AMP.L Regulatory News (AMP)

Amphion Innovations plc

Preliminary Results for the year to 31 December 2013

London and New York - Amphion Innovations plc (LSE: AMP) and its subsidiaries ("Amphion" or "the Group"), the developer of medical and technology businesses, today announces its preliminary results for the year ended 31 December 2013.

Chairman and CEO's Statement

2013 proved to be another challenging year for Amphion and our Partner Companies but with Kromek's flotation late in the year we managed to take an important step forward. Revenue for 2013 was US $1,016,990 (2012: US $1,395,806) while total administrative expenses were down by US $4,235,983 in 2013 compared to 2012. Total administrative expenses have two different components: the general overheads and operating costs of the parent company and the expenses incurred within and by DataTern. The latter are consolidated into the total but are dictated by the activity related to the IP licensing programme, which is discussed further below. General overhead and operating expense (i.e. excluding expenses related to DataTern) were again tightly controlled and were lower than for the previous year. DataTern expenses were also significantly lower in 2013. As a result of these changes, the operating loss for the Company was reduced to US $2,576,745 (2012: US $6,433,912). The reduction in DataTern's expenses was due to the pursuit of an appeal of the Markman ruling handed down in August of 2012 in New York. As the Company waited for its Appeal to be heard, the cases in Texas and Massachusetts were stayed, pending the ruling from the New York Federal Circuit Court of Appeals.

Further reductions in the carrying value of several investments, combined with the operating loss, resulted in a further reduction in the reported Net Asset Value ("NAV") per Share, which was £0.06 (US $0.10) as at 31 December 2013 compared to £0.09 (US $0.14) at 31 December 2012 and £0.08 (US $0.12) at 30 June. We continue to take a cautious approach to valuation and it is important to note that Amphion's holding of intellectual property assets continue to be valued at amortised cost, or just US $585,184 at the year end. In addition to the initial purchase of these IP assets from our Partner Company FireStar, Amphion has made additional substantial investment in these assets. That investment has been expensed as incurred and the value of those assets continues to be carried only at amortized historical cost.

Operating cash flow was again negative in 2013 although lower than in 2012. The resulting cash requirement to fund the business was raised in the form of additional loans from the directors in the amount of US $1,012,000 during the year.

Including contributions from Amphion, a total of approximately US $1.2 million was raised directly by the Partner Companies, excluding Kromek which raised £15 million in its IPO. During the course of 2013, Amphion contributed US $521,370 to the Partner Companies mainly in the form of various convertible loans.

Kromek

In April 2013, Kromek completed the acquisition of eV Products, a company based in Saxonburg, Pennsylvania, with a long history of leadership in the development of materials and production processes related to Cadmium Zinc Telluride ("CZT"). CZT has for a long time held the promise of direct detection of x-rays and gamma rays used in medical imaging and aviation security applications. Until recently, the cost and quality of CZT and the supply chain had not reached a point where mainstream deployment was possible. Kromek was founded and subsequent investment by Amphion and others was made on the basis of a new approach to the production of CZT, using a vapour phase technology originally developed at the University of Durham.

The acquisition of eV in April of last year brought into the group the leading producer of CZT using traditional methods, which have steadily improved over the years. While the vapour phase technology continues to hold promise, the quality and cost of CZT is now reaching a level where it can be used in mainstream medical imaging applications, such as CT (x-ray imaging using computed tomography) and SPECT (a nuclear medicine imaging technique). In November 2013, Kromek announced an exclusive multi-year development contract had been secured by eV with a top four Original Equipment Manufacturer (OEM) customer in the Computed Tomography (CT) market. Kromek is developing and supplying CZT based multispectral (colour) detectors as part of an initial 2 year programme.

These developments during the first half of 2013 laid the groundwork for the IPO that got under way in August/September and was successfully completed in early October. Kromek raised £15 million before expenses, as targeted. Following the IPO Kromek was able to pay down a number of loans including an amount of approximately US $750,000 due to Amphion.

Amphion holds a 10.6% equity stake in Kromek and we continue to be very actively engaged, on the board and in other ways. We believe the company has an exciting future as demonstrated in Kromek's press release of 14 April 2014 in which the company announced a second multi-year exclusive development contract with a Chinese company for CZT-based system components for their new line of SPECT medical imaging systems. We expect the valuation of the company to rise considerably as the company makes further progress and the value of the technology platform and its potential in several multi-billion markets is more fully appreciated.

Our total investment in Kromek as of 31 December 2013 was US $3.4 million and is now valued at approximately US $10 million.

Intellectual Property Licensing Programme

As noted above, most of the activity in our IP licensing programme in 2013 was geared to the preparation, filing, and hearing of the appeal to the Federal Circuit Court of Appeals ("FCCA"). The appeal was a result of the ruling that was rendered in late August 2012 by the US District Court for the Southern District of New York in the declaratory judgment actions brought by SAP and Microsoft in April 2011. DataTern's appeal was based on its belief that the New York court lacked jurisdiction and that the Markman claim construction rendered on DataTern's patents was flawed.

The oral hearing was held in early November 2013 and in April 2014, DataTern received a ruling from the FCCA which its legal advisors consider favourable. If sustained or improved as a result of further review by the Court, the ruling should, at a minimum, allow the Texas cases to proceed. DataTern has 19 defendants in three programmes, including Microsoft and SAP and our goal remains unchanged. We believe we have two good patents which have each been re-examined and reissued by the USPTO. We believe, based on the enormous amount of work done over the last 7 years that many companies, including Microsoft and SAP, have infringed on these patents. Our goal is to arrive at fair licensing agreements with these and other users of the technology in order to give DataTern and FireStar, our Partner Company that developed this technology, a fair return on the substantial investment they have made. If we are successful, we believe that the value of the net income to DataTern should be substantially in excess of its carrying value.

Building Value in Other Partner Companies

Since flotation, our basic business model has been to start and build high potential companies based on innovative and proprietary, but basically proven, technology. Our 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 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 successful business models and operating capabilities that can utilise the technology to provide innovative products and generate revenue and make profits. The bad economic climate of the last few years has demanded continued attention to the evolution of these business models so they can be adapted to a different and generally harsher market environment.

We have adjusted our model and our span of activities to the extent possible to continue to move forward in this difficult environment. Although the pace of advance remains frustratingly slow, most of our Partner Companies continue to hold promise and are making progress.

Developments within each of the Partner Companies can be found in the Partner Company Summaries section.

Financing

Financial support for Amphion over the last few years has come, for the most part, from the directors and the management team. We believe in the strength of our business model and the potential of Kromek and the other companies. We have made a substantial investment in the pursuit of good outcomes for DataTern in the form of settlements with the many companies that we believe have infringed and are continuing to infringe this important technology. If we are successful in achieving these goals then cash flow from DataTern should support our six other companies and allow us to maintain our investment in Kromek until such time as it garners the valuation we think it deserves.

Cash Position and Post Period End Financing

In June 2014 the Company was granted a loan facility by an institutional lender. The Company has drawn down an initial sum of US $2 million with a further draw down facility of up to a maximum of US $10 million, subject to the consent of each party. The funds are to be used for working capital for Amphion and its Partner Companies. The Company's expectations are that there will be cash inflows from several sources over the next six to twelve months and that this facility provides the capital needed to bridge those inflows without incurring excessive dilution. These funds will enable Amphion to continue to support its IP licensing programme and the further development of its Partner Companies.

Prospects for 2014 and Beyond

We and our advisors remain steadfast in our belief in the strength and validity of the DataTern patents. With the Appeals Court decision in hand and activity under way with that court to strengthen our hand, we expect to see some tangible progress in these programmes during the next six to twelve months.

Although we remain cautious, the recovery in the stock market and the IPO market in particular has led to an improvement in the overall climate for our business. If conditions continue to improve, we believe we should start to see a recovery in the Net Asset Value. Progress by Kromek will be a key driver of such a recovery but developments within DataTern and the other Partner Companies will be equally important.

Anthony Henfrey is not standing for re-election and as a result will retire from the Board of Directors at the AGM. Tony has served on the board for ten years and has made an outstanding contribution to the board. On behalf of all shareholders, we wish to thank Tony for his great service to the Company and wish him well for the future.

R. James Macaleer Richard C.E. Morgan

Chairman Chief Executive Officer

For further information please contact:

Amphion InnovationsCharlie Morgan+1 212 210 6224

Novella Tim Robertson/ Ben Heath+44 (0)20 3151 7008

Panmure Gordon LimitedFreddy Crossley/ Fred Walsh (Corporate Finance)

Adam Pollock/ Charles Leigh-Pemberton (Corporate Broking)+44 (0)20 7866 2500

Partner Company Summaries

Axcess International provides intelligent wireless ID systems under the ActiveTracTM brand for improving security, safety, and productivity in business. Its patented MicroWireless™ technology platform delivers local location identification, tracking, and control solutions for enterprise personnel and assets. Axcess has a portfolio of important patents on many different aspects of RFID technology and is seeking licensing agreements with companies that are using its proprietary technology. Part of that programme is a suit against Savi Technologies ("Savi") for patent infringement. That case is on hold as the patent that is the basis of the suit is being re-examined by the US Patent Office. Another part of the programme is a suit against the former patent counsel Baker & Botts LLP for negligence, breach of fiduciary duty, and fraud for acting for both Savi and Axcess on patent matters without Axcess's consent. On 15 May 2014 the jury in the Baker & Botts case returned a verdict that found that Baker & Botts had acted with negligence and was liable to Axcess for damages of US $40.5 million. That verdict followed a direction by the judge to restrict Axcess's claim to an issue of negligence which is subject to a two year statute of limitations, which prevented Axcess from collecting the damages. Axcess is currently petitioning the court to allow a verdict of breach of fiduciary duty which carries a four year statute of limitations, which would allow Axcess to collect the US $40.5 million in damages. If the petition is not successful the company will appeal.

FireStar Softwarehas developed software that empowers application-to-application electronic message exchange between corporate and other entities. FireStar's EdgeNode™ messaging platform and MDMI data translation technologies empower companies to exchange electronic messages without detailed technical knowledge of other exchange members. They are the only solutions that provide a cost-point that is low enough to bring Small and Medium Businesses into comprehensive data exchanges. FireStar's products offer comprehensive B2B interoperability to industries that are currently dependent on fax, telephone, and paper mail. While these technologies can be applied to almost any industry, FireStar is concentrating on the US healthcare market where there are over 1 million unaffiliated providers who require such comprehensive data exchange abilities. FireStar also has a participation in the revenue stream from DataTern's IP licensing programme and has an equity holding in PrivateMarkets.

Kromek (LSE: KMK) is an Anglo-American platform technology company that provides digital colour x-ray and gamma ray detection and imaging solutions. Its products enable direct materials identification in the security, nuclear, and medical markets. The company has operations in the United Kingdom as well as Pennsylvania and California in the United States. Selling internationally, with partnerships or distribution channels in Asia, Europe, and North America, Kromek's global customer base includes national governments and regulatory bodies, international airports, research institutes, major energy providers, and some of the world's largest technology and medical equipment groups. On 16 October 2013, Kromek successfully completed its IPO. The company raised £15 million before expenses through the sale of new ordinary shares at a price of 51 pence per share in an oversubscribed fundraising. After the reporting period, Kromek announced a shortfall in revenue for the year ending 30 April 2014 but reaffirmed the underlying growth dynamic including the signature of a long term contract with a Chinese manufacturer for the development of SPECT cameras for the local market.  The contract provides for revenues of US $1.4 million and US $10.2 million in the Financial Years 2014-15 and 2015-16 respectively and the overall value of the contract over the next seven years is up to US $159 million.

m2m Imaging has specialised capabilities in a range of technologies that allow novel materials and design of the coils that act as receivers in MRI systems. The company's focus to date has been on preclinical applications of imaging system accessories (coils and related products). m2m's products are being developed to serve systems that range from 0.2T to 21T in field strength. m2m specialises in custom developments to specific research requirements. The company's business plan envisages a family of surface coils, volume coils, arrays, and multi element Hi B1 field uniformity BioSAW coils, some of which are available as stand-alone coils or integrated into more complete systems. m2m builds coils and coil systems for a wide range of manufacturers and has over 4000 products in use in major university and pharmaceutical labs around the world. The company plans to build on its existing presence in the preclinical market and, in due course, to develop novel coil components for the clinical imaging systems market based on the same materials science and RF technologies.

Motif BioSciences is developing novel therapeutic agents for the antibiotic crisis. MRSA (Methicillin Resistant Staphylococcus aureus) and other multi-drug resistant bacteria are now a leading cause of serious, sometimes fatal, hospital-acquired infections, and a growing cause of difficult-to-treat infections in otherwise healthy people within the community. Motif is developing a best-in-class novel antibiotic based on a lead compound with significant flaws. The company is also looking to in-license a series of first-in-class antibiotic compounds with in vivo proof of concept from a leading university. Capital is being raised to develop both programmes to preclinical candidate stage within 18 months. In March 2013, Zaki Hosny stepped down as CEO in order to pursue other opportunities but remains Deputy Chairman of the company's Board of Directors. In May 2013, Graham Lumsden joined the company as CEO. Prior to joining Motif, Mr. Lumsden was Worldwide Business Leader, Contraceptives and Osteoporosis at Merck & Co., Inc. where he previously held other international senior leadership roles as well as senior marketing positions. In June 2013, Carolyn Kong joined the company as Chief Business Officer, bringing over 25 years of extensive business development and commercial experience. In 2014, Motif strengthened its Scientific Advisory Board with the recruitment of Dr. Richard H. Ebright, Professor of Chemistry and Chemical Biology at the Waksman Institute of Microbiology, Rutgers, the State University of New Jersey, a leading expert in antibacterial drug discovery.

PrivateMarkets has shifted its focus, due to the passage of new legislation, from the financial/commodities markets to applications in the US healthcare information technology industry. In 2009, the US government passed the HITECH Act to promote and expand the adoption of electronic health information technology. The HITECH Act mandates that all 1 million US healthcare providers establish electronic health records and that interoperability between entities must be implemented by 2015. PrivateMarkets' platform technology, based in part on FireStar's message exchange technology, has capabilities that, with some adaptations, make it well suited to solving this issue - one of the most pressing problems facing the US healthcare industry today. During the course of 2013, following a number of meetings with various healthcare providers, PrivateMarkets identified a number of applications the company feels hold potential for the early adoption of its solutions. The company's goal for 2014 is to develop a business plan to address one of these areas. In August 2013, PrivateMarkets was granted US Patent 8,510,204 B2, System, Method, and Apparatus for Trading in a Decentralized Market. A second patent is pending and expected to be issued in 2014.

WellGen is at the crossroads of food and pharmaceuticals, developing natural products with medicinal properties, backed by rigorous scientific research. WellGen's products are in development for applications in the management of chronic inflammation-based disease, consumer products, and pet products. Each of these opportunities represents a multi-billion dollar market. In November 2013, WellGen was awarded a National Institute of Health Grant of US $293,244 for WellGen's Small Business Innovation Research ("SBIR") proposal, entitled "Controlling Type 2 Diabetes with Proprietary Natural Extracts in Medicinal Foods". The experiments are now complete and WellGen is awaiting the report on the response of the rats that are a model system for type 2 diabetes. Additional development work may be needed for that indication, depending on the initial results. After the reporting period, WellGen signed an MOU with a US based sports drink company in order to collaborate on new beverages based on WellGen's proprietary Black Tea Extract product. Progress continues with development testing by the major pet care company that WellGen partnered with in 2012. If the results continue to be encouraging clinical trials are expected to begin within the next 12 months.