drop to zero in the US LIBOR on the interest bearing
liabilities would cause net assets attributable to equity holders
to increase by US$8,643 or 0.01% (30 June 2010: US LIBOR drop to
zero US$30,248 or 0.03%) on an annualised basis due to the
reduction in interest payable on floating rate interest bearing
liabilities.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Interest Rate Risk, continued:
Conversely, an immediate 200 basis point increase in US LIBOR
would cause net assets attributable to equity holders to decrease
by US$93,155 or 0.09% (30 June 2010: US$172,410 or 0.15%) on an
annualised basis due to the increase in interest payable on
floating rate interest bearing liabilities.
As a result of low interest rates generally causing the floating
rate loan asset yields to be based upon their floor rates, marginal
increases of interest rates up to approximately 3 percent would
marginally increase income on interest bearing assets less income
on interest bearing liabilities, with a cumulative increase of
approximately US$14,505 (30 June 2010: US$11,571 decrease) on an
annualised basis if rates increased by 3 percent. Additional
interest rate increases beyond 3 percent would result in positive
marginal income. Management considers the Group's initial negative
exposure to small increases in interest rates to be immaterial, and
overall considers the exposure to interest rates to be
positive.
Foreign Currency Risk:
Foreign currency risk is the risk that the fair value of future
cash flows of a foreign currency financial instrument will
fluctuate because of changes in foreign exchange rates.
As at 30 June 2011, the Group's assets are invested
predominately in securities and other investments that are
denominated in the same currency as the reporting currency.
Accordingly the Group is at low risk to fluctuations in foreign
exchange rate. However, should this change the Group has the
ability to manage any significant exposure to foreign currencies
through forward foreign exchange contracts to hedge its exposure
back to US Dollar. As at 30 June 2011 there was no open currency
hedging (30 June 2010: none).
PSD was originally a Sterling denominated fund investing
principally in US Dollar assets, with the foreign exchange risk
hedged out using a rolling swap programme. During the second half
of 2008 Sterling fell in value by 27% against the US Dollar. The
result of this foreign exchange movement increased the Sterling
value of the Group's US Dollar assets but also created a
significant cash settlement liability on the foreign exchange
contracts which exceeded the natural cash inflow from the Group's
portfolio. PSD stopped hedging on 12 December 2008 and the
reporting currency was changed from Sterling to US Dollars, as
agreed by shareholders at an EGM at the end of January 2009.
Following on from these changes, the significant majority of the
Group's assets and liabilities, and shareholder equity are
dominated in US Dollars, significantly reducing the foreign
currency risk of the Group.
Currency Exposure:
As at 30 June 2011, the majority of the net assets of the Group
are denominated in US Dollars. The carrying amounts of these assets
and liabilities are as follows:
Assets Liabilities Net
30 June 2011 30 June 2011 30 June 2011
------------ ------------ ------------
US$ US$ US$
British Pound 23,032 (208,928) (185,896)
Canadian Dollar 41,624 (1) 41,623
Euro 9 - 9
US Dollars 109,178,532 (10,384,159) 98,794,373
109,243,197 (10,593,088) 98,650,109
============ ============ ============
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Foreign Currency Risk, continued
Assets Liabilities Net
30 June 2010 30 June 2010 30 June 2010
------------ ------------ ------------
US$ US$ US$
British Pound 38,253 (187,525) (149,272)
Canadian Dollar 196,729 (1) 196,728
Euro 8 - 8
US Dollars 127,087,036 (14,426,376) 112,660,660
127,322,026 (14,613,902) 112,708,124
============ ============ ============
The Group has no significant currency risk. The Group has the
ability to implement a policy of currency hedging.
As at 30 June 2011, the Group's sensitivity to foreign currency
risk is low due to the majority of the net assets of the Company
are denominated in US Dollars.
Concentration Risk
While the Investment Manager will attempt to spread the Group's
assets among a number of investments in accordance with the
investment policies adopted by the Group, at times the Groupmay
hold a relatively small number of investments each representing a
relatively large portion of the Group's net assets. Losses incurred
in such investments could have a materially adverse effect on the
Group's overall financial condition. Whilst the Group's portfolio
is diversified in terms of the companies in which it invests, the
investment portfolio of the Groupmay be subject to more rapid
change in value than would be the case if the Group were required
to maintain a wide diversification among types of securities,
countries and industry groups. Please refer to the Analysis of
Significant Investments and Portfolio Analysis that follows the
Notes to the Financial Statements.
In particular the Group is exposed to its large holdings in
Petrotech Holdings/PetroAlgae which constitutes 76.47% (30 June
2010: 64.92%) of the investment portfolio as at 30 June 2011.
Classification of Fair Value Measurements
The Company has adopted the amendment to IFRS 7, effective 1
January 2009. This 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); and
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Classification of Fair Value Measurements, continued
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, the 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.
The following table analyses within the fair value hierarchy the
Company's financial assets (by class) measured at fair value at 30
June 2011:
Fair Value as at 30 June 2011
Level
1 Level 2 Level 3 Total
---------- ---------- ----------- -----------
US$ US$ US$ US$
Financial assets at
fair value through
profit or loss:
Equity securities 2,253,964 31,168 81,524,576 83,809,708
Warrants - 1,021,683 - 1,021,683
Penny warrants - 118,957 70,097 189,054
---------- ---------- ----------- -----------
2,253,964 1,171,808 81,594,673 85,020,445
========== ========== =========== ===========
Fair Value as at 30 June 2010
Level
1 Level 2 Level 3 Total
------- ---------- ----------- -----------
US$ US$ US$ US$
Financial assets at fair
value through profit or
loss:
Equity securities - 5,114,520 87,521,003 92,635,523
Warrants - 1,852,177 - 1,852,177
Penny warrants - 815,222 166,978 982,200
------- ---------- ----------- -----------
- 7,781,919 87,687,981 95,469,900
======================================= ========== =========== ===========
Investments whose values are based on quoted market prices in
active markets, and therefore classified within level 1, include
active listed equities. No adjustments are made to the quoted price
for these instruments. The level 1 amount above relates to a single
investment that had previously been categorised as a level 2
investment in the prior year. During the prior year, whilst this
investment was listed it was in the process of bankruptcy and
therefore there was not active market for the trading of its
shares. During the current period, the investment restructured,
came out of bankruptcy and now has active trading of its shares. As
a result this investment has been transferred from a level 2 to a
level 1 investment.
Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified within level 2. As level 2
investments may include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include unquoted equity instruments which the Company
values in accordance with the International Private Equity and
Venture Capital valuation guidelines or any other valuation model
and techniques which can provide a reasonable estimate of fair
value of the investment involved. The Company considers liquidity,
credit and other market risk factors.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
15. Financial Risk Management, continued:
Classification of Fair Value Measurements, continued
The tables below provides a reconciliation from brought forward
to carried forward balances of financial instruments categorised
under level 3 during the year:
30 June 2011
Assets at Fair Value
based on Level 3: Equity securities Penny warrants Total
------------------ --------------- ------------
US$ US$ US$
Fair value brought
forward 87,521,003 166,978 87,687,981
Purchases 171,835 - 171,838
Sales (2,461,630) - (2,461,630)
Equity converted to
loans (3,157,331) - (3,157,334)
Movement in net
unrealised
gains/(losses) on
fair value through
profit or loss
investments (549,301) (96,881) (646,182)
------------------ --------------- ------------
Fair value carried
forward 81,524,576 70,097 81,594,673
================== =============== ============
30 June 2010
Assets at Fair Value
based on Level 3: Equity securities Penny warrants Total
------------------ --------------- ------------
US$ US$ US$
Fair value brought
forward 45,442,655 227,738 45,670,393
Purchases 24 - 24
Sales (210,168) - (210,168)
Loans converted to
equity 1,354,261 - 1,354,261
Net realised loss on
fair value through
profit or loss
investments (1,388,036) - (1,388,036)
Movement in net
unrealised
gains/(losses) on
fair value through
profit or loss
investments 42,322,267 (60,760) 42,261,507
------------------ --------------- ------------
Fair value carried
forward 87,521,003 166,978 87,687,981
================== =============== ============
16. Dividends:
At inception, it was the Group's intention to pay an annual
dividend (paid gross quarterly) of not less than 5 pence per
Ordinary Share (or its equivalent in US Dollars) in its first year
growing by 0.5 pence per Ordinary Share (or its equivalent in US
Dollars) per annum in its second and third years. Although this was
achieved in respect of the first accounting period of the Group, a
breach of the Group's banking facilities led to the suspension of
dividends during the current period and prior year.
It is the Board's intention to resume dividends at a sustainable
level as soon as practicable.
All dividends in prior periods were paid from the Group's
reserves.
17. Significant Investment Holding:
PetroAlgae/PetroTech Holdings Inc.
The Group has a significant holding in PetroAlgae Inc
("PetroAlgae"), a renewable energy company based in Florida,
through its holding in PetroTech Holdings Inc ("PetroTech"). The
holding structure and some of the commercial progress of PetroAlgae
is discussed in the following sections.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
17. Significant Investment Holding, continued:
Holding structure
The Group has a significant holding in PetroTech, a Delaware
corporation. PetroTech is a privately held holding company whose
principal asset at 30 June 2011 was 100,000,000 shares (30 June
2010: 100,000,000 shares) of the common stock of PetroAlgae.
PetroTech is owned jointly by the Group, Laurus Master Fund and
Valens (which are funds managed by the Investment Manager). Through
it's holding in PetroTech, the Group has an effective holding of
7,021,217 common shares in PetroAlgae.
PetroAlgae is registered with the SEC and quoted on OTC Link
(PALG.US), following a reverse merger into a quoted shell in
December 2008. OTC Link is an electronic quotation system that
displays quotes from broker dealers for many over-the-counter
securities.
In February 2010, PetroAlgae announced its intention to migrate
to a higher exchange. On 11 August 2010, PetroAlgae filed an S-1
registration statement for a proposed IPO with Goldman Sachs, UBS
and Citi as the lead underwriters. The registration continues to be
current.
Valuation
The Group owns 8.24% (30 June 2010: 8.24%) of the common stock
and US$7.2 million (30 June 2010: US$7.2 million) in preferred
stock in PetroTech. The preferred stock is held at par plus accrued
interest. The common stock is valued based on an assessment of the
realisable value of PetroAlgae.
Following statements made by PetroAlgae last year related to its
stated intention to move to a broader stock exchange and its Form
S-1 Registration Statement filing with the SEC, the PSD Board
continues to believe it appropriate to hold the valuation of
PetroAlgae shares in PSD constant from the 31 January 2010 NAV at
US$11.56.
In coming to this assessment of value, the Board, with advice
from the Independent Valuation Agent and the Investment Consultant,
has taken the following factors into account:
-- Public trading of stocks on OTC Link
-- Valuation of comparable companies
-- Model based valuations
The shares of PetroAlgae are traded on OTC Link. The trading is
irregular and volumes traded are low. The Board notes the public
trading but do not solely rely upon it for valuation purposes. The
Volume Weighted Average Price of the shares traded during the
financial year was US$14.4 per share.
There are no directly comparable companies to PetroAlgae.
However, the Board notes that several IPO's have occurred in the
United States of companies in similar markets to PetroAlgae, and at
a similar stage in development.
The Directors have looked at model based valuations. Any such
valuation model is sensitive to valuation inputs. In particular
changes in assumptions of licence fees, royalty rates,
implementation rates and discount rates have a significant impact
on valuation.
The models used have been based on private 5 year projections
provided to the Group. These cashflow projections have been reduced
by an assumed investor "haircut" and an appropriate range of
discount rates applied in coming to an assessment of value.
There are no directly comparable companies to PetroAlgae.
However, several in the wider biomass/biofuels/biochemical sector
have successfully completed IPOs during the financial year at
valuations between US$390 million and US$1.5 billion. These include
Gevo Inc, Amyris Inc, Solazyme Inc and KiOR Inc.
The models used are particularly sensitive to:
-- speed of contract roll out
-- discount rate used
-- level of investor "haircut" applied to projections
More conservative assumptions on any of these would negatively
impact the implied valuation.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
17. Significant Investment Holding, continued:
Risks
PetroAlgae is a development stage company with a limited
operating history. PetroAlgae faces many risks in implementing its
business plans. These risks include, but are not limited to, the
following:
-- PetroAlgae is materially a pre-revenue company and in the
absence of outside funding faces.
-- PetroAlgae may be unable to acquire and retain licensees. In
addition, during the next year or so, PetroAlgae will be dependent
upon a limited number of customers.
-- PetroAlgae has entered into several contracts and MOUs with
prospective customer licensees, MOUs are not binding agreements and
they might not result in any enforceable contracts or generate any
revenue.
-- Initial contracts will be conditioned on the demonstration
facilities deployed by licensees meeting certain levels of
productivity, and the failure to meet those levels may lead to the
termination of these contracts.
-- The market may not accept the end-products produced by
PetroAlgae's technology.
-- The revenue and returns licensees will realize from
PetroAlgae's technology are highly dependent on the market price of
the biocrude and protein end-products produced using our
technology, and those prices will be considerably lower if
PetroAlgae fails to receive certain regulatory or industry
approvals or if those markets are unavailable for other
reasons.
-- The end-products produced by Petroalgae's technology are
subject to industry and regulatory testing.
-- PetroAlgae's long-term success depends on future royalties
paid by customer licensees, and PetroAlgae faces the risks inherent
in a royalty-based business model.
-- If a competitor were to achieve a technological breakthrough,
PetroAlgae's operations and business could be negatively
impacted.
-- PetroAlgae has filed patent applications. However, these may
not be granted which may negatively affect revenues.
-- PetroAlgae may not be able to manage its growth. In
particular, the company may not be able to recruit sufficient,
qualified staff.
-- PetroAlgae does business in developing economies with less
developed legal frameworks. This may affect the enforceability of
contracts and intellectual property.
-- PSD is dependent on the proposed IPO or other transaction to
realize the value of its shares. There is no guarantee that such a
transaction will occur. In particular, any such transaction is
highly dependent upon the state of the equity markets.
Prospects
The Directors of PSD continue to monitor PetroAlgae with a view
to its commercial progress and the liquidity in the stock. In
particular, the Directors will look to any significant capital
markets transactions that PetroAlgae may undertake in the future as
an important indicator of value. Longer term, the Group continues
to examine, together with its Investment Manager and Investment
Consultant, the best options for realising its significant holding
in PetroAlgae.
The Manager of the Company is acting as an advisor to PetroAlgae
in its proposed IPO.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2011
18. Post Year End Events:
Renewal of banking facility
On 31 August 2011, the Company signed and amended US Dollar bank
facilities with Bank of Scotland plc ("Bank of Scotland"), in
accordance with the facility agreement dated 30 November 2007 and
supplemental restatement facility agreement (utilisation date 1
September 2011). The facilities comprise a US$3.7million term note
and a US$1.5million committed overdraft. The key terms of this
facility are as follows:
-- Facility available for 6 months from 1 September 2011;
-- Interest is chargeable at a rate of the 1 month US LIBOR
+6.5% (increasing to +7% with effect from 1 January 2012 if the
facility has not been reduced to zero);
-- Arrangement fee of US$25,000;
-- Redmption fee of US$25,000 if the facility is repaid in full
on or before 31 December 2011; US$75,000 if the facility is repaid
in full after 31 December 2011. Redemption fee is payable upon
final repayment or expiration date of the facility:
-- No fixed amortization. The term note is amortised using cash
sweep equal to 80% of monthly free cashflow;
-- No net debt/gross asset covenants; and
-- Dividend payments permitted by the Company, subject to
approval by Bank of Scotland.
There are no other significant post year end events that require
disclosure in these consolidated financial statements.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited)
As at 30 June 2011
The ten largest holdings of the Group, by underlying investment
company as at 30 June 2011 are set out below:
Percentage
Book Fair of
Name of investment Cost Value NAV
----------------------------------------- ---------- ----------- ----------
US$ US$ %
Petrotech Holdings Corp 8,369,165 81,165,267 82.28
Biovest International 8,781,715 5,779,382 5.86
Sentinel Technologies, Inc 5,322,845 5,392,942 5.47
Creative Vistas, Inc 9,561,646 3,689,438 3.74
Mascon Global Limited 3,069,867 3,069,867 3.11
North Texas Steel 1,068,613 1,843,047 1.87
Accentia Biopharmaceuticals 826,062 1,061,439 1.08
True North Energy Corporation 987,276 904,091 0.92
NCEY, LLC 2,767,279 547,761 0.55
Incentra Solutions 837,529 527,654 0.52
20 other underlying investment companies 35,444,563 2,165,906 2.20
---------- ----------- ----------
77,036,560 106,146,794 107.60
========== =========== ==========
In compliance with current UK Listing Authority requirements,
the Company intends to disclose only its ten largest
investments.
PetroAlgae/PetroTech Holdings Inc.
We set out below a review of the technological and commercial
progress of PetroAlgae during the year.
Technology and Commercial progress
PetroAlgae was founded in 2006 based on technology developed at
the University of Arizona over the previous decade. PetroAlgae is
an early stage company which has developed and is licensing new
technologies to enable the global production of renewable energy.
The Company is based in Melbourne Florida and has a 20 acre pilot
facility.
PetroAlgae is a licensor of a unique technology for improving
the growth and harvest rate of naturally occurring aquatic
microorganisms in a consistent and commercial manner. PetroAlgae
calls these specially cultivated organisms "micro-crops" and these
include macro-algae, micro-algae, diatoms, micro-angiosperms,
cyanobacters and, especially, lemna. These micro-crops offer an
opportunity to create a new, local, large scale source of protein
for animal feed and human food as well as a renewable feedstock to
replace petroleum at a large scale. Importantly, this proposition
creates strong economic returns for the licensee and a significant
number of "green jobs" in emerging economies.
PetroAlgae's technology at commercial scale is designed to
produce:
-- High-quality protein
- used in animal feed for aquaculture, poultry, swine and other
industries
- High value protein used to supplement human diets
-- Carbohydrate and lipid which can be used for
- Reliable and consistent feedstock for renewable fuels that
leverage the existing oil industry infrastructure
- Enriched animal feed used as alfalfa replacement
-- Feedstock for organic fertilizer and bio-stimulants
Market studies, some of which are discussed below, show that
these products currently have high demand and value in the
marketplace. With population growth and unrest in oil producing
countries, demand for Petroalgae's products (feed, fuel and food)
is unlikely to decrease. The key to meeting these demands
sustainably is to produce commercial scale quantities with
consistent quality and sound economics.
PetroAlgae's proposition to customers is based on licensees
building large farm units in suitable locations (typically in warm
climates with sufficient rainfall). PetroAlgae anticipates these
units being from 500 hectares to 5,000 hectares in size.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited)
As at 30 June 2011
PetroAlgae/PetroTech Holdings Inc., continued
Memorandums of Understanding and Commercial Agreements
PetroAlgae has disclosed a number of early stage contracts and
memoranda of understanding. These are set out below. There are
significant risks associated with these agreements, set out in the
risk section below. The Directors believe that the development of
these agreements into final binding contracts and the construction
of complete facilities are crucial to the proposed IPO of
PetroAlgae.
Suriname/Statsolie: In June 2011, PetroAlgae finalized a Master
Framework and Initial License Agreement with the Ministry of
Natural Resources for the Republic of Suriname (Ministry),
Staatsolie Maatschappij Suriname N.V. (Staatsolie), and N.V.
Verenigde Cultuur Maatschappijen (N.V. VCM) for the phased
construction and operation of a commercial-scale, PetroAlgae farm
for the production of renewable fuel and protein. Planning and
funding for the initial phase is underway utilizing PetroAlgae's
micro-crop system and licensed technology. Under the agreement,
Staatsolie will serve as the lead coordinator for the Ministry,
while N.V. VCM and Staatsolie will be responsible for construction
and operation of the project. PetroAlgae will contribute the use
and limited license to certain of its PA intellectual property and
technology as well as supporting services and quality
assurance.
AIQ: In April 2010, PetroAlgae announced that it signed an MOU
with Asesorias e Inversiones Quilicura (AIQ), a major shareholder
in Subus Chile S.A., that is expected to enable the development in
Chile of a micro-crop technology system for the large-scale
production of green gasoline, diesel and jet fuel. Under the
agreement, AIQ has acquired an option to purchase from PetroAlgae a
standard license to build a full micro-crop technology system for
commercially producing biofuels and high-value protein.
China (CECIC/CECEP): In March 2009, PetroAlgae entered into a
Master Licensing Agreement with GTB Power Enterprise Ltd. to
construct and operate at least ten separate 5,000 hectares license
units for the production of micro-crop biomass in China. In
December 2009, PetroAlgae entered into a strategic MOU with the
China Energy Conservation Investment Corporation (CECIC) whereby
the parties contemplate that CECIC would acquire the Master License
Agreement for China from GTB Power Enterprise Ltd. Its intent, in
supporting the anticipated transfer to CECIC is to accelerate
PetroAlgae's penetration of China's renewable energy market. CECIC,
a State owned corporation with over 11,000 employees, was
established in 1988 to invest in energy saving technologies and
infrastructures. Thus far, CECIC has undertaken more than 3,000
major projects in the areas of energy-efficiency, environmental
protection (treatment of waste gas, solid waste and waste gas), and
renewable energy production (wind, solar, and biomass).
In October 2010, PetroAlgae announced the agreement of a
contract with CECEP (the new translation of CECIC) of China to
build a pilot facility through the finalisation of a pilot facility
agreement and a master framework agreement. Under the terms of the
pilot facility agreement, CECEP will pay for the construction of a
pilot facility. Following the successful running of the pilot
facility and other conditions being met, CECEP is committed to
construct a minimum of 10 units over a ten year period.
Indonesia: In December 2009, PetroAlgae signed an MOU to lead to
the license of the Company's proprietary micro-crop technology to
the largest conglomerate in Indonesia. This prospect's various
businesses cover a range of activities including palm oil, property
development, leisure and agriculture. The MOU contemplates that
this group would initially build a partial license unit to
demonstrate the commercial viability of producing renewable fuels
in Indonesia through the use of PetroAlgae's technology. Upon
achieving success, the remaining portion of the full license unit
5,000 hectares or 12,355 acres) would be built for the large scale
production of biofuels.
Indian Oil: In November 2009, PetroAlgae entered into an
agreement to license its proprietary micro-crop technology to
Indian Oil Corporation Limited (IOCL) for its future large-scale
production of renewable fuels. Under the terms of the MoU and the
license agreement to be completed, IOCL will build a pilot facility
to demonstrate the commercial viability of producing renewable
fuels from micro-crops. Upon achieving success, the pilot facility
is expected to lead to the completion of a licensed unit for
large-scale production of renewable fuels by IOCL.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited)
As at 30 June 2011
PetroAlgae/PetroTech Holdings Inc., continued
Test results and co-development agreements
The Company has announced a number of studies which validate its
technology and co-development agreements with technology partners.
Some of these are discussed below. Significant risks remain around
the commercialization of PetroAlgae's technology, however.
University of Minnesota Study on alphalpha replacement: In July
2011, PetroAlgae announced the completion of a major third party
study showing that PetroAlgae micro-crop meal performs as well as
alfalfa in dairy cattle diets. PetroAlgae's micro-crop technology
employs indigenous, aquatic micro-organisms suitable to local
climates and is designed to enable its technology licensees to
produce a cost-effective alternative to fossil fuels, a high-value
protein co-product, and a new micro-crop meal for animal feed
(which was the subject of the study), while absorbing carbon
dioxide from greenhouse gas emissions.
The global market for dairy feed from alfalfa alone is estimated
at 400 million metric tons by the United Nations Food and
Agricultural Organization. PetroAlgae micro-crop meal is expected
to be highly competitive with alfalfa and other ingredients based
on its positive impact on meat and milk, continuous production, and
supply chain advantages, opening a new market for the company and
its licensing partners.
The study encompassed a continuous 6-week feeding trial of a
statistically significant sample of 36 dairy cows in the barns at
the University of Minnesota. It measured PetroAlgae micro-crop meal
against 17.5% protein alfalfa diets for nutrient intake, milk yield
and composition, showing that PetroAlgae micro-crop meal represents
a new source of commercial-scale dairy feed.
CRI: In July 2011, PetroAlgae entered into an agreement with CRI
Catalyst Company LP (CRI, a subsidiary of Royal Dutch/Shell) to use
Integrated Hydropyrolysis and Hydroconversion technology (IH2) for
the conversion of PetroAlgae's micro-crop residues into renewable
fuels. Successful combination of the two technologies results in an
integrated system that produces cellulosic gasoline, diesel, and
jet hydrocarbon fuels and/or premium blend stocks that are
virtually indistinguishable from petroleum based fuels.
CRI is a leading provider of catalyst and environmental systems
technology to the global petrochemical producing community. CRI has
obtained exclusive global sublicensing rights for IH2 technology
from Gas Technology Institute (GTI) where the technology was
developed. PetroAlgae's micro-crop technology employs indigenous,
aquatic micro-organisms suitable to local climates and is designed
to enable its licensees to produce a high-value protein product and
residual biomass which may be converted to cellulosic hydrocarbon
fuels and/or blend stocks via the IH2 technology at commercial
scale. This agreement is a direct result of successful tests
converting PetroAlgae's micro-crop residue into cellulosic
hydrocarbon fuels and/or blend stocks using the IH2 technology
provided by CRI. The two firms have agreed to continue to optimize
the combined capability of their respective biomass production and
conversion processes. Commercial collaboration has already begun
and is expected to result in a joint marketing agreement between
the two firms in which PetroAlgae and its licensees will hold
exclusive rights to IH2 technology for conversion of lemna
biomass.
Haldor Topsoe: In March 2011, PetroAlgae entered into an
agreement with Haldor Topsoe A/S and its U.S. subsidiary, Haldor
Topsoe, Inc. to provide technology and catalysts to upgrade oils
produced from PetroAlgae's biomass through refinery coking
processes and pyrolysis into drop-in renewable fuels, including
diesel and jet fuels.
Haldor Topsoe is a leading global catalyst and technology
company focused on the refining industry, petrochemical industry
and the power industries. PetroAlgae's micro-crop technology
employs indigenous, aquatic micro-organisms suitable to local
climates and is designed to enable its licensees to produce an
alternative to fossil fuels as well as a high-value protein
co-product, while absorbing carbon dioxide from the atmosphere.
Under the agreement, the two companies will work together to apply
Haldor Topsoe catalysts, equipment, and licensed technology to
upgrade oils derived from PetroAlgae's biocrude.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited)
As at 30 June 2011
PetroAlgae/PetroTech Holdings Inc., continued
Test results and co-development agreements, continued
University of Idaho test on use of protein: In November 2010,
PetroAlgae announced that a third party study done by the
Aquaculture Research Institute at the University of Idaho has found
that PetroAlgae protein concentrate (PPC) produced as a co-product
along with the renewable fuel feedstock by the company's micro-crop
technology system can replace menhaden fishmeal protein at levels
up to 100% in feeds for tilapia.
The study also found that PPC would be suitable as a fishmeal
replacement for other farmed fish species. According to the study,
tilapia is one of the largest-volume farmed fish species, and
tilapia production is expected to grow from 2.8 million tons to
more than 9 million tons by 2020, requiring 13 million tons of feed
(up from 8 million tons in 2010).
Partnership with Foster Wheeler: In December 2009, PetroAlgae
announced that it signed an MOU with Foster Wheeler AG's (Nasdaq:
FWLT) Global Engineering and Construction Group for engineering
services to be performed in conjunction with PetroAlgae's
micro-crop technology, which allows for the production of dry
biomass at an unprecedented scale. PetroAlgae intends to work with
Foster Wheeler to develop commercial solutions that will allow
existing oil refineries to convert micro-crop biomass into fuels
that are functionally compatible with petroleum-based fuels in the
current market. For refineries, the solutions are expected to
provide strong economics from the large-scale processing of
PetroAlgae's micro-crop biomass into green fuels. The two firms
will create end-to-end market solutions for the large-scale
production of green gasoline, diesel, jet fuel and specialty
chemicals.
On 28 September 2010, Foster Wheeler AG announced that it had
completed its initial testing of PetroAlgae's biomass, with
encouraging results. The biomass, produced at PetroAlgae's
micro-crop farm in the U.S., was being tested as a delayed coker
feedstock supplement to provide renewable biofuels to the market.
Testing was conducted at a state-of-the-art commercial coker
testing facility operated by the College of Engineering and Natural
Sciences at the University of Tulsa (Oklahoma).
The combination of PetroAlgae's proprietary patent-pending
biomass production system, and Foster Wheeler's SYDECSM delayed
coking technology, is being designed with the intent to allow the
delayed coker to incorporate biomass into the coker feedstock, with
minimal configuration changes to an existing unit.
Testing was conducted to demonstrate that the biomass is an
effective add-in complement to vacuum residue coker feedstock, and
does not significantly affect overall coker operations. The initial
test results demonstrate that biomass, mixed with vacuum residue,
yields additional valuable hydrocarbons as a result of biomass
carbohydrate and lipid decomposition. Further testing and
engineering development is underway to optimize process parameters
and feedstock blend ratios.
Eco-Frontier: In July 2010, PetroAlgae announced that it had
signed a Non-Binding Commercial Offtake Agreement with
Eco-Frontier, a leading cleantech management firm and Asian
renewable energy developer based in Seoul, Korea. Eco-Frontier
expressed its willingness to establish a market for biocrude
products produced by the PetroAlgae system for use in co-firing
energy applications in Korea and in other markets. Depending on the
satisfaction of a number of different conditions, Eco-Frontier
would be prepared to commit to purchase from PetroAlgae's licensees
up to 850,000 metric tons of biocrude over a three year period
beginning in 2012.
Sky Airline: In October 2010, PetroAlgae announced that it had
signed a non-binding offtake agreement with Sky Airline, a leading
Chilean airline providing passenger, mail and cargo transport
services. Subject to certain conditions, Sky Airlines and
PetroAlgae have agreed to collaborate to enable Sky Airline to
purchase fuel feedstock produced by licensees of PetroAlgae's
technology for conversion into renewable jet fuel.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited)
As at 30 June 2011
PetroAlgae/PetroTech Holdings Inc., continued
Management
PetroAlgae has strengthened its management team in the last 12
months. In particular, the company has appointed (or promoted) the
following experienced key team members:
-- CEO - Tony Tiarks appointed 16 June 2011
-- CFO - Jim Dietz promoted 28 July 2011
-- COO - Peter Sherlock appointed 28 July 2011
Dr John Scott, formerly Chairman and CEO, remains as Chairman of
PetroAlgae.
Prior to joining PetroAlgae, Mr. Tiarks was President & CEO
of Liberty Aerospace, Inc., which he established in the United
States in 2000 with the purpose of developing, certifying and
delivering a new-generation, advanced, entry level aircraft called
the XL2. Prior to starting Liberty Aerospace, Mr. Tiarks was the
Managing Director in London of Donaldson, Lufkin & Jenrette, a
US investment bank; Chairman of Tide Brokers Limited, a wholesale
money broker; and Managing Director of Tide (U.K.) Limited, an
international foreign exchange fund management group. Mr. Tiarks
has a B.S. in Systems and Management from City University, London,
United Kingdom.
PSOURCE STRUCTURED DEBT LIMITED
Portfolio Analysis (unaudited)
As at 30 June 2011
An analysis of the portfolio by industry at 30 June 2011 is set
out below:
Fair Value
Through
Loans Investments Profit &
& Held for Loss No. of
Industry Total Receivables Trading Investments companies
------------ ------------ ------------ ------------ ------------ ----------
US$ US$ US$ US$ No.
Biotech 7,544,780 4,586,857 703,959 2,253,964 8
Business
Services 73,969 - 67,526 6,443 2
Computers 646,861 527,625 98,755 20,481 3
Consulting 3,069,867 3,069,867 - - 1
Energy 1,541,614 1,178,381 90,574 272,659 3
Industrial 1,851,035 1,830,000 21,035 - 2
IT 82,346 - 82,346 - 1
Renewable
Energy 81,165,267 - - 81,165,267 1
Other 280 - 264 16 -
Security 3,689,438 3,660,969 25,100 3,369 1
Software 4,805 - 4,805 - 1
Technology 6,182,449 5,985,745 109,195 87,509 5
Transport 294,083 286,905 7,178 - 2
106,146,794 21,126,349 1,210,737 83,809,708 30
============ ============ ============ ============ ==========
PSOURCE STRUCTURED DEBT LIMITED
Portfolio Analysis, continued (unaudited)
As at 30 June 2011
An analysis of the portfolio by geography at 30 June 2011 is set
out below:
Fair Value
Through
Loans Investments Profit &
US State & Held for Loss No. of
or Country Total Receivables Trading Investments companies
--------------- ------------ ------------ ------------ ------------ ----------
US$ US$ US$ US$ No.
Arizona 318,426 312,750 4,783 893 2
California 575,312 350,150 225,162 - 3
Canada 3,731,063 3,660,969 66,725 3,369 2
Colorado 535,350 527,625 6,814 911 2
Florida 88,012,531 4,586,857 - 83,425,674 4
Illinois 8,470,855 8,392,712 78,143 - 3
Israel 82,346 - 82,346 - 1
Massachusetts 14,160 - 14,160 - 2
Minnesota 86,616 - - 86,616 1
North Carolina 322,823 - 322,823 - 2
New England 174,831 - 174,831 - 1
New Hampshire 39,097 - 39,097 - 1
New Jersey 111,507 - 91,941 19,566 1
Other 312 - 292 20 -
Texas 3,384,660 3,008,381 103,620 272,659 4
Washington 286,905 286,905 - - 1
106,146,794 21,126,349 1,210,737 83,809,708 30
============ ============ ============ ============ ==========
NOTICE
PSOURCE STRUCTURED DEBT LIMITED (the "Company")
(An investment company incorporated in Guernsey with
registration number 47075)
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that an Annual General Meeting (the
"Annual General Meeting") of PSource Structured Debt Limited will
be held at Sarnia House, Le Truchot, St Peter Port, Guernsey, on 31
October 2011 at 11.00am for the purpose of considering and, if
thought fit, passing the following resolutions:
Resolutions
Ordinary Business
1. That the Financial Statements of the Company for the year
ended 30 June 2011 with the Report of the Directors and Auditors
thereon be received and adopted.
2. That the re-appointment of KPMG Channel Islands Limited, 20
New Street, St. Peter Port, Guernsey as Auditors of the Company to
hold office until the conclusion of the next annual general meeting
be and is hereby approved.
3. That the Directors be authorised to fix the remuneration of
the Auditors for their next period of office.
4. That Mr Soondra Appavoo be re-elected as a Director.
5. That Mr Peter Niven be re-elected as a Director.
6. That Mr Keith Dorrian be re-elected as a Director.
Special Business
7. That as the Company has not paid a dividend in respect of the
financial year to 30 June 2011, it is hereby resolved that the
Company continue as an investment company until restructuring or
winding-up proposals are presented to Shareholders at an
Extraordinary General Meeting to be called on or before 31 March
2012.
8. That the Company be and is hereby authorised in accordance
with section 5 of the Companies (Guernsey) Law, 2008 to make market
purchases of ordinary shares in the Company provided that:
(a) the maximum number of Ordinary Shares authorised to be
purchased is up to 14.99% of the issued Ordinary Shares;
(b) the minimum price payable by the Company for each Ordinary
Share is 1p (or its equivalent in US Dollars);
(c) and the maximum price for each Ordinary Share shall be the
higher of (a) 105 percent of the average of the middle market
quotation for an Ordinary Share as derived from the Daily Official
List of the London Stock Exchange for the five business days
immediately preceding the day on which that share is purchased; and
(b) the higher of the price of the last independent trade in the
shares and the highest then current independent bid for the shares
on the London Stock Exchange;
(d) such authority shall expire on the earlier of 15 months from
the date of this resolution or the conclusion of the next annual
general meeting of the Company unless such authority is renewed,
varied or revoked prior to such time;
(e) the Company may make a contract to purchase Ordinary Shares
under the authority hereby conferred prior to the expiry of such
authority which will or may be executed wholly or partly after the
expiration of such authority and may make a purchase of ordinary
Shares pursuant to any such contract; and
(f) any Ordinary Shares bought back may be held in treasury in
accordance with Guernsey law or be subsequently cancelled by the
Company and the timing of any purchases in accordance with the
above authority will be decided by the board of directors of the
Company. The terms of this authority to make market purchases of
Ordinary Shares shall supersede any previous resolution authorising
the purchase of Ordinary Shares in the Company.
By order of the Board
Registered Office:
Praxis Fund Services Limited Sarnia House, Le Truchot, St
Secretary Peter Port, Guernsey
GY1 4NA
Notes:
1. If you wish to appoint as your proxy someone other than the
Chairman of the meeting, cross out the words "the Chairman of the
meeting" and write on the dotted line the full name and address of
your proxy. The changes should be initialed.
2. In the absence of instructions, the person appointed proxy
may vote or abstain from voting as he or she thinks fit on the
specified resolutions and, unless instructed otherwise, the person
appointed proxy may also vote or abstain from voting as he or she
thinks fit on any other business (including amendments to
resolutions) which may properly come before the meeting.
3. This form must be signed and dated by the shareholder or
his/her attorney duly authorised in writing. If the shareholder is
a company, it may execute under its common seal or by the signature
of a duly authorised officer or attorney. In the case of joint
holdings, any one holder may sign this form. The vote of the senior
joint holder who tenders a vote, whether in person or by proxy,
will be accepted to the exclusion of the votes of the other joint
holder and for this purpose seniority will be determined by the
order in which the names stand in the register of members in
respect of the joint holding.
4. To appoint more than one proxy you may photocopy this form.
Please indicate the proxy holder's name and the number of shares in
relation to which they are authorised to act as your proxy (which,
in aggregate, should not exceed the number of shares held by you).
Please also indicate if the proxy instruction is one of multiple
instructions being given. All forms must be signed and should be
returned together in the same envelope.
5. To be valid, this form must be completed and lodged with the
Company's Registrar, Capita Registrars, PXS, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, or at the Registered Office, together
with the power of attorney or other authority (if any) under which
it is signed or a copy of such authority certified notarially, not
less than 48 hours before the time fixed for holding the
meeting.
FORM OF PROXY
PSOURCE STRUCTURED DEBT LIMITED (the "Company")
Form of Proxy for use by holder of Ordinary Shares at the Annual
General Meeting of the Company to be held at Sarnia House, Le
Truchot, St Peter Port, Guernsey, convened for 31 October 2011 at
11.00am
I/We____________________________________________________________________
_____________________
of______________________________________________________________________
____________________
hereby appoint the Chairman of the meeting (See Note 1 below),
or
________________________________________________________________________
_____________________
________________________________________________________________________
_____________________
(name and address of proxy in block capitals)
as my/our proxy to attend, and on a poll, vote for me/us and on
my/our behalf at the Annual General Meeting of the Company to be
held on 31 October 2011 at 11.00am
I/We wish my/our proxy to vote as indicated below in respect of
the resolutions to be proposed at the meeting. Please indicate
which way you wish your proxy to vote by ticking the appropriate
box alongside each resolution. (See Note 2 below).
RESOLUTIONS
FOR AGAINST WITHHELD
--- ---------------------------------------------- ---- -------- ---------
1. Ordinary Resolution - Approval of the
Financial Statements
--- ---------------------------------------------- ---- -------- ---------
2. Ordinary Resolution - Re-appointment of
the Auditors
--- ---------------------------------------------- ---- -------- ---------
3. Ordinary Resolution - Directors to fix
remuneration of Auditors
--- ---------------------------------------------- ---- -------- ---------
4. Ordinary Resolution - Re-election of Mr
Soondra Appavoo as a Director
--- ---------------------------------------------- ---- -------- ---------
5. Ordinary Resolution - Re-election of Mr
Peter Niven as a Director
--- ---------------------------------------------- ---- -------- ---------
6. Ordinary Resolution - Re-election of Mr
Keith Dorrian as a Director
--- ---------------------------------------------- ---- -------- ---------
7. Ordinary Resolution - Approve the
continuation of the Company
--- ---------------------------------------------- ---- -------- ---------
8. Ordinary Resolution - To authorise the
Company to purchase its own shares
--- ---------------------------------------------- ---- -------- ---------
Signature
...................................................(see Note 3
below) Date .....................2011
Notes:
1. If you wish to appoint as your proxy someone other than the
Chairman of the meeting, cross out the words "the Chairman of the
meeting" and write on the dotted line the full name and address of
your proxy. The changes should be initialed.
2. In the absence of instructions, the person appointed proxy
may vote or abstain from voting as he or she thinks fit on the
specified resolutions and, unless instructed otherwise, the person
appointed proxy may also vote or abstain from voting as he or she
thinks fit on any other business (including amendments to
resolutions) which may properly come before the meeting.
3. This form must be signed and dated by the shareholder or
his/her attorney duly authorised in writing. If the shareholder is
a company, it may execute under its common seal or by the signature
of a duly authorised officer or attorney. In the case of joint
holdings, any one holder may sign this form. The vote of the senior
joint holder who tenders a vote, whether in person or by proxy,
will be accepted to the exclusion of the votes of the other joint
holder and for this purpose seniority will be determined by the
order in which the names stand in the register of members in
respect of the joint holding.
4. To appoint more than one proxy you may photocopy this form.
Please indicate the proxy holder's name and the number of shares in
relation to which they are authorised to act as your proxy (which,
in aggregate, should not exceed the number of shares held by you).
Please also indicate if the proxy instruction is one of multiple
instructions being given. All forms must be signed and should be
returned together in the same envelope.
5. To be valid, this form must be completed and lodged with the
Company's Registrar, Capita Registrars, PXS, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, or at the Registered Office, together
with the power of attorney or other authority (if any) under which
it is signed or a copy of such authority certified notarially, not
less than 48 hours before the time fixed for holding the
meeting.
6. The 'vote withheld' option is provided to enable you to
abstain on any particular Resolution. However, it should be noted
that a 'vote withheld' is not a vote in law and will not be counted
in the calculation of the proportion of the votes 'for' and
'against' a resolution.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LTMATMBBTBPB
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