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