Juridica Investments Regulatory News (JIL)

Juridica Investments Limited

('Juridica' or the 'Company')

Audited final results for the year ended 31 December 2013

CONTINUED STRONG RETURNS IN 2013; DIVIDEND OF 14.0 PENCE PER SHARE; PORTFOLIO MATURING

Juridica (AIM: JIL), a leading provider of strategic capital for corporate legal claims to both businesses and the legal markets, announces its audited financial results for the year ended 31 December 2013.

Financial highlights

§ Gross cash proceeds received during 2013 of US$37.2 million (2012: US$38.4 million)

§ Dividends totalling US$25.7 million (14p per share) paid to shareholders on 15 January 2014

§ Dividends paid to shareholders since inception total US$64.3 million (38.6p per share)

§ Net Asset Value at 31 December 2013 of US$223.6 million, which includes the Company's core investment portfolio with a current fair value of US$189.4 million

§ Net Asset Value per share US$2.02 / £1.22* (2012: US$2.20 / £1.33*)

§ Total comprehensive income for 2013 of US$5.1 million (2012: US$37.6 million)

§ Fully diluted earnings per share of 4.85c / 2.91p* (2012: 35.38c / 21.37p*)

* Financial highlights exchange rate is £1.00 = US$1.657 as of 31 December 2013

Operating highlights

§ Receipt of US$37.2 million in cash proceeds from four investments comprising one final settlement and three partial settlements

§ Several investments have matured to where important legal events are scheduled during the upcoming 12 to 18 months, any of which could result in completion of the investment

§ Investment of US$2.0 million for a 7.8% equity interest in ipCreate, Inc., a leading intellectual property creation, acquisition and monetisation company. This investment will enhance the Company's capability to invest in intellectual property opportunities that are structured to reduce overall risk with enhanced return potential

§ Supplemental investments in four cases totalling US$2.9 million

Outlook for 2014

The Company's antitrust and completion portfolio, patent portfolio, and commercial portfolio are all expected to have significant activity during 2014 and 2015. 

Based on scheduled trial dates and expected hearing and/or trial dates, the Manager believes the following cases have the potential to produce significant cash to the Company in 2014:

§ Case 1208-A, which is part of the significant investment the Company has made in its antitrust and competition portfolio, is scheduled for trial at the end of Q2 2014. Liability has been won through all appeals and only damages are being decided by a jury at this stage. The case could potentially result in cash returns through settlement to the Company in excess of 15% of the current NAV. Claimed damages are in excess of US$1.0 billion. The Company's Investment Manager expects any settlement to be less than claimed damages

§ Case 5208-E is scheduled for trial in Q2 of 2014 and has one remaining defendant. This case is also part of the antitrust and competition portfolio

§ Case 5009-S is expected to be tried during 2014. This case is part of the Company's commercial portfolio and claimed damages are in excess of US$500 million. The Company's interest in any settlement is 24% or more

§ Case 8008-L, as previously announced, has an aspect of its damages claim on appeal. The appeal is expected to be heard during the second half of 2014 and settlement could occur at any time thereafter. The case has already produced cash returns to the Company of approximately US$69 million

The Company expects to make several investments in medium to large sized patent portfolios during 2014.

Commenting on the results, Lord Brennan QC, Chairman of Juridica, said: "Our investments have continued to mature during the year, enabling us to deliver dividends of 14p per share. We have already provided cash returns to shareholders in the form of dividends that equal approximately 62% of our net funding. With the continued maturation of our existing portfolio and with our pipeline of potential investments, we anticipate significant returns from the investment portfolio over the next 12 to 18 months and beyond. The Board therefore looks to the future with confidence."

Investment results since the Company's inception

§ The Company has seen 10 investments come to completion (nine producing cash profits and one producing a modest cash loss) with settlements in the underlying cases totalling US$44.4 million in gross proceeds, representing a blended internal rate of return of approximately 66.7% (as calculated from date of investment to date of proceed return)

§ Six cases, which are multi-defendant in nature, had partial settlements or expense recovery, providing for gross proceeds of approximately US$80.4 million

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About Juridica

Juridica Investments is a leading provider of strategic capital to the business community and the legal markets for corporate claims. It invests directly and indirectly in a diversified portfolio of corporate claims in litigation and arbitration. Juridica is one of the premier sources of value-added and direct financing for large business claims in the United States and one of the leading sources in the United Kingdom.

The Company's clients are Fortune 1000 companies, FT Global 500 companies, inventors, major universities, and the leading law firms that represent them. Juridica only accepts cases that have already been carefully vetted and undertaken by leading lawyers.

Juridica works to make the legal system work better for business claims. It does not invest in speculative claims or claims that do not demonstrate economic value and clear merits. Juridica invests only in business claims, and does not invest in class actions, personal injury, product liability, or mass tort claims.

The Company's goal is to provide business clients with financial choices that reduce risk and assist in maximising claim value.

Juridica was established on 21 December 2007 as a limited liability, closed-ended investment company registered in Guernsey. It has over US$200 million of assets under management. It was the pioneer in alternative litigation financing and the first closed-end fund of its kind ever listed on AIM, a market operated by the London Stock Exchange (AIM: JIL.L).

The Company has appointed Juridica Asset Management Limited as its exclusive investment manager to locate, evaluate and manage direct and indirect investments in cases, claims and disputes.

For more information visit Juridica at http://www.juridicainvestments.com

Forward looking statements

This report contains forward looking statements, which are based on the current expectations and assumptions of the Manager and involve known and unknown risks and uncertainties that could cause actual results or performance to differ materially from those expressed or implied in such statements. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of variables which could cause actual results or trends to differ materially. Each forward looking statement speaks only as of the date of this report. Except as required by the AIM Rules or otherwise by law, the Company and the Manager expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the Company's or Manager's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Chairman's Statement

On behalf of the Board, I am pleased to present the results of Juridica Investments Limited's ("JIL" or the "Company") operations for the year ended 31 December 2013.

JIL has been in existence for over six years and has developed a portfolio that focuses exclusively on business-to-business related claim investments. The portfolio is comprised of the following sectors: antitrust and competition; patents and other forms of intellectual property; and general commercial litigation. We do not invest in shareholder class actions, personal injury, product liability, or mass tort claims.

The Company has created significant shareholder value as demonstrated by cash recoveries from its investments and cash distributions to its shareholders.

§ During the twelve month period ended 31 December 2013, the Company realised US$37.2 million in cash proceeds from several settlements and cost recoveries involving four investments.

§ From inception to the date of this report, the Company's portfolio has generated gross cash proceeds of approximately US$124.8 million representing 62% of our total shareholder net funding of $199.0 million.

§ Over our Company's life, we have paid dividends totalling approximately US$64.3 million (GBP36.4 million). These dividends have been funded by the performance of our investments which have produced a combined internal rate of return on fully-completed cases of approximately 67%.

In addition to the strong cash returns, the fair value of the Company's core investments at 31 December 2013 is US$189.4 million representing the present value of the investments' expected terminal value. The Company also held a foreign currency contract with a fair value at 31 December 2013 of US$1.8 million that was purchased to protect the Company from foreign currency fluctuations after it declared its 2013 dividend. We have reasonable grounds for anticipating further realisation of part of the carrying value of our investments into cash returns over the next 12 to 18 months. The Company is also evaluating possible further investments that we believe have the potential to grow the net asset value and create significant returns for shareholders.

The cash results generated during 2013 reflect the continued maturation of our existing portfolio and highlight the ability of our management team at Juridica Asset Management Limited ("JAML" or "Manager") to identify and invest in strong cases, and to manage those assets to conclusion. 

Operating Results

For the twelve month period ended 31 December 2013, the Company reported total comprehensive income attributable to ordinary shareholders of approximately US$5.1 million as compared to total comprehensive income attributable to ordinary shareholders of approximately US$37.5 million for the twelve month period ended 31 December 2012. The total comprehensive income for the twelve month period ended 31 December 2013 was due to the net of the following:

§ net unrealised gain generated from the change in valuation of the Company's investments of approximately US$11.3 million;

§ net realised gain of approximately US$2.5 million;

§ other income of approximately US$150,000;

§ fund operating expenses of approximately US$7.9 million; and

§ intangible amortisation expense of approximately US$950,000.

Investment Valuation and Net Asset Value

Due to recent changes in accounting guidance, we have made corresponding changes to our reporting format. Our balance sheet now reflects only two categories of investments, i) intangible assets; and ii) financial assets at fair value through profit or loss. Fair value is derived as per the accounting policies, and the future expected value of the core investments are discounted using the Company's cost of equity. This revised accounting presentation does not change our current view of the expected terminal value for each investment, and therefore does not impact on the overall NAV position.

JIL's net asset value ("NAV") decreased approximately 3%, from US$230.4 million to US$223.6 million. On a per ordinary share basis, the NAV decreased from US$2.20 per ordinary share at 31 December 2012 to US$2.02 at 31 December 2013. This drop in NAV per ordinary share was primarily due to the following:

§ the declaration of US$25.7 million in dividends (£0.14 per share);

§ the sale of 6,126,607 treasury shares at a premium to the 31 December 2012 NAV per ordinary share; and

§ totalcomprehensive income of US$5.1 million.

Investment Portfolio Activity

The Company's antitrust and completion portfolio, patent portfolio, and commercial portfolio are all expected to have significant activity during 2014 and 2015. 

Based on scheduled trial dates and expected hearing and/or trial dates, the Manager believes the following cases have the potential to produce significant cash to the Company in 2014:

§ Case 1208-A, which is part of the significant investment the Company has made in its antitrust and competition portfolio, is scheduled for trial at the end of the second quarter of 2014. Liability has been won through all appeals and only damages are being decided by a jury at this stage. The case could potentially result in cash returns through settlement to the Company in excess of 15% of the current NAV. Claimed damages are in excess of US$1.0 billion. The Company's Investment Manager expects any settlement to be less than claimed damages

§ Case 5208-E is scheduled for trial in the second quarter of 2014 and has one remaining defendant. This case is also part of the antitrust and competition portfolio

§ Case 5009-S is expected to be tried during 2014. This case is part of the Company's commercial portfolio and claimed damages are in excess of US$500 million. The Company's interest in any settlement is 24% or more

§ Case 8008-L, as previously announced, has an aspect of its damages claim on appeal. The appeal is expected to be heard during the second half of 2014 and settlement could occur at any time thereafter. The case has already produced cash returns to the Company of approximately US$69 million

The Company expects to make several investments in medium to large sized patent portfolios during 2014. 

New Investments and Pipeline

During the year ended 31 December 2013, the Company made four supplemental investments in existing cases that were beyond initial funding commitments. These supplemental investments were made at opportunistic times and on highly favourable terms that increase the likelihood of greater potential return to the Company.

Additionally, the Company invested US$2.0 million in ipCreate, Inc. to acquire an equity interest of 7.8%. ipCreate, Inc is a leading intellectual property creation, acquisition and monetisation company. While the Company's core competency lies with sourcing, analysing, selecting and funding the successful enforcement of legal claims, intellectual property assets, in particular, are often resolved via strategic sales or licensing in advance of litigation, particularly when the opportunity involves a portfolio of multiple patents. Such mechanisms are a form of pre-litigation settlement. The Manager believes that this strategic approach to managing intellectual property assets is both prudent and necessary given the risks associated with this asset sub-class.

The Manager continues to review and perform due diligence on its pipeline of potential investments.

Dividend

As a result of the Company's results for the year ended 31 December 2013, the Company declared total dividends of 14 pence per share which was paid on 15 January 2014 to shareholders on the register at 13 December 2013. This dividend payment is consistent with the Company's policy of returning actual net cash profits to shareholders. To date, the Company has paid dividends totalling 38.6 pence per share since inception.

We anticipate declaring additional dividends to shareholder over the next twelve months if the portfolio develops as expected.

Continuation of JIL

On 14 November 2013, shareholders overwhelmingly (98%) voted to support JIL's continued operation as a going concern. The confidence afforded to us by our shareholders provides for JIL to continue making new investments and managing its investment portfolio for another three years, at which time another vote will take place.

In October 2013, the Company agreed a reorganisation of fund management, details of which are in the Investment Manager's Report.

Outlook

The Manager believes several investments are likely to be completed over the next twelve months with several additional investments generating partial settlements.

Based on the outlook provided by the Manager, the Board expects significant returns from JIL's investment portfolio over the next 12 to 18 months. This belief is based on the Manager's review of presently scheduled trial dates, expected final decisions following trial, and possible settlements in multiple cases that are in an advanced stage of development.

The directors thank investors for their continued confidence and welcome those new shareholders who have joined us in the past year.

Lord Daniel Brennan QC

Chairman

20 March 2014

Investment Manager's Report

Operating Highlights

During the year ended 31 December 2013, the Company continued to deliver strong results with receipt of US$37.2 million in cash proceeds. Of this amount, US$3.0 million represented a return of our investment principal with US$34.2 million representing realised gain on investment. The majority of this gain was recognised in previous periods as unrealised gain. 

Proceeds received during 2013 came from four investments; one final settlement and three partial settlements, which have further recovery potential. The Company's remaining investments have all continued to progress and in two patent related investments the Company, working closely with its strategic partner ipCreate, Inc., has initiated new strategies to maximise their potential value. The upcoming calendar of scheduled case events leads us to believe that the portfolio will continue to generate significant cash returns over the next 12 to 18 months, and beyond.

Based on the above mentioned cash proceeds, the Company declared dividends during 2013 totalling 14 pence per share (US$25.7 million) which was paid on 15 January 2014 to shareholders on the Register as at 13 December 2013.

Net asset value:

JIL's net asset value ("NAV") decreased approximately 3%, from US$230.4 million to US$223.6 million. On a per ordinary share basis, the NAV decreased from US$2.20 per ordinary share at 31 December 2012 to US$2.02 per ordinary share at 31 December 2013. This decrease in NAV per ordinary share was primarily due to the net of the following:

§ the declaration of US$25.7 million in dividends (£0.14 per share);

§ the sale of 6,126,607 treasury shares at a premium to the 31 December 2012 NAV per ordinary share; and

§ total comprehensive income of US$5.1 million.

Since inception, the Company has shown strong growth in the value to our shareholder from the net growth in the value of JIL's assets, managing JIL's capital base, and the declaration and payment of dividends.

Comprehensive net income:

The Company's US$5.1 million in comprehensive income for the year ended 31 December 2013 was due to the net of the following: 

§ net unrealised gain generated from the change in valuation of the Company's investments of approximately US$11.3 million;

§ net realised gain of approximately US$2.5 million;

§ fund operating expenses of approximately US$7.9 million;

§ other income of approximately US$150,000; and

§ intangible amortization expense of approximately US$950,000.

Fair value of investments:

The fair value of the Company's investments at 31 December 2013 was US$191.2 million. Of this amount, US$1.8 million is attributed to a forward currency contract that was purchased to protect the Company from currency fluctuations after it declared its 2013 dividend. The remaining US$189.4 million relates to the Company's core investments which are structurally categorised as either contractual interests, debt securities, or equity investments. These categories reflect the following changes from the carrying value at 31 December 2012:

Portfolio performance since inception:

From inception to 31 December 2013 the Company's portfolio has generated gross cash proceeds of approximately US$124.8 million. After providing for required reserves and Company operating expenses, JIL has paid dividends totalling US$64.3 million (GBP36.4 million) to shareholders.

In more detail, the portfolio since inception has performed as follows: 

§ Ten investments have reached completion with proceeds from the underlying cases delivering a total of US$44.4 million in gross proceeds representing a blended internal rate of return of approximately 66.67% (as calculated from date of investment to date of proceed return)

§ Six cases, related to four investments and which are multi-defendant in nature, had partial settlements or expense recoveries amounting to approximately US$80.4 million.

New investments made during 2013:

During the year ended 31 December 2013, JIL committed to make supplemental investments in four existing cases totalling up to US$2.9 million. Two of these supplemental investments provide for an increase in JIL's percentage interest in potential proceeds as the underlying cases are in the process of being appealed. A third supplemental investment provides for a substantial increase in JIL's percentage interest in potential proceeds in a litigation that is maturing positively through the litigation process. Finally, the fourth supplemental investment enables the continuation of a multi-party pre-litigation settlement opportunity that has the potential to generate significant proceeds to the Company.

Additionally, the Company invested US$2.0 million in ipCreate, Inc. to acquire an equity interest of 7.8%. ipCreate, Inc. is a leading intellectual property creation, acquisition and monetisation company. While the Company's core competency lies with sourcing, analysing, selecting and funding the successful enforcement of legal claims, intellectual property assets, in particular, are often resolved via strategic sales or licensing in advance of litigation, particularly when the opportunity involves a portfolio of multiple patents. Such mechanisms are a form of pre-litigation settlement. The Manager believes that this strategic approach to managing intellectual property assets is both prudent and necessary given the risks associated with this asset sub-class.

Fund Management Activity

On 15 October 2013, the Company amended and restated its Investment Management Agreement dated 17 December 2007 with Juridica Capital Management Limited and on 1 January 2014, the Company terminated this Investment Management Agreement and began operating under an Investment Management Agreement entered into with Juridica Asset Management Limited. ("JAML"). The Investment Management Agreement with JAML was executed on 15 October 2013 and became effective on 1 January 2014. As part of the new management arrangements, the management fee paid to JAML has been reduced to 2% of adjusted NAV. Other key elements relating to the new management arrangements can be found in the Company's press release dated 15 October 2013.

As the Company's Manager, we have the responsibility to market the Company's value proposition, research potential investments, manage the due diligence on prospective investments, price and structure all investment transactions and propose investment opportunities to JIL's Underwriting Committee. We also have an active role in monitoring and managing existing investments in order to i) protect the Company's investment; ii) advise counsel and claim holder on business strategies; and iii) seize upon opportunities to increase the potential return to shareholders from individual investments.

Pipeline and case selection:

In our role as Manager, we spend a significant amount of time marketing JIL's value proposition to claimholders and law firms. We ensure the legal claims market understands our message that partnering with JIL in pursuing a claim through the legal process enhances the balance between risk and reward. We have developed long-term relationships with over 170 law firms including a representation of over 35% of the 2013 American Lawyer Global 100 Ranking (ranks the largest law firms by global revenues). These relationships with global, national, regional, and local law firms are critical as they are the key source of the Company's future investment opportunities.

We currently have a pipeline of attractive investment opportunities that are proceeding through our due diligence process.

Monitoring and managing existing investments:

While operating within strict ethical and compliance guidelines and well-developed processes and controls, we actively monitor, liaise, and advise on all matters related to the Company's investments. Our active monitoring seeks to ensure that lawyers attached to a particular case are diligently moving the case forward in an appropriate manner, the proper legal strategy is employed, the right experts are hired, and case expenses are minimised. This activity not only helps to mitigate the risk of loss on an investment but also seeks to ensure that maximum value is attained for each of the Company's investments. We speak regularly with the clients and law firms that are our investment partners in the portfolio to keep abreast of developments, ensure compliance with the Company's contractual rights, and to assist where possible based on our collective experience and judgment acquired from years of investing.

Improve return on existing investments

In some instances, we have identified opportunities to improve potential returns for existing investments or the need to restructure an investment to minimise downside risk. These opportunities may arise if an underlying case requires legal services beyond those expected when the investment was initially funded. Other opportunities to enhance existing investments occur when the claimholder wishes to fund an appeal (to enhance damages awarded or to reverse an adverse ruling). Enhancements to existing investments usually occur with financing terms that are more favourable to the Company than the terms associated with the original investment. To date, we have negotiated and the Company has funded several enhancements to existing investments including four that occurred during the year ended 31 December 2013.

Portfolio Update

Since inception and through 31 December 2013, the Company has made 25 investments representing 31 different cases or legal actions. The Company's current portfolio has a total of 15 investments representing 20 different cases or legal actions. The portfolio is diversified amongst three primary groups: antitrust and competition, patent and other forms of intellectual property, and commercial.

The cash summary for each of these groups is as noted on the following table:

1Life-to-date proceeds generated refer to current investments and completed investments.

2Reflects cash investment as of 31 December 2013 (excludes any related transaction costs) by JIL for the current investment holdings in each portfolio.

3Net of repayment of US$3.2 million.

4Reflects remaining funding commitment by JIL for the current investment holdings in each portfolio.

Antitrust and competition portfolio:

Five cases in the Company's antitrust and competition portfolio involve violation of US or European antitrust law and three of these cases also involve multi-defendant, price fixing cartels. In one of our largest investments, one of the cartel cases involves defendants that have already been found guilty of criminal violations. The sixth case in this portfolio is a special situation involving statutory claims. All of the cases in this portfolio are reaching maturity.

Case summaries:

§ Case 1208-A is set for trial in second quarter of 2014. The case previously received a favourable appellate decision, upholding a judgment of liability against the defendant. Appeals on liability have been exhausted. The case could potentially result in cash returns through settlement to the Company in excess of 15% of the current NAV. Whilst damages claimed exceed US$1.0 billion, any settlement, should one occur, would likely be for a lesser amount.

§ Case 5608-N was previously dismissed in favour of the defendant and the claimant subsequently lost its appeal. A writ of certiorari has been filed with the U.S. Supreme Court and we are awaiting a decision. The risks associated with a resolution favourable to the claimant on this case have increased and has been factored into the valuation the Manager has assigned to the case.

§ Case 8008-L was scheduled for trial in first quarter 2014 but subsequent to 31 December 2013, it was announced that the trial would be delayed following an adverse ruling on the scope of the Plaintiff's damage claim. That ruling is being appealed. The Manager has been advised that the adverse ruling is expected to be partially or wholly overturned in favour of the Plaintiff although it will result in a nine to eighteen month delay. The case could still resolve pending the ruling on the appeal. This investment has thus far delivered proceeds to the Company of approximately US$69 million.

§ Case 5208-E has completed pre-trial proceedings and is scheduled for trial against one remaining defendant in spring of 2014. All other defendants have previously settled.

§ Case 5308-U is nearing the completion of expert discovery. Challenges to expert opinions are pending decision by the trial court. All defendants, save one, have previously settled. Trial on the merits is not likely before 2015.

§ Case 1008-A is set for trial on a portion of the claims in August 2014. Other claims are awaiting further appellate proceedings.

Patent portfolio:

The Company's patent portfolio includes eight cases involving infringement of one or more patents by one or more defendants.

Case summaries:

§ Case 0108-S obtained a jury verdict in favour of the plaintiff in the amount of US$20.0 million (including punitive damages and interest). This was in line with the Investment Manager's expectation for the low end of the recovery range of this case and, if the verdict is affirmed on appeal, the Company will recover approximately US$8.3 million from its investment of US$8.3 million. A supplemental investment was made during 2013 to finance the appeal and an appeal on damages. If the appeal is successful in increasing damages awarded, the Company will receive a greater return on its investment. Significant uncertainty remains until the appeal process is completed unless the case is resolved earlier by settlement.

§ Case 0209-S is related to Case 0108-S and further proceedings will be evaluated after Case 0108-S has completed.

§ Case 0409-C obtained a jury verdict after trial in favour of the plaintiff in the amount of US$50.0 million. The Company invested US$4.8 million in this case and is entitled to receive the first US$3.0 million of cash proceeds from settlement or judgment plus 49% of remaining proceeds. Uncertainty remains until post-trial proceedings are completed, judgment is entered and appeals are completed unless the case is resolved earlier by settlement.

§ Case 0808-C received an adverse appellate ruling that significantly reduced potential damages. The case has been remanded to the trial court for further proceedings. A reduction in the fair market value of this investment has been made and is currently reflected in both our projections and our financial statements. The Investment Manager is evaluating alternatives for possible restructuring of this investment to enhance the return to the Company.

§ Case 7608-A was settled and deemed complete in the year ending 31 December 2013. Although the Company received a total of US$1.2 million in cash proceeds, the results were less than the amount the Company invested. As such, the Company realised a cash loss of approximately US$900,000 on this investment.

§ Case 2709-E received a favourable ruling on one of two patents that are subject to a re-examination proceeding. The case was stayed pending the re-examination process but is expected to restart in 2014.

§ Case 0708-B has undergone a strategic review. While the Company has received proceeds from litigation proceedings, the Investment Manager believes that significant value can be unlocked by further developing strategic alternatives. The Investment Manager is working with ipCreate, Inc. to develop these opportunities.

§ Case 7508-O has undergone a strategic restructuring. The Investment Manager has engaged ipCreate, Inc. to enhance and expand the existing portfolio of patents in the vehicle and an additional 40 patent applications are now in the process of being filed. These filings will be completed by the end of the second quarter 2014. These additions to the portfolio have been financed to date by returns from the Company's share of proceeds derived from patent sales and litigation settlements in this investment. The Manager believes that these additions to the patent portfolio have the potential to significantly enhance the return on this investment.

Commercial portfolio:

The Company's commercial portfolio consisted of investments in six cases that involve claims related to commercial disputes including: theft of trade secret, breach of contract and insurance subrogation. As noted below, the Company had two significant successes in the year ended 31 December 2013.

Case summaries:

§ Case 2510 completed in December 2013 by way of settlement. JIL's investment of US$1.0 million was made after the entry of judgment and before appeals. The appeals concluded successfully and in December the plaintiff settled with one of two defendants resulting in a payment to the Company of US$3.0 million. This brings the Company's investment in the case to a close.

§ Case 1610 has resulted in favourable arbitration award in the amount of US$4.0 million. While JIL has recouped US$4.0 million in cash proceeds from the settlement, the Company is poised to profit from its security interest in a US based coal mine, which served as a cross collateral hedge against unfavourable litigation results. The Company anticipates further proceeds from the sale of this collateral within the next 12 to 24 months.

§ Case 0608-S is no longer being funded. In accordance with the terms of the Company's funding agreement, the Company exercised its option to cease funding. Subsequently, a claim against the Company was filed and successfully defeated. The Company then pursued a counterclaim in arbitration to recoup its investment amount. While the arbitration panel disagreed on technical grounds, the Company remains entitled under its investment agreement to recover from the client any sums received by the client in connection with ancillary claims made by the client against other parties. The Company has demanded payment of approximately US$800,000 which the client has already been awarded in a related case. In addition, the Company believes that other cash assets may be available to satisfy its entitlements and is evaluating its options at this time.

§ Case 1608-T involves a judgment on behalf of insurance clients against a foreign government. Although we believe the collection efforts will ultimately be successful, timing and collection risk have increased. The carrying value of this investment has been reduced to reflect this increased risk.

§ Case 5009-S involves alleged theft of trade secrets and other contractual claims. Claimed damages are in excess of US$500 million. The Company's interest in any settlement is 24% or more. Any settlement is expected to be for less than claimed damages. The case has not been set for trial but trial is expected to occur during 2014.

§ Case 1410 involves a theft of business claim. The trial court ruling on liability resulted in a positive ruling. Cross-appeals on liability and plaintiffs appeal on damages are underway.

§ Case 6609-S involves a large, multi-party pre-litigation settlement opportunity that we believe has the potential to generate significant proceeds to the Company. Settlement negotiations for a portion of the opportunity are underway. This investment is being accounted for partially as an intangible asset and partially as a contractual interest.

Valuation

The Investment Manager values JIL's investments using valuation and accounting methods that are applied in a manner that follows International Financial Reporting Standards' ("IFRS") accounting principles.

The Company has adopted IFRS 13 for the year ended 31 December 2013. The method of applying fair value accounting is designed to show the discounted value of a case or investment based on its expected terminal value and expected completion date.

We determine our initial expectations on quantum and timing of case results by assigning a probability of various scenarios coming to fruition and applying risk factors that: i) are intrinsic to the specific case; and ii) reflect general risks within and outside of the legal process. Our assumptions behind fair value accounting are revisited on a bi-annual basis. If needed, we will re-run the investment's valuation model and revise its expected future cash flow which we then discount to the reporting date. The discount rate used for valuation purposes is the Company's cost of equity.

Under recent IFRS guidance, all due diligence and transaction costs related to an investment are to be expensed. This differs from the Company's prior method which capitalised all of these costs. The Company's basis in each of its investments has been adjusted to reflect removal of any due diligence and transaction costs. This change in treatment of due diligence and transaction costs ultimately has no impact on an investment's expected terminal value or current period valuation.

As of 31 December 2013, the Investment Manager examined the valuation for all of JIL's core investments. In doing so, the following adjustments were made to their individual valuations:

§ Since the year ended 31 December 2012, the valuation of the Company's contractual interests increased by approximately US$4.1 million reflecting the net of US$3.5 million in additional investment funding, US$3.2 million in proceeds received, US$2.6 million net increase due to each investment's individual change in fair value (after removal of capitalised due diligence and transaction costs), and US$1.2 million in realised gain.

§ Since the year ended 31 December 2012, the valuation of the Company's debt securities decreased by approximately US$24.3 million reflecting the net of US$2.0 million in additional investment funding, US$30.0 million in proceeds received, and a US$3.7 million increase in the fair value (after removal of capitalised due diligence and transaction costs). 

§ Since the year ended 31 December 2012, the valuation of the Company's equity investments increased by approximately US$2.5 million reflecting the net of US$2.0 million in additional investment funding, US$4.0 million in proceeds received, US$3.2 million net increase in each investment's individual change in fair value (after removal of capitalised due diligence and transaction costs), and US$1.3 million in realised gain.

§ Since the year ended 31 December 2012, the valuation of the Company's intangible assets increased by approximately US$800,000 reflecting the net impact of additional investment funding and amortisation charge.

In addition to the above valuation changes, the Company has attributed a value of US$1.8 million to forward currency contracts that were purchased to protect the Company from currency fluctuations after it declared its 2013 dividends.

Notable Activities 

The following activities reflect advancement in JIL's portfolio. One or more of these events may have a significant positive impact on the Company's NAV. It is possible that one or more settlements may be concluded as a result of an award or judgment or prior to conclusion of a case that could result in net cash proceeds to the Company in excess of 10% of its current NAV.

Two antitrust cases that comprise part of the security for the loan facility made to Fields Law may complete or reach an advanced stage during the next 6 to 18 months. Both cases have significant damages claimed by their plaintiffs that, if awarded by a jury, will be automatically trebled by the court. A judgment in any of these cases would, of course, be subject to appeal and possible reversal by one or more appellate courts and appeals could result in a delay of several years prior to collection or settlement. We expect that if any of these cases is resolved by settlement, the amount of settlement will be substantially less than the claimed damages and/or any judgment entered by the trial court for each case. We also expect that if any of these cases is settled prior to completion or a favourable jury verdict is rendered and the trial court enters judgment, such a result will have a significant positive impact on the Company's net asset value.

Outlook

Given the uncertain nature of litigation in general and the quantum of damages that trial juries may award, the Company's portfolio has the characteristics to produce a wide range of potential returns. This does not detract from our belief that JIL has invested in an excellent, high quality portfolio of cases.

We believe the Company's portfolio will continue to see significant activity within the next 12 to 18 months. This expectation is based on the Investment Manager's knowledge from managing the Company's investments. Knowledge the Investment Manager possesses includes: confirmed trial dates; expected final decisions following trial or arbitration; and various other factors. Each of these milestones, if successful, creates real incentives for defendants to seek settlements. In addition, settlement discussions are on-going for certain investments. 

We are optimistic that the portfolio will produce further returns of capital over the next 12 to 18 months, and beyond. Our robust pipeline of investments presents excellent opportunities for growing the capital base and income of the Company.

The Investment Manager would like to thank investors for their continued support. As always, we are committed to providing timely announcements and accurate reporting with as much transparency as possible.

Disclaimer on Forward Looking Statements

This report contains forward looking statements, which are based on the current expectations and assumptions of the Investment Manager and involve known and unknown risks and uncertainties that could cause actual results or performance to differ materially from those expressed or implied in such statements. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of variables that could cause actual results or trends to differ materially. Each forward looking statement speaks only as of the date of this report. Except as required by the AIM Rules or otherwise by law, the Company and the Manager expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the Company's or Manager's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Juridica Asset Management Limited

20 March 2014

Directors' Report

The Directors present their report together with the audited financial statements of Juridica Investments Limited (the "Company") for the year ended 31 December 2013, with restated comparative information for the year ended 31 December 2012.

Restatement of comparative information

The Company has early adopted IFRS 9, 'Financial Instruments', and has also adopted IFRS 10, 'Consolidated financial statements', IFRS 11, 'Joint arrangements', IFRS 12, 'Disclosure of interests in other entities' and IAS 28, 'Investments in associates and joint ventures', and has applied the transition guidance amendments to IFRSs 10, 11 and 12, all effective 1 January 2013.

The Company has early adopted the Investment Entities amendments to IFRS 10, IFRS 12 and IAS 27 (the ''Amendments'') which are effective 1 January 2014, with early adoption permitted. On adoption, the Company has determined that it meets the definition of an investment entity, as the Company has multiple unrelated investors and indirectly holds multiple investments through the subsidiary companies. As a result, the Company has changed its accounting policy with respect to its investment in its subsidiaries. The subsidiaries, which were previously consolidated, are now accounted for as investments at fair value through profit or loss. The adoption of the above standards and amendments has had no impact on the 'net assets attributable to ordinary shareholders'. It has had an impact on the presentation of the financial statements and the restatement of the prior year comparatives.

Principal activities

The Company is an authorised closed-ended investment company incorporated under The Companies (Guernsey) Law, 2008 ("the Law"). The Law does not make a distinction between private and public companies. Shares in the Company were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 December 2007. The address of the Company's registered office is 11 New Street, St Peter Port, Guernsey, GY1 2PF.

Investment objective and policy

The investment objective of the Company is to build a diversified portfolio of investments in claims and to provide Shareholders with an attractive level of dividends and capital growth through investing directly and indirectly in litigation and arbitration cases, claims and disputes. These investments have been made predominantly in the United States although the Company may make investments outside of the United States in jurisdictions where such investments are lawful and permitted under local law and rules on professional ethics.

Results and dividend

The results for the year are shown in the Statement of Comprehensive Income on page 20. The Company declared a dividend of 10 pence per share on 4 July 2013, and also formally declared a supplementary dividend of 4 pence per share on 31 October 2013. Accordingly a total of 14 pence per share was paid on 15 January 2014 to shareholders on the register at 13 December 2013. The dividend was funded by the US$30.0 million in cash proceeds from partial settlements that were paid to the Company on 20 December 2013. This declared dividend is consistent with the Company's policy of returning actual net cash profits to shareholders and follows the 20 pence per share in dividends paid in January 2013.

Changes to Administrator and Investment Manager

With effect from 1 October 2013, Legis Fund Services Limited was appointed as Administrator and Designated Manager of the Company.

The appointment of Juridica Capital Management Limited as Investment Manager was terminated by the Company with effect from 31 December 2013. Fields Capital Management Limited was appointed to replace Juridica Capital Management Limited as Investment Manager to the Company with effect from 1 January 2014. On 2 January 2014, Fields Capital Management Limited changed its name to Juridica Asset Management Limited, and on the same date Juridica Capital Management Limited changed its name to JCML 2007 Limited.

Audit Committee

The Audit Committee consists of Richard Battey, Lord Daniel Brennan and Kermit Birchfield. The Audit Committee is chaired by Mr Battey, and meets at least once a year to review the annual accounts, audit timetable, and other risk management and governance matters.

Statement of Directors' responsibilities in respect of financial statements

The Directors are responsible for preparing financial statements for each financial year which give a true and fair view, in accordance with applicable Guernsey law and International Financial Reporting Standards, of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:

§ select suitable accounting policies and then apply them consistently;

§ make judgements and estimates that are reasonable and prudent;

§ state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

§ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as the Directors are aware, there is no relevant audit information of which the Company's Auditor is unaware, and each Director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

The maintenance and integrity of the Company's website is the responsibility of the Directors. The work carried out by the Auditor does not involve consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. To the best of our knowledge, and in accordance with the applicable reporting principles, the financial statements give a true and fair view of the assets, liabilities, financial position, comprehensive income and cash flows of the Company, although there is uncertainty around valuation of the Company's investments in the absence of an established market. The Investment Manager's report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal opportunities and risks associated with the expected development of the Company.

Furthermore, to the best of our knowledge and belief, this annual report includes a fair review of the development and performance of the business and the position of the Company as at 31 December 2013 together with a description of the principal risks and uncertainties that the Company faces.

In accordance with The Companies (Guernsey) Law, 2008, each Director confirms that there is no relevant audit information of which the Company's Auditor is unaware. Each Director also confirms that they have taken all steps they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

Independent Auditor

The Auditor, PricewaterhouseCoopers CI LLP, have expressed their willingness to continue in office and a resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting. 

Continuation and going concern

In accordance with the Company's Admission Document of 17 December 2007, the Directors convened an extraordinary general meeting of the Company, on 14 November 2013, at which a resolution was proposed that the Company be wound up voluntarily. The resolution was not passed by the Company's members. The Directors shall convene an extraordinary general meeting of the Company every three years from the date of the original meeting at which the winding-up proposal shall again be put to the Company's members.

The Directors have given consideration to the maturity of the Company's existing portfolio, the performance of the portfolio to date, the prospects for future investments and expected future cash flows, and the rejection of the resolution to voluntarily wind up the Company by the shareholders. In addition, the Directors have reviewed the Company's budgets and cash flows for the year ahead and, accordingly, are satisfied on reasonable grounds that it is appropriate to prepare these financial statements on a going concern basis.

Approved by the Board of Directors on 20 March 2014 and signed on their behalf:

RJ Battey

Director

Independent Auditors' Report to the Members of Juridica Investments Limited

Report on the financial statements

We have audited the accompanying financial statements of Juridica Investments Limited which comprise the statement of financial position as of 31 December 2013, the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended and a summary of significant accounting policies and other explanatory information.

Directors' responsibility for the financial statements

The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and with the requirements of Guernsey law. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Company as of 31 December 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

Emphasis of Matter

Without qualifying our opinion, we draw your attention to Notes 2(d), 3 and 17(a) to the financial statements surrounding the fair value of non-current assets. The financial statements include non-current assets stated at their fair value of US$194,677,369. Due to the inherent uncertainty associated with the valuation of such non-current assets and the absence of a liquid market, these fair values may differ from their realisable values, and the differences could be material.

Report on other legal and regulatory requirements

We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Corporate Information, the Chairman's Statement, the Investment Manager's report, the Directors' report, the Notice of Annual General Meeting and the Form of Proxy.

In our opinion the information given in the Directors' report is consistent with the financial statements.

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers CI LLP

Chartered Accountants

Guernsey, Channel Islands

20 March 2014

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

The notes on pages 24 to 47 form an integral part of these financial statements.

STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 31 DECEMBER 2013

These financial statements were approved and authorised for issue by the Board of Directors on 20 March 2014 and signed on its behalf by:

RJ Battey

Director

The notes on pages 24 to 47 form an integral part of these financial statements.

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

The notes on pages 24 to 47 form an integral part of these financial statements.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

The notes on pages 24 to 47 form an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1. LEGAL FORM AND PRINCIPAL ACTIVITY

The Company is an authorised closed-ended investment company incorporated under The Companies (Guernsey) Law, 2008 ("the Law"). The Law does not make a distinction between private and public companies. Shares in the Company were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 December 2007. The address of the Company's registered office is 11 New Street, St Peter Port, Guernsey, Channel Islands, GY1 2PF.

The investment objective of the Company is to build a diversified portfolio of investments in claims and to provide Shareholders with an attractive level of dividends and capital growth through investing directly and indirectly in litigation and arbitration cases, claims and disputes.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

a) Basis of Preparation

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") and all applicable requirements of The Companies (Guernsey) Law, 2008. They have been prepared on a going concern basis, under the historical cost convention as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

In accordance with the Company's Admission Document of 17 December 2007 and its Articles of Incorporation, the Directors convened an extraordinary general meeting of the Company, on 14 November 2013, at which a resolution was proposed that the Company be wound up voluntarily. As recommended by the Directors, the resolution was not passed by the Company's members. The Directors shall convene an extraordinary general meeting of the Company every three years from the date of this meeting at which the winding-up proposal shall again be put to the Company's members.

i) Standards, amendments and interpretations effective on or after 1 January 2013 and adopted by the Company

The Company has adopted IFRS 10 'Consolidated financial statements', IFRS 11 'Joint arrangements', IFRS 12 'Disclosure of interests in other entities', IFRS 13 'Fair value measurement' and IAS 28 'Investments in associates and joint ventures' and the amendments to IFRS 7 'Disclosures - Offsetting financial assets and financial liabilities', and has applied the transition guidance amendments to IFRSs 10, 11 and 12, all effective 1 January 2013.

Amendments to IFRS 7, 'Disclosures - Offsetting financial assets and financial liabilities' require additional disclosures to enable users of financial statements to evaluate the effect or the potential effects of netting arrangements, including rights of set-off associated with an entity's recognised financial assets and recognised financial liabilities, on the entity's financial position. The amendments did not have any impact on the Company's financial position or performance, however, have resulted in additional disclosure in the notes to the financial statements.

IFRS 10 'Consolidated financial statements' and Amendments to IFRS 10: The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements. It sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. It also sets out the accounting requirements for the preparation of consolidated financial statements.

IFRS 11 'Joint arrangements' and IAS 28 (revised 2011) 'Associates and joint ventures', and related amendments, have also been adopted, however, these standards have had no impact on the Company.

IFRS 12 'Disclosure of interests in other entities' and amendments to IFRS 12: The standard requires entities to disclose significant judgments and assumptions made in determining whether the entity controls, jointly controls, significantly influences or has some other interests in other entities. Entities will also be required to provide more disclosures around certain 'structured entities'. The amendments also introduce new disclosure requirements related to investment entities. Adoption of the standard has impacted the Company's level of disclosures in certain of the above noted areas, but has not impacted the Company's financial position or results of operations.

IFRS 13, 'Fair value measurement' - The standard improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. As a result of this IFRS, the valuation of the contractual interests has been changed from an effective interest method to a fair value method. The change in valuation is considered to be a change in estimate in accordance with IAS 8.

ii) Standards, amendments and interpretations to existing standards that have been early adopted by the Company

The Company has early adopted IFRS 9 'Financial instruments', and also early adopted the Investment Entities amendments to IFRS 10, IFRS 12 and IAS 27 (the "Amendments").

IFRS 9 'Financial instruments'. Effective 1 January 2017: The Directors of the Company have assessed the impact of the amendments and believe that the new accounting standard does not significantly affect the Company's results of operations or financial position. The Directors of the Company do, however, believe that the standard requires amendments to financial reporting procedures applied in the preparation of the financial statements and has an impact on the level of disclosures in the financial statements.

The amendments to IFRS 10 are effective 1 January 2014, and define an investment entity and introduce an exception from the consolidation requirements for investment entities.

The Company has determined that it meets the definition of an investment entity (see Note 2(b)). As a result, the Company has changed its accounting policy with respect to its investment in its subsidiaries. The subsidiaries, which were previously consolidated, are now accounted for at fair value through profit or loss. In addition, none of the subsidiary companies is considered to provide services to the Company. This change in accounting policy has been applied retrospectively in accordance with the transition provisions of IFRS 10 and the Amendments to IFRS 10. The transition provisions require retrospective application in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors'. However, they specify that an entity needs only to present the quantitative information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the date of initial application.

Adoption of the above standards and amendments has had no impact on the 'net assets attributable to ordinary shareholders'. It has had an impact on the presentation of the financial statements and the restatement of the prior year comparatives. Other standards in issue but not yet effective which are not relevant to the Company have not been listed above.

b) Investment entity

The Company has multiple unrelated investors and indirectly holds multiple investments through the subsidiary companies. Ownership interests in the Company are in the form of redeemable shares which are classified as equity in accordance with IAS 32 and which are exposed to variable returns from changes in the fair value of the Company's net assets. The Company has been deemed to meet the definition of an investment entity per IFRS 10 as the following conditions exist:

(a) The Company has obtained funds for the purpose of providing investors with investment management services.

(b) The Company's business purpose, which was communicated directly to investors, is investing solely for returns from capital appreciation and investment income.

(c) The performance of investments made through the Company are measured and evaluated on a fair value basis.

c) Geographical and segmental reporting

Since the Company is engaged in the provision of similar products and services within a particular economic environment, being subject to similar risks and returns, the management considers that the Company has only one business segment and geographical focus, being investments in legal claims primarily in the United States (US), and accordingly does not present additional business and geographical segment information. The Investment Manager is responsible for the investment decisions for the Company's entire portfolio and considers the business to have a single operating segment. The Investment Manager's asset allocation decisions are based on a single, integrated investment strategy, and the Company's performance is evaluated on an overall basis.

d) Financial assets at fair value through profit or loss

i) Contractual interests

Classification

Unless otherwise determined by the Company, investments in claims will be categorised as contractual interests held at fair value through profit or loss. These financial assets will initially be measured as the cash sum provided to acquire an interest in a plaintiff's claim or as the cash advanced to law firms under loan agreements ("Qualifying Agreements"). Attributable due diligence costs are expensed when they occur.

Recognition, derecognition and measurement

Subsequent measurement of contractual interests will be at fair value utilising a fair value model developed by the Investment Manager. The principal assumptions to be used in the fair value model are as follows:

§ Estimated duration of each contractual interest; and

§ Best estimate of anticipated outcome.

Movement in fair value arising on all performing contractual interests is recognised in the Statement of Comprehensive Income, as determined by utilising the fair valuation model.

The fair valuation model is a way of calculating the fair value of a financial asset or liability and of recognising the fair value gains and losses in that period.

Fair value estimation

Fair value will be reviewed semi-annually on an individual case basis. Events that will trigger changes to the fair value of each contractual interest include the following:

§ Changes in general US dollar interest rate assumptions (market assumption) and the time value of money;

§ Changes in any variable relating to a claim including: assessment of probability of successful judgement; range of settlement or award; expected timing until claim resolution; and extrinsic risks related to a claim;

§ Successful judgement of a claim in which the Company has a contractual interest;

§ Unsuccessful judgement of a claim in which the Company has a contractual interest;

§ Outstanding appeals against both successful and unsuccessful judgements;

§ A contractual interest to be sold at a discount or to be settled out of Court by a binding agreement;

§ Legal impediments to collectability of claims (in the US Chapter 7 Bankruptcy or Chapter 11 Court Protection from Creditors); and

§ A case is dismissed with prejudice (meaning, it can never be re-filed anywhere).

Partial settlement

Partial settlement of contractual interests occur when one or more parties, but not all parties, involved in the matter agree to terms on a settlement amount. Proceeds received by the Company are allocated between return of original principal and any gain based on the following process:

§ Proceeds are discounted back to the original investment date at a discount rate equal to the internal rate of return of the most recent valuation;

§ This discounted value represents the portion of proceeds attributable to a return of investment with the remainder representing a gain associated with the partial settlement; and

§ The amount representing the gain is then compared against any prior gain recognised on the portion of the proceeds attributed to a return of investment (calculated by using the fair valuation model) with the difference reflected as current year realised gain or loss.

Full settlement

Full settlement of contractual interests occur when all parties involved in the matter agree to terms on a settlement amount or the full legal process has concluded with either proceeds being awarded or dismissal (no proceeds awarded). Proceeds received by the Company are first allocated to the return of any remaining principal with the remainder allocated to gain. The amount representing the gain is then compared against any prior gain recognised on the portion of the proceeds attributed to a return of investment (calculated by using the fair valuation model) with the difference reflected as current year realised gain or loss.

ii) Equity investments

Classification

The company classifies its equity investments at fair value through profit or loss at inception. These financial assets will initially be measured as the cash sum provided to acquire the investment. Attributable due diligence costs are expensed when they occur.

Equity investments are intended to be held for an indefinite period of time, and that may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The Company could be seen to have significant influence over certain of its equity investments as a result of its stake in each of those assets. If significant influence exists, that investment, under IFRS, should be accounted for as an 'Associate' and hence the equity accounting method should be applied. However, the Board have taken the view that (a) there is no material difference in accounting for these investments as associates and accounting for them as financial assets at fair value; (b) there is no material difference in the disclosure; and (c) the strategy of the Company is to hold investments as part of an investment portfolio with a view to the ultimate realisation of capital gains rather than as a medium to carry out its own business, hence accounting for these investments as non-current assets is the most appropriate method.

Recognition, derecognition and measurement

Equity investments will initially be measured at cost and are subsequently carried at fair value. Gains and losses arising from changes in the fair value are recognised in the Statement of Comprehensive Income.

Fair value estimation

The assessment of fair value is determined by the level of assets of the investments (including intellectual property), the quality of income and earnings and the projection of future cash flows of the equity investments.

Settlement

When equity investments are sold or impaired, the movement in fair value will be recognised in the Statement of Comprehensive Income. The estimates and assumptions made by the investment manager in determining this fair value have been outlined in Note 3.

iii) Debt securities

Classification

Debt security investments are classified at fair value through profit or loss at inception. These financial assets will initially be measured as the cash sum advanced to the law firm.

Recognition, derecognition and measurement

The debt security investments will initially be measured at cost and are subsequently carried at fair value. Gains and losses arising from changes in the fair value are recognised in the Statement of Comprehensive Income.

Fair value estimation

Fair value is determined by the present value of future cash flows, at the discount rate of the Company.

Settlement

When debt security investments are sold, the movement in fair value will be recognised in the Statement of Comprehensive Income. The estimates and assumptions made by the investment manager in determining this fair value have been outlined in Note 3.

iv) Forward foreign currency contracts

Classification, recognition, derecognition and measurement

Forward foreign currency contracts are classified as financial instruments at fair value through profit or loss at inception. They will initially be measured at the contractual amount at the date the contract is entered in to. The forward currency contracts will be effectively considered closed, with the number of contracts bought long and sold short offset, where a contractual or legal right of offset exists. Accordingly, only gains and losses arising from changes in the fair value are recognised in the Statement of Comprehensive Income.

Fair value estimation

Fair value is determined by the foreign currency exchange rate prevailing at that date.

Settlement

Settlement will occur at the date the contract is due to expire. Gains and losses on the settlement of the contracts will be recognised as realised gains or losses at this time, in the Statement of Comprehensive Income.

e) Due diligence and transaction costs

The due diligence and transaction costs attributable to investments in contractual interests, equity investments and debt securities, and any other due diligence and transaction costs not directly relating to an investment, have been expensed immediately in the Statement of Comprehensive Income.

Due diligence and transaction costs associated with investments characterised as intangible assets are expensed until such time as the following has been affirmed: i) the technical feasibility of completing the intangible so that it will be available for use or sale; ii) the intention to complete the intangible asset and use or sell it; iii) the ability to use or sell the intangible asset; iv) how the intangible asset will generate probable future economic benefits; v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the asset; and vi) the ability to measure reliably the expenditure attributable to the intangible asset during its development, at which time they are capitalised as an intangible asset and held at cost less accumulated amortisation and any impairment loss.

f) Foreign currency

Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (''the functional currency''). The functional currency of the Company as determined in accordance with IFRS is the United States Dollar ("US Dollar") because this is the currency that best reflects the economic substance of the underlying events and circumstances of the Company. The financial statements are presented in US Dollars, the presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

g) Finance income

Finance income arising on cash and cash equivalents is recognised in the Statement of Comprehensive Income on the effective interest basis.

h) Cash and cash equivalents

Cash and cash equivalents comprise of cash balances and deposits held at banks with a maturity profile of 3 months or less.

i) Taxation

The Company has obtained exempt company status in Guernsey. The Company is, therefore, only liable to an annual exemption fee of £600. The Company's subsidiaries are subject to income tax in their respective jurisdictions.

To the extent that any foreign withholding taxes or any form of profits taxes become payable, these will be accrued on the basis of the event that created the liability to taxation.

j) Expenses

Expenses are accounted for on an accruals basis. Expenses for monitoring claims will generally be paid by the Investment Manager except in extraordinary circumstances approved by the Board of Directors of the Company.

k) Dividends

Dividends declared during the period will be disclosed directly in equity via the statement of changes in equity. A final dividend proposed by the Board and approved by the shareholders prior to the period end will be disclosed as a liability. Dividends proposed and not approved will be disclosed in the notes.

l) Other receivables and prepayments

Other receivables and prepayments are recognised initially at fair value and subsequently measured at cost, less provision for impairment.

m) Other payables

Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

n) Capital and reserves

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity via the special reserve as a deduction from the issue proceeds.

Where any group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders.

o) Intangible asset

Where the Company has entered into an agency agreement involving licensing of intellectual property, the resulting transaction will be categorised as an intangible asset (see Note 4). The cost of the intangible asset will be capitalised once it is possible to demonstrate that the intangible asset will generate probable future economic benefit. Intangible assets will be held at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation will be on a systematic basis over the asset's useful life.

p) Put option

The put option was previously carried at fair value, which was assessed by considering the present value of the redemption amount (see Note 13).

q) Impairment of assets

The carrying amounts of assets are assessed on a semi-annual basis to determine whether there is any indication of impairment. If such indication exists, the Company estimates the recoverable amount of the asset, being the higher of the asset's net selling price and its value in use. Any impairment loss is recognised for the amount which the asset's recoverable amount is lower than its carrying value and the difference being taken to the Statement of Comprehensive Income.

The Company first assesses whether objective evidence of impairment exists. The criteria that the Company may use to determine that there is objective evidence of an impairment loss include:

§ significant financial difficulty of the obligor;

§ a breach of contract, such as a default or delinquency in interest or principal payments;

§ the Company, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

§ it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; or

§ Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: (i) adverse changes in the payment status of borrowers in the portfolio; and (ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the contractual interest/debt securities' original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the Statement of Comprehensive Income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the Statement of Comprehensive Income. In the year ended 31 December 2013 there were no impairments (2012: US$ Nil).

r) Share-based payments transactions

The Company engages in equity settled share-based payment transactions in respect of the services received from one of its Directors and from Cenkos Securities PLC ("Nominated Adviser and Broker") as set out in the Company's Admission Document. The fair value of the services received is measured by reference to the fair value of the shares or share options granted on the date of the grant. The fair value of the share options is recognised in the Statement of Comprehensive Income over the period that the services are received, which is the vesting period.

The fair value of the options granted is determined using the Black-Scholes option pricing model, which takes into account the exercise price of the option, the current share price, the risk free interest rate, the expected volatility of the share price over the life of the option and other relevant factors. Except for those which include terms relating to market conditions, vesting conditions included in the terms of the grant are not taken into account in estimating the fair value.

Non-market vesting conditions are taken into account by adjusting the number of shares or share options included in the measurement of the cost of the services so that, ultimately, the amount recognised in the Statement of Comprehensive Income reflects the number of vested shares or share options. Where vesting conditions are related to market conditions, the charges for the services received are recognised regardless of whether or not the market conditions-related vesting condition is met, provided that the non-market vesting conditions are met.

s) Earnings per share

The basic earnings per share value is calculated by taking the total comprehensive income/loss for the period and dividing it by the weighted average number of ordinary shares in issue over the period. The fully diluted earnings per share figure is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

t) Net asset value per share

Net asset value per share is calculated by taking the net assets attributable to ordinary shareholders and dividing it by the number of shares in issue at the period end.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Investment Manager makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined below.

Critical accounting judgements in applying the Company's accounting policies

The Company makes investments in claims that may involve litigation. The nature of the investments made by the Company reduces by some predetermined amount the cost of litigating a matter to a plaintiff and/or a law firm. A typical investment by the Company will include cash and may also include cash commitments subject to certain restrictions. In most arrangements, the Company is paid only from proceeds generated from the litigation and any related settlement or award. If a lawsuit fails to generate any proceeds and all legal remedies are exhausted, the Company will often not be entitled to reimbursement of the facility they advanced to the counterparty for the specific claim. In these cases the Company will write off their investment in the claim as a loss. The Company is compensated for this risk through the return structure built into the investment. The Company mitigates this risk through the use of their Investment Manager which is experienced in evaluating the investment worthiness of a particular opportunity.

In the process of applying the Company's accounting policies, which are described in Note 2, the Directors have relied upon the Investment Manager's assessment of the fair value of contractual interests including the probability of success on the merits of each claim, likelihood of settlement and claim duration. This is most evident in the assessment of the fair value applied to contracts entered into by the Company, as disclosed in Note 5.

To determine the appropriate fair value to apply to each contract, the Investment Manager follows a formal process of developing a set of scenarios for each case and assigns probabilities to each potential outcome. The probabilities are phased based on the expected progression path of each particular case. In addition, each potential successful scenario has a range of likely settlement proceeds assigned to it as well as a most likely resolution or settlement date. The scenarios not only incorporate the merits of each particular case but also consider known risks intrinsic to the particular matter, as well as general risks found in any litigation matter.

The Investment Manager then runs a Monte-Carlo method analysis which dictates that the Investment Manager runs algorithms that rely on random sampling based on the variables within each scenario and their related probabilities. The results of the analysis provide expected outcomes and other statistical data which is used to calculate the future valuation of each particular contractual interest. A discount rate is then applied to the future value to determine the current fair value.

The determination of the functional currency of the Company is critical since recording of transactions and exchange differences arising therefrom are dependent on the functional currency selected. As described in Note 2, the Directors have considered those factors described therein and have determined that the functional currency of the Company is the United States Dollar (US$).

4. INTANGIBLE ASSET

The Company's intangible asset comprises an investment structured as an agency agreement. In addition, the Company purchased common and preferred stock related to the intangible asset in 2012. As at 31 December 2013 cost of US$1,602,510 is deemed an appropriate approximation of fair value (31 December 2012: US$1,602,510), and has been classified as a financial asset at fair value through profit or loss (Note 5). No provision for impairment is deemed to be required.

Additions to the intangible asset during the first half of the year are deemed to have occurred at 30 June 2013 and additions during the second half of the year are deemed to have occurred at 31 December 2013. The Company amortises the intangible asset on a diminishing balance basis at a rate of 16.7 per cent every 6 months. The Directors consider that the diminishing balance basis of amortisation most accurately reflects the pattern in which the asset's future economic benefits are expected to be consumed by the Company.

5. FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS

a) Contractual interests

Contractual interests have been accounted for using the fair value model. At 31 December 2013, the Company had investments in 11 contractual interests (31 December 2012: 12 contractual interests).

The Company had one contractual interest that came to full settlement during the year. Fair value movements of contractual interests are due to amendments in estimated cash flows arising from changes in expectations surrounding each case. The valuation of the Company's contractual interests increased by approximately US$4.1 million reflecting the net of US$3.5 million in additional investment funding, US$3.2 million in proceeds received, US$2.6 million net increase due to each investment's individual change in fair value, and US$1.2 million in realised gain.

b) Equity investments

The Company's equity investments include a holding in JCML 2007 Limited ("JCML"). The fair value of the Company's investment in JCML was assessed as at 31 December 2013 to be US$5,501,158 (31 December 2012: US$6,151,811). This assessment of fair value is deemed appropriate given the investment in the company, the level of assets (including intellectual property), and the quality of income and earnings and the projection of future cash flows. The valuation of the Company's equity investments increased by approximately US$2.5 million reflecting the net of US$2.0 million in additional investment funding, US$4.0 million in proceeds received, US$3.2 million net increase in each investment's individual change in fair value, and US$1.3 million in realised gain.

c) Debt securities

Note 16(d) details arrangements between the Company and Fields Law PLLC ("FL"). The Loan and the Swap have been aggregated and treated as a single claim asset. Returns on the Loan and the Swap are dependent on returns in claims financed by FL.

During the year, the Company received settlement and other revenue related activity totalling US$30.0 million (31 December 2012: US$37.2 million) from its debt securities. All of this revenue was previously recognised as unrealised income in current and prior years through fair value movements due to effective interest rate change and changes in estimated cash flows.

Fair value movements of debt securities are due to amendments in estimated cash flows arising from changes in expectations surrounding each investment. The valuation of the Company's debt securities decreased by approximately US$24.3 million reflecting the net of US$2.0 million in additional investment funding, US$30.0 million in proceeds received, and a US$3.7 million increase in the fair value (after removal of capitalised due diligence and transaction costs). 

d) Forward foreign currency contracts

The company has two forward foreign currency contracts at year end. These are in place to settle declared dividend distributions in Sterling. The contracts in place at year end are as follows:

6. FAIR VALUE ESTIMATION

For instruments for which there is no active market and for which reliable pricing sources cannot be obtained, the Company may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value unlisted equity, debt securities and other debt instruments for which markets are or have been inactive during the financial year. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.

The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values.

IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

§ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

§ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

§ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include equity securities. As observable prices are not available for these securities, the Company has used valuation techniques to derive their fair value.

All of the Company's financial assets and liabilities are classified as Level 3.

There were no transfers between levels for the year ended 31 December 2013 (31 December 2012: Nil).

The following table presents the movement in level 3 instruments by class of financial instrument:

The Company has identified three key unobservable inputs to the valuation model used in the valuation of investments held at fair value through profit or loss: expected quantum, expected duration, and cost of equity.

Expected quantum

The greater the quantum expected at conclusion, the greater the valuation at any point in time, other than at conclusion. However, the sensitivity of the present value of an investment to changes in expected terminal value is dependent on the investment's base internal rate of return ("IRR"). The higher the base IRR, the lower the impact a change in expected quantum will have on valuation.

Expected duration

The greater the expected duration of an investment, the lower the valuation at any point in time, other than at conclusion. However, the sensitivity of the present value of an investment to changes in expected duration is dependent on an investment's base IRR. The higher the base IRR, the lower the impact a change in expected duration will have on valuation.

Cost of equity

As the Company's cost of equity decreases, the valuations at any point in time will increase, other than at conclusion. As the Company's cost of equity increases, the valuations at any point in time will decrease, other than at conclusion.

The following table summarised the sensitivities:

7. UNCONSOLIDATED SUBSIDIARY INVESTMENTS

The following subsidiary investments are held by the Company but have not been consolidated, following the investment entities exemption per IFRS 10 (see Note 2 (b)):

There are no outstanding commitments with these unconsolidated subsidiaries at the year end, other than those disclosed in Note 11.

8. OTHER RECEIVABLES AND PREPAYMENTS

9. DIVIDENDS

The following dividends were declared during the year:

At 31 December 2013, dividends totalling US$25,674,393 had been declared and were payable. Dividends totalling $33,562,775 were declared during the year ended 31 December 2012 of which US$22,105,995 were payable as at 31 December 2012.

Forward currency exchange contracts had been taken out at the date of declaration of dividends to manage the exposure to fluctuations in foreign currency exchange rates, as detailed in Note 5(d).

10. OTHER PAYABLES

11. COMMITMENTS & GUARANTEES

Under the terms of some of its contracts, the Company provides a line of credit to counterparties. As at 31 December 2013, the maximum commitment under these lines of credit was US$5.8 million (31 December 2012: US$8.3 million).

12. FUNCTIONAL AND PRESENTATION CURRENCY / EXCHANGE RATES

The financial statements are presented in United States Dollar ("US$") which is also the Company's functional currency. The following rate was applicable as at 31 December:

13. PUT OPTION

In October 2009, the Company sold 8% of the interest in Riverbend Investments Limited, to an unaffiliated party. As part of this transaction, the Company issued a put option to the buyer providing him with the ability to sell back the shares to the Company at a value based on a predetermined formula.

The put option had an increasing strike price based on the number of days from the date of sale of the interest until the third anniversary of the date of sale. On the third anniversary of the date of sale, the put option would have had a strike price of US$7,000,000 and would have expired on the following day. In August 2012, the Put Option was exercised for a total sale price of US$6,743,157.

14. CHANGE IN ACCOUNTING POLICY AND TRANSITION

As a result of the adoption of IFRS 10 and the Amendments to IFRS 10, the Company has changed its accounting policy with respect to its investment in its subsidiaries. The subsidiaries which were previously consolidated are now accounted for at fair value through profit or loss. The transition provisions require retrospective application in accordance with IAS 8. However, they specify that an entity need only present the quantitative information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the date of initial application. Comparative amounts have been restated in accordance with the transition guidance.

The following tables show the adjustments made to each affected financial statement line item for the comparative period.

15. CAPITAL AND RESERVES

Authorised share capital: Unlimited number of ordinary shares of no par value ("shares").

Issued share capital: 110,701,754 shares as of 31 December 2013 (31 December 2012: 104,701,754 Shares), of which 80,000,000 shares were issued at a premium of £1 per share on admission, and a further 30,701,754 shares issued at a premium of £1.14 on 6 April 2009. Under a Share Buyback Programme, the Company acquired 6,000,000 Shares at a price of £1.02 per share on 3 November 2010, and the Company also received 126,607 of its own shares subsequent to an in-specie dividend received from the Investment Manager, JCML 2007 Limited, on 27 November 2013. These shares were held in treasury, however were subsequently sold for a premium at £1.39. As at 31 December 2013, the number of shares held in treasury was nil (31 December 2012: 6,000,000).

The Company's capital is represented by ordinary shares of no par value and share premium. Each share carries one vote and is entitled to dividends when declared. The relevant movements in capital are shown on the statement of changes in equity through the special reserve.

The Company has authority to make market purchases of up to 14.99 per cent of its own issued ordinary shares. This authority was renewed at the annual general meeting of the Company held on 2 May 2013. A renewal of the authority to make purchases of ordinary shares will be sought from Shareholders at each annual general meeting of the Company. The timing of any purchases will be decided by the Board.

16. RELATED PARTY TRANSACTIONS

Richard Battey, as investor representative and non-executive director of the Company, is also a non-executive director of JCML. The principal of JCML is Richard Fields, who owns 129,545 Ordinary Shares in the Company (0.117 per cent equity interest), which include 50,000 Ordinary Shares in the Company as reimbursement of £100,000 of pre-IPO costs. Mr Fields is also sole shareholder of JAML.

a) Management fee

Up to 31 December 2013, the Company was managed by JCML, an investment management company incorporated in Guernsey in which the Company holds a 36.2 per cent equity interest (31 December 2012: 36.2 per cent). Under the terms of the Management Agreement, the Company appointed JCML as an Investment Manager to provide management services to the Company. For the year to 31 December 2013 the Investment Manager received a fee based on the adjusted net asset value of the Company, payable quarterly in advance using the annual rate of 2.5 per cent.

The adjusted net asset value is the net asset value of the Company at the relevant time, after accruing for the annual management fee but not taking into account any liability of the Company for accrued performance fees and after:

(i) deducting any unrealised gains on non-current assets;

(ii) adding the amount of any write downs with respect to contractual interests which have not been written off; and

(iii) deducting the value of the Company's investment in JCML.

In the year ended 31 December 2013, JCML was entitled to investment management fees totalling US$5,153,580 (31 December 2012: US$5,070,212) of which $18,506 was due back to the Company at 31 December 2013 (31 December 2012: US$501,215 payable).

JAML replaced JCML as investment manager, effective 1 January 2014. From this date, JAML is entitled to a management fee of 2 per cent of the adjusted net asset value of the Company.

The adjusted net asset value is the net asset value of the Company at the relevant time will be calculated, after accruing for the annual management fee but not taking into account any liability of the Company for accrued performance fees and after:

(i) deducting any unrealised gains on non-current assets; and

(ii) adding the amount of any write downs with respect to contractual interests which have not been written off.

b) Investment in JCML 2007 Limited

The Company acquired 15 per cent of JCML 2007 Limited (formerly Juridica Capital Management Limited) on Admission, which was subsequently diluted to 13.6 per cent by the exercise of share options by certain of JCML's employees. In 2012, the Company acquired a further holding in JCML, taking the Company's overall holding in JCML to 36.2 per cent. An impairment review of JCML has been performed as part of the fair value assessment and will be carried out on a semi-annual basis.

c) Performance fee

Under the terms of the Management Agreement, JCML, as Investment Manager, was entitled to a performance fee based on the adjusted net asset value ("ANAV") (being the NAV of the Company before taking into account any performance fee payable less any unrealised gains on investments plus the value of any write downs in any investments that have been written down but not written off) of the Company. The performance fee payable was for an amount equal to the sum of: (i) 20 per cent of the amount by which the ANAV exceeded a 8 per cent annually compounding hurdle but was less than an amount equal to a 20 per cent annually compounding hurdle; (ii) 35 per cent of the amount by which the ANAV exceeded a 20 per cent annually compounding hurdle but was less than an amount equal to a 40 per cent annually compounding hurdle; and (iii) 50 per cent of the amount by which the ANAV exceeded a 40 per cent annually compounding hurdle.

The performance fee was subject to a high water mark such that no performance fee will be paid if the performance of the Company does not exceed the NAV at the end of the previous year in which the performance fee was paid.

As at 31 December 2013, the minimum hurdle rate (which is based on the adjusted net asset value) was not achieved. Therefore, no performance fee was paid or payable for the year ended 31 December 2013 (31 December 2012: US$Nil), and no accrual for performance fee has been recognised as at 31 December 2013 (31 December 2012: US$Nil). However, the current net asset value (unadjusted) is greater than the minimum hurdle rate as at 31 December 2013. To the extent that this net asset value is realised, a performance fee will become payable in respect of future financial periods. JCML will continue to be entitled to a performance fee in the future in respect of investments made prior to the termination of its appointment on 31 December 2013.

JAML replaced JCML as investment manager with effect from 1 January 2014. For future financial periods any performance fee payable on investments will be split based on the date on which investments were made, and attributable to JCML for existing investments, and to JAML for all new investments. JAML will become entitled to a performance fee of 20 per cent of the annualised increase in the adjusted net asset value over the hurdle rate.

d) Facility agreement and collateral account

The Company has entered into a facility agreement (the "Facility") with which it agrees to loan to Fields Law PLLC ("Fields Law"), a law firm in which Richard Fields is a partner, money for funding cases in which Fields Law is to act under a Co-counsel Agreement. The Company expects to enter into loan arrangements with other law firms (which may include other law firms established by the Principal of the Company) on terms and conditions similar to those contained in the Facility. The Facility available to Fields Law will be for up to approximately 50 per cent of the net proceeds of the capital raised by the Company less any loans made to other law firms.

The Facility will remain outstanding and available until the earlier of (i) the termination of the Management Agreement with JAML, (ii) the date on which Richard Fields ceases to own a controlling interest in Fields Law, (iii) the winding up of the Company, (iv) an event of default of the Facility documents, or (v) ten years from Admission. Under the Facility, drawdowns may be requested by Fields Law from time to time up to the maximum principal amount but subject always to approval by the Company in its sole discretion.

No more than US$10 million may be drawn down in respect of the same case investment, unless otherwise approved by the Company.

e) Administration fees

The Company entered into an administration agreement with Legis Fund Services Limited ("Legis"), effective 1 October 2013, replacing the administration agreement with Bordeaux Services (Guernsey) Limited ("Bordeaux"). Fees payable to Legis for the year were $60,038, of which $16,214 remained payable as at 31 December 2013. Fees payable to Bordeaux for the year were $307,460 (2012: $401,817), of which nil was payable as at 31 December 2013 (31 December 2012: $30,695).

f) Directors' fees and expenses

No pension contributions were paid or were payable on behalf of the Directors.

Lord Daniel Brennan has an interest in 447,817 shares (31 December 2012: 447,817 shares) under a Share Option Agreement, details of which were disclosed in the Admission Document. Lord Brennan can exercise these share options at any time up until 17 December 2017.

The other Directors have no beneficial interest in the share capital of the Company.

g) Eleven Engineering Game Control LLC

During 2012, the Company agreed to provide US$575,000 to Eleven Engineering Game Control LLC, a company ultimately owned and controlled by JCML, of which US$575,000 has been drawn as at 31 December 2013 (31 December 2012: US$257,000). As at 31 December 2013 no further facility remains available to Eleven Engineering Game Control LLC (31 December 2012: US$318,000). Interest will be accrued at a rate of 10% per annum, and the loan and interest are repayable on Eleven Engineering Game Control LLC's receipt of net recoveries.

h) Escon Capital Inc.

The Company has an interest in 38% (31 December 2012: 38%) of the voting common stock and 100% of the issued preference shares of Escon Capital, Inc., a Delaware corporation of which Kermit Birchfield and Richard Fields are directors.

Kermit Birchfield and Richard Fields receive directors' fees from Escon Capital Inc. of US$75,000 and US$60,000 per annum respectively. Juridica Capital Management US Inc., a subsidiary of JCML, received an annual fee from Escon Capital Inc. of US$260,000 (2012: US$600,000) for overhead support.

17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

a) Investment risk

There is no established market for the Company's assets. The Investment Manager's assessment of the quantum and timing of returns is subjective and based on the Investment Manager's experience and due diligence. The estimates of the outcome and financial effect on the Company of the assets are determined by the judgement of the Investment Manager. In coming to its best estimate of fair value, the Investment Manager has estimated the probability, timing and quantum of particular outcomes.

b) Cash flow and fair value interest rate risk

Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rate on the fair value of financial assets and liabilities and future cash flows. The Company holds fixed and variable rate interest securities that expose the Company to fair value interest rate risk.

Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rate on the fair value of financial assets and liabilities and future cash flows. The Company holds fixed and variable rate interest securities that expose the Company to fair value interest rate risk.

The Company is exposed to interest rate risk related to its cash balances. The Company does not actively manage this risk.

At 31 December 2013, if variable interest rates had moved by 75 basis points with all other variables remaining constant, the change in net assets attributable to holders of ordinary shares for the year would amount to approximately +/- US$362,797 (31 December 2012: +/- US$268,435), arising substantially from the cash and cash equivalents. Debt securities are at a fixed at a regular interest rate of 13.5%. No interest was receivable on the collateral cash deposit.

c) Credit risk

The Company is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when they fall due.

The Company has in place various policies and procedures to guide the Investment Manager's evaluation and management of investment opportunities and, particularly, the credit risk associated with investment counterparties (law firms and claim interest holders) and investments. The policies include Investment Restrictions (which contain prohibitions on pursuing investments with certain kinds of claims and claim holders, those being prosecuted by certain law firms, and those where collection, counterparty or compliance risk is significant), Investment Policies (which contain guidelines for diversification of the Company's portfolio based on certain claimholder characteristics, jurisdiction(s) involved, prosecuting law firm, claim size and investment structure), and Investment Process Guidelines (which define the due diligence, investment and investment monitoring processes to be followed by the Investment Manager in claim evaluation, valuation and investment completion). Collectively, these Investment Parameters are designed to guide the investment opportunity analysis so to limit credit, collection and portfolio concentration risks associated with Company investments. In addition, the Investment Manager has, pursuant to its own Underwriting Guidelines, developed and implemented systems and procedures to analyse and (pursuant to investment contracts) manage credit risk associated with Company investments.

The main concentration to which the Company is exposed arises from the Company's loan to FL. The Company is also exposed to counterparty credit risk on trading contractual interests, cash and cash equivalents and other receivables.

In accordance with the Company's policy, the Investment Manager monitors the Company's credit position on a daily basis, and the Board of Directors reviews it on a quarterly basis.

The Company is also exposed to material credit risk in respect of the contractual interests and cash and cash equivalents. The credit risk of the cash and cash equivalents is mitigated as all cash is placed with reputable banking institutions with a sound credit rating. The maximum credit risk exposure represented by total assets is as stated in the Statement of Financial Position which amounted to US$249,519,186 (31 December 2012: US$253,248,397).

d) Concentration risk

The Company seeks to minimise concentration risk by investing in a diverse portfolio of contractual interests through a number of different law firms, including interests in antitrust, patent, property damage, insurance subrogation, shareholder dispute, contract claim and arbitration cases.

The Company further seeks to minimise concentration risk by utilising a variety of Investment Parameters which are designed to guide the investment opportunity analysis so as to minimise, amongst other things, concentration risk. These Investment Parameters are further detailed in Note 17(c).

e) Liquidity risk

The Company is exposed to liquidity risk. The contractual interests are acquisition of claims, as well as loans to lawyers to fund participation in claims on a contingency fee basis, and therefore require significant capital contribution with little or no immediate return and no guarantee of return or repayment. The market for such contractual interests is not active. In the opinion of the Directors the current liquidity risk at 31 December 2013 is low as cash and cash equivalents exceed unmatched liabilities or other contractual commitments.

f) Capital risk management

The capital of the Company is represented by the net assets attributable to holders of ordinary shares. The Company's objectives when managing this risk are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Company.

The Company is closed-ended and therefore the capital risk is reduced as shareholder funds are locked in until the closure of the Company. The level of capital funding is monitored by the Board of Directors, who will ensure adequate solvency is in place prior to making distributions.

g) Foreign Currency Risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Company's policy, generally, is not to manage exposure to foreign exchange movements (both monetary and non-monetary) by entering into any foreign exchange hedging transactions. However, the Company did enter into a forward currency contracts, maturing 08 January 2014, to lock in the US dollar equivalent of the dividends declared during the year, which were paid to shareholders on 08 January 2014. The Directors considered that this was a prudent step in order to mitigate the cash flow impact of adverse exchange rate fluctuations on the amount of the dividends, which were declared in GBP.

The Company holds assets denominated in currencies other than the US dollar, the functional currency. It is therefore exposed to currency risk, as values of the assets denominated in other currencies will fluctuate due to changes in exchange rates. The Company may hedge future investment opportunities in the functional currency.

As at 31 December 2013, a proportion of the net financial assets of the Group are denominated in currencies as follows:

At 31 December 2013, if exchanges rates had moved by 5% with all other variables remaining constant, the change in net assets attributable to holders of ordinary shares for the year would amount to approximately +/- US$996,321 (31 December 2012: +/- US$438,423). Management assesses the risk of exposure to the general banking system, and specific banks, and invests cash in US government securities when there is perceived risk to principal.

h) Fair value estimation

The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. See Note 6 for further details.

The carrying value less impairment provision of other receivables and payables is assumed to approximate their fair value. The fair value of financial liabilities for disclosure purposes is not discounted as the Company does not expect there to be any material differences.

18. NET ASSET VALUE ATTRIBUTABLE TO EACH ORDINARY SHARE

The net asset value attributable to each ordinary share is calculated by dividing the net asset value attributable to ordinary shareholders of US$223,646,120 (31 December 2012: US$230,441,908) by the 110,701,754 ordinary shares in issue at 31 December 2013 (31 December 2012: 104,701,754).

19. SUBSEQUENT EVENTS

There have been no significant events to report since 31 December 2013.