4 May 2010 07:00
Juridica Investments Limited
('JIL' or the 'Company')
Final results for the year ended 31 December 2009
Juridica, a leading provider of capital to the law market, today announces its audited financial results for the year ended 31 December 2009.
Financial highlights
·; Total income of $16.5 million
·; Gross cash receipts of $7.8 million from two litigation investments that reached final determination and two additional cases that have partially settled
·; NAV growth to $1.9513 per ordinary share as at 31 December 2009;
·; $122.8 million deployed in 22 claim assets across 15 investments
Commenting on the results, Juridica's Chairman, Lord Daniel Brennan QC, said:
"Juridica has had another successful year despite the difficult economic environment and has established itself as a market leader. We have continued to build a balanced portfolio of high quality corporate claims and litigation investments which include plaintiffs from 18 Fortune 500 or multinational companies, and two major US universities, represented by over a dozen leading US law firms. The Board expects to see the conclusion of several cases in the portfolio over the next 12 to 18 months and will continue to work closely with the Manager to meet our objectives for dividend income, NAV growth and commensurate share price performance."
Operational highlights
·; Established as the largest listed provider of capital to the legal markets
·; Continued market leading position within the US and UK corporate claims financing market
·; Current portfolio starting to mature towards results over the coming 12 to 18 months. The average age of the Company's investments is 1.18 years whilst the average age of cases in the portfolio is 2.45 years
·; Average investment exposure of $5.58 million per case
·; Advisory network of legal, financial and ethical professionals continues to grow and strengthen
Richard Fields, Chief Executive Officer, Juridica Capital Management Limited, commented:
"Whilst recessionary pressures slowed the pace of settlements and cash returns to the Company the additional time allowed important positive developments to take place in several portfolio cases, increasing the potential size of returns to shareholders."
"Current trading continues to progress well and we enjoy a healthy pipeline of first class opportunities. During the last two years we have reviewed over 400 investment opportunities in addition to thousands of patents. We continue to be in the enviable position of being able to select the very best investments for Juridica's portfolio and look to the future with great confidence."
The full report can be downloaded at: www.juridicainvestments.com
For further information, please contact:
| Juridica Capital Management Limited Richard W. Fields
| +1 (866) 443-1080
|
| Cenkos Securities plc Nicholas Wells Camilla Hume
| +44 (0) 20 7397 8900 |
| Pelham Bell Pottinger David Rydell Olly Scott | +44 (0) 20 7861 3232 |
About Juridica Investments Limited
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 the premier source of value-added and direct financing for large business claims in the United States and one of the leading sources in the United Kingdom.
Our clients are Fortune 1000 companies, FT Global 500 companies, inventors, major universities, and the leading law firms that represent them. Juridica accepts only cases that have already been carefully vetted and undertaken by leading lawyers.
Juridica works to make the legal system work better for business claims. Juridica does not invest in speculative claims or claims that have not demonstrated 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.
Our goal is to provide business clients with financial choices that reduce risk and assist in maximizing 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 and is listed on AIM, a market operated by the London Stock Exchange (AIM: JIL).
The Company has appointed Juridica Capital Management Limited as its exclusive investment manager to locate, evaluate and manage direct and indirect investments in cases, claims and disputes.
This announcement contains forward looking statements, which are based on the Board's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events 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 the particular statement. Except as required by the AIM Rules or otherwise by law, the Company 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 expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Chairman's Statement For the year ended 31 December 2009
As Chairman of the Board of Juridica Investments Limited ("JIL" or the "Company"), I am pleased to present the results of the Company's second full year of operations.
The Company's Investment Manager, Juridica Capital Management Limited ("JCML" or the "Manager"), has established the Company's position as a market leader in the US and UK in the financing of corporate claims by continuing to develop a diversified portfolio of claims and litigation assets. Early results continue to demonstrate the viability of the business model as two additional cases finished successfully in this reporting period and two others began to generate cash returns to the Company.
The Company's expanded client base is strong evidence of its market leading position and the growing interest in its offering. To date the portfolio assembled by the Manager includes 15 investments in 22 cases. The plaintiffs in these cases include 18 Fortune 500 or multinational companies, nine small to mid-range businesses, and two major US universities, represented by over a dozen leading US law firms.
The recession of 2008-2009 had an impact on the timing of settlements, especially in the cases with larger damage claims, as defendants appeared to choose to take additional risk and continue to litigate rather than settling earlier. While this slower than expected pace of settlements slowed the cash returns to the Company and prevented the payment of a dividend in 2009, it also resulted in important positive developments in cases such as 1208-A and 0808-C(1) that have the potential to increase the ultimate returns to shareholders as each of these cases reach conclusion.
This report covers trading from 1 January 2009 to 31 March 2010 and the audited results below cover trading for the financial year to 31 December 2009.
Highlights from the 15 months to 31 March 2010 include the following:
Ø As at 31 March 2010, JIL has invested or committed a substantial portion of its capital (almost $123 million) in 22 cases across 15 investments (excluding settled cases). Since 1 January 2009 the Company has made 9 investments, including an important price-fixing cartel case, two contract disputes, one equity investment in a patent portfolio and five additional investments in patent cases.
Ø Case 1208-A, one of the larger cases in the portfolio, successfully concluded a jury trial on certain issues in Q3 2009. Damages have not yet been assessed but are subject to trebling by the court after any jury award. The plaintiff is a Fortune 500 company. The Manager expects that the case may well finish in the next 12 to 18 months, although multiple appeals could extend the time to recovery. This case is part of a portfolio of antitrust cases in which the Company has made an investment through its loan facility to Fields Scrantom Sullivan PLLC ("FSS").
Ø Since inception, the Company has earned cash returns from four investments in litigation cases, including two that finished successfully through settlements during the financial year ended 31 December 2009. In addition, two cases had partial settlements of which one relates to a case that is part of the loan facility which the Company has with FSS. Settlements through the loan facility with FSS are paid out as interest or principal in accordance with the facility's loan agreements. Gross receipts from all settlements during the financial year ended 31 December 2009 totalled $7.8 million. The three settlements not related to the loan facility with FSS generated a gross return on our investment of approximately $2.3 million.
Ø In December 2009 JIL saw the first full settlement of a patent infringement case in which the Company had invested. Case 6308-F settled for $4.0 million of which $2.4 million was paid to the Company under the terms of its investment agreement. JIL had invested approximately $1.5 million in this case in January 2009. The matter was resolved by a negotiated settlement that resulted in a sale of the patent to a major technology company prior to the filing of any litigation.
Ø During the 15 month period to 31 March 2010 there were partially adverse court rulings in two cases (0408-W and 5608-N) as described in the Investment Manager's Report. Neither of these cases has reached finality and case 0408-W is expected to proceed to trial during this quarter.
Ø As announced on 2 November 2009, the Company exercised its right to withdraw from further funding under its investment agreement for Case 0608-S. At 31 December 2009, the Company had engaged new counsel to investigate and pursue claims against third parties connected to the investment. The Company determined at year end that the carrying cost of Case 0608-S should be written down by 75% until further progress is made on those claims.
Ø The carrying value of the Company's portfolio increased substantially during the financial year-ended 31 December 2009. This increase was due to cash investments made on the Company's existing and new investments and, more importantly, net positive developments on the Company's investments. The carrying value of the Company's investments, as adjusted for settlements, increased 118.5%, from approximately $62.0 million at 31 December 2008 to approximately $135.6 million at 31 December 2009.
Ø A successful placing at 114p per share to raise $48.4 million (£33.2 million) net of expenses was completed in April 2009, increasing funds available for new investment opportunities. This enabled JIL to invest in a large antitrust cartel case in which executives of multiple defendants have already been criminally convicted. This investment has the potential to generate significant returns to shareholders.
Results for the Financial Year to 31 December 2009
Income
During the financial year to 31 December 2009 the Company and its subsidiaries (the "Group") reported comprehensive income of $16.5 million. This income was driven by $24.3 million in revenue consisting of: (i) realised gains of $1.1 million generated from the $2.3 million in actual net cash received from settlements not affiliated with the Company's loan to FSS less unrealised gains recognised at 31 December 2008 of $1.2 million; (ii) other income totaling $22.7 million and; (iii) interest income of $531,000. Other income represents the effective interest rate on the Company's disbursements to date calculated in accordance with the Company's accounting policies. These interest rates are derived from the Manager's estimate of expected outcomes of its investments in the absence of an established market for the Company's assets.
Other income also includes valuation adjustments to investments made prior to 1 January 2009 that are based on expected future cash flows.
Interest income dropped substantially in the financial year ended 31 December 2009 as compared to 31 December 2008 due to the substantial drop in market interest rates paid on cash accounts and short-term investments; and the drop in the Company's cash balance caused by the Company making additional investments. The Manager expects interest income to remain low as potential increases in cash interest rates will likely be offset by a reduction in cash balances as the Manager makes additional investments.
Cash
Over the reporting period, the Company reviewed its position on currency holdings and determined that it was most appropriate for the predominance of cash holdings to remain dollar denominated.
As at 31 December 2009 the Company had $77.1 million of cash or cash equivalents comprising $74.1 million in dollar denominated holdings and the balance in Sterling.
Net Asset Value
Over the reporting period, the Company reported net income of $16.5 million which resulted in a net asset value of $1.9513 per ordinary share.
Dividend
In view of the modest level of realised gains for 2009 of $1.1 million, it is not proposed that a dividend be paid at this stage. However, it is the Board's intention that this sum will be aggregated with future realised gains and distributed by way of a dividend at the appropriate time.
The Portfolio
As at 31 March 2010, the Company's portfolio included 15 investments giving exposure to 22 active litigation cases comprised of: five competition cases (two monopolisation cases and three price-fixing cases); one statutory claim; eleven patent cases; one property damage and insurance subrogation case; two contract disputes; one shareholder dispute; and one arbitration case involving a sovereign state through the World Bank's International Centre for Settlement of Investment Disputes (ICSID).
The total capital invested or committed by the Company as of 31 March 2010 in these investments was a maximum of $122.8 million (excluding the four settled cases). Of the total amount committed or invested, $77.5 million was committed through the loan facility to FSS enabling it to finance five competition cases and one statutory claim; an investment of approximately $36.1 million in patent litigation and licensing enforcement activities; $2.8 million in an international arbitration (ICSID) case; $2.9 million in a shareholder dispute litigation (which is not a class action); $3.0 million in two contract disputes; and $0.5 million is invested in the property damage and subrogation claim.
Outlook
As Chairman of the Board, I am pleased to report that the Company is now an established leader in the US and UK in the growing corporate claims asset class. I believe that JIL has developed a solid portfolio that overall has shown many positive developments and is well positioned to generate significant returns to shareholders as it matures. In addition, some of the investments in the portfolio have the potential to generate substantial returns because of the size of the claims involved. I expect that the next 12 to 18 months will see the conclusion of several cases in the portfolio and the other Directors and I will be working closely with the Manager to meet the Company's objectives for dividend income, NAV growth and commensurate share price performance.
Lord Daniel Brennan QC
Chairman
Guernsey, 30 April 2010
Investment Manager's ReportFor the year ended 31 December 2009
During the Company's second year of operations, Juridica Capital Management Limited ("JCML" or 'the Manager"), the appointed investment manager of Juridica Investments Limited ("JIL" or the "Company"), continued to see positive developments in the market for corporate claims finance. Demand for the Company's offering remains very strong and we continue to enjoy excellent relationships with top tier US and UK law firms and the general counsels of major corporations. We believe this is a strong indicator of JIL's ability to aid the business community's efforts to reduce both litigation costs and risk from the litigation process.
Over the course of the last two years, the Manager has reviewed over 400 investment opportunities for the JIL portfolio, not including thousands of patents that were also reviewed as potential investment opportunities. JIL added another 9 investments during the 15 month reporting period from 1 January 2009 to 31 March 2010, including one additional large antitrust case (8008-L) which the Manager believes has the potential to generate a significant return to shareholders with reduced risk because of criminal convictions already obtained by the US government of several of the civil defendants in the case. The Manager remains confident of the portfolio and expects that, over time, it will produce excellent returns to shareholders. This view has been reinforced by overall developments during the last 15 months.
The Manager believes that the recession of 2008 and 2009 clearly had an impact on timing of settlements and hence the timing of cash returns to the Company. In several of the antitrust cases and one of the patent cases with larger damage claims, that might usually have settled in whole or part during 2009, defendants appeared to choose to take additional risk and continue to litigate rather than settling earlier. While this slower than desired pace of settlements affected the cash returns to the Company and prevented the payment of a dividend in 2009, it also resulted in important positive developments in cases such as 1208-A and 0808-C (1), which the Manager believes have the potential to increase the ultimate returns to shareholders as these cases reach conclusion.
Highlights
JIL was admitted to AIM, a market operated by the London Stock Exchange in December 2007 with an initial market capitalization of £76.6 million net of expenses. A second placing at 114p per share raised an additional £33.0 million net of expenses for investment in April 2009.
JIL has invested or committed $139.5 million in a total of 19 investments in 26 cases since inception of the business on 21 December 2007. Six investments have resulted in cash proceeds to the Company, of which four have completed and are closed.
JIL presently has invested or committed a substantial portion of its capital (approximately $122.8 million) in 22 cases across 15 investments. Since 31 December 2008 the Company has invested in an additional nine cases, including an important price-fixing cartel case, two contract disputes, one equity investment in a patent portfolio and an additional five investments in patent cases.
JIL received gross cash receipts of $7.8 million in the financial year 2009 on returns in two investments in litigation cases that finished successfully and settlements with one or more but not all defendants in two additional cases. During the financial year to 31 December 2009 the Company reported comprehensive income of $16.5 million. This income was generated from: (i) realised gains of $1.1 that resulted from the $2.3 million in actual net cash received from the three settlements not affiliated with the Company's loan to FSS less unrealised gains recognised at 31 December 2008 of $1.2 million; (ii) other income totalling $22.7 million and; (iii) interest income of $531,000. Other income represents the effective interest rate on the Company's disbursements to date calculated in accordance with the Company's accounting policies. These interest rates are derived from the Manager's estimate of expected outcomes of its investments in the absence of an established market for the Company's assets. Other income also includes valuation adjustments to investments made prior to1 January 2009 that are based on expected future cash flows.
JIL's Net Asset Value (NAV) increased during financial year 2009 as a result of overall positive developments in, and ageing of, the portfolio. The NAV at 31 December 2009 was $1.9513 per ordinary share. The Company's share price was 122 pence on 31 December 2009, an increase of 22% since launch.
Case 1208-A, one of the larger antitrust cases in the portfolio, successfully concluded a jury trial on certain issues in Q3 2009. The plaintiff is a Fortune 500 company. Damages have not yet been assessed but are subject to trebling by the court after any jury award. If the case is not settled and proceeds to trial on damages, the Manager believes that potential damages that may be awarded after trial could range from in excess of $100 million to $2.0 billion. This case is part of a portfolio of antitrust cases in which the Company has invested through the loan facility to Fields Scrantom Sullivan PLLC ("FSS"). Through the loan facility JIL has the potential to receive 18% to 20% (depending on the timing of other settlements) of any settlement or collected judgment award. The Manager expects that the case could finish in the next 12 to 18 months, although multiple appeals could extend the time to recovery.
During the 15 month period to 31 March 2010 there were partially adverse court rulings in two cases (0408-W and 5608-N) as reported below although neither of these cases has reached finality and case 0408-W is scheduled to proceed to trial during the first part of Q2 2010. Further, the Company exercised its right to withdraw from further funding under its investment agreement for Case 0608-S. At 31 December 2009, the Company had engaged new counsel to investigate and pursue claims against third parties connected to the investment. The Company determined at year-end that the carrying value of Case 0608-S should be written down by 75% until further progress is made on those claims.
Competition
During the last 15 months one new company entered JIL's market in the United States, where the Company now has two competitors. In the United Kingdom, numerous competitors have entered the market, but JIL remains the largest in terms of market capital by a substantial margin. The Manager expects to see more competition in both markets as the global economy improves and investors seek alternative investments that have the potential to generate substantial returns.
Portfolio Update
JIL presently has a total of 15 investments involving 22 cases. As at 31 March 2010, the portfolio comprised the investments in the table below:
Portfolio diversification as at 31 March 2010
| Type of claim or litigation | Cases | Total Commitment | Investments |
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| |
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| Antitrust (monopolisation) | 2 |
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| |
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| Antitrust (price-fixing) | 3 | $77.5m | 1 | |
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| Statutory claims | 1 |
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| |
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| |
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| Patents | 11 | $36.1m | 9 | |
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| |
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| Property damage and insurance subrogation | 1 | $0.5m | 1 | |
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| |
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| Shareholder disputes | 1 | $2.9m | 1 | |
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| Contract claims | 2 | $3.0m | 2 | |
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| Arbitration | 1 | $2.8m | 1 | |
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| Total | 22 | $122.8m | 15 | |
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The portfolio has the following features:
Ø Certain investments include ancillary rights to finance future cases
Ø Number of subject matters: 8
Ø Number of jurisdictions: 11
Ø Number of plaintiff law firms: 13
Ø Average exposure per case: $5.58 million
Key Schedule Dates in Invested Cases
| Period | Investment | Event |
| |||
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| No scheduled dates | 7608-A | Recently filed | |||
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| No scheduled dates | 0409-C | Recently filed | |||
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| No scheduled dates | 7508-O | One case in portfolio recently filed | |||
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| No scheduled dates | 2709-E | Recently filed | |||
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| No scheduled dates | 1608-T | Administrative tribunal is determining rights to settlement proceeds | |||
|
| No scheduled dates | 5208-E | Discovery recently commenced | |||
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| No scheduled dates | 1208-A | Damages trial not yet scheduled | |||
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| Q2 2010 | 1008-A | Case management order under consideration by the court | |||
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| Q2 2010 | 5009-S | Expert discovery expected to begin | |||
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| Q2 2010 | 0708-B(3) | Case management conference scheduled | |||
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| Q2 2010 | 0708-B(1) | Case management conference scheduled | |||
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| Q2 2010 | 8008-L | Complaint on behalf of remaining clients expected to be filed | |||
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| Q2 2010 | 0408-W | Trial scheduled | |||
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| Q2 2010 | 5608-N | Recent summary judgment ruling and appeal anticipated | |||
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| Q2 2010 | 0808-C(NY) | Waiting for ruling on remaining summary judgment motions and scheduling of trial date | |||
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| Q2 2010 | 0209-S | Waiting on appeal from favorable ruling on jurisdictional issues | |||
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| Q3 2011 | 0808-C(TX) | Trial scheduled | |||
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| Q4 2011 | 5308-U | Dispositive motions fully briefed | |||
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| Q4 2011 | 0108-S | Trial scheduled | |||
| Q1 2012 | 5308-U | Trial scheduled |
| |||
Cases 0708-B, 8008-L, 5308-U, 7608-A and 5208-E are multi-defendant cases, which are expected to have a laddered settlement profile.
As of 31 March 2010, the average age of the cases in the portfolio was 2.45 years (measured from the date of first filing of any litigation) and the average age of the Company's investment is 1.18 years (measured from the date of investment). The chart below provides this information for each individual case.
| Matter Number | Age of Case (years) | Age of Investment (years) |
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| 0108-S | 1.97 | 2.01 | |||
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| 0408-W | 1.81 | 1.94 | |||
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| 0708-B (2 matters) | 1.41 | 1.72 | |||
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| 0808-C (2 matters) | 9.72 | 1.59 | |||
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| 1608-T | 9.66 | 1.65 | |||
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| 7608-A | 0.63 | 1.07 | |||
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| 7508-O | 0.48 | 0.76 | |||
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| 0209-S | 1.27 | 0.62 | |||
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| 0409-C | 0.46 | 0.50 | |||
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| 2709-E | 0.35 | 0.62 | |||
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| 5009-S | 5.77 | 0.26 | |||
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| 6509-A | 0.62 | 0.27 | |||
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| 6409-V | 0.04 | 0.18 | |||
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| 1008-A | 5.75 | 1.38 | |||
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| 5608-N | 5.39 | 1.38 | |||
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| 1208-A | 3.49 | 1.38 | |||
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| 5208-E | 2.10 | 1.38 | |||
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| 5308-U | 1.46 | 1.38 | |||
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| 8008-L | 0.45 | 1.38 | |||
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| Average | 2.45 | 1.18 |
| |||
Developments in Invested Cases
As the cases in the portfolio age, the Company has seen increasing activity across the investments and in this section reports on recent developments and the status of each case.
Antitrust Cases
As the cases in the portfolio age, the Company has seen increasing activity across the investments and in this section reports on recent developments and the status of each case.
Antitrust Cases
JIL presently has an investment in five antitrust (two monopoly and three cartel) cases through the loan facility to FSS. Developments in these cases are described in this section.
JIL's reporting on Case 1208-A has not changed since the last Trading Statement on 1 February 2010. This case successfully concluded a jury trial on certain issues in Q3 2009. Damages have not yet been assessed. The defendant filed post-trial motions to overturn the jury verdict and the parties are waiting for a ruling by the court on these motions. If the motions are denied, an appeal may be taken on the issues that have been resolved at the trial court level. An appeal is expected to last from four to eighteen months from the date of a ruling by the trial court on the pending post-trial motions. If the trial results are upheld on appeal or the appeal is deemed to be premature, the case is expected to return to the trial court for a jury trial on the remaining issues and conclusion at the trial level. The case could be subject to further appeals after the trial of remaining issues if settlement is not concluded at some point in the process described above. The plaintiff is a Fortune 500 company. The trial court must automatically treble any damages awarded by the jury.
Case 5608-N is one of two monopoly cases. Since JIL's last Trading Statement on 1 February 2010, the court made a ruling on a threshold issue that, absent reversal on appeal, results in dismissal of the plaintiff's claims. The court, however, also ruled in the plaintiff's favour on the primary substantive claims. Consequently, if the threshold ruling is reversed, Case 5608-N will proceed to jury trial on the merits. The appeal is expected to take at least 18 to 24 months, and settlement prior to conclusion of the appeal appears unlikely to the Manager.
Case 5308-U is a price-fixing cartel case brought by several major companies against multiple defendants. The relevant clients are direct purchasers that collectively account for approximately 25 percent of the US market for the product at issue in the case. In Q1 2010, the court dismissed certain aspects of the plaintiffs' claims, but the dismissals did not affect the bulk of plaintiffs' damages claims. The case is presently in merits discovery which is scheduled to be completed in Q3 2010. Expert discovery currently is scheduled to close in Q3 2011. Dispositive motions must be fully briefed by Q4 2011. Trial is presently scheduled for Q1 2012. Given that this case still is in its relatively early stages, this schedule may be extended, but trial still is expected to occur in 2012.
Case 5208-E is a price-fixing cartel case against multiple defendants that is pending in the United Kingdom. The European Commission has already found that the defendants engaged in a price-fixing cartel in Europe. As previously reported, the UK court recently decided jurisdictional issues in favour of the plaintiffs and one defendant has appealed this ruling. In Q1 2010 the court decided that disclosure should commence. As previously reported, one defendant has already settled.
Case 8008-L is the most recent price-fixing cartel case in the portfolio. The case involves antitrust claims brought by several Fortune 500 companies against a group of large predominantly non-US suppliers. Numerous of the defendants already have pled guilty in the US to violating the Sherman Act. Executives of these companies either have pled guilty or been indicted. Two complaints have been filed for two separate plaintiffs. The class has been certified and discovery on the merits is expected to begin in the near future. Various motions to dismiss have been filed and are pending.
Patent Cases
The Company presently has investments in 11 patent cases one of which is structured as an equity investment in a patent portfolio. Developments in these cases are described in this section.
0808-C(1) involves a patent portfolio that covers computer hardware technology. The patents are being asserted against multiple defendants in this case. In Q1 2010, the court ruled in the plaintiffs' favour on several pending motions, both substantive and procedural. The parties are waiting for additional summary judgment rulings from the court and the setting of a trial date. In addition, certain events have occurred in connection with the development of factual evidence in the case that appear to strengthen substantially the merits of the plaintiffs' claims.
0808-C(2) is a related case to 0808-C(1) and involves the same plaintiffs against different defendants. This case is also against multiple defendants in a jurisdiction that is different from the related case. A motion for change of venue was recently denied. While not currently scheduled, the patent claim construction hearing (often called the Markman hearing) is expected to occur in Q4 2010.
Case 0108-S involves a patent portfolio that covers secure Internet communications. The case is presently in discovery. The Markman hearing (pretrial hearing to define relevant key words in a particular patent) is scheduled for Q2 2011 and trial is scheduled for Q4 2011. In the event of recovery, Juridica is entitled to priority repayment of its investment. This case is cross-collateralized with Case 0209-S - meaning that JIL has priority of any recovery to repay its investment prior to the client receiving proceeds from either case.
Case 0209-S involves a patent portfolio that covers secure internet communications and e-commerce. This case is still in the early stages of development and has not yet had a scheduling hearing. This case is cross-collateralized with Case 0108-S.
Case 0708-B involves an internet-related patent. Two defendants in the case have settled to-date for total cash proceeds of $750,000. This investment now involves two related cases, including one in California and one in Texas. A second related Texas case was recently dismissed voluntarily for strategic reasons. There are more than 20 defendants remaining in the two cases. Both related cases are still in the early stages of development. For ease of tracking, in the tables above, the first case filed in Texas will now be tracked as 0708-B(1) and the California case will be tracked as 0708-B(3). The dismissed Texas case was previously tracked as 0708-B(2). In the event of any recovery, JIL is entitled to priority repayment of its investment.
0409-C involves a patent that covers the treatment of a disease. A complaint was filed in Q4 2009 against one large multi-national defendant and is still in the early stages of development. In the event of recovery, JIL is entitled to priority repayment of its investment.
2709-E involves a patent portfolio that covers video game controllers. The case was filed in Q4 2009 against 3 large, multi-national defendants and is in the early stages of development. In the event of recovery, JIL is entitled to priority repayment of its investment.
7508-O involves an equity investment in a broad portfolio of patents in the mobile communications market. To date, one case has been filed against multiple defendants. The case is still in the early stages of development. In the event of recovery, JIL is entitled to preferred repayment of its investment.
7608-A involves a patent portfolio in the Personal Navigation Device (PND) market. The case was filed in Q3 2009 against more than 15 defendants and is still early in the stages of development. In the event of recovery, JIL is entitled to preferred repayment of its investment.
6409-V involves a patent that covers video compression technology. The case was filed in Q1 2010 against 10 defendants and is still in the early stages of development. This opportunity was brought directly to JIL by a Fortune 500 client and is represented by an AM Law 100 firm. In the event of recovery, JIL is entitled to priority repayment of its investment.
Other Cases
JIL has also invested in the following cases.
Case 0408-W involves claims by a group of shareholders against a privately held company. In Q1 2010, the trial court ruled on pending summary judgment motions and denied certain of the plaintiffs' claims while allowing others to proceed to trial in Q2 2010. Although questions remain as to the operation of one of the trial court's rulings, the plaintiffs are optimistic that they will win damages at trial, and preserve rights to achieve an award equal to original expectations in the post-trial appeal process. Importantly, the structure of JIL's investment in Case 0408-W provides for a return of JIL's investment, and a premium, so long as the award is above a de minimus amount.
Case 5009-S involves breach of contract and misappropriation of trade secrets claims in a US federal court. Factual discovery in the case is almost completed and expert discovery is set to begin. Trial is expected in the second half of 2011.
Case 6509-A involves a significant judgment obtained in an action for breach of contract, fraud and related claims in a US federal court. Post-trial motions in the case were decided favourably for the plaintiff in Q4 2009 and the judgment has been appealed. The appeal is scheduled to be fully briefed by Q3 2010.
Case 1608-T involves two related cases for property damage claims by way of subrogation. The plaintiffs are several US and UK insurers. The lawsuits have been moved from trial court to an administrative proceeding as a result of a settlement involving multiple cases. The administrative proceeding will determine the plaintiffs' rights to participate in the settlement and the amount thereof.
Outlook for 2010
For the remainder of 2010 the Manager will be locating and proposing investments for the Company's remaining capital. Several opportunities are already under development. In addition to the Company's existing areas of concentration in antitrust and patents the Manager will be focusing on diversifying the portfolio through new subject matters, law firms and jurisdictions including the UK. The Manager also hopes to utilise insurance to hedge risk in the portfolio and, as of 31 March 2010, was in negotiations with an insurance carrier to guarantee the Company a minimum level of return on one specific investment.
Based on the age and status of the cases in the portfolio, the Manager believes that some cases in the portfolio could reach a positive conclusion or generate settlements with some defendants prior to the end of this calendar year and will be closely monitoring the portfolio as the year progresses.
Juridica Capital Management Limited
30 April 2010
Consolidated Statement of Comprehensive IncomeFor the year ended 31 December 2009
|
|
|
| Period from 28 |
| ||||
|
|
| Year ended | November 2007 |
| ||||
|
|
|
| 31 December | to 31 December | ||||
|
|
|
| 2009 | 2008 | ||||
|
|
| Notes | US$ | US$ | ||||
|
|
|
|
|
| ||||
|
| Income |
|
|
| ||||
|
| Interest income | 2(i) | 530,540 | 4,092,740 | ||||
|
| Realised gain on contractual interests | 5 | 1,063,618 | 5,190,276 | ||||
|
| Realised loss on investments |
| - | (44,696) | ||||
|
| Other income arising on contractual interests | 2(d),5 | 7,779,752 | 1,632,347 | ||||
|
| Other income arising on available for sale debt securities | 2(f),7 | 14,950,142 | 868,839 | ||||
|
|
|
|
|
| ||||
|
| Total income |
| 24,324,052 | 11,739,506 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Expenses |
|
|
| ||||
|
| Management fees | 14(a) | 4,424,358 | 3,685,644 | ||||
|
| Due diligence and transaction costs | 2(g) | 1,041,735 | 567,095 | ||||
|
| Foreign exchange loss |
| 503,202 | 3,377,009 | ||||
|
| Directors' remuneration | 14(g) | 455,390 | 463,165 | ||||
|
| Administration fees |
| 294,125 | 249,703 | ||||
|
| Audit fees |
| 223,268 | 172,221 | ||||
|
| Marketing expenses |
| 163,934 | 24,047 | ||||
|
| Advisory fees |
| 75,074 | 105,684 | ||||
|
| Legal expenses |
| 53,810 | 19,464 | ||||
|
| Options and warrants costs | 2(q) | 28,785 | 274,734 | ||||
|
| Registrar fees |
| 21,125 | 15,382 | ||||
|
| Bank charges |
| 8,201 | 33,267 | ||||
|
| Asset management fees |
| - | 33,307 | ||||
|
| Sundry expenses |
| 547,095 | 274,018 | ||||
|
|
|
|
|
| ||||
|
| Total operating expenses |
| 7,840,102 | 9,294,740 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Comprehensive income for the year/period |
| 16,483,950 | 2,444,766 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Comprehensive income attributable to: |
|
|
| ||||
|
| Equity shareholders |
| 17,168,006 | 2,444,766 | ||||
|
| Non-controlling interests |
| (684,056) | - | ||||
|
|
|
|
|
| ||||
|
|
|
| 16,483,950 | 2,444,766 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Earnings per Ordinary Share |
|
|
| ||||
|
| Basic | Cents | 16.73 | 3.06 | ||||
| Fully diluted | Cents | 16.53 | 3.01 |
| ||||
Consolidated Statement of Financial PositionAs at 31 December 2009
|
|
| 31 December | 31 December |
| ||||
|
| Notes | 2009 | 2008 |
| ||||
|
|
|
| US$ | US$ | ||||
|
|
|
|
|
| ||||
|
| Non-current assets |
|
|
| ||||
|
| Contractual interests | 5 | 36,080,911 | 14,118,352 | ||||
|
| Available for sale financial assets | 6 | 7,505,521 | 2,400,005 | ||||
|
| Available for sale debt securities | 7 | 94,370,855 | 53,433,408 | ||||
|
|
|
|
|
| ||||
|
|
|
| 137,957,287 | 69,951,765 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Current assets |
|
|
| ||||
|
| Other receivables and prepayments | 9 | 2,482,888 | 273,785 | ||||
|
| Cash and cash equivalents | 10 | 77,050,345 | 82,511,937 | ||||
|
|
|
|
|
| ||||
|
|
|
| 79,533,233 | 82,785,722 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Total assets |
| 217,490,520 | 152,737,487 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Current liabilities |
|
|
| ||||
|
| Put option | 11 | 503,729 | - | ||||
|
| Other payables | 12 | 969,662 | 383,972 | ||||
|
|
|
|
|
| ||||
|
| Total liabilities |
| 1,473,391 | 383,972 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Net assets |
| 216,017,129 | 152,353,515 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Capital and reserves |
|
|
| ||||
|
| Equity attributable to equity Shareholders |
|
|
| ||||
|
| Special reserve |
| 199,013,730 | 150,169,960 | ||||
|
| Other reserve |
| (736,155) | (261,211) | ||||
|
| Revenue reserve |
| 14,543,572 | 2,444,766 | ||||
|
|
|
|
|
| ||||
|
|
|
| 212,821,147 | 152,353,515 | ||||
|
|
|
|
|
| ||||
|
| Non-controlling interests |
| 3,195,982 | - | ||||
|
|
|
|
|
| ||||
|
| Total equity Shareholders' funds |
| 216,017,129 | 152,353,515 | ||||
|
|
|
|
|
| ||||
|
|
|
|
|
| ||||
|
| Number of ordinary shares |
| 110,701,754 | 80,000,000 | ||||
|
|
|
|
|
| ||||
| Net Asset Value per ordinary share |
| $1.9513 | $1.9044 |
| ||||
Approved by the Board of Directors on 30 April 2010 and signed on its behalf by:
………………………………..
R J Battey
Consolidated Statement of Changes in EquityFor the year ended 31 December 2009
|
|
|
|
|
| Non- |
|
| |||||||
|
| Share | Special | Other | Revenue | controlling |
|
| |||||||
|
|
| premium | reserve | reserve | reserve | interests | Total | |||||||
|
|
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| Balance at 28 November 2007 | - | - | - | - | - | - | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| Changes in equity for 2008 |
|
|
|
|
|
| |||||||
|
| Profit for the period | - | - | - | 2,444,766 | - | 2,444,766 | |||||||
|
| Fair value change in available for |
|
|
|
|
|
| |||||||
|
| sale financial assets | - | - | (535,945) | - | - | (535,945) | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| Total comprehensive income | - | - | (535,945) | 2,444,766 | - | 1,908,821 | |||||||
|
| Issue of shares | 158,488,000 | - | - | - | - | 158,488,000 | |||||||
|
| Formation expenses | (8,318,040) | - | - | - | - | (8,318,040) | |||||||
|
| Cancellation of share premium | (150,169,960) | 150,169,960 | - | - | - | - | |||||||
|
| Share option payment reserve | - | - | 27,828 | - | - | 27,828 | |||||||
|
| Warrant payment reserve | - | - | 246,906 | - | - | 246,906 | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| Balance at 31 December 2008 | - | 150,169,960 | (261,211) | 2,444,766 | - | 152,353,515 | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| Changes in equity for 2009 |
|
|
|
|
|
| |||||||
|
| Profit for the period | - | - | - | 17,168,006 | (684,056) | 16,483,950 | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| Total comprehensive income | - | - | - | 17,168,006 | (684,056) | 16,483,950 | |||||||
|
| Issue of shares | - | 51,693,614 | - | - | - | 51,693,614 | |||||||
|
| New issue expenses | - | (2,849,844) | - | - | - | (2,849,844) | |||||||
|
| Minority interest arising on part sale of subsidiary | - | - | - | - | 3,880,038 | 3,880,038 | |||||||
|
| Put option provision | - | - | (503,729) | - | - | (503,729) | |||||||
|
| Share option payment reserve | - | - | 28,785 | - | - | 28,785 | |||||||
|
| Dividend paid | - | - | - | (5,069,200) | - | (5,069,200) | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| Balance at 31 December 2009 | - | 199,013,730 | (736,155) | 14,543,572 | 3,195,982 | 216,017,129 | |||||||
|
|
|
|
|
|
|
|
| |||||||
Consolidated Cash Flow StatementFor the year ended 31 December 2009
|
|
| Period from |
| |||
|
| Year ended | 28 November 2007 |
| |||
|
|
| 31 December | to 31 December | |||
|
|
| 2009 | 2008 | |||
|
|
| US$ | US$ | |||
|
|
|
|
| |||
|
| Cash flows from operating activities |
|
| |||
|
| Comprehensive income for the year/period | 16,483,950 | 2,444,766 | |||
|
|
|
|
| |||
|
| Adjusted for: |
|
| |||
|
| Fair value change on contractual interests and available for sale |
|
| |||
|
| debt securities | (22,729,894) | (2,439,315) | |||
|
| Realised gains on contractual interests | (1,063,618) | (5,190,276) | |||
|
| Increase in share option and warrant reserve | 28,785 | 274,734 | |||
|
| Interest income | (530,540) | (3,832,786) | |||
|
| Foreign exchange losses on non-operating activities | 498,842 | - | |||
|
|
|
|
| |||
|
| Changes in working capital |
|
| |||
|
| Purchases of contractual interests, available for sale financial |
|
| |||
|
| assets and available for sale debt securities | (52,634,977) | (80,108,119) | |||
|
| Settlement of contractual interests | 7,525,334 | 17,250,000 | |||
|
| Increase in trade and other receivables | (578,553) | (273,785) | |||
|
| (Decrease)/increase in trade and other payables | (16,677) | 383,972 | |||
|
|
|
|
| |||
|
| Cash used in operations | (53,017,348) | (71,490,809) | |||
|
| Interest received | 399,990 | 3,832,786 | |||
|
|
|
|
| |||
|
| Net cash outflow from operating activities | (52,617,358) | (67,658,023) | |||
|
|
|
|
| |||
|
|
|
|
| |||
|
| Financing activities |
|
| |||
|
| Net cash inflow on partial sale of subsidiary | 3,880,038 | - | |||
|
| Dividend paid | (5,335,349) | - | |||
|
| Issue of shares | 49,059,970 | 158,488,000 | |||
|
| Formation costs | (234,060) | (8,318,040) | |||
|
|
|
|
| |||
|
| Net cash flow from financing activities | 47,370,599 | 150,169,960 | |||
|
|
|
|
| |||
|
|
|
|
| |||
|
| Net (decrease)/increase in cash and cash equivalents | (5,246,759) | 82,511,937 | |||
|
|
|
|
| |||
|
| Cash and cash equivalents at the beginning of the year/period | 82,511,937 | - | |||
|
|
|
|
| |||
|
| Effect of foreign exchange rate changes | (214,833) | - | |||
|
|
|
|
| |||
|
|
|
|
| |||
|
| Cash and cash equivalents at the end of the year/period | 77,050,345 | 82,511,937 | |||
|
|
|
|
| |||
Notes to the Consolidated Financial StatementsFor the year ended 31 December 2009
1. Legal Form and Principal Activity
The Group consists of the Company which is an authorised closed-ended investment company incorporated under The Companies (Guernsey) Law, 2008 ("the Law") and its subsidiaries Riverbend Investments Limited, Somerton Investments LLC and Juridica Ventures KFT. 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 Bordeaux Court, Les Echelons, St Peter Port, Guernsey, GY1 6AW.
2. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated 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 consolidated financial statements of the Group 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 under the historical cost convention, as modified by the revaluation of contractual interests. The preparation of financial statements in conformity with IFRS require the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Group'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.
(i) Standards, amendments and interpretations effective on or after 1 January 2009 and adopted by the Group
The Group has adopted the following new and amended IFRSs as of 1 January 2009:
Ø IFRS 7 'Financial instruments - Disclosures' (amendment) - effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on earnings per share.
Ø IAS 1 (revised), 'Presentation of financial statements'. The revised standard prohibits the presentation of items of income and expenses (that is 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity in a statement of comprehensive income. As a result the group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
(ii) Standards, amendments and interpretations to existing standards that are not yet effective but which have been early adopted by the Group
Ø IAS 27 (revised), 'Consolidated and separate financial statements', (effective from 1 July 2009). The revised standard requires the effects of all transactions with non controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in statement of comprehensive income. The Group has chosen to early adopt IAS 27 (revised) from 1 January 2009.
(iii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2010 or later periods, but the Group has not early adopted them:
Ø IAS 1 (amendment), 'Presentation of financial statements'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. The Group and Company will apply IAS 1 (amendment) from 1 January 2010. It is not expected to have a material impact on the Group's financial statements.
2. Summary of Significant Accounting Policies (continued)
(iii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued)
Ø IFRS 2 (amendments), 'Group cash-settled and share-based payment transactions'. In addition to incorporating IFRIC 8, 'Scope of IFRS 2', and IFRIC 11, 'IFRS 2 - Group and treasury share transactions', the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation. The new guidance is not expected to have a material impact on the Group's financial statements.
IFRS 9, 'Financial Instruments'. IFRS 9 was issued on 12 November 2009 and is applicable for accounting periods beginning on or after 1 January 2013. The standard is the first step in the IASB's project to replace IAS 39, 'Financial Instruments: Recognition and Measurement' and introduces new requirements for classifying and measuring financial assets.
IAS 24 (amendment), 'Related Party Disclosures'. The amendment is effective for accounting periods beginning on or after 1 January 2011 and provides a revised definition of what constitutes a related party, as well as allowing a partial exemption from the disclosure requirements of IAS 24 for transactions between a state-controlled reporting entity and other entities controlled by that state. The Group and Company will apply IAS 24 (amendment) from 1 January 2011. It is not expected to have a material impact on the Group's financial statements.
(b) Consolidation
The consolidated financial statements comprise the financial statements of Juridica Investments Limited and its subsidiaries undertakings as stated in Note 4.
Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
Inter-company transactions, balances and unrealised gains/losses on transactions between group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Minority interests
Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group.
(c) Geographical and segment reporting
Since the Group 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 Group has only one business segment and geographical focus, being investments in legal claims in the United States (US), and accordingly does not present additional business and geographical segment information.
(d) Contractual Interests
Classification
Unless otherwise determined by the Company, investments in claims will be categorised as contractual interests. Contractual interests 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 capitalised into the cost of the contractual interest.
Recognition, derecognition and measurement
The contractual interests will initially be measured as the sum provided to acquire an interest in a plaintiff's claim or as the cash advanced to law firms under loan agreements ("Qualifying Agreements").
Interest on performing contractual interests will be recognised using the effective interest rate method as shown in Note 5. No interest will be recognised on non-performing contractual interests.
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:
2. Summary of Significant Accounting Policies (continued)
(d) Contractual Interests (continued)
Recognition, derecognition and measurement (continued)
Ø Estimated duration of each contractual interest;
Ø Best estimate of anticipated outcome; and
Ø Effective interest rate on nominal value of each contractual interest.
Interest income arising on all performing contractual interests is recognised in the consolidated statement of comprehensive income as other income, using the effective interest rate method.
The effective interest rate method is a way of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the relevant period. In the case of assets this rate is the rate which takes the contract's initial value to the expected payout over the expected duration of the claim. The application of the method has the effect of recognising estimated income and expense on the instrument evenly in proportion to the amount outstanding over the period to maturity or repayment.
In calculating effective interest, the Company estimates cash flows (using projections based on litigation experience) considering all contractual terms of the contractual interest and the likely outcome of the case. The Company adjusts the carrying amount of the contractual interest to reflect actual and revised estimated cash flows whenever it revises its cash flow estimates. The entity recalculates the carrying amount by computing the present value of estimated future cash flows at the contractual interest's original effective interest rate. The adjustment is recognised in profit or loss as income or expense. This impact on contractual interests is reflected in note 5.
Fair value estimation
Fair value will b reviewed quarterly on an individual case basis. Events that will trigger changes to the fair value of each contractual interest include the following;
Ø Changes in general US dollar interest rate assumptions (market assumption);
Ø Successful judgement of a claim in which the Company has a contractual interest;
Ø Unsuccessful judgement of a claim in which the Company has a contractual interest;
Ø Outstanding appeals against both successful and unsuccessful judgements;
Ø A contractual interest is to be sold at a discount or to be settled out of Court by a binding agreement;
Ø Legal impediments to collectability of claims (in the US Chapter 7 Bankruptcy or Chapter 11 Court Protection from Creditors); and
Ø 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 are allocated between return of original principal and any gain based on the following processs:
Ø Proceeds are discounted back to original investment date at a discount rate equal to the effective interest rate that drives current valuation;
Ø This discounted value represent the portion of proceeds attributable to a return of investment with the remainder representing a gain associated with the partial settlement; and
Ø 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 effective interest rate at prior valuation period) with the difference reflected as current year realised gain or loss.
(e) Available for sale financial assets
Classification
Available for sale financial assets are those 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.
Recognition, derecognition and measurement
Regular purchase and sale of contractual interests are recognised on the trade date, being the date on which the Group commits to purchase or sell the asset.
2. Summary of Significant Accounting Policies (continued)
(e) Available for sale financial assets (continued)
Available for sale 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 equity. When available for sale investments are sold or impaired, the accumulated fair value adjustments recognised in equity are included in equity as gains and losses from available for sale investments.
(f) Available for sale debt securities
Available for sale debt securities entered into by the Group will initially be measured as the cash sum advanced to a law firm. Attributable due diligence costs are capitalised into the amount advanced. Subsequent measurement of Available for sale debt securities will be at amortised cost using the effective interest rate method.
(g) Due diligence and transaction costs
The due diligence costs attributable to cases that have resulted in a contractual interest have been capitalised into the cost of the contractual interest. Any other due diligence costs not directly relating to a contractual interest have been expensed immediately in the consolidated statement of comprehensive income.
(h) Foreign currency
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The functional currency of the Group 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 Group. The consolidated 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 consolidated statement of comprehensive income.
(i) Interest income
Interest income arising on cash and cash equivalents is recognised in the consolidated statement of comprehensive income on an accruals basis.
(j) 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 and bonds for comparatives.
(k) Taxation
The Company has obtained exempt company status in Guernsey. The Company is, therefore, only liable to an annual exemption fee of £600.
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.
(l) Expenses
Expenses are accounted for on an accrual 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.
(m) Dividends
Dividends paid during the period will be disclosed directly in equity via the consolidated 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 as commitments.
(n) Other receivables and prepayments
Other receivables and prepayments are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment.
2. Summary of Significant Accounting Policies (continued)
(o) Other payables
Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
(p) 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 proceeds.
(q) 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 ("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 consolidated 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 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 consolidated 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.
(r) Impairment of assets
The carrying amounts of assets are assessed on a quarterly basis to determine whether there is any indication of impairment. If such indication exists, the Group estimates the recoverable amount of the asset, being the higher of the assets net selling price and its value in use. Any impairment loss is recognised for the excess of the assets' recoverable amount over its carrying value and the difference being taken to the consolidated statement of comprehensive income.
The group first assesses whether objective evidence of impairment exists. The criteria that the Group may use to determine that there is objective evidence of an impairment loss include:
Ø Significant financial difficulty of the obligor;
Ø A breach of contract, such as a default or delinquency in interest or principal payments;
Ø The group, 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;
Ø It becomes probable that the borrower will enter bankruptcy or other financial reorganisation; or
Ø 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/available for sale debt securities' original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated 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 consolidated income statement.
2. Summary of Significant Accounting Policies (continued)
(s) Earnings per share
The basic earnings per share value is calculated by taking the profit for the period and dividing it by the weighted average number of ordinary shares in issue over the period. The 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 total equity shareholders' funds and dividing it by the number of shares in issue at the period end.
(u) Put option
The Company sold 8% interest in its subsidiary Riverbend Investments Limited to an unafilliated party (see Note 4). 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. To record the potential liaibility, the Company follows IAS 32 which directs the Company to fair value the potential liability by calculating the present value of the redemption amount and record it with an offset to equity (see Note 11).
3. Critical Accounting Estimates and Judgements
Critical accounting estimates and assumptions
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 within the next financial year are outlined below.
Critical accounting judgements in applying the Group'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 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 law suit 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 as a loss their investment in the claim. 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 Group's accounting policies, which are described in Note 2, the Directors have relied upon the Investment Manager's assessment 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 effective interest rate applied to contracts entered into by the Group, as disclosed in Note 5.
To determine the appropriate effective interest rate 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 outcome and other statistical data which is used to calculate the future valuation of each particular contractual interest. An effective interest rate is then derived based on the level of investment and the determined future value.
Determination of functional currency
The determination of the functional currency of the Group 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 Group is the United States Dollar (US$).
4. Subsidiaries
|
|
|
| 31 December | 31 December |
|
| Date | % Share | 2009 | 2008 |
|
| Incorporated | holdings | US$ | US$ |
|
|
|
|
|
|
| Riverbend Investment Limited (2008: 100%) | 8 October 08 | 92% | 1 | 1 |
| Juridica Ventures KFT | 2 March 09 | 100% | 2,200 | - |
| Somerton Investments LLC | 31 May 09 | 100% | 1 | - |
|
|
|
|
|
|
|
|
|
| 2,202 | 1 |
|
|
|
|
|
|
Juridica Ventures (US) Inc, a wholly owned subsidiary of Juridica Ventures KFT was incorporated on 2 March 2009.
During the year ended 31 December 2009, 8% of Riverbend Investments Limited was disposed to Litigation Strategies LLC for net proceeds of $3,880,038.
5. Contractual Interests
|
|
|
|
|
| Fair value |
|
|
|
|
|
|
| Fair value | movement |
|
|
|
|
|
|
| movement | due to |
|
|
|
| Balance at |
|
| due to | changes in |
| Balance at |
|
| 1 January |
| Disposal | effective | estimated | Realised | 31 December |
|
| 2009 | Additions | proceeds | interest | cash flows | (loss)/gain | 2009 |
|
| US$ | US$ | US$ | US$ | US$ | US$ | US$ |
|
|
|
|
|
|
|
|
|
| Case 0108-S / 0209-S | 1,071,988 | 3,491,624 | - | 123,004 | - | - | 4,686,616 |
| Case 0408-W | 1,156,438 | 1,169,497 | - | 169,639 | (527,735) | - | 1,967,839 |
| Case 0608-S | 1,559,215 | 1,302,879 | - | - | (2,162,351) | - | 699,743 |
| Case 0708-B | 707,180 | 1,964,147 | (750,000) | 106,277 | 1,608,773 | 143,504 | 3,779,881 |
| Case 0808-C | 3,582,877 | 2,015,824 | - | 649,190 | 5,719,498 | - | 11,967,389 |
| Case 0908-U(settled) | 4,319,371 | - | (4,337,692) | - | - | 18,321 | - |
| Case 1608-T | 518,479 | - | - | 132,279 | 974,101 | - | 1,624,859 |
| Case 6308-F(settled) | 1,202,804 | 333,045 | (2,437,642) | - | - | 901,793 | - |
| Case 7608-A | - | 2,106,298 | - | 320,675 | - | - | 2,426,973 |
| Case 2709-E | - | 867,747 | - | 305,345 | - | - | 1,173,092 |
| Case 0409-C | - | 4,275,973 | - | 342,472 | - | - | 4,618,445 |
| Case 5009-S | - | 1,087,907 | - | 3,518 | - | - | 1,091,425 |
| Case 6509-A | - | 2,029,582 | - | 15,067 | - | - | 2,044,649 |
|
|
|
|
|
|
|
|
|
| Totals | 14,118,352 | 20,644,523 | (7,525,334) | 2,167,466 | 5,612,286 | 1,063,618 | 36,080,911 |
|
|
|
|
|
|
|
|
|
5. Contractual Interests (continued)
|
|
|
|
|
| Fair value |
|
|
|
|
|
|
| Fair value | movement |
|
|
|
|
|
|
| movement | due to |
|
|
|
|
|
|
| due to | changes in |
| Balance at |
|
| Opening |
| Disposal | effective | estimated cash | Realised | 31 December |
|
| balance | Additions | proceeds | interest | flows | (loss)/gain | 2008 |
|
| US$ | US$ | US$ | US$ | US$ | US$ | US$ |
|
|
|
|
|
|
|
|
|
| 0108 - S | - | 1,054,149 | - | 17,839 | - | - | 1,071,988 |
| 0208 - G (settled) | - | 12,050,211 | (13,750,000) | - | - | 1,699,789 | - |
| 0308 - R (settled) | - | 9,513 | (3,500,000) | - | - | 3,490,487 | - |
| 0408 - W | - | 1,085,784 | - | 70,654 | - | - | 1,156,438 |
| 0608 - S | - | 1,496,091 | - | 63,124 | - | - | 1,559,215 |
| 0708 - B | - | 678,109 | - | 29,071 | - | - | 707,180 |
| 0808 - C | - | 3,444,102 | - | 138,775 | - | - | 3,582,877 |
| 0908 - U | - | 3,119,371 | - | 1,200,000 | - | - | 4,319,371 |
| 1608 - T | - | 480,513 | - | 37,966 | - | - | 518,479 |
| 6308 - F | - | 1,189,757 | - | 13,047 | - | - | 1,202,804 |
|
|
|
|
|
|
|
|
|
| Totals | - | 24,607,600 | (17,250,000) | 1,570,476 | - | 5,190,276 | 14,118,352 |
|
|
|
|
|
|
|
|
|
Contractual interests have been accounted for using the effective interest rate method of calculation. Effective interest rates on these contractual interests range between 3.62 and 136.41 percent at 31 December 2009. At 31 December 2009 the Company had investments in 12 contractual interests. The terms of case 0108-S were amended during the year as a result of the Company's investment in Case 0209-S. Although the two cases are separate investments, the value of the two cases are intrinsically linked and are thus valued together in the above chart.
Case 0908-U had been determined at 31 December 2008 resulting in a profit on the contractual interest of $1,218,321, based on cost. Of this profit, $1,200,000 had been recognised as an unrealised gain in the period to 31 December 2008, resulting in a net gain in the current year of $18,321.
There has been a partial return of $750,000 in respect of the Case 0708-B, of which, $250,000 was received in 2009 and the remaining $500,000 was received in January 2010 and is therefore recorded as a receivable as at 31 December 2009. The total proceeds of $750,000 have been allocated against an investment cost of $580,208 in accordance with Note 2(d) resulting in a profit of $169,792 versus cost. Of this, $26,288 had been recognised as an unrealised gain in the period to 31 December 2008, resulting a net gain in the current year of $143,504.
A return of $2,437,642 was received on Case 6308-F, resulting in a profit of $914,840 based on cost. Of this profit, $13,047 had been recognised as an unrealised gain in the period to 31 December 2008, resulting in a net gain of $901,793 in the current year.
The Company has carried out a full review of its investment in Case 0608-S and, as a result, has exercised its right to withdraw from further funding under its investor agreement. The case is being pursued by new counsel for JIL as a potential claim against third parties. As of 31 December 2009 the Investment Manager evaluated the prospects of recovering its investment and the Company has reversed all previously recognised fair value movements and has reduced the carrying value of its investment by 75%.
6. Available For Sale Financial Assets
|
| 2009 | 2008 |
|
| US$ | US$ |
|
|
|
|
| Balance at start of the year/period | 2,400,005 | - |
| Additions | 5,105,516 | 2,935,950 |
| Disposal proceeds | - | - |
| Fair value movement | - | (535,945) |
| Realised gains | - | - |
|
|
|
|
| Balance at end of the year/period | 7,505,521 | 2,400,005 |
|
|
|
|
6. Available For Sale Financial Assets (continued)
The Company's Available for Sale Financial Assets include a holding in Juridica Capital Management Limited ("JCML"). The fair value of the Company's investment in JCML was assessed as at 31 December 2009 to be $2,400,005 (31 December 2008: $2,400,005). This static assessment of JCML is deemed appropriate given its investment in the Company, its level of assets (including intellectual property) the quality of its income and earnings, based on the minimal change to the circumstances surrounding JCML.
During 2009, the Company invested $5,105,516 in an entity for the purpose of expanding its interest in contractual claims. The Company is deemed not to have significant influence over the entity and hence does not consider the entity an affiliate. As at 31 December 2009, the carrying value of the Company's investment in this entity was maintained at cost.
7. Available for Sale Debt Securities
|
|
|
|
|
| Fair value |
|
|
|
|
|
|
| Movement | movement due |
|
|
|
| Balance at |
|
| due to | to changes in |
| Balance at |
|
| 1 January |
|
| effective | estimated | Realised | 31 December |
|
| 2009 | Drawdown | Repayment | interest | cash flows | gains | 2009 |
|
| US$ | US$ | US$ | US$ | US$ | US$ | US$ |
|
|
|
|
|
|
|
|
|
| Case 3608-A | 53,433,408 | 27,487,305 | (1,500,000) | 8,878,487 | 6,071,655 | - | 94,370,855 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair value |
|
|
|
|
|
|
| Movement | movement due |
|
|
|
|
|
|
| due to | to changes in |
| Balance at |
|
| Opening |
|
| effective | estimated cash | Realised | 31 December |
|
| balance | Drawdown | Repayment | interest | flows | gains | 200] |
|
| US$ | US$ | US$ | US$ | US$ | US$ | US$ |
|
|
|
|
|
|
|
|
|
| Case 3608-A | - | 52,564,569 | - | 868,839 | - | - | 53,433,408 |
|
|
|
|
|
|
|
|
|
Note 14(f) details arrangements between the Company and Fields Scrantom Sullivan PLLC ("FSS"). The Loan and the Swap have been aggregated on consolidation and treated as a single claim asset. Return on the Loan and the Swap are dependent on returns in claims financed by FSS. As detailed in Note 17, there remains risk that there is considerable variability in possible outcomes and the effective interest rate will not be as expected.
8. 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 were 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 output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Company holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and counterparty risk.
The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments.
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This 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:
Ø Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Ø 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).
Ø Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
8. Fair Value Estimation (continued)
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.
The following table analyses within the fair value hierarchy the Fund's financial assets and liabilities (by class) measured at fair value at 31 December 2009:
|
| Level 1 | Level 2 | Level 3 | Total |
| Assets | US$ | US$ | US$ | US$ |
|
|
|
|
|
|
| Contractual interests | - | - | 36,080,911 | 36,080,911 |
| Equity securities | - | - | 7,505,521 | 7,505,521 |
| Debt securities | - | - | 94,370,855 | 94,370,855 |
|
|
|
|
|
|
| Total assets | - | - | 137,957,287 | 137,957,287 |
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
| Put option | - | - | (503,729) | (503,729) |
|
|
|
|
|
|
| Total Liabilities | - | - | (503,729) | (503,729) |
|
|
|
|
|
|
| Total | - | - | 137,453,558 | 137,453,558 |
|
|
|
|
|
|
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 the fair value.
There were no transfers between levels for the year ended 31 December 2009.
The following table presents the movement in level 3 instruments for the year ended 31 December 2009 by class of financial instrument.
|
| Contractual | Equity | Debt |
|
|
|
| interests | securities | securities | Put option | Total |
|
| US$ | US$ | US$ | US$ | US$ |
|
|
|
|
|
|
|
| Opening balance | 14,118,352 | 2,400,005 | 53,433,408 | - | 69,951,765 |
| Additions | 20,644,523 | 5,105,516 | 27,487,305 | - | 53,237,344 |
| Settlements | (7,525,334) | - | (1,500,000) | - | (9,025,334) |
| Gains and losses recognised in profit and loss | 8,843,370 | - | 14,950,142 | (503,729) | 23,289,783 |
|
|
|
|
|
|
|
| Closing balance | 36,080,911 | 7,505,521 | 94,370,855 | (503,729) | 137,453,558 |
|
|
|
|
|
|
|
|
Total gains or losses for the year included in the |
|
|
|
|
|
| statement of comprehensive income for assets held |
|
|
|
|
|
| at the end of the year | 7,923,256 | - | 14,950,142 | (503,729) | 22,369,669 |
|
|
|
|
|
|
|
Claims development
On 20 November 2008, the Company invested in Case 6308-F. As of 31 December 2008, the investment in this case was valued which resulted in an annual effective interest rate of 12%. On 24 December 2009 case 6308-F settled providing $2,437,642 in gross proceeds to the Company. Our total investment in case 6308-F at the time of settlement was $1,522,802 thus driving a net profit of $914,840. This profit delivered an actual annualised return of 54.96%. Had the invested case settled at an amount based on our predicted annualised effective interest rate of 12% our net profit would have been $199,758.
9. Other Receivables and Prepayments
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| US$ | US$ |
|
|
|
|
| Loan principal repayment | 1,500,000 | - |
| Debtors | 648,542 | 72,755 |
| Prepayments and accrued bank interest | 334,346 | 201,030 |
|
|
|
|
|
| 2,482,888 | 273,785 |
|
|
|
|
10. Cash and Cash Equivalents
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| US$ | US$ |
|
|
|
|
| Treasury bills | - | 21,608,129 |
| Cash at bank | 77,050,345 | 60,903,808 |
|
|
|
|
|
| 77,050,345 | 82,511,937 |
|
|
|
|
11. Put Option
In October 2009, the Company sold 8% of the interest in its subsidiary, Riverbend Investments Limited, to an unafilliated party (see Note 4). 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 has 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 will have a strike price of $7,000,000 and will expire on the following day.
The Company has fair valued the strike price of the put option by calculating the present value of its maximum stated value from the third anniversary of the date of sale to 31 December 2009. The resulting amount is reflected on the books as a non-current liability with an offset to equity.
|
| 31 December | 31 December |
| |
|
| 2009 | 2008 |
| |
|
| US$ | US$ |
| |
|
|
|
| ||
| Stated strike price value of put option at expiration date ("Stated Value") | 7,000,000 | - | ||
| Fair value of Stated Value at 31 December 2009 | 503,729 | - | ||
|
|
|
| ||
|
|
|
| ||
12. Other Payables
|
| 31 December | 31 December | ||
|
| 2009 | 2008 | ||
|
| US$ | US$ | ||
|
|
|
|
| |
| Sundry creditors | 205,095 | 225,363 | ||
| Legal and professional fee | - | 43,734 | ||
| Audit fees | 162,200 | 114,875 | ||
| Case addition | 602,367 | - | ||
|
|
|
| ||
|
| 969,662 | 383,972 | ||
|
|
|
|
| |
13. Commitments & Guarantees
Under the terms of some of its contracts, the Company provides a line of credit to counterparties. As at 31 December 2009, the maximum commitment under these lines of credit was $9.5 million (31 December 2008: $ 27.5 million).
14. Related Party Transactions
The principals of Juridica Capital Management Limited ("JCML") are Richard Fields and Timothy Scrantom. Each of Timothy Scrantom and Richard Fields, Directors of JCML, acquired 50,000 Ordinary Shares in the Company (0.0625 percent equity interest each) as reimbursement of 100,000 pounds sterling of pre IPO costs.
(a) Management fee
The Company is managed by JCML, an investment management company incorporated in Guernsey in which the Company holds a 15 percent equity interest. Under the terms of the Management Agreement, the Company appointed JCML as Investment Manager to provide management services to the Company. The Investment Manager receives an estimated fee based on the budgeted adjusted net asset value of the Company, payable quarterly in advance using an 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.
The estimated Investment Management fee paid for 2009 was based upon the adjusted Net Asset Value of the Company at 31 December 2008 which was $147.5 million, adjusted from 6 April 2009 to include the net proceeds of the placing. In the year ended 31 December 2009 Investment Management fees totalling $4,568,714 (31 December 2008: $3,685,644) were paid to JCML. As at 31 December 2009 the Investment Management fee was adjusted based on the adjusted Net Asset Value at that date and the resulting Investment Management fee debtor was $144,356 (31 December 2008: $Nil).
(b) Investment in Juridica Capital Management Limited
The Company acquired 15 percent of JCML on Admission (see Note 6). The investment is measured at fair value. An impairment review has been performed as part of the fair value assessment and an impairment review will be carried out on a semi-annual basis.
Juridica Capital Management Limited acquired 1.5 million shares in the Company on Admission and has acquired a further 153,507 shares under the terms of the placing effective on 6 April 2009 at a price of £1.14. As announced on 28 July 2009 these shares have been sold to certain employees of the Investment Manager.
(c) Performance fee
The Investment Manager is entitled to a performance fee based on the adjusted net asset value (being the NAV of the Company before taking into account any performance fee payable less any unrealised gains on contractual interests plus the value of any writedowns in any contractual interests that have been written down but not written off) of the Company. The performance fee will equal 20 per cent of the annualised increase in the net asset value between a hurdle rate of 8 per cent and 20 per cent, furthermore a fee of 35 per cent of the increase over a hurdle of 20 per cent and 40 per cent and 50 per cent of the same increase over a hurdle of below 40 per cent. The fees are subject to a high water mark such that no performance fee will be paid if the performance of the Company does not exceed the net asset value at the end of the previous year in which the performance fee was paid. Payment of the performance fee is subject to the condition set out in (d), below. For the purposes of calculating the performance fee at 31 December 2009, the adjusted net asset value was:
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| US$ | US$ |
|
|
|
|
| Net asset value | 216,017,129 | 152,353,515 |
| Less: |
|
|
| - unrealised gains on contractual interests | (7,779,752) | (1,570,476) |
| - unrealised gains on available for sale debt securities | (14,950,142) | (868,839) |
| - carrying value of investment in JCML | (2,400,005) | (2,400,005) |
|
|
|
|
| Adjusted net asset value | 190,887,230 | 147,514,195 |
|
|
|
|
As at 31 December 2009 the hurdle rate was not achieved, therefore, no performance fee was paid or payable for the year.
14. Related Party Transactions (continued)
(d) Trust account
Of the performance fee, 50 percent of any payment within the first four years from the date of admission will be retained by the Company in a trust account. During that period if, at any given year end, the annualised increase in net asset value of the Company is less than 8 percent, the Company may claw back 20 percent of the difference between the actual net asset value and the net asset value assuming an 8 percent increase from the net asset value for the previous period. As at 31 December 2009 the balance in the trust account was $ Nil (31 December 2008: $Nil).
(e) Turtle Bay Technologies Limited
On 20 November 2008 the Company agreed to provide $1.475 million to a US LLC, a company not related to the Company. $525,000 of this was paid to Turtle Bay Technologies Limited, a company ultimately owned and controlled by JCML, for services provided to the US LLC by Turtle Bay Technologies Limited.
(f) Facility agreement and collateral account
The Company has entered into a facility agreement (the "Facility") with which it agrees to loan to FSS money for funding cases in which FSS 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 Principals) on terms and conditions similar to those contained in the Facility. The Facility available to FSS will be for up to approximately 50 percent 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, (ii) the date on which Richard Fields and Tim Scrantom cease to own a controlling interest in FSS, (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 FSS 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 $10 million may be drawn down in respect of the same case investment, unless otherwise approved by the Company.
As at 31 December 2008, the Company had agreed to loan FSS $62 million at a compounding annual interest rate of 12 percent ("Loan 1"). During the year to 31 December 2009 the Company agreed to loan a further $17 million at an interest rate of 15 percent per annum ("Loan 2") at which time Loan 1 was revised such that, amongst other things, the compounding annual interest rate was changed to be 15 percent. At 31 December 2009, $79 million (31 December 2008: $52 million) had been drawn down. The loans are repayable over 10 years and are secured by FSS's economic interests in the Partnership and the outcomes of the initial portfolio of cases. In light of the fact that the loans are with recourse to FSS (but not the FSS members) at the end of the term of the loan, FSS has entered into a swap agreement (the "Swap") with Riverbend Investments Limited ("Riverbend"), a subsidiary of the Company.
Under the Swap, Riverbend will pay FSS any amounts payable under the loans at the end of the term of the loans to the extent that FSS does not have sufficient income from the Partnership to allow such payment. As consideration, Riverbend will be entitled to an annual amount equal to the greater of $3.5 million or 36 percent of the principal and interest per annum then due under the loans (subject to FSS having sufficient income received from the Partnership to pay the same). Under a standby support arrangement, JIL has agreed to provide Riverbend with funding to enable Riverbend to perform its obligation under the Swap.
All Relevant Revenues (before deduction of any tax) received by and belonging to FSS shall, on the date received, be paid or placed into a specified account. Save as permitted by the Facility, FSS may only withdraw amounts from the specified account to pay any tax arising on the Relevant Revenues.
The order of payment under the Facility, which was amended on 15 July 2009 under a Deed of Amendment due to the further loan issued, is as follows:
(i) first, the Borrower shall pay to the Lender all unpaid Default Interest Amounts due under the Facility to the full extent of available Relevant Revenues.
(ii) second, of any Relevant Revenues remaining after the payment under subsection (i) above, the Borrower shall pay to the Lender all unpaid Regular Interest Amounts due under the Facility to the full extent of available Relevant Revenues.
(iii) third, of any Relevant Revenues remaining after the payments under subsection (i) and (ii) above , the Borrower shall make payments to the Lender on the principal outstanding under the Facility equal to:
Ø the outstanding loan principal on the last day of such Calculation Period divided by
Ø the sum of 1 plus the number of years remaining from the last day of such Calculation Period to 31 December 2018.
(iv) fourth, any Relevant Revenues remaining after the payments under subsections (i), (ii) and (iii) above ("Remaining Relevant Revenues"), the Borrower shall make payments due to any third party approved in advance by the Lender, for the sole purpose of hedging the Borrower's risk under the Facility, up to the full amount of such payments then due under any such hedging arrangements; and then
14. Related Party Transactions (continued)
(f) Facility agreement and collateral account (continued)
(v) fifth, any Relevant Revenues remaining after the payments under subsections (i), (ii), (iii) and (iv) above shall be paid into, and held in the Revenue Collateral Account under the terms and conditions of the Facility to make payments under this Facility and any hedging arrangements approved by the Lender in future years, and no principal or interest shall be due or payable by the Borrower to the Lender except as specifically provided in the Facility or on the termination date of the Facility.
(g) Directors' remuneration
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| US$ | US$ |
|
|
|
|
| Lord Daniel Brennan | 234,590 | 203,490 |
| Richard Battey | 92,523 | 121,953 |
| Kermit Birchfield | 128,277 | 137,722 |
|
|
|
|
|
| 455,390 | 463,165 |
|
|
|
|
No pension contributions were paid or were payable on behalf of the Directors.
Lord Daniel Brennan has an interest in 416,140 shares under a Share Option Agreement, details of which were disclosed in the Admission Document. The fair value of these options was determined as of the grant date to be $139,138, which is to be provided for over the vesting period of the options of 5 years. As at 31 December 2009, a provision of $56,613 (31 December 2008: $27,828) has been made for these options.
The other Directors have no beneficial interest in the share capital of the Company.
(h) Cenkos warrant
Cenkos Securities plc has an interest in 800,000 shares under a Deed of Warrant Grant at a price of 130p exercisable until 21 December 2012. These were fair valued as of the grant date at $246,906 (31 December 2008: $246,906) and a full provision was made for this in the annual financial statements prepared for the year ended 31 December 2008.
(i) Cenkos Securities plc
Cenkos Securities plc acquired 1,535,087 shares, in lieu of commission for the fund raising, under the terms of the placing effective on 6 April 2009 at a price of £1.14.
15. Functional and Presentation Currency/Exchange Rates
The financial statements are presented in United States Dollar ("US$") which is also the Company's functional currency. The following rate was applicable as at 31 December 2009.
|
| Closing rate | |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| US$ | US$ |
|
|
|
|
| Great Britain pounds (GBP) | 1.6220 | 1.4578 |
|
|
|
|
16. Capital and Reserves
Authorised share capital: Unlimited number of ordinary shares of no par value.
Issued share capital: 110,701,754 shares as of 31 December 2009 (31 December 2008: 80,000,000 shares), of which 80,000,000 shares were issued at a premium of £1 per share on admission with a further 30,701,754 shares issued at a premium of £1.14 on 6 April 2009.
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 on capital are shown on the consolidated statement of changes in equity through the special reserve.
16. Capital and Reserves (continued)
The Company has authority to make market purchases of up to 14.99 percent of its own issued ordinary shares. This authority was renewed at the first annual general meeting of the Company held on 28 May 2009. 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.
17. Financial Risk and Insurance Risk Management Objectives and Policies
The Group's activities expose it to a variety of financial risks and insurance risk.
The Group's overall risk management programme seeks to maximise the return derived for the level of risk to which the Group is exposed and seeks to minimise potential adverse effects on the loss of capital is limited to the fair value.
The management of these risks is carried out by the Investment Manager under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity.
The Group uses different methods to measure and manage the various types of risk to which it is exposed. These methods are explained below.
(a) Insurance risk
There is no established market for the Group'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 Group of the assets from which respective effective interest rates are derived is determined by the judgement of the Investment Manager. In coming to its best estimate of the effective interest rates on the assets, the Investment Manager has estimated the probability, timing and quantum of particular outcomes. The respective effective interest rates on contractual interests are then derived as the mean internal rate of return from a Monte-Carlo type simulation of expected outcomes.
(b) 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 Group's policy is not to manage the Group's exposure to foreign exchange movements (both monetary and non-monetary) by entering into any foreign exchange hedging transactions.
The Group 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 Group may hedge future investment opportunities in the functional currency.
As at 31 December 2009, a proportion of the net financial assets of the Group are denominated in currencies other than USD as follows:
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| US$ | US$ |
|
|
|
|
| USD | 210,347,448 | 148,443,828 |
| GBP | 5,669,681 | 4,293,659 |
|
|
|
|
|
| 216,017,129 | 152,737,487 |
|
|
|
|
At 31 December 2009, 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 +/- $283,484 (31 December 2008: +/- $352,880). Management assesses the risk of exposure to the general banking system, and specific banks, and invests cash in US government securities when there is perceived risk to principal.
(c) Cash flow and fair value interest rate risk
Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rate on the fair value of financial assets and liabilities and future cash flows. The Group holds fixed and variable rate interest securities that expose the Group to fair value interest rate risk.
The Group is exposed to interest rate risk related to its cash balances. The Group does not actively manage this risk as it invests only in low risk securities.
17. Financial Risk and Insurance Risk Management Objectives and Policies (continued)
(c) Cash flow and fair value interest rate risk (continued)
|
| 31 December 2009 | |||
|
|
|
|
|
|
|
| Fixed interest | Variable Interest | Non interest bearing | Total |
|
| US$ | US$ | US$ | US$ |
|
|
|
|
|
|
| Assets |
|
|
|
|
| Contractual interests | - | 36,080,911 | - | 36,080,911 |
| Available for sale financial assets | - | - | 7,505,521 | 7,505,521 |
| Available for sale debt securities | - | 94,370,855 | - | 94,370,855 |
| Other receivables and prepayments | - | - | 2,482,888 | 2,482,888 |
| Cash and cash equivalents | 70,402,548 | 6,647,797 | - | 77,050,345 |
|
|
|
|
|
|
| Total Assets | 70,402,548 | 137,099,563 | 9,988,409 | 217,490,520 |
|
|
|
|
|
|
| Liabilities |
|
|
|
|
| Put option | - | - | (503,729) | (503,729) |
| Other payables | - | - | (969,662) | (969,662) |
|
|
|
|
|
|
| Total Liabilities | - | - | (1,473,391) | (1,473,391) |
|
|
|
|
|
|
| Total interest sensitivity gap | 70,402,548 | 137,099,563 | 8,515,018 | 216,017,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 31 December 2008 | |||
|
|
| |||
|
| Fixed interest | Variable Interest | Non interest bearing | Total |
|
| US$ | US$ | US$ | US$ |
|
|
|
|
|
|
| Assets |
|
|
|
|
| Contractual interests | - | 14,118,352 | 2,400,005 | 16,518,357 |
| Available for sale debt securities | - | 53,433,408 | - | 53,433,408 |
| Other receivables and prepayments | - | - | 273,785 | 273,785 |
| Cash and cash equivalents | 20,108,175 | 45,903,808 | 16,499,954 | 82,511,937 |
|
|
|
|
|
|
| Total Assets | 20,108,175 | 113,455,568 | 19,173,744 | 152,737,487 |
|
|
|
|
|
|
| Liabilities |
|
|
|
|
| Other payables | - | - | (383,972) | (383,972) |
|
|
|
|
|
|
| Total Liabilities | - | - | (383,972) | (383,972) |
|
|
|
|
|
|
| Total interest sensitivity gap | 20,108,175 | 113,455,568 | 18,789,772 | 152,353,515 |
|
|
|
|
|
|
At 31 December 2009, if 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 +/- $49,858 (31 December 2008: +/- $345,510), arising substantially from the cash and cash equivalents.
(d) Credit risk
The Group is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when they fall due.
During the accounting period, the Company refined and articulated 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 as 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 analyze and (pursuant to investment contracts) manage credit risk associated with the Company's investments.
17. Financial Risk and Insurance Risk Management Objectives and Policies (continued)
(d) Credit risk (continued)
The main concentration to which the Group is exposed arises from the Group's loan to FSS. The Group is also exposed to counterparty credit risk on trading contractual interests, cash and cash equivalents and other receivables.
In accordance with the Group's policy, the Investment Manager monitors the Group's credit position on a daily basis, and the Board of Directors reviews it on a quarterly basis.
The Group 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 consolidated statement of financial position which amounted to $217,490,520 (31 December 2008: $152,737,487).
(e) Liquidity Risk
The Group is exposed to liquidity risk. The contractual interests are acquisition of claims, as well as loans to lawyers to fund participation in claims on a contingency fee basis, and therefore require significant capital contribution with little or no immediate return and no guarantee of return or repayment. The market for such contractual interests is not active and cash realisation of capital is only expected in the long-term. In the opinion of the Directors the current liquidity risk at 31 December 2009 is low as cash and cash equivalents exceed unmatched liabilities or other contractual commitments.
| Maturity Analysis | 31 December 2009 | |||
|
|
| |||
|
| < 3 months | < 6 months | < 12 months | Total |
|
| US$ | US$ | US$ | US$ |
|
|
|
|
|
|
| Other payables |
|
|
|
|
| Sundry creditors | - | 205,095 | - | 205,095 |
| Legal and professional fees | - | - | - | - |
| Audit fees | - | 162,200 | - | 162,200 |
| Case additions | - | 602,367 |
| 602,367 |
|
|
|
|
|
|
|
| - | 969,662 | - | 969,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 31 December 2008 | |||
|
|
| |||
|
| < 3 months | < 6 months | < 12 months | Total |
|
| US$ | US$ | US$ | US$ |
|
|
|
|
|
|
| Other payables |
|
|
|
|
| Sundry creditors | 46,700 | 178,663 | - | 225,363 |
| Legal and professional fees | - | 43,734 | - | 43,734 |
| Audit fees | - | 114,875 | - | 114,875 |
|
|
|
|
|
|
|
| 46,700 | 337,272 | - | 383,972 |
|
|
|
|
|
|
(f) Concentration risk
The Group 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. Further information regarding portfolio diversification can be found in the Investment Manager's Report.
The Group 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(d).
(g) 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 is 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.
17. Financial Risk and Insurance Risk Management Objectives and Policies (continued)
(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.
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 Group does not expect there to be any material differences.
18. Subsequent Events
Recent ruling on invested matter
For Matter 5608-N, which is part of the invested matters under the Facility (as described in Note 14), the Court made a ruling on a threshold issue that, absent reversal on appeal, results in dismissal of Plaintiff's claims. The Court, however, also ruled in Plaintiff's favour on certain primary substantive claims. Consequently, if the threshold ruling is reversed, Matter 5608-N may proceed to jury trial on the merits. The appeal is expected to take at least 18 to 24 months, and settlement prior to conclusion of the appeal appears unlikely to the Manager. The Company believes that, even if the Plaintiff's claims are dismissed, the impact to the Facility is limited because it is part of a portfolio of investments.
Recent investments
In January 2010, a wholly owned subsidiary of the Company agreed to invest up to $3,500,000 to purchase a patent. The Company, along with its engaged legal firm, intend to conduct litigation against alleged infringers of the patent.
In April 2010, the Company purchased an "Appeal Gap" insurance policy for $400,000. This policy provides for a minimum cash return of $4.0 million on the Company's investment in Matter 6509-A if the case fails on appeal or is not resolved within five years from the date the insurance policy was issued. In addition, in the event of settlement, the policy pays JIL the difference between $4.0 million and the amount of any settlement less than $4.0 million.