AMP.L Regulatory News (AMP)

Amphion Innovations plc

Interims Results for the 6 months to 30 June 2014

London and New York, 19 September 2014- Amphion Innovations plc (LSE: AMP) ("Amphion" or the "Company"), the developer of medical and technology businesses, today announces its unaudited interim results for the six months to 30 June 2014.

Highlights

· Generated revenue of US $240,000 during the period

· Net Asset Value per share at 30 June 2014 was US $0.04 (£0.024p)

· DataTern received favorable ruling from the Court of Appeals in relation to Microsoft case in NY

· Partner Company Axcess awarded US $40.5 million by jury which is now being appealed

· Partner Company Motif starts to explore opportunity for IPO

· Partner Company FireStar issued additional patents on key messaging technology

· Agreed a loan facility with an institutional lender for up to a maximum drawdown of US $10 million

Financial Results and Net Asset Value

Revenue for the six month period ended 30 June 2014 was US $240,000; approximately in line with the US $264,638 recorded in the first half of 2013. Revenue remained below prior periods mainly due to the absence of licensing income from DataTern while we await the ruling from the Federal Circuit Court of Appeals ("FCCA"). Regular operating costs of the business were lower than last year but total administrative expenses were higher due to fees paid to agents for fund-raising, combined with a further provision against amounts receivable from Partner Companies. As a result, the operating loss for the six months was US $1,769,275 compared with US $1,025,023 as reported in the same period of last year.

During the six month period the share price of Kromek plc fell from 75.5 pence to 46 pence and, as a result, the value of the company's holding of Kromek shares fell to US $9,796,364 from US $15,579,671. The Company's Net Asset Value at 30 June 2014 was US $0.04 (£0.02) compared to US $0.10 (£0.06) at the year end. Since the end of June, Kromek shares have staged a further recovery of approximately 10%

Amphion's holding of intellectual property assets is valued at amortised cost of US $507,642. The directors believe that the realizable value of the intellectual property assets held by DataTern is substantially in excess of the carrying value and the incremental investments being made in the pursuit of infringers of the 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 NAV per share would be significantly higher.

DataTern and the Intellectual Property Licensing Programme

As we reported in our Annual Report and Accounts 2013, in April 2014 DataTern received a ruling from the FCCA, which its legal advisors considered favorable. Following that ruling DataTern submitted a request to the FCCA for a reconsideration of certain aspects of the ruling, which were denied in July 2014 and so the ruling received in April is now final. As a result the case in New York has now been terminated, with the result that the previously unfavorable Markman ruling of August 2012 has, in the case of Microsoft, been nullified.

DataTern has recently filed its appeal in the MicroStrategy case with the FCCA. This was on hold, pending the resolution of the New York cases, but will now proceed and, if the court agrees to take the case, a hearing should be held by the end of the year and a ruling made by the end of the first quarter of 2015. There are 9 defendants in the MicroStrategy case. The cases in Texas which were on hold pending the Microsoft appeal, are now moving ahead again and we expect to have a Markman hearing in Texas within the next six months. There are 8 defendants in Texas.

Our legal team, supported by our extensive team of technical and patent experts, continues to believe in the strength of our intellectual property. Both of the two 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. It remains the firm and considered opinion of our team that the two patents are both valid and being infringed by a wide range of companies that are practicing this critical art. We believe that a Claim Construction ruling, which is fully reflective of our interpretation of the claims of the patents, would establish significant infringement by a large number of companies and we believe that we should be able to generate a significant amount of revenue from this asset over the next few years. Under the sharing agreement with DataTern, FireStar Software, where the technology and patents were originally developed, would share directly in this revenue stream.

Building Value in Our Partner Companies

Kromek completed its Initial Public Offering and was listed on the AIM market in October 2013. The company has recently announced final results for the fiscal year to 30 April 2014 which showed revenue up about 122% on the previous year. Amphion has a 10.6% shareholding of Kromek. The Annual Report for the last year can be found on the company website at www.kromek.com.

Motif has made further progress in developing its primary antibiotic programme and has been in discussion with two other groups with a view to license additional antibiotic technology into the company. The decision by the company to focus on its antibiotic programme is proving very timely given the growing recognition of the problem caused by resistance. In July, Prime Minister David Cameron announced the launch of a global taskforce established to coordinate an international effort 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. Given the high level of investor interest in this area that has recently emerged, we are now investigating the possibility of an IPO for Motif in the next few months.

In April 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. This verdict was then overruled by the judge and Axcess is now in the process of pursuing an appeal to the Texas Court of Appeals which should be heard in the next six months. In parallel, we have worked closely with Axcess' legal advisors 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 the company over the last 15 years. A thorough review is still underway but it is already clear that a number of companies in the transportation and security sectors appear to be infringing one or more of these patents.

FireStar has recently been notified by the USPTO of the allowance of an additional patent relating to its innovative messaging technology. FireStar's technology is incorporated in its EdgeNode™ product and enables companies to facilitate low-cost, secure machine-to-machine messaging, in a novel architecture, which is well suited to the needs of the health care and financial industries.

WellGen has made further progress in the development of a novel functional beverage based on its patented anti-inflammatory ingredient. It has reached an agreement in principle to move forward with a US-based beverage company that has established distribution channels in the Mid-West of the US, with an opportunity to expand to other US markets and beyond.

Despite our cautious approach to valuation over the last two years, we continue to see a lot of opportunity to build and, in due course, extract value from each one of our Partner Companies, in addition to the IP licensing programme being pursued directly by DataTern.

Financing

In addition to continued support from the management team and board, we managed to conclude an agreement with an institutional lender on a loan facility, secured in part against the holding of Kromek shares. The company initially drew down US $2 million under the facility and has recently decided to draw an additional US $1 million under this facility in four monthly installments of US $250,000 starting in September. The loan can be repaid in cash, or Kromek shares, or the shares of Amphion in specified tranches over the twelve months following the draw down.

We have continued to cut costs wherever possible and the leadership team has continued to work with much reduced levels of current cash compensation. Our goal is to get through this challenging period in the market to the point where we can begin to realize the fruits of our investment in DataTern and our Partner Companies.

Prospects

While we remain cautious, the improvement in the public markets over the last two years has improved the prospects for financing and is a major development for Amphion. The return of a viable IPO market is a critical and positive development and, if it continues to improve, should have a positive effect on the availability of capital for Amphion and our Partner Companies. We believe there is significant inherent value to be developed and extracted from DataTern and our Partner Companies and we continue to be committed to the goal of generating and returning value to our shareholders from our current assets.

For further information please contact:

Amphion Innovations

Charlie Morgan

+1 212 210 6224

Novella Communications

Tim Robertson/ Ben Heath

+44 (0)20 3151 7008

Panmure Gordon Limited

Freddy Crossley/ Fred Walsh/ Duncan Montieth (Corporate Finance)

Charlie Leigh-Pemberton (Corporate Broking)

+44 (0)20 7866 2500

1. General information

The condensed consolidated interim financial statements for the six months ended 30 June 2014 are unaudited and do not constitute statutory accounts within the meaning of the Isle of Man Companies Acts 1931 to 2004. The statutory accounts of Amphion Innovations plc for the year ended 31 December 2013 have been filed with the Registrar of Companies and contain an unqualified audit report which includes an emphasis of matter relating to significant uncertainty in respect of going concern and valuation of Partner Company investments. Copies are available on the company's website at www.amphionplc.com/reports.php.

2. Accounting policies

These condensed consolidated interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS).

The accounting policies applied by the Group are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2013, except for the adoption of new standards and interpretations effective as of 1 January 2014.

The Group has adopted the following new standards and amendments to standards with a date of initial application of 1 January 2014.

· Amendments to IAS 27, Separate Financial Statements

· Amendments to IFRS 10, Consolidated Financial Statements

· Amendments to IAS 32, Financial Instruments: Presentation

· Amendments to IAS 36, Recoverable Amount Disclosures for Non-Financial Assets

Application of these standards and amendments had no significant impact on the Group's financial position or results of operations.

3. Use of judgements and estimates

In preparing these interim financial statements, management has made judgements, estimates, and assumptions that affect the reported amounts of assets, liabilities, contingencies, income, and expense. 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.

Investments that are fair valued through profit or loss, as detailed in note 8, are all considered to be "Partner Companies". Those "Partner Companies" categorized as Level 3 are defined as investment in "Private Companies".

Fair value of financial instruments

The Directors use their judgement 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 $20 million.

Fair value of other receivables

Other receivables are stated at their amortised cost which approximates their fair value and are reduced by appropriate allowances for estimated irrecoverable amounts and do not carry any interest. The recovery of the advisory fees due at 30 June 2014 of US $1.4 million is dependent on a number of uncertain factors including the ability of the Partner Companies to raise finances (through current investors and new financing rounds) in order to support the future growth plans and therefore generate enough cash to be able to settle any outstanding debts.

4. Revenue

An analysis of the Group's revenue is as follows:

A provision for doubtful accounts has been set up for US $240,000 for the advisory fees accrued from Partner Companies and US $240,000 of bad debt expense was recognized in the statement of comprehensive income.

As part of the agreement for DataTern, Inc. to purchase certain of the intangible assets in December 2007, a portion of future revenues from these patents will be retained by FireStar Software, Inc. No amounts have become payable to FireStar Software, Inc. to date. 

5. Segment information

For management purposes, the Group is currently organised into three business segments - advisory services, investing, and intellectual property. These business segments are the basis on which the Group reports its primary segment information.

Information regarding these segments is presented below.

5. Segment information, (continued)

For management purposes for 30 June 2013, the Group was organised into three business segments - advisory services, investing activities, and intellectual property.