AMP.L Regulatory News (AMP)

Amphion Innovations plc

Interims Results for the 6 months to 30 June 2012

London and New York, 19 September 2012 - 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 2012.

CEO's Statement

Financial Results and Net Asset Value

Revenue for the six month period was $1,069,394, lower than the $2,598,648 recorded in the first six months of 2011 but slightly higher than in the second half of last year. The substantial commitment we have made to the further expansion of DataTern's intellectual property licensing programme has resulted in increased expenses and delays in the pace of settlements. As a result, the operating loss for the first six months of 2012 was $1,469,194, mostly due to fees and expenses associated with the litigation programme. The administrative expenses of the rest of the business were down approximately 20% compared with the same period of last year. The net profit before tax for the period increased sharply to approximately $3 million compared to a profit of $270,403 in the first six months of last year, due to the fair value gains in the holdings of Axcess and Kromek.

As a result, the Company's Net Asset Value at 30 June 2012 was $0.22 (£0.14) compared to the Net Asset Value at 31 December 2011 which was reported at $0.20 (£0.13). The increase in Net Asset Value is largely due to the recovery in the share price of Axcess since the year end, combined with the increase in the carrying value for the holding of Kromek shares. The carrying value of the Kromek shares have been adjusted from £7.20 to £8.40 to reflect the new capital raised by Kromek at the higher price in its financing round completed during the first few months of 2012.

DataTern and the IP Licensing Programme

The recent Claims Construction Order known as a Markman ruling in the cases being heard in New York has, unfortunately, delayed progress with DataTern. Our legal team, supported by our extensive team of technical and patent experts, believe that the ruling is not fully reflective of the claims of the patents, which have both recently undergone a comprehensive reexamination by the USPTO and successfully emerged both fully validated and with additional claims added. A lot of work is currently being done by our team to assess the immediate impact of this ruling. It is the very 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 continue to believe that a Markman ruling which is fully reflective of the claims of the patents will establish infringement. Our interest in pursuing these and other cases has always been and remains to conclude fair license agreements with the parties in question in order to obtain a return on the considerable investment that has been made in this technology.

While the Markman ruling has clearly been unhelpful, the investment that we have made in these programmes over the last few years has reinforced our belief that our technology is unique and our patents are important. Under the law (validated by the Supreme Court last year in a landmark case involving Microsoft) the patents enjoy the presumption of validity and can only be undermined by "clear and convincing evidence" which is a high standard. We see no reason to doubt the importance or the novelty of these inventions and the legitimacy of the patents that protect them.

Financing

Since the capital market conditions deteriorated rapidly following the Northern Rock problems in late 2007, culminating in the Lehman bankruptcy about a year later, Amphion has not attempted to access the equity markets and has only sought to raise outside capital through a convertible debt financing and the support of the board and executive management teams. In the last two years the loan financing provided by certain board members has allowed the further expansion of the DataTern programme. While the IP licensing programme was leading to settlements on a relatively regular basis, this financing policy made sense. While we will continue to work on settlements in the 24 cases currently outstanding, recent developments in the programme, particularly the recent Markman ruling, suggests that a different approach may be required if Amphion is to make progress over the next year or two. To that end we have recently been exploring various other financing options, including litigation financing directly for the DataTern programme. In September 2012, R. James Macaleer, Chairman of the Company, provided an additional unsecured loan of $500,000. Mr. Macaleer has a 17.43% interest in the share capital of the company. The loan bears 7% interest and matures on 15 March 2013. The provision of this unsecured loan is deemed a related party transaction for the purposes of the AIM Rules. As a result, the Amphion directors, save for Mr. R. James Macaleer who is deemed for the purpose of this transaction not to be independent, consider, having consulted with Seymour Pierce, the Company's nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned. As noted above, we have continued to make progress in reducing our general operating costs and as noted below, three of our Partner Companies are once again getting ready to raise capital directly. If that is successful then their dependence on Amphion will decrease. Our goal is to get the Company onto a more solid financial footing overall by cutting costs further, developing alternative revenue streams wherever possible to complement the IP licensing activity, and to look for alternative ways to finance the IP programme going forward.

Partner Companies

We are pleased to report progress in our Partner Companies during the first half of the year.

During the first six months, Axcess made good progress in the programme to obtain licensing revenue from Savi (a subsidiary of Lockheed Martin) for infringement of Axcess' intellectual property. The Markman ruling in April was favourable and the trial date is set for 5 November 2012. Axcess' portfolio of patents covers key functionality and applications in tagging and tracking people and other assets. These features are believed to be widely used by other companies who might require a license to continue to practice the art. In addition, the management has done a very good job in keeping the operations of the company intact in very difficult conditions. While Axcess' financial condition has made it impossible to expand marketing programmes, many existing customers are continuing to place repeat orders and revenue has started to pick up in recent months, albeit from a very low base.

Kromek also made good progress in most of its core programmes. During the first six months, Kromek introduced a range of new radiation detection products to complement the x-ray products in development for security and medicine. The new products were launched recently in Japan and are now being offered for sale in other countries as well. The tragic Fukushima nuclear meltdown in March 2011 led to a heightened awareness in Japan and elsewhere of the need for improved monitoring and measurement systems at nuclear facilities and other remote locations, including schools, hospitals, and in the home. Kromek successfully raised additional equity financing at £8.40 per share (up from £7.20 per share previously) and this increase has been reflected in our half-year results.

Motif recently agreed an important partnership with Jubilant Life Sciences, which will cover a collaboration on the development of two new compounds for MRSA and over-active bladder. Each of these is an important medical condition with unmet needs. Motif's programmes have been designed by Motif's team of pharmaceutical executives, each of whom brings substantial experience and specialised insight to the drug discovery process. Motif's business model is to develop improved versions of existing compounds which are known to have pharmaceutical activity and where the probability is high of producing better therapies on a rapidly accelerated timescale. Jubilant Life Sciences Limited is an integrated pharmaceutical and life sciences company based in India. It was recently ranked No.6 amongst the Top 10 Global contract manufacturing and services outsourcing players in the pharmaceutical industry and is a leading Drug Discovery and Development Solution (DDDS) provider. The partnership with Jubilant is expected to be a critical success factor, bringing substantial world-class capabilities to bear on Motif's programmes.

WellGen is starting to move forward again under its new leadership. It is now poised to launch an exciting beverage product developed in collaboration with its new partners, aimed at the sports recovery market. WellGen's proprietary ingredient has shown in human clinical trials to reduce inflammation with no observed side-effects. This new product is expected to be one of the first in this growing market, combining attractive taste and appearance with proven functional benefits to people recovering from exercise-induced muscle soreness. In parallel with the new initiative in beverages, WellGen is set to move forward again in both the veterinary field and in further clinical development of the products for the treatment of chronic human diseases, such as diabetes and arthritis.

FireStar has also managed to make progress with the development of its new messaging products. While current efforts are directed at healthcare, the same functionality should prove useful in high-value financial messaging. The healthcare programme is currently aimed at getting MDMI established as an open source product, supported by FireStar. The company is expecting to see increased demand for EdgeNode, its proprietary message generation platform, as use of MDMI, a message transformation (mapping) utility, becomes widely adopted.

Last but not least, both PrivateMarkets and M2M have been in a holding pattern pending the evolution of new business plans and fresh financing.

Outlook

We have confidence in our business model, the strength of the IP programme, and the potential of our Partner Companies. We are working hard to develop and extract the inherent value in each one. While market conditions remain challenging and volatile, we remain focused on adapting and evolving new strategies to generate and extract value for our shareholders. Critical to our future success is getting access to sufficient capital to allow us to support our licensing programme and our Partner Companies. To that end, we will continue to explore a variety of alternative financing strategies for Amphion and DataTern that will allow our shareholders to reap the fruits of their investments.

Amphion Innovations plc

Charlie Morgan +1 212 210 6224

Cardew Group

Tim Robertson +44 20 7930 0777

Seymour Pierce Limited

Mark Percy (Corporate Finance) +44 20 7107 8000

David Banks (Corporate Broking)

Notes to the editors

About Amphion Innovations plc

Amphion (LSE: AMP) builds shareholder value in emerging 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. Amphion has significant shareholding in 7 Partner Companies developing proven technologies targeting substantial commercial marketplaces. The Amphion model has been refined to optimise the commercialisation of patents and other intellectual property within the Partner Companies. The Partner Companies collectively own or control over 200 separately identified pieces of intellectual property, a number which grows rapidly each year.

On the web: www.amphionplc.com

1. General information

The condensed consolidated interim financial statements for the six months ended 30 June 2012 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 2011 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 2011.

3. Revenue

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

In August 2010, DataTern, Inc. entered into an agreement with Niro, Haller & Niro ("NHN") to represent DataTern, Inc. in connection with the licensing and enforcement of its patents. In June 2011, DataTern, Inc. and NHN agreed to terminate the agreement effective as of 25 January 2012. Under the termination agreement, NHN is to be paid US $400,000 by DataTern, Inc. in lieu of any other fees they may have received for the outstanding cases. NHN is to be paid as follows: US $40,000 within seven days of signing the agreement; US $180,000 on 15 June 2012; and US $180,000 on 15 December 2012. At 30 June 2012, US $360,000 remains payable.

In July 2011, DataTern, Inc. entered into a fee agreement with McCarter & English LLP ("ME"). Under this agreement, ME will represent DataTern in the assertion of all patent infringement claims, except for claims in Texas. In addition, ME was engaged to represent DataTern, Inc. in connection with the lawsuit filed by Microsoft and SAP AG and SAP America, Inc. in April 2011.

In September 2011, the Davis Firm, PC was engaged to represent DataTern, Inc. in the patent infringement cases in Texas.

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. 

4. 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.

4. Segment information, (continued)

For management purposes for 30 June 2011, the Group was organised into three business segments - advisory services, investing activities, and intellectual property.