AMP.L Regulatory News (AMP)

23 June 2016

Amphion Innovations plc

Final Results for the year to 31 December 2015

London and New York, 23 June 2016 - Amphion Innovations plc (LSE: AMP) ("Amphion" or the "Company"), the developer of medical and technology businesses, today announces its audited final results for the year to 31 December 2015 (the "Period").

Financial Highlights:

· Net Asset Value per ordinary share in the Company ("Ordinary Shares") was 3.8 pence (US $0.055)* at Period-end, an increase from 0.7 pence (US $0.01) per Ordinary Share at 31 December 2014;

· Raised £2.1 million through the placing of new Ordinary Shares (June 2015) and the exercise of warrants throughout the Period;

· Cash resources as at Period-end of approximately US $0.9 million; and

· Reduced total liabilities by US $1.4 million during the Period.

Partner Companies' Highlights:

· Successful IPO of Partner Company Motif Bio plc ("Motif") in April 2015, raising £2.8 million at 20 pence per Motif share;

· Motif raised a further £22 million at 50 pence per share in July 2015 with a placing of new Motif shares with institutional investors;

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

· Kromek Group plc ("Kromek") raised £11 million in August 2015 through a placing of new Kromek shares.

Post-Period Highlights:

· Motif began dosing the first patient in the Phase III iclaprim trials (March 2016);

· Loans in the amount of US $6,308,600 owing to the estate of former Chairmen restructured;

· Convertible Promissory Notes in the amount of £5,707,738 amended and extended

* Exchange rate at 31 December 2015 - 1.4746.

Richard Morgan, CEO of Amphion Innovations plc commented:

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

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

Contacts:

Amphion InnovationsCharlie Morgan+1 212 210 6224Yellow Jersey PR

Charles Goodwin / Dominic Barretto+44 (0)7747 788 221Panmure Gordon Limited (Nominated Adviser and Corporate Broker)

Freddy Crossley / Duncan Monteith (Corporate Finance)Charlie Leigh-Pemberton (Corporate Broking)+44 (0)20 7886 2500

Northland Capital Partners Limited (Joint Corporate Broker) Patrick Claridge / David Hignell (Corporate Finance)John Howes (Corporate Broking)+44 (0)20 3861 6625

Plumtree Capital Limited (Financial Adviser)Stephen Austin+44 (0)20 7183 2493+646 568 7502

Chief Executive Officer's Statement

Financial Results and Net Asset Value

Revenue in 2015 was US $519,855 (2014: US $484,700) while total administrative expenses were US $4,680,212 in 2015 (2014: US $3,494,351). As a result, the operating loss for the year was US $4,160,357 (2014: US $3,009,651). Revenue remained below that of prior years due partly to the absence of licensing income from DataTern and partly from the inability of our Partner Companies to contribute management fees.

Total administrative expenses have at least two different components: the general overheads and operating costs of the parent company and the expenses incurred within and by DataTern, our wholly-owned subsidiary. The latter are consolidated into the total but are dictated by the activity related to the IP licensing programme, which is discussed further below. The former includes the write-down of fees and other income due from the Partner Companies, which are now judged to be uncollectable, and also includes certain expenses related to the fund-raising activities described further below. General overhead and operating expenses excluding expenses related to DataTern, the write down of receivables and the fund-raising expenses, were again tightly controlled at US $1,769,809 (2014: US $1.5 million).

During the year, the Company was able to raise capital from the equity capital markets for the first time in seven years. In April, holders of warrants associated with an institutional lender elected to exercise all their warrants, generating approximately £581,000 in net proceeds to the Company. In June the Company raised additional capital through a placing of new Ordinary Shares, with net proceeds to the Company of circa £1.54 million before expenses. In addition, in June and July the Company completed an exchange of Kromek shares for Convertible Notes to those note holders who had duly notified the Company in December 2014. Partly as a result of these financing activities, the Company's total liabilities decreased by US $1.41 million over the year and, as at Period-end, the Company's cash balance was US $936,981.

Following the successful IPO of Motif on London's AIM market in early April 2015, Motif's share price rose from 20 pence at the IPO to a high of 70.75 pence at the end of June. At the end of the year, the share price was 42.75 pence. As a result, the value of Amphion's holdings in Motif rose from US $13.2 million at the end of December 2014 to US $27.0 million at the end of December 2015. This increase was the main factor behind the improvement in Amphion's Net Asset Value per Ordinary Share to 3.8 pence at 31 December 2015. At the same time the share price of Kromek finished the year at 35.5 pence, which was almost exactly where it started. Since the start of 2016, the Kromek share price has fallen to 29 pence, while Motif's share price has remained broadly unchanged and is currently 47.5 pence. Motif and Kromek also completed substantial financings in July and August 2015 respectively and have sufficient financial resources relative to their current operating costs.

Amphion's holding of intellectual property assets is valued at amortised cost of US $275,016. In addition to the initial purchase of these IP assets from our Partner Company, FireStar Software, Amphion has made significant additional investment in these assets, which has been expensed as incurred and the value of those assets continues to be carried only at amortised historical cost. The Directors believe that the realisable value of the intellectual property assets held by DataTern is substantially in excess of the carrying value. Further to this, the incremental investments being made in the pursuit of the parties infringing DataTern's IP will generate a significant profit. We believe that if we are successful in concluding licensing agreements with the various infringing parties at levels that meet our expectations, the Company's NAV per Ordinary Share could be significantly higher.

Motif Bio plc

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

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

Iclaprim has a novel mechanism of action and enjoys a number of important clinical and commercial attributes, such as a low propensity to develop resistance, which has been demonstrated in vitro. Iclaprim was originally developed by Hoffman-La Roche Inc. and completed comprehensive development in 2008, including two Phase III trials with over 900 patients, half of whom were treated with this antibiotic. Although the FDA declined to approve the drug at the time, despite having met the original goals agreed with the agency, the FDA confirmed that they were satisfied with the safety profile of iclaprim and this was confirmed in Motif's April 2015 meeting with the agency. On 2 March 2016, Motif announced that the first person to enter the new Phase III trial had been screened and dosed. The trial is expected to take about 18 months and, in light of the extensive development history and the improvements in the trial design, Motif believes the drug will meet the new endpoints. Subject to the necessary regulatory approvals, Motif expects to begin marketing the drug in 2018.

DataTern and the Intellectual Property Licensing Programme

DataTern Inc. ("DataTern"), a wholly owned subsidiary of the Company, announced in September that it received a favourable ruling by the U.S. District Court in Massachusetts (the "Court"), which denied two motions for summary judgment filed by MicroStrategy Inc. ("MicroStrategy") seeking dismissal of DataTern's claims on the grounds of validity and infringement. In May 2015, there was a hearing on the two motions: one motion argued that DataTern's '502 patent is invalid under section 101 of the United States Patent Act, and the second argued that MicroStrategy did not infringe the '502 patent. 

The Court found that the '502 patent solved a specific problem in computing using an inventive concept and concluded that the invention was eligible for patent protection under the U.S. Supreme Court's most recent precedent. On the second motion, concerning the issue of infringement, the Court denied MicroStrategy's motion seeking a determination that it did not infringe because its Business Platform did not use an "object model", leaving the door open to revisit related issues in the future.

These were important and favourable rulings, taken together with the ruling from the Federal Circuit Court of Appeals received in late December 2014, in its appeal in the MicroStrategy case, which the Company's legal advisers also considered to be clearly favourable. MicroStrategy sells business intelligence and analytics software platforms used by other defendants. There are seven defendants in the MicroStrategy case, which remains the only active case at this time. A preliminary schedule has been established which calls for the trial to begin in the third quarter of 2016.

The '502 patent and the '402 patent are directed to how object-oriented software applications access data stored in relational databases. Such applications are widely used and exist within most current databases are relational databases. We continue to believe that companies that are using or want to use DataTern's patented technology should enter into equitable licensing agreements.

The Company's legal team, supported by the Company's extensive team of technical and patent experts, continues to believe in the strength of its intellectual property. Both of DataTern's key patents have completed a comprehensive re-examination by the United States Patent and Trademark Office ("USPTO") and successfully emerged both fully validated and with additional claims added. Our goal remains to generate a fair and reasonable return on the very substantial investment made by DataTern and FireStar over many years in the development of this innovative technology. If we are successful, we believe that the value of the net income to DataTern should be substantially in excess of its carrying value. It remains the considered opinion of the Company's team that the two patents are both valid and being infringed by a wide range of companies that are practicing this critical art. The Board believes that a Claim Construction ruling, which is fully reflective of its interpretation of the claims of the patents, would establish significant infringement by a large number of companies and it believes that DataTern should be able to generate a significant amount of revenue from this asset over the next few years. 

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

Building Value in the Partner Companies

Since flotation, our basic business model has been to start and build companies with high value potential based on innovative and proprietary, but basically proven, technology. Our continued ability to select good IP and to develop the IP portfolios in each of our Partner Companies is a critical success factor and is getting steadily stronger as we deepen our knowledge and experience in this area. This knowledge underpins Amphion's investment in each Partner Company at the outset and as it develops. However, our primary goal in every company is the development of a successful business model and operating capabilities that can utilise the technology to develop and commercialise innovative products, generate revenue, and make profits.

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

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

We continue to believe that Kromek's technology platform has great potential. With the acquisition of eV Products in 2013, Kromek gained one of the leading cadmium zinc telluride ("CZT") production capabilities in the world. As the cost of producing this material becomes competitive with scintillator technology, the opportunity exists for a lasting shift to CZT-based detector systems, bringing the benefits of multispectral imaging to CT systems and nuclear medicine, for example in SPECT systems. In August 2015, Kromek completed a follow-on financing with institutional and other investors, raising approximately £11 million (before expenses) through a placing and open offer of new ordinary shares at 25 pence. During its last fiscal year to April 2016, Kromek announced a number of orders from DARPA and from other existing customers, totaling approximately US $28 million to be recognised over the lifetime of the orders. As a result, Kromek is entering its new fiscal year with a substantial backlog and the recently announced orders support our view that, in time, the technology should be widely adopted for use across all of its target markets, including medical imaging systems. Following the placing last year, Amphion's shareholding in Kromek decreased to approximately 5.27%.

In April 2014, the case Axcess brought against Baker & Botts LLP, the law firm, went to the jury which returned a verdict in favour of Axcess of US $40.5 million. The judge then overruled this verdict. Axcess' appeal to the Texas Appeals Court for a new trial was denied and they are now in the process of pursuing an appeal to the Texas Supreme Court. Axcess is also appealing the decision by the US Patent and Trademark Office to invalidate the patent that is the subject of a suit against Savi Technologies. That appeal is being made to the Federal Circuit Court of Appeals and will be heard sometime in the third quarter of 2016. In parallel, Amphion has worked closely with Axcess' legal advisers to evaluate the extent to which all 13 patents in its portfolio are being infringed. It is clear that many companies are now offering products or services that incorporate some of the basic wireless technology developed by Axcess over the last 15 years. A number of companies in the transportation, security, and other sectors appear to be infringing one or more of these patents.

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

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

Financing

Financial support for Amphion over the last few years has come, for the most part, from the Directors and the management team. Following the Kromek IPO in late 2013, Amphion was able, for the first time, to access a loan facility in 2014, granted by an institutional lender, using the value of the publicly traded assets as security for a loan to bridge the Company financially through to the IPO of Motif. That approach served the Company well. Since then, the Company has borrowed additional funds under this loan facility and, during 2015, Amphion was able, for the first time in many years, to access the equity capital markets again on two occasions in April and June 2015, raising a total of £2,119,683. The support from the management team has continued but with reduced prominence.

The liabilities on the balance sheet stood at a total of approximately US $29 million at the end of the year, about a reduction of approximately US $1.4 million from one year earlier. Total assets at the end of 2015 stood at approximately US $40 million and the ratio of liabilities to total assets at the end of 2015 was therefore approximately 72%. While this appears to be a high level of gearing, some of the liabilities are at the DataTern level, although consolidated into the Company's reporting accounts. Adjusting for the settlement made with BRG (announced in April), the remainder of the third party payables at the DataTern level stood at about US $1 million. Of the remainder of the liabilities, US $13,912,283 were amounts owing to current or former board members and US $6,845,347 were amounts due to the other holders of the Company's CPN, which was extended in February. The remainder of the Company's liabilities total approximately US $7.2 million representing 18% of total assets. The management team has worked closely with the main holders of notes and other claims on the Company in order to extend the maturity of these obligations to the maximum extent possible.

On 5 January 2016 the Company announced that it agreed, in principle, to replace the US $3,308,600 of Notes payable to R. James Macaleer, the former Chairman of the Company, and the US $3,000,000 of Notes payable to the RJM Amphion Trust, a trust set up for the benefit of Mr. Macaleer's children, with the issue of new promissory notes that are now due to mature on 31 December 2016 ("New Promissory Notes"), if not extended further. The rate of interest on the new notes will remain unchanged at 7%. The new notes also contain certain provisions for early repayment. However, in no case will any payment be made on the new notes until the amounts outstanding under the Company's existing loan facility are fully repaid. The final payment under the existing facility has recently been extended to 1 February 2017, and therefore it is expected that the Company will attempt to extend the maturity date of the New Promissory Notes beyond 1 February 2017.

In addition, on 2 March 2016 the Company announced that at a meeting on 26 February 2016, the holders of £5,707,738 Convertible Promissory Notes previously due on 31 December 2015 (the "Notes", and the "Note Holders") unanimously agreed to amend the terms of the Notes, which will now be redeemed on 31 December 2017 (subject to certain early partial redemption options) unless previously converted. The Notes will be convertible into fully paid Ordinary Shares at 8 pence per Ordinary Share and will pay interest at 7% if the respective Noteholder elects to be paid in Ordinary Shares, or will pay interest at 5% if the respective Noteholder elects to be paid in cash or additional Notes, until conversion or redemption. In addition, for every £1 of Note held, the respective Noteholder will be issued two warrants. Each warrant granted will entitle the holder to subscribe for Shares at 10 pence per Ordinary Share.

A Tribute to Jim Macaleer

We want to take this opportunity to express our lasting gratitude for the support and guidance given over many years by the Company's former Chairman, Mr. James Macaleer, who passed away in October 2015. Not only did Jim have an illustrious career in starting and building Shared Medical Systems into a multi-billion dollar enterprise (acquired in 2000 by Siemens) but he was also an important contributor to the success of Vortech Inc, one of Amphion's earlier medical imaging companies (sold to Kodak in 1994 for about US $130 million). Jim later became an investor in Amphion and then an active member of our Board. We could not have survived the difficult period during and following the inertia of the capital markets in 2008 without his continued support. We miss his wise counsel almost as much as his signature Hawaiian shirts.

Prospects for 2016 and Beyond

The success of the Motif IPO and the subsequent increase in the value of our shareholding has been the driver behind the increase in our Net Asset Value. It has also demonstrated the value of our patient and persistent approach to the development of our Partner Companies. Despite the sharp increase in Motif's share price since the IPO, we believe that it should be valued more in-line with comparable companies trading on NASDAQ and that our holding could be worth considerably more than the level shown on the balance sheet at the year end. We continue to work closely with Motif to develop the business and close the valuation gap. We believe Motif has a very bright future and we are committed to helping the company to become a major player in the antibiotic biopharmaceutical world.

The Board and management have supported Amphion through several lean years but the fact that we have been able to raise fresh equity capital is an encouraging development. While our stated goal is to reduce the level of gearing or leverage on our balance sheet, we are committed to doing so in ways that preserve the shareholder value we have managed to create through this support. Between July 2015 and February 2016 the main biotech indexes (such as the NASDAQ Biotechnology Index) fell by about 40%. Most publicly traded biopharma companies fell along with the sector as a whole and Motif was no exception. The weighting of Amphion's shareholding in Motif relative to the total assets of the Company currently causes Amphion's share price to be correlated to the Motif share price. As a result of the fall in the price of both Motif's and Amphion's shares in the second half of 2015 and in early 2016 as valuations in the sector were pressured, we decided the best course to raise more capital for Amphion in the short-term was to increase further the use of our loan facility, rather than attempt to approach the equity market on a further occasion. The additional loans are quite small in relation to the total value of our marketable assets and we believe this form of financing makes the most sense for our shareholders for the time being.

The outlook for Amphion depends increasingly on the value we can capture from our holdings in Motif, Kromek and, if we can move it forward successfully, m2m. We are very actively supporting the development of both Motif and m2m and view the future of all three companies with optimism. In addition, we continue to support DataTern's IP licensing programme and the recent successes in court reinforce our belief that we should see a good outcome from this programme in the next year or two. As we look to the future beyond the horizon for these particular programmes, we will begin to consider how best to build on the platform we have created and maintained, in order to capitalise on our experience and knowledge in supporting emerging life science companies.

Richard C.E. Morgan

Chief Executive Officer

1. General information

Amphion Innovations plc (the "Company") is a public limited company incorporated in the Isle of Man under the Companies Act 2006 with registered number 011472V on 29 August 2014 (formerly registered under the Companies Acts 1931 to 2004 on 7 June 2005 with registered number 113646C). The address of the registered office is Fort Anne, Douglas, Isle of Man, IM1 5PD. The principal place of business is 125 Park Avenue, 25th Floor, New York, NY, 10017, USA. The principal activity of the Company and its subsidiaries (the "Group") is to build shareholder value in high growth companies in the medical and technology sectors, by using a focused, hands-on company building approach, based on decades of experience in both the US and UK. 

The consolidated financial statements include the accounts of Amphion Innovations plc and its three wholly owned subsidiaries, Amphion Innovations US Inc. and DataTern, Inc., which are incorporated in the United States, and MSA Holding Company which is incorporated in the Kingdom of Bahrain. Amphion Innovations UK Ltd. was dissolved on 8 July 2014.

These financial statements are presented in US dollars because that is the currency of the primary economic environment in which the Company operates.

Going concern

The Group's business activities, together with factors likely to affect its future development, performance, and financial position and commentary on the Group's financial results, its cash flows, and liquidity requirements are set out in the CEO's Statement on pages 2-7 and elsewhere within the financial statements. In addition, note 16 to the financial statements includes the Group's objectives, policies, and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to liquidity risk and credit risk.

These financial statements have been prepared on the basis that the Group is a going concern. Although the Group made an operating loss and is in a net current liability position, it is forecasting future positive cash flows.

The Directors have prepared cash flow forecasts extending at least 12 months from the date of approval of these financial statements, which include certain key assumptions about the ability of the Group to continue to generate revenue from the realisation of the Group's investment in Partner Companies and the ability to raise external debt and equity financing.

The Directors are also of the view that other viable options to allow the Group to continue as a going concern include the reduction in its financial support to Partner Companies in the short-term, although this may have an impact on the ability of the Partner Companies to develop their businesses and raise additional financing, the reduction in its working capital requirements, the more aggressive realisation of the Group's investments in Partner Companies, or from the licensing or sale of its intellectual property.

However, certain conditions exist which indicate the existence of a material uncertainty. These conditions and the Directors' considerations in respect of these matters are discussed below:

• In prior years, the Group has been able to meet its obligations through fund raising (including the issue of shares and convertible promissory notes ("CPNs")), from revenue generated through the provision of advisory services to its Partner Companies, and from the revenue generated from the licensing of intellectual property. During 2015 and 2014 as a result of a lack of cash being generated from these activities, the Group has had to reduce its financial support to its Partner Companies and extend the payment dates for its trade payables and its convertible promissory notes. The Group has also reduced its operating costs where possible, including salary and fee reductions for employees and directors, and has obtained financial support from various related parties, through the issue of promissory notes and short-term loans (see note 23 for further detail). The Group will continue to implement these measures and seek further financing as required. In that regard in June 2014, the Group entered into a US loan facility which is secured by 7,774,678 ordinary shares of Kromek Group plc. The securities will be released upon repayment of the loan (see note 18 for further details). This facility was further extended in April 2016 to include Motif Bio plc shares as security. The progress of certain of the Partner Companies has, as a result of reduced financial support from the Group and current economic conditions, been adversely impacted, resulting in a reduction in their valuations for Level 3 investments (see note 15 for further detail). Relations with significant trade suppliers have also been strained during the year. Should the Group fail to generate sufficient cash to support its Partner Companies and to pay trade payables on a timely basis, the Group may see additional adverse effects on its Partner Companies and their valuations and in its relationship with its vendors.

1. General information, (continued)

• As at 31 December 2015 the Group has US $18,647,081 (2014: US $20,136,792) in notes payable including US $8,312,180 (2014: US $10,189,891) of convertible promissory notes ("CPNs") that are due to mature on 28 February 2016 (extended to 31 December 2017 in February 2016) and US $3,000,000 from a loan facility payable in monthly installments from 1 March 2016 to 1 November 2016.

• The timing and ability of the Group to realise its investments in Partner Companies is subject to inherent uncertainty due to numerous factors including, but not limited to: the liquidity of the investment; market conditions being favourable for realisation whether through a listing or otherwise; potential for restrictions being imposed that may limit full realisation of investments sold; such as lock-in periods; and other factors that are outside the control of the Group. The Group will realise investments where the terms of any potential arrangement are favourable to the Group.

• In December 2012, Berkeley Research Group, LLC ("BRG"), an expert consultant engaged by DataTern filed for arbitration claiming US $1,142,478 was owed to them. DataTern opposed the arbitration and vigorously contested the amount owed. In January 2015, the arbitrator found in favor of BRG and awarded them an amount totaling US $2,090,865 for the balance due and legal costs. DataTern contested the award and filed a lawsuit seeking to overturn the award. In March 2016, the Company reached a settlement with BRG for US $1,575,000. The payment terms are US $100,000 paid upon signing the settlement agreement, and further payments of US $400,000 on 30 April 2016, US $500,000 on 30 June 2016 and US $575,000 on 31 December 2016. Should Amphion fail to make a payment, the full amount of the judgement, US $2,236,286.49, will be due less any amounts paid. As a consequence of this settlement, the liability has been transferred from DataTern Inc. to Amphion Innovations plc.

• One of the Group's wholly owned subsidiary companies, DataTern Inc., ("DataTern") was subject to lawsuits which were brought by Microsoft Corporation ("Microsoft") and SAP AG, and SAP America, Inc. ("SAP") in April 2011. In December 2012, a summary judgment was entered in the lawsuits under which it was ruled that Microsoft and SAP do not infringe on the DataTern patents. DataTern and its legal team, supported by their extensive team of technical and patent experts, strongly refuted the basis for the summary judgment and filed an appeal. In April 2014, DataTern received a broadly favourable decision on the appeal ending the cases brought by Microsoft and SAP. The Group believes that the appeal ruling will allow DataTern to continue to try to reach equitable licensing agreements with the many companies that are infringing its patents. The Group is looking for litigation financing to continue to pursue the cases.

These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. These financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

However, after making enquiries, and considering the uncertainties described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons they continue to adopt the going concern basis in preparing the annual report and financial statements.

2. Significant accounting policies

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRSs") as issued by the International Accounting Standards Board ("IASB"), interpretations issued by the International Financial Reporting Committee of the IASB and applicable legal and regulating requirements of Isle of Man law and the AIM rules of the London Stock Exchange.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

Adoption of new and revised Standards

The Group has adopted the following new standards and amendments to standards with a date of initial application of 1 January 2015:

2. Significant accounting policies, (continued)

· Annual Improvements to IFRSs - 2010-2012 Cycle and 2011-2013 Cycle

The Group also elected to adopt the following two amendments early:

· Annual Improvements to IFRSs 2012-2014 Cycle, and

· Disclosure Initiative: Amendments to IAS 1.

As these amendments merely clarify the existing requirements, they do not affect the Group's accounting policies or any of the disclosures.

Standards and interpretations issued but not yet effective

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2015 and earlier application is permitted; however, the Group and Parent Company has not early applied the following new or amended standards in preparing these financial statements. The new standards potentially relevant to the Group and Parent Company are discussed below. The Group and Parent Company do not plan to adopt these standards early.

The financial statements have been prepared on the historical cost basis, except for financial instruments classified as fair value through profit and loss. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The results of subsidiaries acquired during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income, and expenses are eliminated on consolidation.

Cash and cash equivalents

Cash and cash equivalents include balances with banks and demand deposits, which have maturities of less than three months.

2. Significant accounting policies, (continued)

Investments in subsidiaries

Investments in subsidiaries are stated at cost less provisions for impairment where appropriate.

Financial instruments

The Group designates its assets and liabilities into the categories below.

(i) Financial assets and liabilities designated at fair value through profit or loss at inception: These include equity, warrants, options, and convertible promissory notes held in Partner Companies. These are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Group's documented investment strategy. These investments have been designated at fair value through profit or loss and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement, therefore IAS 28, Investments in Associates and Joint Ventures, has not been applied by the Group to the investments that it holds in associates.

· Recognition

All regular way purchases and sales of financial instruments are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial instruments that require delivery of assets within the period generally established by regulation or convention in the market place. Realised gains and losses on disposals of financial instruments are calculated using the first-in-first-out ("FIFO") method.

· Initial measurement

Financial instruments categorised at fair value through profit or loss, are recognised initially at fair value, with transaction costs for such instruments being recognised directly in the Statement of Comprehensive Income.

· Subsequent measurement

"Fair value" is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as "active" if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Group measures instruments quoted in an active market at a mid-price.

If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred.

The fair value of unlisted securities is established using valuation techniques. Whenever possible the Group uses valuation techniques which make maximum use of market-based inputs. Accordingly, the valuation methodologies and principals used most commonly by the Group are those contained in the International Private Equity and Venture Capital Valuation Guidelines (the "IPEVCV Guidelines") endorsed by the British & European Venture Capital Associations.

Assets and long positions are measured at a bid price; liabilities and securities sold short are measured at an asking price.

Given the nature of the Group's investments in seed, start-up, and early-stage companies where there are often no current and no short-term future earnings or positive cash flows it can be difficult to gauge the probability and financial impact of the success or failure of development or research activities and to make reliable cash flow forecasts. Consequently, the most appropriate approach to determine fair value is a methodology that is based on market data, that being the price of a

2. Significant accounting policies, (continued)

Financial instruments, (continued)

recent investment. Where the Group considers that the price of recent investment, unadjusted, is no longer relevant, and there are limited or no comparable companies or transactions from which to infer value, the Group carries out an enhanced assessment taking into consideration the key market drivers of the investee company and the overall economic environment.

Where the Group considers that there is an indication that the fair value has changed, an estimation is made of the required amount of any adjustment from the last price of recent investment. Wherever possible, this adjustment is based on objective data from the investee company and the experience and judgment of the Group; however, any adjustment is, by its very nature, subjective. Where a deterioration in value has occurred, the Group reduces the carrying value of the investment; however, in the absence of additional financing rounds or profit generation it can be difficult to determine the value that a purchaser may place on positive developments given the potential outcome and the costs and risks to achieving that outcome and accordingly caution is applied.

Factors that the Group considers include, inter alia, technical measures such as product development phases and patent approvals, financial measures such as cash burn rate and profitability expectations, and market and sales measures such as testing phases, product launches and, market introduction.

· De-recognition

The Group de-recognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for de-recognition in accordance with IAS 39. The Group de-recognises a financial liability when the obligation specified in the contract is discharged, cancelled, or expired.

Impairment of financial assets

Financial assets, other than those classified as at fair value through profit and loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Financial liabilities are derecognised when its contractual obligations are discharged or cancelled, or expire. Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

Compound financial instruments are required by IAS 32 Financial Instruments: Presentation, to be separated into their liability and equity components upon initial recognition. To meet the definition of equity, the contract must be settled by a fixed amount of cash in exchange for a fixed amount of equity instruments. Where the Company issues convertible promissory notes ("CPNs") in a currency other than its functional currency, a fixed number of shares will be delivered in exchange for a variable amount of cash, therefore the definition of equity is not met. Consequently, the CPNs are classified wholly as liabilities at fair value through the statement of comprehensive income. Where warrants are issued with CPNs, they are accounted for as part of the same financial instrument as the CPNs in accordance with IAS 39: Financial instruments - Recognition and Measurement, since they were entered into at the same time and in contemplation of each other, they have the same counterparty, they relate to the same risk and are non-transferable.

Prepaid expenses and other receivables

Prepaid expenses and other receivables are stated at their amortised cost which approximates their fair value. Other receivables are reduced by appropriate allowances for estimated irrecoverable amounts and do not carry any interest.

Trade and other payables

Trade and other payables are not interest bearing and are stated at amortised cost which approximates their fair value.

2. Significant accounting policies, (continued)

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Share-based payments

The Group has applied the requirements of IFRS 2 Share-based payments.

The Group issues equity-settled share-based payments to certain employees and consultants. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest. The fair value of equity-settled share-based payments attributable to the issue of equity instruments is charged against equity.

Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted based on management's best estimate for effects of non-transferability, exercise restrictions, and behavioral considerations.

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves, and retained earnings.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for, and services provided, in the normal course of business, net of VAT and other sales related taxes.

Revenue from license agreements is recognised in accordance with the substance of the agreement and when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of the revenue can be measured reliably.

Where assignment of rights for a fixed fee under a non-cancellable contract permits the licensee to exploit those rights freely and the licensor has no remaining obligations to perform, the revenue is recognised at the time of sale.

Where a license fee is contingent on the occurrence of a future event, the revenue is only recognised when it is probable that the fee will be received.

Cost of sales

Revenue related costs only include the direct fees paid for strategic advisory services for licensing and enforcing various patents.

Interest income

Interest income is recognised on an accruals basis.

Dividend income

Dividend income from investments is recognised when the shareholders' right to receive payment has been established.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

2. Significant accounting policies, (continued)

Foreign currencies

The individual financial statements of each company in the Group are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each company in the Group are expressed in US dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

Transactions in currencies other than US dollars are recorded at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.

Gains and losses arising on retranslation are included in net profit or loss for the year, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.

On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the statement of financial position date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are translated at the rate on the date of the transaction. Exchange differences arising, if any, are recognised in the statement of comprehensive income and are transferred to the Group's translation reserve.

Retirement benefit costs

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset realised.

Property, plant, and equipment

Property, plant, and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives of 3-5 years, using the straight-line method.

Intangible assets

Intangible assets comprise patents and other intellectual property with finite useful lives and are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives of 5-10 years.

Impairment of tangible and intangible assets

At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the

2. Significant accounting policies, (continued)

Impairment of tangible and intangible assets, (continued)

recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and an intangible asset which is amortised is tested for impairment only when there is an indication that the asset may be impaired.

3. Key sources of estimation uncertainty

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

Investments that are fair valued through profit or loss, as detailed in note 15, are all considered to be 'Partner Companies'. Those 'Partner Companies' categorised as Level 3 are defined as investments in 'Private Companies'.

Fair value of financial instruments

As described in note 2, the Directors use their judgment in selecting an appropriate valuation technique for financial instruments not quoted in an active market ("Private Investments"). The estimation of fair value of these Private Investments includes a number of assumptions which are not supported by observable market inputs. The carrying amount of the Private Investments is US $5.8 million (2014: US $22.1 million) in the Group and US $5.8 million (2014: US $19.4 million) in the Company.

Fair value of other receivables

The valuation of the Private Investments and other receivables from Partner Companies at 31 December 2015 assumes that the Partner Companies continue to receive ongoing funding in accordance with their 2016/2017 forecasts. If this funding is not received, this would have an adverse impact on the valuation of the investments and the ability of the Partner Companies to settle their debts, which in turn would impact the valuation of other receivables.

4. Revenue

An analysis of the Group's and Company's revenue for the period is as follows: