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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Juridica | LSE:JIL | London | Ordinary Share | GG00B29LSW52 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.475 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMJIL
RNS Number : 6921T
Juridica Investments Limited
31 March 2016
Juridica Investments Limited
("Juridica," "JIL" or the "Company")
Results for the year ended 31 December 2015
Juridica, the leading provider of strategic capital for corporate legal claims, announces its results for the year ended 31 December 2015.
Financial highlights
Hot Features
Premium
-- Total comprehensive loss of US$49.2 million, a substantial part of which was reported at the time of the interim
results
-- The Company declared an interim dividend of 5 pence per share payable on 30 December 2015 to shareholders of
record on 27 November 2015. In accordance with the run-off strategy adopted by the Board it will carefully
consider the timing and amount of payment of future dividends
-- Net asset value per ordinary share US$1.14 or 77 pence per share, (2014: US$1.66 or 107 pence per share)
Corporate update
The Board of Directors announced on 18 November 2015, that it would not make any new investments (other than further funding of existing investments where such funding was reasonably required in the interests of shareholders); and that it would seek to return capital to shareholders in the most appropriate manner, following the completion of investments (the "run-off strategy").
Investment portfolio
There were 15 investments current at the year end of 2015; eight of these investments involved litigation (including several which consist of multiple underlying cases), five were in either pre-litigation or Special Purpose Vehicle ("SPV") in relation to patent monetisation, one has elements of both litigation and SPV patent monetisation, and one pertains to revenue rights associated with a coal mine. As to the non-litigation investments, these are explained further in the Investment Manager's Report.
A considerable portfolio of litigation remains and there are other investments that require active management in varying degrees.
- Ends -
This report contains forward looking statements, which are based on the current expectations and assumptions of the Investment Manager and involve known and unknown risks and uncertainties that could cause actual results or performance to differ materially from those expressed or implied in such statements. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of variables that could cause actual results or trends to differ materially. Each forward looking statement speaks only as of the date of this report. Except as required by the AIM Rules or otherwise by law, the Company and the Manager expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the Company's or Manager's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
For further information contact:
Juridica Asset Management Limited +1 (866) 443 Richard W. Fields 1080 Cenkos Securities PLC - Nominated Adviser and Joint Broker Nicholas Wells +44 (0) 20 Camilla Hume 7397 8900 Investec Bank PLC - Joint Broker Darren Vickers +44 (0) 20 Jeremy Ellis 7597 4000 Bell Pottinger +44 (0) 20 Olly Scott 3772 2500
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
On behalf of the Board, I present the audited results of Juridica Investments Limited ("JIL" or the "Company") for the year ended 31 December 2015 which shows a total comprehensive loss of US$49.2 million, a substantial part of which was reported to the shareholders in the 2015 mid-year accounts.
Corporate update
After a careful review of the Company and its future, the Board of Directors announced on 18 November 2015, that: i) it would not make any new investments (other than further funding of existing investments where such funding was reasonably required in the interests of shareholders); and ii) that it would seek to return capital to shareholders in the most appropriate manner, following the completion of investments (the "run-off strategy").
JIL was a pioneer of litigation funding since its admission to AIM in 2007 with an investment approach that did not permit significant reinvestment of returns from the Company's investments. It was with this background that towards the end of 2015 the Board of Directors undertook its review of the future of the Company with an important consideration being the Company's continuing position in the developing market for litigation funding in the future, particularly in the United States, where both scale and diversity are the key challenges.
Taking into account the lack of significant capital available to the Company for ongoing investment and the complexity of some aspects of the investment structures required to be used, a decision to adopt the run-off strategy was considered to be in the best interest of shareholders.
Investment results
There were a limited number of case results in 2015 as fully documented in the Investment Manager's Report and there were no significantly large returns over the year. The final appellate result announced for Case 8008-L, in June 2015, was very disappointing and the particular circumstances of this case were discussed at length in the Company's interim results for the period ended 30 June 2015. In November 2015 the Company announced the outcome of Case 5009-S, where despite a positive result on liability, the damages awarded were significantly lower than the case valuation in the net asset value ("NAV") at 30 June 2015. Further detail on investment results is given in the Investment Manager's Report.
Investment portfolio
There were 15 active investments at the year end of 2015; eight of these investments involved litigation (including several which consist of multiple underlying cases), five were in either pre-litigation or Special Purpose Vehicle ("SPV") in relation to patent monetisation, one has elements of both litigation and SPV patent monetisation, and one pertains to revenue rights associated with a coal mine. As to the non-litigation investments, these are explained further in the Investment Manager's Report.
A considerable portfolio of litigation remains and there are other investments that require active management in varying degrees.
Amendments to investment management arrangements
After the November 2015 announcement, the Board and the Company's manager, Juridica Asset Management Limited ("JAML" or the "Manager"), undertook lengthy and detailed discussions as to new arrangements that would serve shareholder interests. This led to the agreements set out in the Company announcement of 8 February 2016 whereby:
-- The pre-existing arrangements made with JAML, whereby they were contractually entitled to be paid management fees up to the end of 2016 calculated by reference to net asset value ("NAV"), were replaced by a new investment management agreement to pay fixed management fees of US$3.0 million for 2016, and US$1.75 million for 2017. These amounts are expected to be significantly less than would have been payable under the previous arrangements.
-- The amount payable in 2016 is subject to a deduction in the amount of fees paid to JAML in 2016 in respect of 2015 financial year consequent upon year end calculations that establish an over-payment. This process involves a "true-up" calculation leading in the past to an extra payment to the Manager but because of the calculation for 2015 this year the reverse applies and there is to be a repayment from the Manager to JIL. This is agreed at US$720,000 and will be deducted from the management fees for the remaining tranches to be paid during 2016.
-- The new arrangements with JAML continue until 31 December 2017 when the Company is entitled to terminate its investment management agreement with JAML. Should circumstances involve the continuation of any significant investments into 2018 then, the Company will make appropriate arrangements as required.
-- The existing performance fee provisions in the investment management agreement with JAML remain unchanged and the Company's previous Investment Manager JCML 2007 Limited ("JCML") will continue to be entitled to performance fees (to the extent payable) in respect of investments made prior to the end of 2013. The Company remains a shareholder in JCML and is entitled to 32.6% of any performance fees received by it in such capacity.
Further cost reductions
Since the November announcement the Board has undertaken a detailed review of the Company's costs other than those involving the Manager directly and have set budget estimates for the coming year of 2016, with a targeted reduction of up to US$900,000. These reductions include significant reductions in the fees and expenses of the Board together with other significant reductions with this target in mind.
Proposed amendment to the Company's Articles of Incorporation for the run-off strategy
At the Company's next Annual General Meeting ("AGM") in May the Board will propose amendments to the Company's Articles of Incorporation ("Articles") to facilitate the present run-off strategy.
These amendments will seek to remove the requirement for the Company to table a winding-up proposal at a general meeting in November 2016 and every 3 years thereafter.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 04:42 ET (08:42 GMT)
Given the Company's adoption of the run-off strategy the Board believes that a formal liquidation of the Company is unnecessary and potentially costly to the Company. The directors believe that any liquidator appointment would place an unnecessary cost burden on the Company over the period in which investments are completed and such an appointment will also negatively impact the Company's ability to realise investments at maximum shareholder value in accordance with the run-off strategy. Further information on the proposed change to the Articles will be included in the Company's Notice for the AGM.
Dividend
The Company declared an interim dividend of 5 pence per share payable on 30 December 2015 to shareholders of record on 27 November 2015. In accordance with the run-off strategy adopted by the Board it will carefully consider the timing and amount of payment of future dividends.
Conclusion
The Board considers that the fund has had considerable success over its lifetime and that having been the first significant litigation funder, especially in the United States market. The acceptance of litigation funding as an asset class has been due in large measure to the activities of the Company. The Board will continue its run-off strategy in order to maximise value to shareholders.
Lord Daniel Brennan QC
Chairman
30 March 2016
INVESTMENT MANAGER'S REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
As noted in the Chairman's Statement, on 18 November 2015, JIL announced that it will no longer make new investments (other than for funding existing investments in the Company's portfolio where such funding is reasonably required to realise maximum value to shareholders) and that it would return capital to shareholders in the most appropriate manner. In accordance with this, and based on the returns generated during the year, the Company paid a dividend of 5 pence per share to shareholders on the Register at 27 November 2015.
The Company began operation in December 2007 and has, since inception, made 30 investments (some of which have multiple underlying cases or other assets and some which have had supplemental investments). A total of 15 of these investments have come to full conclusion. Of the remaining 15 investments, six have had some return on the Company's investment (including the Company's investment in JCML), either from settlements or other distributions, and still remain active.
Investment results during 2015
Case 0108-S, Case 0209-S, and Case 0108-SD:
Case 0108-S was the first investment made by the Company in 2008. The underlying case involved the prosecution of a patent infringement claim. Two additional investments (0209-S and 0108-SD) relating to the same patent were subsequently made to enhance the Company's potential return. During 2015, the case resulted in a favourable judgment after trial in excess of US$20 million. The investment underperformed our expectations, in terms of both amount of damages and timing, but still returned a modest cash profit of US$1.7 million.
Case 8008-L:
During the year ended 31 December 2015, and as detailed in the Company's 2015 mid-year report, Case 8008-L (which was one of the six underlying cases in our single antitrust and competition investment) lost a damages appeal in the Court of Appeals and then was denied an opportunity for further review by the US Supreme Court. Case 8008-L had previously delivered gross returns of US$89.7 million on a direct investment of US$26.0 million. Notwithstanding the disappointing ruling, it was still a successful investment by the Company.
Case 0409-C:
Case 0409-C settled during 2015 after previously receiving a successful jury verdict of US$50 million in the client's favour. The jury verdict was returned in 2012 but a reasonable settlement offer was delayed because of remaining non-jury issues that the trial judge had not decided. The case returned US$9.7 million on an investment of US$4.6 million.
Investment 114107:
Investment 114107 is an investment made during 2015 that involves five separate patent portfolios comprising several hundred patents. The Company invested US$1.3 million in this pool of patent assets. An early settlement returned the Company's entire investment in the case while maintaining an ongoing interest in potential future proceeds from the investment.
In addition to the above results, during the year ended 31 December 2015, the Company received US$4.7 million in cash proceeds from a dividend distribution made by our previous manager, JCML. An additional US$650,000 in Company stock was also distributed to the Company by JCML and returned to the Company's treasury. Both of these receipts are as a result of the Company's 36.17% holding of JCML.
New investments made during 2015
Prior to the Company's decision to cease funding of new investments (except in limited circumstances), the Company made two new investments in 2015 as follows:
-- Investment 114107: As discussed above, the Company invested in a pool of litigation ready patents covering various technology industries. The asset pool included two existing lawsuits that provided excess collateral for the Company's investment that is being used to fund three new cases. A settlement in one of the older cases provided as collateral resulted in return of all the Company's investment within 60 days of funding while potential future proceeds from the three new cases remain.
-- Investment 12013: This investment involves a legal claim of misappropriation of trade-secrets. This investment funded an appeal which, during the fourth quarter of 2015, was lost. At 31 December 2015, a motion for reconsideration was in process as the first step in the appeals process. Subsequent to 2015 year-end, the motion for reconsideration was lost and the plaintiff is evaluating their remaining options with the case. A total of US$250,000 was invested by the Company into this case. Approximately US$95,000 of the Company's 2015 year-end NAV was applicable to this investment.
Both of these new investments were made under our previously announced co-allocation policy with a third-party.
Financial performance during 2015
The net asset value ("NAV") per ordinary share decreased from US$1.66 (107 pence per share as at 31 December 2014 to US$1.14 (77 pence per share) as at 31 December 2015. This decrease of 52 cents in NAV per ordinary share was primarily attributable to the following:
-- Dividend declared on 18 November 2015 and paid on 30 December 2015 of US$8.2 million or 7.4 cents per ordinary share (5 pence per share).
-- Total comprehensive loss of US$49.2 million or 44.4 cents per ordinary share.
The Company's US$49.2 million total comprehensive loss for the year ended 31 December 2015 was due principally to the net unrealised loss of US$47.8 million generated from the change in valuation of the Company's investments partly offset by the JCML dividend of US$5.4 million. Operating expenses of US$7.0 million and other net positive adjustments of US$200,000 account for the remainder of the loss.
The Company's net unrealised loss from net reduction in the valuation of the Company's investments of US$47.8 million was attributable to the following:
-- US$35.2 million reduction in value associated with the Company's debt securities consisting exclusively of our antitrust and competition portfolio and was primarily attributable to case 8008-L as discussed above.
-- US$5.1 million reduction in value associated with the Company's contractual interests primarily associated with Case 5009-S as discussed below.
-- US$7.5 million reduction in value associated with the Company's equity investments primarily attributable to a change in the value associated with the Company's interest in JCML substantially resulting from the receipt of dividend valued at US$5.4 million consisting of cash and Company stock. The receipt of the dividend value by the Company is reflected as dividend income in the accounts. An additional US$1.4 million reduction in value was attributable to Case 1610.
Fair value of investments
The fair value of the Company's investments at 31 December 2015 was US$90.8 million. These investments are categorised as contractual interests, debt securities, or equity investments. These categories reflect the following changes from the carrying value as at 31 December 2014:
Net Realised
Proceeds Gains Fair Value
Additions Attributable Attributable Change
During to the to the During
31 Dec the Year Ended Year Ended the Year 31 Dec
2014 Fair Year Ended 31 Dec 31 Dec Ended 2015
Value 31 Dec 2015 2015 31 Dec Fair
$USM 2015 $USM $USM 2015 Value
$USM $USM $USM
-------------------- ------------ ------------- -------------- -------------- ------------- ---------
Contractual
Interests:
includes
assets
from the
Company's
patent
and commercial
claims
portfolios 54.5 2.8 (24.1) 1.3 (5.1) 29.4
-------------------- ------------ ------------- -------------- -------------- ------------- ---------
Debt Securities:
includes
assets
from our
antitrust
and competition
portfolio 82.6 8.0 - - (35.2) 55.4
-------------------- ------------ ------------- -------------- -------------- ------------- ---------
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March 31, 2016 04:42 ET (08:42 GMT)
Equity Investments: includes assets from our patent and commercial claims portfolios as well as other investments 13.0 0.5 - - (7.5) 6.0 -------------------- ------------ ------------- -------------- -------------- ------------- --------- Total 150.1 11.3 (24.1) 1.3 (47.8) 90.8 -------------------- ------------ ------------- -------------- -------------- ------------- ---------
In addition to the above changes, the Company is reflecting at 31 December 2015:
-- A fair value adjustment of approximately US$(700,000) for its forward currency contract purchased to protect the Company from currency fluctuations relating to the 2014 dividend which was paid on 14 January 2015. As at 31 December 2015, this forward currency contract had matured.
The above table excludes US$27.0 million in additions and net proceeds associated with the Company's debt securities. Specifically, and as detailed in Note 5(c) to the Company's financial statements, a clawback of US$27.0 million in payments made under the swap component of the facility with Fields Law PLLC ("Fields Law") was made during 2015 in order to enable Fields Law to repay accrued interest and principal owed to the Company under the note component of the facility. This activity had no net impact to the Company's NAV or to the fair value of the Company's debt securities.
As discussed in previous reports, we value JIL's investments using valuation and accounting methods that are applied in a manner that follows International Financial Reporting Standards' ("IFRS") accounting principles. In particular, we follow guidance provided by IFRS 13 in establishing the method of applying fair value accounting. Under this guidance, we develop a fair value of a case or investment by discounting its expected terminal value from its expected completion date. We determine our initial expectations on quantum and timing of case results by assigning a probability of various scenarios coming to fruition and applying risk factors that: i) are intrinsic to the specific case; and ii) reflect general risks within and outside of the legal process. Our assumptions behind an investment's fair value are revisited on a semi-annual basis (to coincide with the Statement of Financial Position date). If needed, we will re-run the investment's valuation model and revise its expected future cash flow which we then discount to the reporting date. The discount rate used for valuation purposes is the Company's cost of equity. All due diligence and transaction costs related to an investment are expensed.
Relative to the expectations we have at the time an investment is made, the investment itself is carried at any point in time at a discount to what we believe the investment will ultimately be worth. This is in part due to the timing discount we apply but is mostly attributable to the potential adverse actions that can arise in any litigation. Unlike an investment that is backed by a physical asset, litigation assets are subject to certain legal hurdles each of which has the potential to cause the litigation portion of any investment to be worthless. A key element in selecting investment worthy cases is the likelihood of a particular case overcoming any remaining hurdles and generate either a settlement or trial victory.
As part of our valuation process, we consider the current legal merits of each underlying case, the legal history of the case, the current legal environment, and any other factors we feel are relevant as of the date of our valuation. Working with the lawyers assigned to each case, we develop scenarios of potential outcomes, including the various situations that can generate outsized returns, moderate returns, or a complete loss, and assign each scenario a probability. The Monte Carlo simulation runs the statistically relevant number of iterations to provide us with an expected value and timing. These results are then discounted to the reporting date at the Company's cost of equity.
Of significance is the risk of loss that is assigned to each case. This must be considered given the typical binary characteristics of a legal case (i.e. win or lose). Because of this ever-present risk of loss (and to a lesser extent the impact of discounting), the accounting fair value of a particular case or investment is typically less than the expectation we hold should the case prevail, and in some instances, the actual outcome of the case may be significantly greater than its fair value for this reason. The Company experienced such an event in 2014 when one of the larger antitrust and competition cases settled and generated proceeds significantly greater than its fair value in the reporting period preceding the settlement.
Our accounting fair value on the Company's investments is not intended to express our prediction about the ultimate outcome of any investment, but rather our fair value estimate based on the best information available to us at the Statement of Financial Position date using a range of possible outcomes.
It must be emphasised again that any of our litigation assets that carry a value at a particular measurement date could become worthless, even a short period of time after our measurement date, if the case fails to overcome a particular set of hurdles. In some instances, and particularly for Case 8008-L, incorporating a heightened risk of loss may be muted by the potential of the case to overcome its set of legal hurdles. For Case 8008-L, the quantum of potential proceeds had the case overcome its hurdles were very large and thus retained value in the case, even with the heightened risk of loss.
Concentration risk and size of existing portfolio
Overall the concentration risk in the three portfolio groups is highlighted in the table below:
Number Carrying
Portfolio category of active value % of total
investments $US Million NAV
(1)
---------------------------- ------------- ------------- -------------
Antitrust and
competition (2) 1 55.4 43.9%
Patents and intellectual
property 7 23.1 18.3%
Commercial (3) 6 14.3 11.3%
------------- ------------- -------------
Total 14 92.8 73.5%
============= ============= =============
(1) Number of active investments include some of which have multiple underlying cases or other assets, and some which have had supplemental investments. Excludes the Company's investment in JCML.
(2) One of the two remaining cases in the antitrust and competition portfolio has the potential to deliver significant cash proceeds to the Company. After considering all possible outcomes in our fair value calculation (including potential for outsized returns as well as the potential for a loss), this individual case represents a carrying value of over US$40.0 million at 31 December 2015.
(3) Commercial portfolio fair value includes an investment in which US$2.1 million of its carrying value is categorised as an intangible. Commercial portfolio excludes US$27,000 in fair value associated with the Company's investment in JCML.
Portfolio historical performance
From inception to 31 December 2015, the Company's portfolio has generated net cash proceeds of approximately US$222.4 million (excluding proceeds generated from the Company's investment in its previous manager, JCML).
The portfolio, since inception, has performed as follows:
-- Fifteen investments (three of which were related) have reached completion with proceeds from the underlying cases delivering a total of US$67.2 million in gross proceeds representing a blended internal rate of return of approximately 20.27% (as calculated from the date of investment to the date of return).
-- Five investments that have produced returns still remain active even though some settlements have been reached. One of these investments is our large antitrust and competition investment that originally consisted of six cases and now has two active cases remaining. Three of these investments are part of our patent portfolio and consists of investments with litigation elements and patent sale or licensing elements. The final investment with a partial settlement was part of our commercial portfolio and currently consists of an asset sale element. Total net proceeds from active investments with partial settlements are approximately US$155.2 million.
In addition to the above performance, the Company's investment in JCML produced returns in the form of dividends valued at US$5.4 million consisting of cash and Company stock (which was returned to the Company's treasury). This investment remains active.
Investment Number Amount Invested Amount Recovered
(includes (net of fees,
related transaction reinvestment, IRR
costs) reserves %
$US and taxes)
$US
------------------------------ --------------------- ----------------- -------
Completed Investments:
0208-G 12,050,211 13,750,000 29.99
0308-R 9,294 3,500,000 -
0908-U 3,119,371 4,337,693 60.81
6308-F 1,522,802 2,487,749 60.91
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March 31, 2016 04:42 ET (08:42 GMT)
0408-W 2,872,424 3,793,389 19.53
6509-A 2,476,681 4,500,000 54.76
6409-V 785,819 5,302,905 260.52
0210-M 1,526,040 2,478,220 45.05
2510 1,059,994 3,000,000 38.11
7608-A 2,141,221 1,239,032 -27.58
0108-S / 0209-S / 0108-SD 11,524,807 13,082,726 3.48
0409-C 4,795,954 9,725,862 13.19
0608-S(1) 4,425,041 - -
Total - Completed Investments 48,309,659 67,197,576 20.27
------------------------------ --------------------- ----------------- -------
Investments With Partial
Recoveries(2) :
7508-O 6,260,229 228,572
0708-B 7,081,122 1,618,500
3608-A(3) 106,598,336 148,024,521
1610 4,220,964 4,000,000
114107 1,345,685 1,308,824
Total - Investments
With Partial Recoveries 125,506,336 155,180,417
-------------------------------- --------------------- -----------------
Total Cash Recovered to 31 December
2015: 222,377,993
-----------------
(1) Case 0608-S was written down to nil during the year ended 31 December 2015.
(2) Excludes proceeds generated from the Company's investment in its previous manager, JCML.
(3) Amount invested for 3608-A includes gross advances under debt facility and US$8.0 million clawback in 2015 that was used for investment funding purposes. Amount excludes US$13.2 million in principal repayments made from proceeds.
Portfolio update
The Company's current portfolio remains diversified with three primary groups: antitrust and competition, patent and other forms of intellectual property, and commercial.
The cash summary at 31 December 2015 for each of these groups (excluding the Company's investment in JCML) is as noted on the following table:
Cumulative Amount Invested Commitment
Net Proceeds in Current Available
Generated(1) Portfolio for Current
Type of claim US$ million Holdings(2) Portfolio
or litigation US$ million Holdings(3)
US$ million
-------------------------- -------------- ---------------- -------------
Antitrust and
competition 148.0 91.8 7.0
-------------------------- -------------- ---------------- -------------
Patents and intellectual
property 37.5 28.8 0.3
-------------------------- -------------- ---------------- -------------
Commercial 36.9 18.3 -
-------------------------- -------------- ---------------- -------------
Total 222.4 138.9 7.3
-------------------------- -------------- ---------------- -------------
(1) Cumulative Net Proceeds Generated refers to partially settled investments and completed investments from inception until 31 December 2015. Additional proceeds have been generated within the antitrust and competition portfolio and the patent portfolio and have been used to fulfil funding requirements for cases within each portfolio.
(2) Amount Invested in Current Portfolio Holdings reflects cash investment as at 31 December 2015 (excludes any related transaction costs) by JIL for the current investment holdings in each portfolio. Antitrust and competition portfolio reflects advances under the Facility net of repayment totalling US$13.2 million and US$8.0 million in funding from the related swap instrument.
(3) Commitment Available for Current Portfolio Holdings reflects remaining funding commitment (as of 31 December 2015) by JIL for the current investment holdings in each portfolio. A portion of the commitment related to the antitrust and competition portfolio may be fulfilled from portfolio returns and cash reserves held within the investment.
Antitrust and competition portfolio
Of the six original cases in the Company's antitrust and competition portfolio, three remained active during the year ended 31 December 2015.
Case summaries:
-- Case 8008-L lost a damages appeal in the Court of Appeals and then was denied an opportunity for further review by the US Supreme Court. Case 8008-L had previously delivered gross returns of US$89.7 million on a direct investment of US$26.0 million.
-- Case 5308-U began its trial in early March 2016 and that trial is still ongoing as of the date of this release. The Company will provide updates upon conclusion.
-- Case 1008-A involves statutory claims against an international bank. One part of the case is set for trial in May 2016 and is likely to result in settlement. The second part of the case is on appeal after a dismissal of certain claims by the trial court.
Patent portfolio
The Company began 2015 with a total of 11 investments in the Company's patent and intellectual property portfolio. Four of these investments came to conclusion during 2015 and as of 31 December 2015, the Company held seven investments in this portfolio.
Case summaries:
-- Case 0108-S, 0209-S, and 0108-SD came to a conclusion as detailed above. -- Case 0409-C came to a conclusion as detailed above.
-- Case 0808-C involves several components. The underlying litigation several years ago resulted in a judgment of liability but low damages and is still on appeal. The Company no longer expects to generate proceeds from the litigation component. The Company has also been developing a portfolio of patents, in an SPV structure, related to the key patent involved in the litigation. During 2015, it was determined that the underlying inventions for these new patents have limited value and thus minimal value has been assigned to these inventions in the Company's NAV. The final component in this investment is an equity interest in a company that has developed energy-saving software for electrical motors. The Company obtained this interest as additional collateral at the time of financing the original litigation. The claimant has been marketing the underlying technology and is currently in negotiations to sell the technology to a major industrial conglomerate. This equity interest represents most of the value in the NAV for this asset.
-- Case 2709-E now consists of two patents and, after a lengthy delay, has begun to progress quickly. Limited settlement discussions have occurred, a Markman hearing is presently set for mid-2016 and we expect additional progress during 2016.
-- Case 0708-B began with litigation involving an underlying patent for which the Company previously has received proceeds. During 2014, we believed that significant value can be unlocked by developing a portfolio of related patents in the areas of rich media and multimedia. The inventor of the patent that was the subject of the original litigation, along with other subject matter experts, are developing these patents under a SPV structure.
-- Case 7508-O consists of litigation surrounding core computer technology, which is nearing completion, as well as a developing portfolio of patents (under a SPV structure) covering various elements of communications. As of 31 December 2015, a total of 37 application for US patent protection have been filed (with additional filings made for international protection). During 2015, nine patents had been granted or notice of granting was received. We have already begun marketing this developing patent portfolio.
-- Investment 7313 reflects the Company's 7.8% preferred ownership in ipCreate, Inc ("ipCreate"). The Company is expecting to monetise this investment as part of future capital raising by ipCreate.
-- Investment 9713 is an investment (under a SPV structure) established to develop and monetise a large portfolio of patents in the technology and sports market. The Company has partnered with the National Football League Players Association in this endeavour. As of 31 December 2015, a total of 55 applications application for US patent protection have been filed (with additional filings made for international protection).
-- Investment 114107 is a new investment involving five separate patent portfolios comprising several hundred patents and is detailed above.
Commercial portfolio
The Company began 2015 with a total of eight investments in its commercial portfolio, of which seven involve claims related to commercial disputes including: theft of trade secret, breach of contract and insurance subrogation. The final investment reflects the Company's 36.17% interest in the Company's previous manager, JCML. As of 31 December 2015, seven of these investments remain active.
Case summaries:
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-- Case 1610 has resulted in a favourable arbitration award in the amount of US$4.0 million. While JIL has recouped its US$4.0 million investment from the settlement, the Company is seeking to recover further proceeds from its security interest in a revenue stream to be generated from a US based coal mine. This security interest served as a cross collateral hedge against unfavourable litigation results. Market conditions for the coal industry remain highly unfavourable. As such, the Company retained an industry expert to provide a current valuation which is the value included in the Company's NAV. The Company will continue to seek opportunities to monetise its interest, although near-term market conditions are expected to make this effort difficult.
-- Case 0608-S was deemed by the Company to retain no value and was written off at 31 December 2015. This investment was assigned a fair value of US$400,000 at 31 December 2014.
-- Case 1608-T involves a judgment on behalf of insurance companies against a foreign government. In addition, a related claim against a sovereign government is being pursued and is scheduled for summary judgment in 2016. In 2014, we identified that although the collection efforts may ultimately be successful, timing and collection risk had increased and the fair value of the investment was written down. Additional legal proceedings are expected during 2016 that should provide more clarity on the future of this investment.
-- Case 5009-S completed its trial by jury during 2015. Although the plaintiff fully won on liability, the jury only awarded an amount which will result in proceeds to the Company of approximately US$2.0 million as compared to an investment of approximately US$3.5 million. Both sides have filed post-trial motions for a new trial with the plaintiff requesting a new trial on damages and the defendant requesting a new trial on all issues. These motions have yet to be ruled on by the trial court. We believe there remains a possibility that a new trial on damages will occur.
-- Case 1410 completed its trial during 2014 with a positive ruling on liability but damages awarded were far less than expected. Cross-appeals on liability and plaintiff's appeal on damages were filed after the ruling. In early 2016, the plaintiff's appeal received a favourable appeals court ruling overturning the trial court's damages award. The Company is awaiting further action by the trial court, including the possibility of a new award on damages without a further trial.
-- Case 6609-S involves a large, multi-party pre-litigation settlement opportunity that we believe has the potential to generate significant proceeds for the Company. Settlement negotiations for a portion of the opportunity continue. This investment is being accounted for partially as an intangible asset and partially as a contractual interest.
-- Investment 12013 involves a legal claim of misappropriation of trade secrets. Its status is detailed above.
-- Investment in JCML reflects the Company's investment in its previous manager. During 2015, JCML distributed cash and Company stock to the Company with a total value of approximately US$5.4 million.
Outlook
We will continue to work with the Company's Board of Directors to maximise shareholder value and returning capital to shareholders in the most appropriate manner, following the completion of investments.
Disclaimer on forward looking statements
This report contains forward looking statements, which are based on the current expectations and assumptions of the Investment Manager and involve known and unknown risks and uncertainties that could cause actual results or performance to differ materially from those expressed or implied in such statements. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of variables that could cause actual results or trends to differ materially. Each forward looking statement speaks only as of the date of this report. Except as required by the AIM Rules or otherwise by law, the Company and the Manager expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the Company's or Manager's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Juridica Asset Management Limited
30 March 2016
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
The Directors present their report together with the audited financial statements of Juridica Investments Limited (the "Company") for the year ended 31 December 2015, with comparative information for the year ended 31 December 2014.
Principal activities
The Company is an authorised closed-ended investment company incorporated under The Companies (Guernsey) Law, 2008 (the "Law"). The Law does not make a distinction between private and public companies. Shares in the Company were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 December 2007. The address of the Company's registered office is 11 New Street, St Peter Port, Guernsey, GY1 2PF.
Corporate update
The investment objective of the Company had been to build a diversified portfolio of investments in claims and to provide Shareholders with an attractive level of dividends and capital growth through investing directly and indirectly in litigation and arbitration cases, claims and disputes. These investments have been made predominantly in the United States. On 18 November 2015, the Company announced that it would not make new investments (other than for funding existing investments in the Company's portfolio where such funding is reasonably required to realise maximum shareholder value) but, instead, would seek to return capital to shareholders in the most appropriate manner following the completion of investments (the "run-off strategy").
Results and dividend
The results for the year are shown in the Statement of Comprehensive Income on page 20. The Company declared a dividend of 5 pence per share on 18 November 2015. Accordingly, this dividend was paid on 30 December 2015 to shareholders on the register at 27 November 2015. The dividend was funded by the US$28.0 million in cash proceeds from settlements that were transferred to the Company during the year.
Audit Committee
The Audit Committee consists of Richard Battey, Lord Daniel Brennan and Kermit Birchfield. The Audit Committee is chaired by Mr Battey, and meets at least once a year to review the financial statements, audit timetable, and other risk management and governance matters.
Statement of Directors' responsibilities in respect of financial statements
The Directors are responsible for preparing financial statements for each financial year which give a true and fair view, in accordance with applicable Guernsey law and International Financial Reporting Standards, of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
So far as the Directors are aware, there is no relevant audit information of which the Company's Auditor is unaware, and each Director has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
The maintenance and integrity of the Company's website is the responsibility of the Directors. The work carried out by the Auditor does not involve consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. To the best of our knowledge, and in accordance with the applicable reporting principles, the financial statements give a true and fair view of the assets, liabilities, financial position, comprehensive income and cash flows of the Company, although there is uncertainty around valuation of the Company's investments in the absence of an established market. The Investment Manager's report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal opportunities and risks associated with the expected development of the Company.
Furthermore, to the best of our knowledge and belief, this annual report includes a fair review of the development and performance of the business and the position of the Company as at 31 December 2015 together with a description of the principal risks and uncertainties that the Company faces.
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In accordance with The Companies (Guernsey) Law, 2008, each Director confirms that there is no relevant audit information of which the Company's Auditor is unaware.
Independent Auditor
The Auditor, PricewaterhouseCoopers CI LLP, have expressed their willingness to continue in office and a resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting.
Continuation and going concern
In accordance with the Company's Admission Document of 17 December 2007, the Directors convened an extraordinary general meeting of the Company, on 14 November 2013, at which a resolution was proposed (as required) that the Company be wound up voluntarily. The resolution was not passed by the Company's members. The Directors will propose to remove the requirement to convene an extraordinary general meeting for the voluntary wind-up of the Company every three years from the date of the original meeting, at the Annual General Meeting on 3 May 2016.
Although the Company is in a run-off strategy, the Directors have given consideration to the maturity of the Company's existing portfolio, the performance of the portfolio to date, the prospects of expected future cash flows, and existing cash reserves. In addition, the Directors have reviewed the Company's budgets and cash flows for the year ahead and, accordingly, are satisfied on reasonable grounds that it is appropriate to prepare these financial statements on a going concern basis.
Approved by the Board of Directors on 30 March 2016 and signed on their behalf:
RJ Battey
Director
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED
FOR THE YEAR ENDED 31 DECEMBER 2015
Report on the financial statements
We have audited the accompanying financial statements of Juridica Investments Limited (the "Company") which comprise the Statement of Financial Position as of 31 December 2015, the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended and a summary of significant accounting policies and other explanatory information.
Directors' responsibility for the financial statements
The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and with the requirements of Guernsey law. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of the Company as of 31 December 2015, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.
Emphasis of Matter
Without qualifying our opinion, we draw your attention to Notes 2(d), 3 and 15(a) to the financial statements surrounding the fair value of non-current assets. The financial statements include non-current assets stated at their fair value of US$92,836,473. Due to the inherent uncertainty associated with the valuation of such non-current assets and the absence of a liquid market, these fair values may differ from their realisable values, and the differences could be material.
Report on other legal and regulatory requirements
We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Corporate Information, the Chairman's Statement, the Investment Manager's report, the Directors' report, the Notice of Annual General Meeting and the Form of Proxy.
In our opinion the information given in the Directors' report is consistent with the financial statements.
This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
30 March 2016
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
--------------- --------------
Notes US$ US$
INCOME
Dividend income 14(b) 5,369,711 -
Foreign exchange gain 805,211 -
6,174,922 -
--------------- --------------
EXPENSES
Management fees 14(a) 4,795,036 5,872,475
Performance fees 14(c) - 14,511,058
Due diligence and transaction
costs 2(e) 477,111 905,687
Directors' fees and expenses 14(f) 599,549 681,153
Audit fees 233,383 234,735
Legal and professional
expenses 212,109 1,063,460
Administration fees 14(e) 242,209 300,309
Foreign exchange loss - 306,002
Other expenses 498,813 476,305
7,058,210 24,351,184
--------------- --------------
INVESTMENT MOVEMENTS
Amortisation of intangible
assets 4 (829,070) (1,088,261)
Realised (losses)/gains
on financial assets and
financial liabilities at
fair value through profit
or loss 5 (369,946) 28,809,543
Movement in unrealised
loss on financial assets
and financial liabilities
at fair value through profit
or loss 5 (47,073,882) (8,365,538)
(48,272,898) 19,355,744
--------------- --------------
Loss for the year (49,156,186) (4,995,440)
=============== ==============
Total comprehensive loss
for the year (49,156,186) (4,995,440)
=============== ==============
Deficit per Ordinary Share 17
Basic Cents (44.49) (4.51)
Diluted Cents (44.31) (4.49)
The notes on pages 24 to 45 form an integral part of these financial statements.
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
2015 2014
------------ ------------
Notes US$ US$
ASSETS
Non-current assets
Intangible assets 4 2,058,796 2,647,866
Financial assets at fair
value through profit or loss 5 90,777,677 150,061,860
92,836,473 152,709,726
Current assets
Other receivables and prepayments 8 6,207,781 54,593,126
Cash and cash equivalents 27,384,242 27,962,963
33,592,023 82,556,089
TOTAL ASSETS 126,428,496 235,265,815
============ ============
EQUITY AND LIABILITIES
Equity
Treasury shares 13 (645,459) -
Reserves 13 126,783,917 184,158,780
Net assets attributable to ordinary
shareholders 126,138,458 184,158,780
Total equity 126,138,458 184,158,780
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------------ ------------
Current liabilities
Dividend payable 9 - 34,491,900
Financial liabilities at
fair value through profit
or loss 5 - 686,903
Performance fee payable 14(c) - 14,511,058
Other payables 10 290,038 1,417,174
Total liabilities 290,038 51,107,035
------------ ------------
TOTAL EQUITY AND LIABILITIES 126,428,496 235,265,815
============ ============
Number of ordinary shares
(excludes treasury shares) 110,340,019 110,701,754
Net asset value per ordinary
share 16 $1.1432 $1.6636
These financial statements were approved and authorised for issue by the Board of Directors on 30 March 2016 and signed on its behalf by:
RJ Battey
Director
The notes on pages 24 to 45 form an integral part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Reserves Treasury Total
Shares
------------- ---------- -------------
US$ US$ US$
Balance at 1 January
2014 223,646,120 - 223,646,120
Changes in equity
for 2014
Loss for the year (4,995,440) - (4,995,440)
Total comprehensive
loss (4,995,440) - (4,995,440)
Dividends declared (34,491,900) - (34,491,900)
Balance at 31 December
2014 184,158,780 - 184,158,780
============= ========== =============
Changes in equity
for 2015
Loss for the year (49,156,186) - (49,156,186)
Total comprehensive
loss (49,156,186) - (49,156,186)
Treasury shares
acquired - (645,459) (645,459)
Dividends declared 9 (8,218,677) - (8,218,677)
Balance at 31 December
2015 126,783,917 (645,459) 126,138,458
============= ========== =============
The notes on pages 24 to 45 form an integral part of these financial statements.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
------------- -------------
US$ US$
Cash flows from operating activities
Loss for the year (49,156,186) (4,995,440)
Adjusted for:
Realised losses/(gains) on financial
assets and financial liabilities
at fair value through profit
or loss 369,946 (28,809,543)
Movement in unrealised losses
on financial assets and financial
liabilities at fair value through
profit or loss 47,073,882 8,365,538
Amortisation of intangible assets 829,070 1,088,261
Foreign exchange (gains)/losses (805,211) 306,002
Changes in working capital
Purchases of non-current assets
at fair value through profit or
loss (38,417,376) (12,817,386)
Settlement of non-current assets
and financial liabilities at fair
value through profit or loss 98,570,910 25,442,619
Increase in other receivables
and prepayments (697,681) (12,446)
(Decrease)/increase in other payables
and performance fee (15,555,250) 15,617,881
Net cash flow from operating activities 42,212,104 4,185,486
Cash flows from investing activities
Interest received - 353
Net cash outflow from investing
activities - 353
------------- -------------
Cash flows from financing activities
Dividends paid (42,710,577) (25,674,394)
Net cash flow from financing activities (42,710,577) (25,674,394)
------------- -------------
Net decrease in cash and cash
equivalents (498,473) (21,488,555)
Cash and cash equivalents at the
beginning of the period 27,962,963 49,972,981
Effect of foreign exchange rate
changes (80,248) (521,463)
Cash and cash equivalents at the
end of the period 27,384,242 27,962,963
============= =============
The notes on pages 24 to 45 form an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
1. LEGAL FORM AND PRINCIPAL ACTIVITY
The Company is an authorised closed-ended investment company incorporated under The Companies (Guernsey) Law, 2008 (the "Law"). The Law does not make a distinction between private and public companies. Shares in the Company were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 December 2007. The address of the Company's registered office is 11 New Street, St Peter Port, Guernsey, Channel Islands, GY1 2PF.
The investment objective of the Company had been to build a diversified portfolio of investments in claims and to provide Shareholders with an attractive level of dividends and capital growth through investing directly and indirectly in litigation and arbitration cases, claims and disputes. These investments have been made predominantly in the United States. On 18 November 2015 the Company announced that it would not make new investments (other than for funding existing investments in the Company's portfolio where such funding is reasonably required to realise maximum shareholder value) but, instead, would seek to return capital to shareholders in the most appropriate manner following the completion of investments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Basis of preparation
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") and all applicable requirements of The Companies (Guernsey) Law, 2008. They have been prepared on a going concern basis, under the historical cost convention as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
There have been no new IFRS or IFRIC interpretations that are effective for the first time for the financial year beginning 1 January 2015, which have not previously been adopted by the Company.
For the financial year beginning 1 January 2013, the Company early adopted IFRS 9 'Financial instruments', effective for periods beginning on or after 1 January 2018.
The following IFRS standards or interpretations have been issued but are not yet effective, and have not been adopted by the Company:
-- IAS 1 'Presentation of Financial Statements', effective for periods commencing on or after 1 January 2016. In this amendment the IASB aims to improve presentation and disclosure in financial reports;
-- Amendment to IAS 38 'Intangible Assets', effective for periods commencing on or after 1 January 2016. In this amendment the IASB has clarified that revenue is generally presumed to be an inappropriate basis for measuring amortisation of intangible assets; and
-- Annual Improvements 2014 Cycle, effective for periods commencing on or after 1 January 2016.
The adoption of the above standards is not anticipated to have any significant bearing on the Company's financial statements.
In accordance with the Company's Admission Document of 17 December 2007, the Directors convened an extraordinary general meeting of the Company, on 14 November 2013, at which a resolution was proposed that the Company be wound up voluntarily. The resolution was not passed by the Company's members. The Directors will propose to remove the requirement to convene an extraordinary general meeting for the voluntary wind-up of the Company every three years from the date of the original meeting, at the Annual General Meeting on 3 May 2016.
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Although the Company is under a run-off strategy, the Directors have given consideration to the maturity of the Company's existing portfolio, the performance of the portfolio to date, the prospects of expected future cash flows, and existing cash reserves. In addition, the Directors have reviewed the Company's budgets and cash flows for the year ahead and, accordingly, are satisfied on reasonable grounds that it is appropriate to prepare these financial statements on a going concern basis. On this basis, the Directors have continued to prepare the financial statements based on the accounting policies previously adopted.
(b) Investment entity
The Company has multiple unrelated investors and indirectly holds multiple investments through the subsidiary companies. Ownership interests in the Company are in the form of redeemable shares which are classified as equity in accordance with IAS 32 and which are exposed to variable returns from changes in the fair value of the Company's net assets. The Company has been deemed to meet the definition of an investment entity per IFRS 10, and therefore does not have to prepare consolidated financial statements, as the following conditions exist:
(a) The Company has obtained funds for the purpose of providing investors with investment management services.
(b) The Company's business purpose, which was communicated directly to investors, is investing solely for returns from capital appreciation and investment income.
(c) The performance of investments made through the Company are measured and evaluated on a fair value basis.
(c) Geographical and segmental reporting
Since the Company is engaged in the provision of similar products and services within a particular economic environment, being subject to similar risks and returns, management considers that the Company has only one business segment and geographical focus, being investments in legal claims primarily in the United States (US), and accordingly does not present additional business and geographical segment information. The Investment Manager is responsible for the investment decisions for the Company's entire portfolio and considers the business to have a single operating segment. The Investment Manager's asset allocation decisions are based on a single, integrated investment strategy, and the Company's performance is evaluated on an overall basis.
(d) Financial assets at fair value through profit or loss (i) Contractual interests
Classification
Unless otherwise determined by the Company, investments in claims will be categorised as contractual interests held at fair value through profit or loss. These financial assets will initially be measured as the cash sum provided to acquire an interest in a plaintiff's claim or as the cash advanced to law firms under loan agreements. Attributable due diligence costs are expensed when they occur.
Recognition, derecognition and measurement
Subsequent measurement of contractual interests will be at fair value utilising a fair value model developed by the Investment Manager. The principal assumptions to be used in the fair value model are as follows:
-- Estimated duration of each contractual interest; and -- Best estimate of anticipated outcome.
Movement in fair value arising on all performing contractual interests is recognised in the Statement of Comprehensive Income, as determined by utilising the fair valuation model.
The fair valuation model is a way of calculating the fair value of a financial asset or liability and of recognising the fair value gains and losses in that period.
Fair value estimation
Fair value will be reviewed semi-annually on an individual case basis. Events that will trigger changes to the fair value of each contractual interest include the following:
-- Changes in general US dollar interest rate assumptions (market assumption) and the time value of money;
-- Changes in any variable relating to a claim including: assessment of probability of successful judgement; range of settlement or award; expected timing until claim resolution; and extrinsic risks related to a claim;
-- Successful judgement of a claim in which the Company has a contractual interest; -- Unsuccessful judgement of a claim in which the Company has a contractual interest; -- Outstanding appeals against both successful and unsuccessful judgements;
-- A contractual interest to be sold at a discount or to be settled out of Court by a binding agreement;
-- Legal impediments to collectability of claims (in the US Chapter 7 Bankruptcy or Chapter 11 Court Protection from Creditors); and
-- A case is dismissed with prejudice (meaning, it can never be re-filed anywhere).
Partial settlement
Partial settlement of contractual interests occur when one or more parties, but not all parties, involved in the matter agree to terms on a settlement amount. Proceeds received by the Company are allocated between return of original principal and any gain based on the following process:
-- Proceeds are discounted at a rate equal to the Company's cost of equity;
-- This discounted value represents the portion of proceeds attributable to a return of investment with the remainder representing a gain associated with the partial settlement; and
-- The amount representing the gain is then compared against any prior gain recognised on the portion of the proceeds attributed to a return of investment (calculated by using the fair valuation model) with the difference reflected as current year realised gain or loss.
Full settlement
Full settlement of contractual interests occur when all parties involved in the matter agree to terms on a settlement amount or the full legal process has concluded with either proceeds being awarded or dismissal (no proceeds awarded). Proceeds received by the Company are first allocated to the return of any remaining principal with the remainder allocated to gain. The amount representing the gain is then compared against any prior gain recognised on the portion of the proceeds attributed to a return of investment (calculated by using the fair valuation model) with the difference reflected as current year realised gain or loss.
(ii) Equity investments
Classification
The Company classifies its equity investments at fair value through profit or loss at inception. These financial assets will initially be measured as the cash sum provided to acquire the investment. Attributable due diligence costs are expensed when they occur.
Equity investments are intended to be held for an indefinite period of time, and that may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The Company could be seen to have significant influence over certain of its equity investments as a result of its stake in each of those assets. If significant influence exists, that investment, under IFRS, should be accounted for as an 'Associate' and hence the equity accounting method should be applied. However, the Board has taken the view that (a) there is no material difference in accounting for these investments as associates and accounting for them as financial assets at fair value; (b) there is no material difference in the disclosure; and (c) the strategy of the Company is to hold investments as part of an investment portfolio with a view to the ultimate realisation of capital gains rather than as a medium to carry out its own business, hence accounting for these investments as non-current assets is the most appropriate method.
Recognition, derecognition and measurement
Equity investments will initially be measured at cost and are subsequently carried at fair value. Gains and losses arising from changes in the fair value are recognised in the Statement of Comprehensive Income.
Fair value estimation
The assessment of fair value is determined by the level of assets of the investments (including intellectual property), the quality of income and earnings and the present value of future cash flows of the equity investments, discounted at the cost of equity. The estimates and assumptions made by the Investment Manager in determining this fair value have been outlined in Note 3.
Settlement
When equity investments are sold or impaired, the movement in fair value will be recognised in the Statement of Comprehensive Income.
(iii) Debt securities
Classification
Debt security investments are classified at fair value through profit or loss at inception. These financial assets will initially be measured as the cash sum advanced to the law firm.
Recognition, derecognition and measurement
The debt security investments will initially be measured at cost and are subsequently carried at fair value. Gains and losses arising from changes in the fair value are recognised in the Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the present value of future cash flows, at the discount rate of the Company. The estimates and assumptions made by the investment manager in determining this fair value have been outlined in Note 3.
Settlement
When debt security investments are sold, the movement in fair value will be recognised in the Statement of Comprehensive Income.
(iv) Forward foreign currency contracts
Classification, recognition, derecognition and measurement
Forward foreign currency contracts are classified as financial instruments at fair value through profit or loss at inception. They will initially be measured at the contractual amount at the date the contract is entered in to. Accordingly, only gains and losses arising from changes in the fair value are recognised in the Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the foreign currency exchange rate prevailing at that date.
Settlement
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Settlement will occur at the date the contract is due to expire. Gains and losses on the settlement of the contracts will be recognised as realised gains or losses at this time in the Statement of Comprehensive Income.
(e) Due diligence and transaction costs
The due diligence and transaction costs attributable to investments in contractual interests, equity investments and debt securities, and any other due diligence and transaction costs not directly relating to an investment, have been expensed immediately in the Statement of Comprehensive Income.
Due diligence and transaction costs associated with investments characterised as intangible assets are expensed until such time as the following has been affirmed: i) the technical feasibility of completing the intangible so that it will be available for use or sale; ii) the intention to complete the intangible asset and use or sell it; iii) the ability to use or sell the intangible asset; iv) how the intangible asset will generate probable future economic benefits; v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the asset; and vi) the ability to measure reliably the expenditure attributable to the intangible asset during its development, at which time they are capitalised as an intangible asset and held at cost less accumulated amortisation and any impairment loss.
(f) Foreign currency
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The functional currency of the Company as determined in accordance with IFRS is the United States Dollar ("US Dollar") because this is the currency that best reflects the economic substance of the underlying events and circumstances of the Company. The financial statements are presented in US Dollars, the presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.
(g) Finance income
Finance income arising on cash and cash equivalents is recognised in the Statement of Comprehensive Income on the effective interest basis.
(h) Cash and cash equivalents
Cash and cash equivalents comprise of cash balances and deposits held at banks with a maturity profile of 3 months or less.
(i) Taxation
The Company has obtained exempt company status in Guernsey. The Company is, therefore, only liable to an annual exemption fee of GBP1,200 (2014: GBP600). The Company's subsidiaries are subject to income tax in their respective jurisdictions.
To the extent that any foreign withholding taxes or any form of profits taxes become payable, these will be accrued on the basis of the event that created the liability to taxation.
(j) Expenses
Expenses are accounted for on an accruals basis. Expenses for monitoring claims will generally be paid by the Investment Manager except in extraordinary circumstances approved by the Board of Directors of the Company.
(k) Dividends
Dividends declared during the period will be disclosed directly in equity via the Statement of Changes in Equity. A final dividend proposed by the Board and approved by the shareholders prior to the year end will be disclosed as a liability. Dividends proposed and not approved will be disclosed in the Notes.
(l) Other receivables and prepayments
Other receivables and prepayments are recognised initially at fair value and subsequently measured at cost less provision for impairment.
(m) Other payables
Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
(n) Capital and reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity via the reserves as a deduction from the issue proceeds.
Where the Company purchases the Company's own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders.
(o) Intangible asset
Where the Company has entered into an agency agreement involving licensing of intellectual property, the resulting transaction will be categorised as an intangible asset (see Note 4). The cost of the intangible asset will be capitalised once it is possible to demonstrate that the intangible asset will generate probable future economic benefit. Intangible assets will be held at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation will be on a systematic basis over the asset's useful life.
(p) Impairment of intangible assets
The carrying amounts of intangible assets are assessed on a semi-annual basis to determine whether there is any indication of impairment. If such indication exists, the Company estimates the recoverable amount of the asset, being the higher of the asset's net selling price and its value in use. Any impairment loss is recognised for the amount which the asset's recoverable amount is lower than its carrying value and the difference being taken to the Statement of Comprehensive Income.
The Company first assesses whether objective evidence of impairment exists. In assessing value in use, the estimated future cash flows are discounted to their present value using the discount rate that reflects current assessment of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced and the amount of the loss is recognised in the Statement of Comprehensive Income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the Statement of Comprehensive Income. In the year ended 31 December 2015 there were no impairments (2014: US$Nil).
(q) Share-based payments transactions
The Company engages in equity settled share-based payment transactions in respect of the services received from one of its Directors and from Cenkos Securities PLC ("Nominated Adviser and Broker") as set out in the Company's Admission Document. The fair value of the services received is measured by reference to the fair value of the shares or share options granted on the date of the grant. The fair value of the share options is recognised in the Statement of Comprehensive Income over the period that the services are received, which is the vesting period.
The fair value of the options granted is determined using the Black-Scholes option pricing model, which takes into account the exercise price of the option, the current share price, the risk free interest rate, the expected volatility of the share price over the life of the option and other relevant factors. Except for those which include terms relating to market conditions, vesting conditions included in the terms of the grant are not taken into account in estimating the fair value.
Non-market vesting conditions are taken into account by adjusting the number of shares or share options included in the measurement of the cost of the services so that, ultimately, the amount recognised in the Statement of Comprehensive Income reflects the number of vested shares or share options. Where vesting conditions are related to market conditions, the charges for the services received are recognised regardless of whether or not the market conditions-related vesting condition is met, provided that the non-market vesting conditions are met.
(r) Earnings / deficit per share
The basic earnings / deficit per share value is calculated by taking the total comprehensive income/loss for the period and dividing it by the weighted average number of ordinary shares in issue over the period. The diluted earnings per share figure is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares (see Note 17).
(s) Net asset value per share
Net asset value per share is calculated by taking the net assets attributable to ordinary shareholders and dividing it by the number of shares in issue at the year end (see Note 16).
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Investment Manager makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined below.
Critical accounting judgements in applying the Company's accounting policies
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The Company makes investments in claims that may involve litigation. The nature of the investments made by the Company reduces by some predetermined amount the cost of litigating a matter to a plaintiff and/or a law firm. A typical investment by the Company will include cash and may also include cash commitments subject to certain restrictions. In most arrangements, the Company is paid only from proceeds generated from the litigation and any related settlement or award. If a lawsuit fails to generate any proceeds and all legal remedies are exhausted, the Company will often not be entitled to reimbursement of the facility they advanced to the counterparty for the specific claim. In these cases the Company will write off their investment in the claim as a loss. The Company is compensated for this risk through the return structure built into the investment. The Company mitigates this risk through the use of their Investment Manager which is experienced in evaluating the investment worthiness of a particular opportunity.
In the process of applying the Company's accounting policies, which are described in Note 2, the Directors have reviewed the Investment Manager's assessment of the fair value of contractual interests including the probability of success on the merits of each claim, likelihood of settlement and claim duration. This is most evident in the assessment of the fair value applied to contracts entered into by the Company, as disclosed in Note 5.
To determine the appropriate fair value to apply to each contract, the Investment Manager follows a formal process of developing a set of scenarios for each case and assigns probabilities to each potential outcome. The probabilities are phased based on the expected progression path of each particular case. In addition, each potential successful scenario has a range of likely settlement proceeds assigned to it as well as a most likely resolution or settlement date. The scenarios not only incorporate the merits of each particular case but also consider known risks intrinsic to the particular matter, as well as general risks found in any litigation matter.
The Investment Manager then runs a Monte-Carlo method analysis which dictates that the Investment Manager runs algorithms that rely on random sampling based on the variables within each scenario and their related probabilities. The results of the analysis provide expected outcomes and other statistical data which is used to calculate the future valuation of each particular contractual interest. A discount rate is then applied to the future value to determine the current fair value.
Determining whether intangible assets are impaired requires an estimation of the future cash flows of the intangible assets, and the use of a suitable discount rate in order to calculate present value. The carrying amount of the intangible assets is shown in Note 4. As at 31 December 2015, no impairment has been recognised.
4. INTANGIBLE ASSET
31 December 31 December
2015 2014
------------ ------------
US$ US$
Balance at start
of the year 2,647,866 3,496,127
Additions 240,000 240,000
Amortisation (829,070) (1,088,261)
Balance at end
of the year 2,058,796 2,647,866
============ ============
The Company's intangible asset comprises an investment structured as an agency agreement. Additions to the intangible asset during the first half of the year are deemed to have occurred at 30 June 2015 and additions during the second half of the year are deemed to have occurred at 31 December 2015. The Company amortises the intangible asset on a diminishing balance basis at a rate of 16.7 per cent every 6 months. The Directors consider that the diminishing balance basis of amortisation most accurately reflects the pattern in which the asset's future economic benefits are expected to be consumed by JIL.
In addition, the Company purchased common and preferred stock related to the intangible asset in 2012, which has been classified as a financial asset at fair value through profit or loss (Note 5), and purchased additional common and preferred stock of US$468,328 during the year ended 31 December 2015. As at 31 December 2015 a cost of US$2,070,838 is deemed an appropriate approximation of fair value (31 December 2014: US$1,602,510) for the financial asset. No provision for impairment is deemed to be required.
5. FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS
31 December 2015
--------------------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at proceeds in fair gains at 31
1 Jan value Dec 2015
2015
------------ ------------ ------------- -------------- ------------- ------------
Financial US$ US$ US$ US$ US$
assets
Contractual
interests 54,553,859 2,866,104 (24,117,413) (5,126,834) 1,259,583 29,435,299
Equity investments 12,963,078 468,328 - (7,481,110) - 5,950,296
Debt securities 82,544,923 35,000,000 (27,000,000) (35,152,841) - 55,392,082
Total 150,061,860 38,334,432 (51,117,413) (47,760,785) 1,259,583 90,777,677
============ ============ ============= ============== ============= ============
Financial
liabilities
Forward FX (686,903) - 1,629,529 686,903 (1,629,529) -
Total (686,903) - 1,629,529 686,903 (1,629,529) -
============ ============ ============= ============== ============= ============
31 December 2014
----------------------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at proceeds in fair gains at
1 Jan value 31 Dec
2014 2014
------------ ------------ ------------- -------------- ------------- ------------
Financial US$ US$ US$ US$ US$
assets
Contractual
interests 47,153,900 10,679,065 - (3,279,106) - 54,553,859
Equity investments 12,855,971 1,250,000 - (1,142,893) - 12,963,078
Debt securities 129,337,700 1,000,000 (73,850,029) (1,422,965) 27,480,217 82,544,923
Forward FX 1,833,671 - (1,329,326) (1,833,671) 1,329,326 -
Total 191,181,242 12,929,065 (75,179,355) (7,678,635) 28,809,543 150,061,860
============ ============ ============= ============== ============= ============
Financial
liabilities
Forward FX - - - (686,903) - (686,903)
Total - - - (686,903) - (686,903)
============ ============ ============= ============== ============= ============
(a) Contractual interests
Contractual interests have been accounted for using the fair value model. At 31 December 2015, the Company had investments in 10 contractual interests (31 December 2014: 12 contractual interests).
Fair value movements of contractual interests are due to amendments in estimated cash flows arising from changes in expectations surrounding each case. The valuation of the Company's contractual interests decreased by approximately US$25.1 million reflecting the net of US$2.9 million in additional investment funding, US$24.1 million of disposal proceeds, US$1.2million of realised gains on disposals and US$5.1 million net decrease due to each investment's individual change in fair value.
(b) Equity investments
The Company's equity investments include a holding in JCML. The fair value of the Company's investment in JCML was assessed as at 31 December 2015 to be US$27,257 (31 December 2014: US$6,113,741). This assessment of fair value is deemed appropriate given the investment in the company, the level of assets, and the quality of income and earnings and the projection of future cash flows. The value as at 31 December 2014 reflected the performance fee income to JCML to be distributed back to the Company. The valuation of the Company's equity investments decreased by approximately US$7.0 million reflecting the net of US$0.5 million in additional investment funding, and US$7.5 million net decrease in each investment's individual change in fair value, primarily as a result of the performance fee distribution by JCML.
(c) Debt securities
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Note 14(d) details arrangements between the Company and Fields Law. The Loan and the Swap have been aggregated and treated as a single claim asset. Returns on the Loan and the Swap are dependent on returns in claims financed by Fields Law. In accordance with provisions under the Swap, the Company added US$8.0 million in investment to Fields Law to fulfil funding obligations outlined in Note 14(d) through a partial clawback of Swap payments made by Fields Law to the Company in 2015. An additional US$27.0 million clawback of Swap payments was made during 2015 in order to enable Fields Law to repay accrued interest and principal owed under the Facility to the Company. No net financial or cash impact occurred from this US$27.0 million clawback.
Fair value movements of debt securities are due to amendments in estimated cash flows arising from changes in expectations surrounding each investment. The valuation of the Company's debt securities decreased by approximately US$27.2 million reflecting the net of US$35.0 million in additional investment funding, US$27.0 million of disposal proceeds, and a US$35.2 million decrease in the fair value.
(d) Forward foreign currency contracts
The company held no forward foreign currency contracts at 31 December 2015 (31 December 2014: one). The contract held at 31 December 2014 was in place to settle declared dividend distributions in Sterling, and were settled prior to payment of the distributions in January 2015. The contract was matched to a Sterling dividend liability of the same value (Note 9). On settlement of the contract during 2015 the Company received proceeds of approximately US$1.6 million, which is included as a realised loss on the Statement of Comprehensive Income.
2014
------------
Contract Unrealised
Sell US$ Buy GBP date Maturity loss (US$)
----------- ----------- ------------ ------------ ------------
35,178,803 22,140,351 10 Nov 2014 14 Jan 2015 (686,903)
(686,903)
============
6. FAIR VALUE ESTIMATION
For instruments for which there is no active market and for which reliable pricing sources cannot be obtained, the Company may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value unlisted equity, debt securities and other debt instruments for which markets are or have been inactive during the financial year. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.
The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values.
IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
-- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
-- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include equity investments. As observable prices are not available for these investments, the Company has used valuation techniques to derive their fair value.
The Company's investment in forward exchange contracts are classified as level 2, all of the Company's other financial assets and liabilities are classified as level 3.
There were no transfers between levels for the year ended 31 December 2015 (31 December 2014: Nil).
The Company has identified three key unobservable inputs to the valuation model used in the valuation of investments held at fair value through profit or loss: expected quantum, expected duration, and cost of equity.
Expected quantum
The greater the quantum expected at conclusion, the greater the valuation at any point in time. The reduction of the quantum expected at conclusion, will reduce the valuation at any point in time.
Expected duration
The greater the expected duration of an investment, the lower the valuation at any point in time, other than at conclusion. The reduction of the expected duration of an investment will increase the valuation at any point in time, other than at conclusion.
Cost of equity
The Company's cost of equity is 11%. As the Company's cost of equity decreases, the valuations at any point in time will increase, other than at conclusion. As the Company's cost of equity increases, the valuations at any point in time will decrease, other than at conclusion.
The following table summarises the sensitivities:
Change in valuation
Unobservable Reasonable possible (due to +/- change
input shift (+/-) in input)
--------------- -------------------- --------------------
Quantum 10% 9.34% / (9.66%)
Timing 1 year (10.15%) / 2.08%
Cost of equity 3% (4.41%) / 4.70%
7. UNCONSOLIDATED SUBSIDIARY AND ASSOCIATE INVESTMENTS
The following subsidiary investments are held by the Company but have not been consolidated, following the Investment Entities exemption per IFRS 10 (see Note 2 (b)):
% Share holdings
Date Country 31 December 31 December
incorporated of incorporation 2015 2014
-------------------- ------------ ------------
JCML 2007 Limited 28-Nov-07 Guernsey 36.2% 36.2%
Riverbend Investments
Limited 08-Oct-08 Guernsey 100.0% 100.0%
GrandiOs Technologies,
LLC 25-Feb-09 United States 100.0% 100.0%
(since 26-Aug-14, formerly
OTO Technologies LLC)
Juridica Ventures
KFT 02-Mar-09 Hungary 100.0% 100.0%
Juridica Ventures
(US) Inc. 31-May-09 United States 100.0% 100.0%
Escon Capital, Inc. 26-Apr-10 United States 38.0% 38.0%
Spinal Spot LLC 28-Feb-11 United States 65.8% 65.8%
Spinal Ventures LLC 25-Mar-11 United States 100.0% 100.0%
Juridica Sports Technology
LLC 22-Apr-14 United States 100.0% 100.0%
ProSports Technologies,
LLC 22-Apr-14 United States 81.3% 65.0%
Juridica Kinetics,
LLC 13-May-14 United States 100.0% 100.0%
Smooth 3D IP, LLC 13-May-14 United States 76.2% 64.0%
Juridica RMIP Holdings,
LLC 31-Jul-14 United States 100.0% 100.0%
Rich Media Ventures,
LLC 31-Jul-14 United States 89.9% 100.0%
There are no outstanding commitments with these unconsolidated subsidiaries at the year end, other than those disclosed in Note 11.
8. OTHER RECEIVABLES AND PREPAYMENTS
31 December 31 December
2015 2014
------------ ------------
US$ US$
Settlement proceeds 5,430,086 54,513,112
Management fees 719,549 -
Prepayments and accrued
bank interest 58,146 80,014
6,207,781 54,593,126
============ ============
9. DIVIDENDS
The following dividends were declared and paid during the year:
Declaration Payment Dividend Total dividends
date date per share US$
18 November 30 December
2015 2015 5 pence 8,218,677
----------------
8,218,677
================
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At 31 December 2015, dividends totalling US$8,218,677 (31 December 2014: US$34,491,900) had been declared. No dividends remained payable as at 31 December 2015 (31 December 2014: US$34,491,900).
10. OTHER PAYABLES
31 December 31 December
2015 2014
------------ ------------
US$ US$
Payable on investment
purchases 28,735 111,679
Audit fees 196,495 99,679
Management fees - 1,114,196
Other creditors 64,808 91,620
290,038 1,417,174
============ ============
11. COMMITMENTS & GUARANTEES
Under the terms of some of its contracts, the Company provides a line of credit to counterparties. As at 31 December 2015, the maximum commitment under these lines of credit was US$7.3 million (31 December 2014: US$18.1 million). A portion of commitment may be fulfilled from investment returns.
12. FUNCTIONAL AND PRESENTATION CURRENCY / EXCHANGE RATES
The financial statements are presented in United States Dollar ("US$") which is also the Company's functional currency. The following rate was applicable as at 31 December:
Closing rate
--------------------------
31 December 31 December
2015 2014
------------ ------------
US$ US$
British pounds
(GBP) 1.4734 1.5579
============ ============
13. CAPITAL AND RESERVES
Authorised share capital: Unlimited number of ordinary shares of no par value ("shares").
Issued share capital: 110,701,754 shares as at 31 December 2015 (31 December 2014: 110,701,754 shares), of which 80,000,000 shares were issued at a premium of GBP1 per share on admission, and a further 30,701,754 shares issued at a premium of GBP1.14 on 6 April 2009.
Under a Share Buyback Programme, the Company acquired 6,000,000 shares at a price of GBP1.02 per share on 3 November 2010, and the Company also received 126,607 of its own shares subsequent to an in-specie dividend received from the previous Investment Manager, JCML, on 27 November 2013. These shares were held in treasury, however were subsequently sold for a premium at GBP1.39.
On 4 June 2015, the Company received 361,735 of its own shares as a result of an in-specie dividend received from JCML at GBP1.16. As at 31 December 2015, the number of shares held in treasury was 361,735 (31 December 2014: Nil) at a price of GBP1.16. Following the year end, on 15 March 2016, the Board of Directors subsequently agreed to cancel these treasury shares.
The Company's capital is represented by ordinary shares of no par value and share premium. Each share carries one vote and is entitled to dividends when declared. The relevant movements in capital are shown on the statement of changes in equity through reserves.
The Company has authority to make market purchases of up to 14.99 per cent of its own issued ordinary shares. This authority was renewed at the annual general meeting of the Company held on 30 April 2014. A renewal of the authority to make purchases of ordinary shares will be sought from Shareholders at each annual general meeting of the Company. The timing of any purchases will be decided by the Board.
14. RELATED PARTY TRANSACTIONS
Richard Battey, as investor representative and non-executive director of the Company, is also a non-executive director of JCML. The principal of JCML is Richard Fields, who owns 103,000 Ordinary Shares in the Company (0.09 per cent equity interest) (2014: 257,545). JCML owns 118,254 Ordinary Shares in the Company (0.107 per cent equity interest) (31 December 2014: 1,118,254 shares). Mr Fields is also sole beneficial owner of Juridica Asset Management Limited ("JAML").
(a) Management fee
For the years ended 31 December 2015, and 31 December 2014, JAML is entitled to a management fee of 2 per cent of the adjusted net asset value of the Company.
The adjusted net asset value is the net asset value of the Company at the relevant time will be calculated, after adding back the estimated management fee paid and not taking into account any liability of the Company for accrued performance fees and after:
(i) deducting any unrealised gains on non-current assets; and
(ii) adding the amount of any write downs with respect to contractual interests which have not been written off.
In the year ended 31 December 2015, JAML was entitled to investment management fees totalling US$4,795,036 (31 December 2014: US$5,768,668), an amount of US$719,549 is due back to the Company as at 31 December 2015 (31 December 2014: US$1,114,196 payable to JAML).
(b) Investment in JCML 2007 Limited
The Company acquired 15 per cent of JCML on Admission, which was subsequently diluted to 13.6 per cent by the exercise of share options by certain of JCML's employees. In 2012, the Company acquired a further holding in JCML, taking the Company's overall holding in JCML to 36.17 per cent. An impairment review of JCML has been performed as part of the fair value assessment and continues to be carried out on a semi-annual basis. The Company received dividend income from JCML during the year of US$5,369,711 (2014: US$Nil).
(c) Performance fee
Under the terms of the Management Agreement, JCML, as former Investment Manager, was entitled to a performance fee based on the adjusted net asset value ("ANAV") (being the NAV of the Company before taking into account any performance fee payable less any unrealised gains on investments plus the value of any write downs in any investments that have been written down but not written off) of the Company. The performance fee payable was for an amount equal to the sum of: (i) 20 per cent of the amount by which the ANAV exceeded a 8 per cent annually compounding hurdle but was less than an amount equal to a 20 per cent annually compounding hurdle; (ii) 35 per cent of the amount by which the ANAV exceeded a 20 per cent annually compounding hurdle but was less than an amount equal to a 40 per cent annually compounding hurdle; and (iii) 50 per cent of the amount by which the ANAV exceeded a 40 per cent annually compounding hurdle.
The performance fee was subject to a high water mark such that no performance fee will be paid if the performance of the Company does not exceed the ANAV at the end of the previous year in which the performance fee was paid.
As at 31 December 2015, the ANAV was below the high water mark established at year end 2014 (as adjusted for results occurring in 2015) and no performance fee is payable for the year ended 31 December 2015. As at 31 December 2014, the minimum hurdle rate had been achieved on investments attributable to JCML, resulting in a performance fee payable to JCML of US$14,511,058, of which US$Nil remained payable at the year end (31 December 2014: US$14,511,058). JCML will continue to be entitled to a performance fee in the future in respect of investments made prior to the termination of its appointment on 31 December 2013.
JAML replaced JCML as Investment Manager with effect from 1 January 2014. For financial periods following this date, any performance fee payable on investments will be calculated based on the date on which investments were made, and attributable to JCML for investments held at 31 December 2013, and to JAML for all new investments. JAML will become entitled to a performance fee of 20 per cent of the annualised increase in the adjusted net asset value over the hurdle rate. As at 31 December 2015, this hurdle rate had not been achieved on investments attributable to JAML.
(d) Facility agreement and collateral account
The Company has entered into a facility agreement (the "Facility") with which it agrees to loan to Fields Law, a law firm in which Richard Fields is a partner, money for funding cases in which Fields Law is to act under a Co-counsel Agreement. Prior to adopting its run-off strategy, the Company expected to enter into loan arrangements with other law firms (which may include other law firms established by the Principal of the Company) on terms and conditions similar to those contained in the Facility. The Facility available to Fields Law will be for up to approximately 50 per cent of the net proceeds of the capital raised by the Company less any loans made to other law firms.
The Facility will remain outstanding and available until the earlier of (i) the termination of the Management Agreement with JAML, (ii) the date on which Richard Fields ceases to own a controlling interest in Fields Law, (iii) the winding up of the Company, (iv) an event of default of the Facility documents, or (v) ten years from Admission. Under the Facility, drawdowns may be requested by Fields Law from time to time up to the maximum principal amount but subject always to approval by the Company in its sole discretion.
No more than US$10 million may be drawn down in respect of the same case investment, unless otherwise approved by the Company.
(e) Administration fees
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The Company has an administration agreement with Orangefield Legis Fund Services Limited (the "Administrator"). Fees payable to the Administrator for the year were US$242,209 (31 December 2014: US$300,309), of which US$36,372 remained payable as at 31 December 2015 (31 December 2014: US$33,920).
(f) Directors' fees and expenses
31 December 31 December
2015 2014
------------ ------------
Directors' remuneration US$ US$
Lord Daniel Brennan (GBP187,500
per annum) 284,813 299,156
Richard Battey (GBP75,000
per annum) 113,925 119,663
Kermit Birchfield 125,000 125,000
------------ ------------
523,738 543,819
Director expenses 75,811 137,334
599,549 681,153
============ ============
No pension contributions were paid or were payable on behalf of the Directors.
Lord Daniel Brennan has an interest in 447,817 shares (31 December 2014: 447,817 shares) under a Share Option Agreement, details of which were disclosed in the Admission Document. Lord Brennan can exercise these share options at any time up until 17 December 2017. The other Directors have no beneficial interest in the share capital of the Company.
(g) Eleven Engineering Game Control LLC
The Company has provided a loan of US$575,000 to Eleven Engineering Game Control LLC, a company ultimately owned and controlled by JCML (31 December 2014: US$575,000). As at 31 December 2015 no further facility remains available to be drawn (31 December 2014: US$Nil). Interest will be accrued at a rate of 10% per annum, and the loan and interest are repayable on Eleven Engineering Game Control LLC's receipt of net recoveries.
(h) Escon Capital Inc.
The Company has an interest of 38% (31 December 2014: 38%) in the voting common stock and 100% of the issued preference shares of Escon Capital, Inc. ("Escon"), a Delaware corporation of which Kermit Birchfield and Richard Fields are directors.
During the year ended 31 December 2015, Kermit Birchfield received a director's fee of US$50,000. During the year ended 31 December 2014, Mr Birchfield received a director's fee of US$50,000, and Mr Fields received an employment fee of US$12,000.
(i) Special purpose vehicles
As compensation for providing management services, Kermit Birchfield receives a fee from each of Smooth 3D IP, LLC, Rich Media Ventures, LLC, and GrandiOs Technologies, LLC. For the year ending 31 December 2015, Mr Birchfield received fees totalling US$67,500 for provision of these services (2014: US$Nil).
15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (a) Investment risk
There is no established market for the Company's assets. The Investment Manager's assessment of the quantum and timing of returns is subjective and based on the Investment Manager's experience and due diligence. The estimates of the outcome and financial effect on the Company of the assets are determined by the judgement of the Investment Manager. In coming to its best estimate of fair value, the Investment Manager has estimated the probability, timing and quantum of particular outcomes.
(b) Cash flow and fair value interest rate risk
Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rate on the fair value of financial assets and liabilities and future cash flows. The Company holds fixed and variable rate interest securities that expose the Company to fair value interest rate risk. For 2015, debt securities were fixed at a regular interest rate of 13.5%, until 15 December 2014 when the relevant interest rate was increased to 15.0%.
The Company is exposed to interest rate risk related to its cash balances. The Company does not actively manage this risk.
2015
Fixed Variable Non-interest Total
interest interest bearing
----------- ----------- ------------- ------------
US$ US$ US$ US$
Assets
Intangible assets - - 2,058,796 2,058,796
Contractual interests - - 29,435,299 29,435,299
Equity investments - - 5,950,296 5,950,296
Debt securities 55,392,082 - - 55,392,082
Other receivables and
prepayments - - 6,207,781 6,207,781
Cash and cash equivalents - 27,384,242 - 27,384,242
Total assets 55,392,082 27,384,242 43,652,172 126,428,496
----------- ----------- ------------- ------------
Liabilities
Other payables - - (290,038) (290,038)
Total liabilities - - (290,038) (290,038)
----------- ----------- ------------- ------------
Total exposure to interest
sensitivity 55,392,082 27,384,242 43,362,134 126,138,458
=========== =========== ============= ============
2014
------------------------------------------------------
Fixed Variable Non-interest Total
interest interest bearing
----------- ----------- ------------- -------------
US$ US$ US$ US$
Assets
Intangible assets - - 2,647,866 2,647,866
Contractual interests - - 54,553,859 54,553,859
Equity investments - - 12,963,078 12,963,078
Debt securities 82,544,923 - - 82,544,923
Other receivables
and prepayments - - 54,593,126 54,593,126
Cash and cash equivalents - 27,962,963 - 27,962,963
Total assets 82,544,923 27,962,963 124,757,929 235,265,815
----------- ----------- ------------- -------------
Liabilities
Dividend payable - - (34,491,900) (34,491,900)
Forward FX contract - - (686,903) (686,903)
Other payables - - (1,417,174) (1,417,174)
Performance fee - - (14,511,058) (14,511,058)
Total liabilities - - (51,107,035) (51,107,035)
----------- ----------- ------------- -------------
Total exposure to
interest sensitivity 82,544,923 27,962,963 73,650,894 184,158,780
=========== =========== ============= =============
At 31 December 2015, if variable interest rates had moved by 75 basis points with all other variables remaining constant, the change in net assets attributable to holders of ordinary shares for the year would amount to approximately +/- US$205,382 (31 December 2014: +/- US$209,722), arising substantially from the cash and cash equivalents. No interest was receivable on the collateral cash deposit.
(c) Credit risk
The Company is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when they fall due.
The Company has in place various policies and procedures to guide the Investment Manager's evaluation and management of investment opportunities and, particularly, the credit risk associated with investment counterparties (law firms and claim interest holders) and investments. The policies include Investment Restrictions (which contain prohibitions on pursuing investments with certain kinds of claims and claim holders, those being prosecuted by certain law firms, and those where collection, counterparty or compliance risk is significant), Investment Policies (which contain guidelines for diversification of the Company's portfolio based on certain claimholder characteristics, jurisdiction(s) involved, prosecuting law firm, claim size and investment structure), and Investment Process Guidelines (which define the due diligence, investment and investment monitoring processes to be followed by the Investment Manager in claim evaluation, valuation and investment completion). Collectively, these Investment Parameters are designed to guide the investment opportunity analysis so to limit credit, collection and portfolio concentration risks associated with Company investments. In addition, the Investment Manager has, pursuant to its own Underwriting Guidelines, developed and implemented systems and procedures to analyse and (pursuant to investment contracts) manage credit risk associated with Company investments.
The main concentration to which the Company is exposed arises from the Company's loan to Fields Law. The Company is also exposed to counterparty credit risk on trading contractual interests, cash and cash equivalents and other receivables.
In accordance with the Company's policy, the Investment Manager monitors the Company's credit position on a daily basis, and the Board of Directors reviews it on a quarterly basis.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 04:42 ET (08:42 GMT)
The Company is also exposed to material credit risk in respect of the contractual interests and cash and cash equivalents. The credit risk of the cash and cash equivalents is mitigated as all cash is placed with reputable banking institutions with a sound credit rating. The maximum credit risk exposure represented by total assets is as stated in the Statement of Financial Position which amounted to US$126,428,496 (31 December 2014: US$235,265,815).
(d) Concentration risk
The Company has sought to minimise concentration risk by investing in a diverse portfolio of contractual interests through a number of different law firms, including interests in antitrust, patent, property damage, insurance subrogation, shareholder dispute, contract claim and arbitration cases.
The Company further sought to minimise concentration risk by utilising a variety of Investment Parameters which are designed to guide the investment opportunity analysis so as to minimise, amongst other things, concentration risk. These Investment Parameters are further detailed in Note 15(c).
As the Company will no longer make new investments in line with the run-off strategy, the level of concentration of investments will increase as investments in the existing portfolio mature.
(e) Liquidity risk
The Company is exposed to liquidity risk. The contractual interests are acquisition of claims, as well as loans to lawyers to fund participation in claims on a contingency fee basis, and therefore require significant capital contribution with little or no immediate return and no guarantee of return or repayment. The market for such contractual interests is not active. In the opinion of the Directors the current liquidity risk at 31 December 2015 is low as cash and cash equivalents exceed unmatched liabilities or other contractual commitments.
Maturity analysis 2015
---------------------------------------------------
< 3 months < 6 months < 12 months Total
----------- ----------- ------------ -----------
US$ US$ US$ US$
Other payables
Investment purchases
payable 28,735 - - 28,735
Audit fees 196,495 - - 196,495
Sundry creditors 64,808 - - 64,808
290,038 - - 290,038
----------- ----------- ------------ -----------
290,038 - - 290,038
=========== =========== ============ ===========
Maturity analysis 2014
---------------------------------------------------
< 3 months < 6 months < 12 months Total
----------- ----------- ------------ -----------
US$ US$ US$ US$
Dividends payable 34,491,900 - - 34,491,900
Performance fee
payable 14,511,058 - - 14,511,058
Other payables
Management fee
payable 1,114,196 - - 1,114,196
Investment purchases
payable 111,679 - - 111,679
Audit fees 99,679 - - 99,679
Sundry creditors 91,620 - - 91,620
1,417,174 - - 1,417,174
----------- ----------- ------------ -----------
50,420,132 - - 50,420,132
=========== =========== ============ ===========
(f) Capital risk management
The capital of the Company is represented by the net assets attributable to holders of ordinary shares. The Company's objectives when managing this risk are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Company.
The Company is closed-ended and therefore the capital risk is reduced as shareholder funds are locked in until the closure of the Company. The level of capital funding is monitored by the Board of Directors, who will ensure adequate solvency is in place prior to making distributions.
(g) Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Company's policy, generally, is not to manage exposure to foreign exchange movements (both monetary and non-monetary) by entering into any foreign exchange hedging transactions. However, the Company did enter into a forward currency contract, maturing 14 January 2015, to lock in the US dollar equivalent of the dividends declared during the year, which were paid to shareholders on 14 January 2015. The Directors considered that this was a prudent step in order to mitigate the cash flow impact of adverse exchange rate fluctuations on the amount of the dividends, which were declared in GBP.
The Company holds assets denominated in currencies other than the US dollar, the functional currency. It is therefore exposed to currency risk, as values of the assets denominated in other currencies will fluctuate due to changes in exchange rates. The Company may hedge future investment opportunities in the functional currency.
As at 31 December 2015, a proportion of the net financial assets/(liabilities) of the Company are denominated in currencies as follows:
2015 2014
------------ ------------
US$ US$
USD 126,255,337 171,286,979
GBP (116,879) 12,871,801
126,138,458 184,158,780
============ ============
At 31 December 2015, if exchanges rates had moved by 5% with all other variables remaining constant, the change in net assets attributable to holders of ordinary shares for the year would amount to approximately +/- US$5,844 (31 December 2014: +/- US$611,121). Management assesses the risk of exposure to the general banking system, and specific banks, and invests cash in US government securities when there is perceived risk to principal.
(h) Fair value estimation
The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. See Note 6 for further details.
The carrying value less impairment provision of other receivables and payables is assumed to approximate their fair value. The fair value of financial liabilities for disclosure purposes is not discounted as the Company does not expect there to be any material differences.
16. NET ASSET VALUE ATTRIBUTABLE TO EACH ORDINARY SHARE
The net asset value attributable to each ordinary share is calculated by dividing the net asset value attributable to ordinary shareholders of US$126,138,458 (31 December 2014: US$184,158,780) by the 110,340,019 ordinary shares in issue at 31 December 2015 (31 December 2014: 110,701,754), and excludes those shares held in treasury as at 31 December 2015.
17. DEFICIT PER SHARE
Basic and diluted deficit per share is calculated by dividing the Total Comprehensive Loss for the Year of US$49,156,186 (2014: US$4,995,440) by the weighted average number of ordinary shares during the year.
For basic deficit per share, the weighted average number of ordinary shares excludes treasury shares for the period in which they are held in treasury during the year. The basic weighted average number of ordinary shares for the year is 110,493,632 (2014: 110,701,754).
The diluted deficit per share figure is calculated by adjusting the basic weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares under the Share Option Agreement (see Note 14(f)). The diluted number of ordinary shares for the year is 110,941,449 (2014: 111,149,571).
18. SUBSEQUENT EVENTS
On 8 February 2016, the Company entered into an amended management agreement with JAML. Under the terms of the amendments the existing arrangements for management fees to JAML have been altered to state that from the 1 January 2016, the Company will pay US$3,000,000 in management fees for the year ending 31 December 2016, and US$1,750,000 in management fees for the year ending 31 December 2017.
On 15 March 2016, the Board of Directors agreed to cancel 361,735 of shares held in treasury.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAPDFDDPKEEF
(END) Dow Jones Newswires
March 31, 2016 04:42 ET (08:42 GMT)
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