Juridica Investments Regulatory News (JIL)

Juridica Investments Limited

("Juridica" or the "Company")

Final results for the year ended 31 December 2010

Juridica, a leading provider of capital to the law market, today announces its audited financial results for the year ended 31 December 2010.

Background

The Company launched its fund in December 2007 and has focused exclusively on business-to-business related claim investments. Juridica does not invest in shareholder class actions, personal injury, product liability, or mass tort claims. It concentrates its investments on the following sectors: anti-trust and competition, intellectual property, and general commercial litigation. Juridica's strategy has involved prudent longer term investments in high value cases at various stages in their legal process as well as shorter term investments that either are already in trial or will be determined through binding arbitration that typically takes far less time to complete.

Operating highlights

Cash returns

During 2010, the Company received cash proceeds totalling approximately US$6.6 million relating to four investments. One investment came to a full conclusion and was previously reported in August 2010. Three other investments came to partial conclusion as settlements were obtained with one or more defendants in these multi-defendant contractual claims. Total profit based on investment cost (for the fully settled claim) and apportioned investment cost (for the three partially settled claims that are not part of the facility with Fields Sullivan PLLC) was approximately US$1.8 million. These cash proceeds bring the Company's life-to-date cash proceeds through 31 December 2010 to approximately US$31.6 million from nine investments in litigation cases of which five have come to a full conclusion and four have had partial settlements. Relative to the four cases that had settlements during 2010 (and which are not part of the facility with Fields Sullivan PLLC), the nominal rate of return generated from each investment ranged from 30.4% to 61.8% and the internal rate of return (which incorporates timing) generated from each investment ranged from 18.9% to 83.6%.

Income and expenses

The Company reported a net comprehensive loss for period ended 31 December 2010 of US$9.0 million. This loss was generated from US$14.4 million in revenue (including US$1.3 million in realised gains), other comprehensive loss of US$13.7 million caused primarily by factors that reduced the current year's carrying value of certain investments, and fund expenses of US$9.7 million. Factors that reduced the current year's carrying value of certain investments included unexpected timing delays for settlement of certain cases and more importantly, the impact of an interim negative ruling received in early 2010 for a large investment. This negative ruling was reversed by an appellate court in first half of 2011. These adjustments reduced the Company's 2010 carrying value of its portfolio by approximately US$15 million and its impact is also seen through a lower level of unrealised income being generated during the year ended 31 December 2010. The impact of these adjustments to current year's carrying value is limited to 2010. The current carrying value of each investment remains below the Company's manager's longer-term view towards their expected terminal value. Fund expenses include US$2.7 million in due diligence and transaction costs of which in excess of US$2.0 million was associated with an exceptional pending investment. If this investment closes, the due diligence and transaction costs associated with this deal will be reversed in the year the transaction closes and capitalised as part of the related investment cost.

Net asset value

As of 31 December 2010, the Company reported a net asset value of US$194.5 million or US$1.8578 per ordinary share. This represents a US$0.0935 per ordinary share reduction from the 31 December 2009 net asset value of US$1.9513 per ordinary share and is attributable to the net loss generated by the fund as well as some non-operating and non-cash related items.

Additional detail as to the cash returns, the fund's revenue and expenses, and the change in the net asset value for the year ended 31 December 2010 can be found in the Company's Annual Report and Financial Statements for 2010.

Significant activity expected

The Company's investment manager, Juridica Capital Management Limited, (JCML) monitors the status of the litigation involving the Company's investments, particularly key dates in their judicial progress. It is expected that the portfolio will see significant activity within the next 6 to 18 months. This reflects trial dates, expected final decisions following trial or arbitration, and the determination of Markman hearings, (where pre-trial the construction of patents are defined and determined). Each of these milestones, if successful, creates real incentives for defendants to seek settlements.

Specific scheduled events that are likely to impact returns include:

Trials and arbitration

§ One trial is currently underway and scheduled for completion in second half of 2011.

§ Binding arbitration related to an investment recently completed with decision expected in third quarter of 2011.

§ Two trials are scheduled to start in second half of 2011.

§ One trial is scheduled to start in first half of 2012.

§ Four trials are scheduled to start in second half of 2012.

Markman hearings in patent cases

§ Favourable Markman order for a patent related investment was attained in first half of 2011.

§ Four Markman hearings are scheduled to occur in first half of 2011.

Appeals

§ Oral arguments for two cases were heard in first quarter of 2011, for which one already received a favourable decision and for which a decision on the other is expected in second half of 2011.

In addition to the above calendared proceedings, one of Juridica's more significant investments benefitted from a recent ruling whereby the Court denied Defendants' motion to dismiss the Complaint for antitrust and related causes of action. The Court determined that all of Plaintiff's direct and indirect purchases potentially are actionable under the Sherman Act. While not establishing Defendants' ultimate liability or the quantum of damages, this ruling precludes Defendants' jurisdictional defences and leaves open Defendants' possible exposure to US$ billions in damages that could be trebled under the antitrust laws. JIL holds a 12.75% interest in this matter.

The above activity spans both long-term investments as well as investments JCML profiled as being short-term. JCML considers the cases relating to the above activity as potentially completing in the next 6 to 18 months and each has the potential to generate substantial returns. However, no assurances can be given that any investment will generate profits when completed.

New investments

For the year ended 31 December 2010, the Company made four new investments, committing or spending a total of US$9.9 million to obtain rights related to contractual claims. Of these deals, two relate to patent infringement, one relates to a contractual dispute and one relates to an international case concerning copyright infringement, trademark theft, unfair competition, and related claims.

During April 2011, the Company made an additional investment, committing approximately US$3.9 million to obtain a 49% interest in an entity that has acquired holdings in two inter-related entities and their subsidiaries. These entities and their chief executive officer are plaintiffs in litigation relating to breach of fiduciary duty, misappropriation of trade secrets, defamation, and interference with a business opportunity. The underlying case is currently in trial and the Company's investment entitles it to a priority return and up to a 25% share of gross proceeds

Juridica considers these new investments will each provide a strong return to the Company. In addition, JCML's analysis indicates that each case has good prospects of generating income within 6 to 18 months.

Other milestones during 2010

In October 2010, Juridica repurchased 6,000,000 shares of its stock at 102 pence per share for approximately US$10 million. These shares will be held in Treasury. The impact of the share purchases will be realised when expected proceeds from the Company's investments will be distributed over shareholdings that is 5.4% smaller than it was prior to the share purchase.

Chairman's comment

Juridica's Chairman, Lord Brennan QC said: "We are pleased to have delivered positive returns on fully completed and partially settled cases for 2010. The fact that our investments produce positive results reinforces our longer term strategy towards litigation financing and validates our investment manager's underwriting approach."

"The team at JCML continues to be focused on finding strong investment opportunities and structuring deals that provide the best opportunity for returns to our company. We are moving into an 18 month period which reflects carefully planned investment reaching a stage of noteworthy activity."

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About Juridica

Juridica is a leading provider of capital to the business community and the legal market. It invests directly and indirectly in a diversified portfolio of commercial claims and disputes. The Company's objective is to be the premier source of value-added and direct financing or large business claims, especially in the United States and the United Kingdom.

Our clients are Fortune 1000 companies, FT Global 500 companies, small businesses, inventors, major universities and the leading law firms that represent them. Juridica accepts only cases that have already been carefully vetted and accepted by qualified lawyers, does not invest in speculative cases and accepts only a small fraction of the cases reviewed.

The Company focuses exclusively on business-to-business related claim investments. It does not invest in shareholder class actions, personal injury, product liability, or mass tort claims.

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, select and manage direct and indirect investments in cases, claims and disputes.

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

Chairman's Statement

On behalf of the Board, I present the results of Juridica Investment Limited's ("JIL" or the "Company") operations for the year ended 31 December, 2010, and I look forward with confidence to the Company's prospects over 2011 and into 2012.

Key Strategy

Juridica focuses exclusively on business-to-business related claim investments. The Company concentrates on these sectors: anti-trust and competition; intellectual property, particularly patents; and general commercial litigation. We are the market leaders in anti-trust and competition cases. These are complex and expensive claims with extensive time to completion, but then with substantial returns if successful. The Company does not invest in shareholder class actions, personal injury, product liability, or mass tort claims.

Our strategy has involved a number of prudent longer term investments in high value cases in each sector. The next 6 to 18 months will reflect considerable activity in the case portfolio.

Cash Returns and Operating Results

During 2010, the Company received proceeds totalling approximately US$6.6 million related to four investments. Total profit based on investment cost and apportioned investment cost for partly settled claims was approximately US$1.8 million. The cash proceeds received in 2010 bring the Company's cumulative cash proceeds from investments to approximately US$31.6 million generating a cumulative cash profit of approximately US$9.3 million from nine investments in litigation cases of which five have come to a full conclusion and four have had partial settlements.

For the year ended 31 December 2010, the Company reported a total comprehensive loss of approximately US$9.0 million. Considerations with regard to this loss are:

§ This loss is net of realised gains of US$1.3 million.

§ This loss is attributable in significant part to lower current carrying values of the Company's investments based on the Manager's adjustments for timing delays and interim events that occurred during 2010. As explained in more detail below, timing delays that occurred during 2010 accounted for approximately US$6.0 million in lower current carrying values. In addition, during 2010 there was an interim negative ruling in Case 5608-N that accounted for approximately US$9 million reduction in the carrying value of the facility we have in place with Fields Sullivan PLLC. This interim negative ruling was successfully reversed in the first half of 2011. So, the approximately US$9 million in lower current carrying value attributed to Case 5608-N should be reversed in the financial statements for 2011.

§ Fund expenses with one exception were in line with prior year's experience. Under the Company's accounting policies due diligence and transactions costs for potential investments are expensed at year's end. Should an uncompleted investment close in a subsequent year, this expense will be reversed in the year of closing and included as part of our investment cost. In 2010, the Company expensed due diligence and transaction costs of US$2.0 million that relate to an exceptional pending investment. This expense will be reversed if the transaction closes in 2011.

Carry Value of our Investments

The methodology used to value our investments is applied in a manner that follows International Financial Reporting Standards ("IFRS") fair value accounting rules and agrees with the views of our auditors. Still, it merits explanation because of the complexity of applying accounting rules to litigation related investments. IFRS directs our Manager to apply a process of fair valuing our investments whereby all potential outcomes and risk elements, even if remote, are considered. This generates an expected terminal value for each investment that is typically at or below the mid-point of our Manager's expectations. All proceeds from settlements received to date have exceeded their case terminal value used in their respective valuation model. For cases with partial settlements, proceeds have exceeded their allocated portion of the case terminal value used in their respective valuation model (as adjusted for the impact of settlement occurring earlier in the case life cycle).

Additional considerations related to the carrying value of our investments include:

§ The valuation method spreads inherent gains in the value of a particular investment using a static interest rate that spreads the investment's expected total return over its expected life. As such, when a case successfully passes a particular legal hurdle the related investment's value at that particular point in time may be significantly greater than the current recorded valuation.

§ The valuation method adjusts the carrying value of an investment whenever there is a change in expectation from that which was originally considered when the investment was first made. The impact of many of these changes can cause swings in value between accounting periods as they only relate to delays in expected completion of an investment and do not reflect a change in the probability of success, damages estimate, or expected cash profit to JIL. For the year ended 31 December 2010 the carrying value of our contractual interests and the associated other income arising on contractual interests would have been approximately US$6 million higher had it not been for the timing delays.

§ Our Manager will adjust expectations downward when a legal ruling goes against our investment. If the lawyers involved in the case believe the negative ruling was unjustified, it will be appealed and thus the downward revision in valuation could be reversed. We have an example in case 5608-N. It received a negative ruling in early 2010 that required the Manager to adjust expectations for this case downward. This resulted in at least a US$9 million reduction in the Fields Sullivan PLLC facility's expected terminal value and carrying value as of 31 December 2010. However, in 2011, this ruling was successfully appealed. Thus, the reduction in the carrying value of the Fields Sullivan PLLC facility no longer applies and the carrying value of this investment should increase by at least US$9 million.

The Board remains aware that the legal process has many variables and so the outlook for a number of the Company's investments can vary at each reporting period. Nevertheless we have confidence that our investment portfolio holds strong embedded value and the ultimate cash proceeds generated from our investments will provide significant returns to shareholders. The ultimate key markers are the original investment and the final result.

Dividends

In line with the dividend policy as stated in the Company's original AIM Admission Document, whilst under no obligation to do so, the Board will consider making dividend distributions when there are sufficient profits available. We do not consider it appropriate to take into account anticipated income in determining current dividends.

The Company paid its first dividend in 2009 and the Directors anticipate that they may be in a position to make distributions during 2011 if the Manager's expectations of case successes are realised and the Company has received the cash.

Whilst no dividend was paid or proposed for 2010 the Company did take an opportunity to buy back 6m (5.4%) of the Company's shares during the year at a cost of just under US$10m which was modestly accretive to the remaining shareholders.

New Investments

During the year ended 31 December 2010, the Company made four new investments, committing or spending a total of US$9.9 million to obtain rights related to contractual claims. DuringMarch 2011 the Company made an additional investment, committing approximately US$4 million to obtain rights related to contractual claims.

Outlook

The Company's investment manager, JCML monitors the status of the litigation involving our investments- in particular, key dates in their judicial progress. It is expected that our portfolio will see significant activity within the next 6-18 months. This reflects trial dates, expected final decisions following trial or arbitration, and the determination of Markman hearings, (where pre-trial the construction of patents are defined and determined). Each of these milestones, if successful, creates real incentives for defendants to seek settlements. We believe that at least four investments have strong potential to be completed in 2011. Over the foreseeable future the anti-trust portfolio is expected to come to fruition. The prospects look good.

The directors thank investors for their continued confidence.

Lord Daniel Brennan QC

Chairman

6 May 2011

Investment Manager's Report

During the third year of operations of Juridica Investments Limited ("JIL" or the "Company"), Juridica Capital Management Limited ("JCML" or 'the Manager") saw growing demand in the market for corporate claims financing. This demand came from all channels including: leading US law firms; regional law firms; large corporate enterprises; small and mid-size businesses; inventors; entrepreneurs; universities; and brokers. The Manager believes that this increased demand, coupled with several new smaller players in the industry, proves the viability of corporate claims financing. JCML believes the industry will continue to grow and mature which will provide for new investment opportunities for JIL within this alternative asset class.

The impact of the 2008 and 2009 economic downturn on extending the Company's holding period for its investments has been well documented. For certain cases the delays have been exaggerated by unexpected systemic issues in the US judicial system. This included delays occasioned by the failure of the US Senate to fill 114 vacancies in the US federal judiciary. However, if the underlying cases for which JIL's investments are based are successful, the Manager expects the longer holding period will drive larger returns. This expectation has already been evidenced in several cases that have realised success on key issues through their legal cycle. The Manager believes that in a normal economic and judicial environment these cases would have already reached settlement. Because these cases did not settle earlier in their legal cycle and because the cases have successfully achieved certain milestones, the Manager believes the settlement value of each case should increase. This in turn is expected to drive greater returns to shareholders.

Since JIL's admission to AIM in December, 2007, the Manager has reviewed close to 600 cases and thousands of patents for potential investment. Out of this large number of potential investments, JCML has recommended and JIL has invested in a total of 23 investments representing 30 different cases. Of these investments and through 31 December 2010, a total of five investments have come to completion with settlements in the underlying cases. An additional four cases, which are multi-defendant in nature, had partial settlements through 31 December 2010. In total, US$31.6 million in gross proceeds from settlement activity has been returned to JIL through 31 December 2010. An additional US$1.5 million was repaid to JIL from the Fields Sullivan PLLC facility ("FS Facility") in 2009 when a key decision released a required reserve.

JIL presently has invested or committed a substantial portion of its capital (approximately US$134.0 million) in 25 cases across 18 investments. 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 16 months.

Operating Highlights

Since 31 December 2009 the Company has invested or committed US$13.8 million in an additional five cases. These cases include two patent infringement related actions, two contractual dispute cases, and one international case concerning copyright infringement, trademark theft, unfair completion and other actions. Of these new cases, two have already generated returns through partial settlements, one has just completed binding arbitration, and one is currently in trial.

For the year ended 31 December 2010, JIL received gross cash receipts totalling US$6.6 million from settlements related to four investments. Of these settlements, one related to an investment in which the underlying case came to full completion and three related to investments in which the underlying cases have multiple defendants and settlements were reached with one or more but not all of the defendants. The investment that came to full completion related to case 0408-W which, early in 2010, had received a negative pre-trial ruling. JIL's return on this investment was 33% despite the negative ruling because the transaction was structured so as to provide a minimum level of return. Certain of the other cases for which settlements were reached in the year ended 31 December 2010 related to investments that were made less than a year earlier. This is a factor of JCML being able to identify cases that have the potential to deliver returns in a shorter period of time. Realised gains from settlement activity that occurred during the financial year ended 31 December 2010 were approximately US$1.3 million. Actual cash gains from these same settlements totalled approximately US$1.9 million with approximately US$600,000 previously recognized as unrealised income.

JIL's Net Asset Value (NAV) decreased from US$1.9513 per share at 31 December 2009 to US$1.8578 per share at 31 December 2010. This reduction in NAV per share was primarily due to the Company incurring a total comprehensive loss of US$9.0 million. This loss reflects the following:

§ Income of US$14.4 million which includes realised gains on contractual interests of US$1.3 million.

§ Impact of lowering the carrying value of certain Company investments based on the Manager's adjustments for timing delays during 2010. As explained in more detail below, timing delays that occurred during 2010 accounted for approximately US$6.0 million in lower current carrying values.

§ Impact of lowering the carrying value of the FS Facility based on the Case 5608-N receiving an interim negative ruling. This ruling accounted for approximately US$9 million reduction in the carrying value of the FS facility. This interim negative ruling was successfully reversed in the first half of 2011. Thus, the approximately US$9 million in lower current carrying value attributed to Case 5608-N should be reversed in the financial statement for 2011.

§ Fund operating expenses of US$9.7 million that were higher than otherwise would have been expected primarily due to significant due diligence and transaction costs related to a pending transaction that remained in progress as of 31 December 2010. This particular transaction is exceptional and significant in size and, as of 31 December 2010, has incurred in excess of US$2.0 million in due diligence and transaction costs. Accounting guidelines dictate that due diligence and transaction costs relating to pending investments are expensed in the same financial year in which the expense occurred. If, in a subsequent year, the investment ultimately closes, all previously expensed due diligence and transaction costs will be reversed in the year the transaction closes and capitalised as part of the investments cost. In addition to higher than normal due diligence and transaction costs, the Company incurred higher accounting fees and general legal costs. Higher accounting fees were caused by the increase in the number of the Company's investments in 2009 and the higher legal costs were caused by a review and implementation of structural changes to JIL.

Valuation

The Manager values JIL's investments using valuation methods that are: (i) recognised as standard within the industry; (ii) applied in a manner that follows International Financial Reporting Standards' ("IFRS") fair value accounting rules; and (iii) agree with the views of our auditors. Under fair value accounting, an initial valuation is established by the Manager from its valuation model that is based on the merits of the case and the Manager's initial view towards the probability and timing of various settlement scenarios and trial outcomes and the potential of profit to the Company ("Case Terminal Value"). The scenarios are assigned a probability that incorporates all risks intrinsic to the case. The Manager also identifies risks that are extrinsic to the case, including such items as claimholder risk, counsel risk, defendant risk, judicial risk, and other risks that are present in all legal cases but not directly related to the merits of the case. The Manager then uses the effective interest method of calculation to generate an interest rate ("Initial Interest Rate") that systematically increases the invested basis up to its Case Terminal Value in the expected timeframe.

The Manager revisits the assumptions behind each investment's valuation on a bi-annual basis and, if needed, will rerun the investment's valuation. If a new valuation is prepared, it will generate a revised expectation towards the investment's future cash flow. In accordance with the effective interest rate method of calculation, the Manager will then discount the revised stream of cash flow by applying a discount rate equal to the investment's Initial Interest Rate. The carrying value of the investment will then either be increased or decreased in order to equal the value of the discounted stream of future cash flows. Changes in expected future cash flows are expected to occur frequently given the uncertainty surrounding each investment. Examples of factors that will change the Manager's view of expected future cash flows include:

§ A specific case achieves certain milestones or survives certain legal challenges within the legal process. This would likely increase the expected future cash flows and hence increase the investment's valuation.

§ The legal process is moving more rapidly than expected which would likely result in the Company receiving expected proceeds earlier than initially expected. This would likely increase the investment's valuation.

§ A specific case loses certain legal challenges which may cast increased doubt on the Company's ability to generate the same level of proceeds as originally anticipated. This would likely decrease the investment's valuation.

§ The legal process is moving slower than expected which would likely result in JIL receiving expected proceeds later than initially expected. This would likely decrease the investment's valuation.

§ Potential damages related to a specific case increases or decreases for any number of reasons. This would likely have a corresponding increase or decrease in the investment's valuation.

§ The actual timing of cash outflow related to a specific case diverging from what was initially anticipated. This would likely increase or decrease the investment's valuation depending on whether the timing of spend was slower or faster than expected.

The magnitude of change in valuation based on any of the above factors is highly dependent on the specific investment's Initial Interest Rate. The higher the Initial Interest Rate, the greater the impact any change in expected cash flow or timing will have on the investment's valuation.

As of 31 December 2010, the Manager examined the valuation for all of JIL's investments. In doing so, several cases were faced with an outward shift in timing from the timing predicted when the investment was first made. These delays were due to changes in legal strategy or delays within the court system. For each of these cases, a downward shift in the valuation occurred from discounting future cash flows. Because the changes relate only to timing and there is no change in the probability of success, damages estimate, or expected cash profit to JIL, it is expected that the downward shift in valuation should not be repeated in 2011. For the year ended 31 December 2010, the impact of outward shift in timing is approximately US$6 million. This downward shift in valuation is netted against the investment's systematic increase in valuation as determined by the Initial Interest Rate from the effective interest method. Offsetting the impact on the portfolio of those investments that had an outward shift in timing were several cases that had either a reduced expectation on timing or improvement in their probability of delivering a favourable result. These improvements increased the discounted future cash flows which enhanced the particular investment's valuation.

Case 5608-N (part of the FS Facility) received a negative ruling in early 2010 that adversely affected the potential success of the specific case. As a result, the present value of future cash flows from the facility decreased which resulted in a net decrease in the valuation of the FS Facility as compared to 31 December 2009. However, in the first half of 2011, the negative ruling against case 5608-N was successfully appealed. As such, JCML believes the potential success of the case is now more likely than its original level which will increase the valuation of the FS Facility. The Manager expects this increase to be approximately US$9 million and which will be reflected as part of its valuation in the financial statements as of 30 June 2011. This is a non-adjusting post balance sheet event and as such the carrying value as reflected at 31 December 2010 does not reflect the current state of affairs as at the date of this report.

In total, the value of JIL's direct investments in contractual interests increased by US$8.8 million due to the systematic application of each investment's effective interest rate. This increase was offset by US$8.0 million due to a decline in the present value of changes in estimated cash flows. The net increase of US$733,000 is reflected on the Consolidated Statement of Comprehensive Income under the caption "other income arising on contractual interests". The value of the FS Facility increased in value by US$12.0 million due to the systematic application of the facility's effective interest rate and is reflected on the Consolidated Statement of Comprehensive Income under the caption "other income arising on available for debt securities". This increase was offset by US$14.0 million due to a decline in the present value of changes in estimated cash flows and is reflected on the Consolidated Statement of Comprehensive Income under the caption "fair value change in available for sale debt securities".

The process of systematically increasing our investments in accordance with the effective interest method and then periodically increasing or decreasing the valuation based on changes in expected cash flows does not impact cash. In addition, given that certain events in the legal cycle can be severely damaging in one period only to be reversed in a future period, JIL's investments may move dramatically up or down from one period to the next as a result of the IFRS accounting treatment.

Overall, the current valuation analysis performed by the Manager reflects a Case Terminal Value that is based on an average rate of return exceeding 50%. Although this rate of return is strong, the Manager believes individual investment returns could prove to deliver proceeds that are much higher than their current Case Terminal Value.

Competition

During the last 16 months, two third-party litigation funders are no longer providing funding services while three new funders have launched services. The Manager continues to believe that JIL remains the only third-party litigation funder which focuses entirely on commercial cases and holds a large portfolio of antitrust cases. The Manager expects to see more competition as the litigation funding industry continues to mature and 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 18 investments involving 25 cases. As at 6 May 2011, the portfolio comprised the investments in the table below:

Portfolio Diversification as at 6 May 2011

The portfolio has the following features:

§ Certain investments include ancillary rights to finance future cases

§ Number of subject matters: 7

§ Number of jurisdictions: 12

§ Number of plaintiff law firms: 16

§ Average exposure per case: US$5.42 million

As of 6 May 2011, the average age of the cases in the portfolio was 3.66 years (measured from the date of first filing of any litigation) and the average age of all of the Company's investments is 1.89 years (measured from the date of investment).

The above investments represent the majority of JIL's currently available investable cash. In addition to the above amounts, US$6 million has been reserved for investment options relating to an existing investment. This investment, while incorporating the usual risk of loss, has been identified through the Manager's due diligence and valuation process as having the potential to deliver significant returns to the Company. This transaction was structured to maximize protection to JIL. Options to provide additional investment capital are dependent on the Manager's assessment on how each case is progressing.

JCML has also reserved approximately US$12 million for the Company to take a significant position in an investment which if completed will provide on-going revenue and the potential to provide significant gain to shareholders.

Outlook for 2011 - Significant Activity Expected

JCML monitors the status of the litigation involving JIL's investments, in particular, key dates in their judicial progress. Based on current status, it is expected that our portfolio will see significant activity within the next 6 to 18 months. This reflects trial dates, expected final decisions following trial or arbitration, and the determination of Markman hearings, (where, pre-trial, the construction of patents are defined and determined). Each of these milestones, if successful, creates real incentives for defendants to seek settlements.

To best protect the identity and legal strategy of each underlying case, specific details on the underlying case for each of the Company's investments will not be disclosed. However, we have provided insight into specific scheduled events that are likely to impact returns, including:

Trials and arbitration

§ One trial, underway and scheduled for completion in the second half of 2011

§ Binding arbitration related to one investment recently completed with award expected in third quarter of 2011

§ Two trials scheduled for second half of 2011

§ One trial scheduled for first half of 2012

§ Four trials scheduled for second half of 2012.

Markman hearings in patent cases

§ Favourable Markman order recently entered in one case

§ Four Markman hearings scheduled for first half of 2011

Appeals

• Oral arguments for two cases were heard in the first quarter of 2011, for which one already received a favourable decision and for which a decision on the other is expected during second half 2011.

In addition to the above list, settlement discussions are on-going for several investments.

The above noted level of activity is consistent with JIL's expectation for its investments for its longer term cases. Certain of the Company's more recent investments were made with an expectation of a shorter duration. JCML evaluates all potential investments based on underlying merits and incorporates expected timing and expected return in its analysis. Although no assurance can be given that any investment will generate profits when completed, JCML considers the investments associated with the activities noted could complete in the next 6 to 18 months and have the potential to generate substantial returns.

Juridica Capital Management Limited

6 May 2011

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2010

Consolidated Statement of Financial Position

As at 31 December 2010

The consolidated financial statements were approved by the Board of Directors on 6 May 2011 and signed on its behalf by R J Battey

Consolidated Statement of Changes in Equity

For the year ended 31 December 2010

Consolidated Cash Flow Statement

For the year ended 31 December 2010

Notes to the Consolidated Financial Statements

For the year ended 31 December 2010

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 as detailed in Note 4. 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 on a going concern basis, under the historical cost convention as modified by the revaluation of contractual interests. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the 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 2010 and adopted by the Group

The Group has adopted the following new and amended IFRSs as of 1 January 2010:

§ IFRS 3, 'Business Combinations' (Revised 2008). The revised standard on business combinations introduced major changes to the accounting requirements for business combinations. It retains the major features of the purchase method of accounting, now referred to as the acquisition method.

§ 'Improvements to IFRSs 2009'. The Improvements to IFRSs 2009 made several minor amendments to IFRSs. The Improvements have had no material impact on the Group's financial statements

(ii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

§ IFRS 7 (revised), 'Financial Instruments: Disclosures'. Published: October 2010, effective: 01/07/11

§ IFRS 9, 'Financial Instruments Classification and Measurement'. Published: November 2009, effective: 01/01/13

§ IAS 24 (revised), 'Related Party Transactions'. Published: November 2009, effective: 01/01/11

§ IAS 32 (amendment),'Classification of rights issues'. Published: October 2009, effective: 01/02/10

§ IFRIC 19,'Extinguishing Financial Liabilities with Equity Instruments'. Published: November 2009, effective: 01/07/10

§ Various, Annual improvements 2010. Published May 2010, effective 01/07/10 and later.

Adoption of the above standards and interpretations are not expected to have a material impact on the Group's financial statements.

Other standards in issue but not yet effective which are not relevant to the Group have not been listed above.

(b) Consolidation

The consolidated financial statements comprise the financial statements of Juridica Investments Limited and its subsidiary 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 are considered 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.

Non-controlling interests

Non-controlling 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 non-controlling 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 primarily 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 Group, 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 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:

§ Estimated duration of each contractual interest;

§ Best estimate of anticipated outcome; and

§ 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 within 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 internal rate of return of the expected cash inflows and outflows over the expected duration of the claim which takes the contract's initial value to the expected pay out 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 future 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 the consolidated statement of comprehensive income within other income. This impact on contractual interests is reflected in note 5.

Fair value estimation

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

§ Changes in general US dollar interest rate assumptions (market assumption);

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

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

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

§ Outstanding appeals against both successful and unsuccessful judgements;

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

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

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

Partial settlement

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

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

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

§ The amount representing the gain is then compared against any prior gain recognized on the portion of the proceeds attributed to a return of investment (calculated by using the effective interest rate up to the date at which settlement obtained) with the difference reflected as current year realised gain or loss.

Full settlement

Full settlement of contractual interests occur when all parties involved in the matter agree to terms on a settlement amount or the full legal process has concluded with either proceeds being awarded or dismissal (no proceeds awarded). Proceeds received by the Company are first allocated to the return of any remaining principal with the remainder allocated to gain. The amount representing the gain is then compared against any prior gain recognized on the portion of the proceeds attributed to a return of investment (calculated by using the effective interest rate up to the date at which settlement obtained) 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.

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 and other comprehensive income. When available for sale investments are sold or impaired, the accumulated fair value adjustments recognised in equity will be recycled through the consolidated statement of comprehensive income.

(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 and transaction costs are capitalised into the amount advanced. Subsequent measurement of Available for sale debt securities will be at fair value with the movement due to effective interest recognised in the consolidated statement of comprehensive income and the fair value movement recognised in equity and other comprehensive income.

(g) Due diligence and transaction costs

The due diligence and transaction costs attributable to cases that have resulted in a contractual interest, or amendment thereto, have been capitalised into the cost of the contractual interest. Any other due diligence and transaction costs not directly relating to a contractual interest have been expensed immediately in the consolidated statement of comprehensive income.

Due diligence and transaction costs relating to a potential investment in a contractual interest that has not been consummated by the end of the reporting year is expensed in the consolidated statement of comprehensive income. If the potential investment is completed in a subsequent year, the due diligence and transaction costs previously expensed are reversed and capitalised into the cost of the contractual interest. The value of due diligence and transaction costs relating to potential investments is reflected in note 12.

(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 the effective interest 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 accruals basis. Expenses for monitoring claims will generally be paid by the Investment Manager except in extraordinary circumstances approved by the Board of Directors of the Company.

(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 initial fair value, less provision for impairment.

(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.

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

(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 semi-annual 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 asset's net selling price and its value in use. Any impairment loss is recognised for the excess of the asset's 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:

§ Significant financial difficulty of the obligor;

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

§ 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;

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

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

The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the contractual interest/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 statement of comprehensive income.

(s) Earnings per share

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

(t) Net asset value per share

Net asset value per share is calculated by taking the total equity shareholders' funds and dividing it by the number of shares in issue at the period end.

(u) Put option

The put option is carried at fair value,which is assessed by considering the present value of the redemption amount (see Note 10).

3. Critical Accounting Estimates and Judgements

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

Critical accounting judgements in applying the Group's accounting policies

The Group makes investments in claims that may involve litigation. The nature of the investments made by the Group reduces by some predetermined amount the cost of litigating a matter to a plaintiff and/or a law firm. A typical investment by the Group will include cash and may also include cash commitments subject to certain restrictions. In most arrangements, the Group 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 Group will often not be entitled to reimbursement of the facility they advanced to the counterparty for the specific claim. In these cases the Group will write off their investment in the claim as a loss. The Group is compensated for this risk through the return structure built into the investment. The Group 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

5. Contractual Interests

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 131.35 per cent at 31 December 2010 (2009: between 3.62 and 136.41 per cent).

At 31 December 2010 the Company had investments in 15 contractual interests (2009: 12 contractual interests).

The Group had one contractual interest that came to full settlement during the year and had partial settlements in three contractual interests. In addition, US$53,657 was received as residual proceeds from an investment that settled in 2009. Total realised profit for the year ended 31 December 2010, based on investment cost (for the fully settled contractual interest) and apportioned investment cost (for the partially settled contractual interest), was US$1,867,837. Of this amount, US$596,743 was previously recognised as unrealised income through fair value movements due to effective interest rate and changes in estimated cash flows. A total of US$1,271,094 is therefore recognised as a net gain for the year to 31 December 2010.

The Group has carried out a full review of an investment in a particular contractual interest and, as previously disclosed, has exercised its right to withdraw from further funding under its investor agreement. The interest is being pursued by a 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 reduced the carrying value of this investment by 75%. Additional costs of approximately US$161,000 were capitalised during the year to 31 December 2010 as part of the effort to recover its investment. This additional spending is included in the carrying value of the investment as of 31 December 2010.

6. Available For Sale Financial Assets

The Group'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 2010 to be US$2,575,963 (31 December 2009: US$2,400,005). This assessment of JCML is deemed appropriate given its investment in the Group, its level of assets (including intellectual property), and the quality of its income and earnings, based on the minimal change to the circumstances surrounding JCML.

During 2009, the Group invested US$5,105,516 in an entity for the purpose of expanding its interest in contractual claims. Additional costs of US$32,028 were capitalised during 2010. The Company is deemed not to have significant influence over the entity and hence does not consider the entity an associate.As at 31 December 2010, the fair value of the Group's investment in this entity was considered to be US$5,302,399 based on a discounted cash flow analysis.

7. Available For Sale Debt Securities

Note 14(i) details arrangements between the Company and Fields Sullivan PLLC ("FS"). 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 FS. 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.

The Group received notice in 2010 that for Matter 5608-N, which is part of the Facility, the Court made a ruling on a threshold issue that, absent reversal on appeal, results in the dismissal of Plaintiff's claims. As of 31 December 2010, this ruling remained in effect and its impact is reflected in fair value movement due to changes in estimated cash flows. This ruling was successfully appealed in 2011 and the Plaintiff's substantive claims have now been reinstated. The impact of this will be reflected in subsequent valuations. The subsequent event disclosure is provided in Note 18.

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 are or have been inactive during the financial year. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.

The output of the models 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.

IFRS 7 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

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

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

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

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

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

The following table analyses within the fair value hierarchy the Company's financial assets and liabilities (by class) measured at fair value at 31 December 2010:

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 2010 (31 December 2009: Nil).

The following table presents the movement in level 3 instruments for the year ended 31 December 2010 by class of financial instrument:

9. Other Receivables and Prepayments

10. Put Option

In October 2009, the Company sold an 8% interest in its subsidiary, Riverbend Investments Limited, to an unrelated party. As part of this transaction, the Company issued a put option to the buyer providing them 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 US$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 2010. The resulting amount is reflected on the books as a non-current liability with an offset to equity.

11. Other Payables

12. Due Diligence and Transaction Costs

The Group, through its Investment Manager, will often incur costs related to potential investments that remain pending as of the end of the reporting year. In accordance with the Group's accounting policies (note 2), if a potential investment is not consummated by the end of the reporting year, all due diligence and transaction costs incurred are to be expensed in the consolidated statement of comprehensive income. If the potential investment is completed in a subsequent year, the due diligence and transaction costs previously expensed are reversed and capitalized into the cost of the contractual interest. In some instances, spending on pending investments may continue for more than a year. For the year ended 31 December 2010, the cumulative amount of due diligence and transaction costs that relate to pending deals is US$2.9 million (31 December 2009 US$0.5 million).

13. Committments & Guarantees

Under the terms of some of its contracts, the Company provides a line of credit to counterparties. As at 31 December 2010, the maximum commitment payable under these lines of credit was US$12.3 million (31 December 2009: US$9.5 million).

14. Related Party Transactions

Richard Battey, as investor representative, is a director of Juridica Capital Management Limited ("JCML"). The principal of JCML is Richard Fields, who acquired 50,000 Ordinary Shares in the Company (0.0625 per cent equity interest) 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 per cent 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 2010 was based upon the adjusted Net Asset Value of the Company at 31 December 2009 which was US$191 million. In the year ended 31 December 2010 Investment Management fees totalling US$4,805,281 (31 December 2009: US$4,568,714) were paid to JCML. As at 31 December 2010 the Investment Management fee was adjusted based on the adjusted Net Asset Value at that date and the resulting Investment Management fee debtor was US$100,551 (31 December 2009: US$144,356).

(b) Investment in Juridica Capital Management Limited

The Company acquired 15 per cent 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 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 write-downs 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 2010, the adjusted net asset value was:

As at 31 December 2010 the hurdle rate was not achieved, therefore, no performance fee was paid or payable for the year (31 December 2009: US$Nil).

(d) Trust account

Of the performance fee, 50 per cent 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 per cent, the Company may claw back 20 per cent of the difference between the actual net asset value and the net asset value assuming an 8 per cent increase from the net asset value for the previous period. As at 31 December 2010 the balance in the trust account was US$ Nil (31 December 2009: US$Nil).

(e) Turtle Bay Technologies Limited

On 20 November 2008 the Company agreed to provide US$1.475 million to a US LLC. US$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) Eleven Engineering Game Control LLC

In August 2009, the Company agreed to provide US$817,500 to Eleven Engineering Game Control LLC, a company ultimately owned and controlled by JCML.

(g) Intravisual Inc.

In January 2010, the Company agreed to provide US$500,000 to Intravisual Inc., a company ultimately owned and controlled by JCML

(h) Minkus Electronic Display Systems Inc.

In June 2010, the Company agreed to provide US$250,000 to Minkus Electronic Display Systems Inc., a company ultimately owned and controlled by JCML.

(i) Facility agreement and collateral account

The Company has entered into a facility agreement (the "Facility") with which it agrees to loan to FS money for funding cases in which FS 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 FS will be for up to approximately 50 per cent of the net proceeds of the capital raised by the Company less any loans made to other law firms.

The Facility will remain outstanding and available until the earlier of (i) the termination of the Management Agreement, (ii) the date on which Richard Fields ceases to own a controlling interest in FS, (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 FS from time to time up to the maximum principal amount but subject always to approval by the Company in its sole discretion.

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

As at 31 December 2008, the Company had agreed to loan FS US$62 million at a compounding annual interest rate of 12 per cent ("Loan 1"). During the year to 31 December 2009 the Company agreed to loan a further US$17 million at an interest rate of 15 per cent 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 per cent. At 31 December 2010, US$82 million (31 December 2009: US$79 million) had been drawn down. The loans are repayable over 10 years and are secured by FS'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 FS (but not the FS members) at the end of the term of the loan, FS has entered into a swap agreement (the ''Swap'') with Riverbend Investments Limited (''Riverbend''), a subsidiary of the Company.

Under the Swap, Riverbend will pay FS any amounts payable under the loans at the end of the term of the loans to the extent that FS 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 US$3.5 million or 36 percent of the principal and interest per annum then due under the loans (subject to FS 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 FS shall, on the date received, be paid or placed into a specified account. Save as permitted by the Facility, FS 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:

§ the outstanding loan principal on the last day of such Calculation Period divided by

§ 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

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.

(j) Directors' remuneration

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 US$139,138, which is to be provided for over the vesting period of the options of 5 years. As at 31 December 2010, a provision of US$85,876 (31 December 2009: US$56,613) has been made for these options.

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

(k) 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 US$246,906 and a full provision has been made in the financial statements.

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 2010:

16. Capital and Reserves

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

Issued share capital: 104,701,754 Shares as of 31 December 2010 (31 December 2009: 110,701,754 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. Under a Share Buyback Programme, the Company acquired 6,000,000 Shares at a price of £1.02 per share on 3 November 2010. These Shares are held in treasury. As at 31 December, the number of Shares held in treasury amounted to 6,000,000 (2009: nil).

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.

The Company has authority to make market purchases of up to 14.99 per cent of its own issued ordinary shares. This authority was renewed at the annual general meeting of the Company held on 28 May 2010. 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) Investment 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 simulation of expected outcomes.

In one instance, the Company purchased an "Appeal Gap" insurance policy in order to mitigate the risk of loss in the underlying investment. The particular policy purchased effectively assures the Company of a minimum return on its investment of 100% within five years. The Manager may recommend to the Company similar risk mitigation strategies on other investments depending on each investment's risk assessment and the cost and perceived value of an available policy.

(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 2010, a proportion of the net financial assets of the Group are denominated in currencies as follows:

At 31 December 2010, if exchanges rates had moved by 5% with all other variables remaining constant, the change in net assets attributable to holders of ordinary shares for the year would amount to approximately +/- US$250,592 (31 December 2009: +/- US$283,484). 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.

At 31 December 2010, 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 +/- US$22,133 (31 December 2009: +/- US$49,858), 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 to limit credit, collection and portfolio concentration risks associated with Company investments. In addition, the Investment Manager has, pursuant to its own Underwriting Guidelines, developed and implemented systems and procedures to analyse and (pursuant to investment contracts) manage credit risk associated with Company investments.

The main concentration to which the Group is exposed arises from the Group's loan to FS. 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 US$198,763,275 (31 December 2009: US$217,490,520).

(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 2010 is low as cash and cash equivalents exceed unmatched liabilities or other contractual commitments.

(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.

(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 Investment

In April 2011, the Company took an equity position in a new entity that has acquired holdings in two inter-related entities and their subsidiaries. These entities and their chief executive officer are plaintiffs in litigation relating to breach of fiduciary duty, misappropriation of trade secrets, defamation, and interference with a business opportunity. Total investment by the Company is approximately US$3.9 million, for which the Company has acquired a 49% interest. The underlying case is currently in trial.

Recent Proceeds Received

In April 2011, the Company received proceeds of approximately US$380,000 related to a partial settlement of a multi-defendant case.

Recent ruling on invested matter

For Matter 5608-N, which is one of the Company's significant antitrust investments as one of the invested matters under the Facility (as described in Note 14), Plaintiff's substantive claims have been reinstated on appeal. The case is now ready for trial subject to possible efforts to delay the trial by further appeals. Matter 5608-N accordingly has been remanded to the lower court and now may proceed to jury trial on the merits. The reverse on appeal should significantly enhance the prospects for a pre-trial settlement which will be reflected in future valuations. The timing on a potential trial depends on further proceedings in the lower court and possibly in the appellate courts, but in any event trial is not expected to occur within the next 9 months.