Juridica Investments Limited

 

("Juridica," "JIL," or the "Company")

 

 

Unaudited half-year results for the period ended 30 June 2014

 

 

Juridica, the leading provider of strategic capital for corporate legal claims, announces its financial results for the six months ended 30 June 2014.

 

Financial highlights and portfolio valuation

 

§ Current year settlements have generated gross proceeds of approximately US$84.6 million of which US$53.5 million in estimated net proceeds will be paid to the Company on 31 December 2014. These figures represent a 43.8% year-on-year increase in net case proceeds

§ Anticipated year-end dividend declaration of 20 pence per share to be paid following close of financial year end. Following this distribution, the Company will have returned approximately US$101.3 million to shareholders via dividends; totalling 58.6p per share

§ Fair value of the Company's investments at the period end was US$157.2 million not including the cash receivable of US$53.5 million, payable at 31 December 2014

§ Net Asset Value ("NAV") per ordinary share increased 4.45% to US$2.11 at 30 June 2014 (US$2.02 at 31 December 2013) driven by total comprehensive income of approximately US$10.3 million generated during the six month period ended 30 June 2014

§ Lifetime net proceeds total US$178.0 million

§ Gross internal rate of return from completed investments is 66.7%

§ At 30 June 2014, the Company has invested or committed approximately US$148.4 million across 16 investments

 

 

Lord Brennan QC, Juridica's Chairman, said: "During the first half of the year the Company has continued to manage its maturing portfolio of antitrust and commercial claim investments, whilst developing its patent activities through its partnership with ipCreate. Taken together with the recently announced returns on investments, we look to the future with optimism and expect the portfolio to continue maturing, delivering attractive dividend income and NAV growth." 

 

 

Operational highlights

 

§ Three supplemental investments in the existing patent portfolio totalling US$2.9 million related to develop new patents in conjunction with subject matter experts and ipCreate

§ One new patent investment of US$3.37 million in partnership with ipCreate and the National Football League Players Association

 

 

Outlook

 

The Board of Directors, in consultation with the Company's Investment Manager expects several investments to be completed over the next 12-18 months. This is based on the Manager's review of presently scheduled trial dates, expected final decisions following trial, and possible settlements in multiple cases that are in an advanced stage of development.

 

 

- Ends -

 

 

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

 

 

For further information contact:

 

Juridica Asset Management Limited Richard W. Fields	+1 (866) 443 1080
Cenkos Securities PLC (Nominated Adviser and Broker) Nicholas Wells Ian Soames	+44 (0) 20 7397 8900
Investec Bank PLC (Joint Broker) Tim Mitchell	+44 (0)20 7597 4000
Peel Hunt LLP (Joint Broker) Guy Wiehahn	+44 (0)20 7418 8900
Bell Pottinger  Olly Scott	+44 (0) 20 3772 2567

 

 

About Juridica Investments Limited

 

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

 

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

 

Juridica's capital enables the legal system to better address business claims. It does not invest in speculative claims or claims that do not demonstrate economic value and clear merits. Juridica invests only in business claims, and does not invest in class actions, personal injury, product liability, or mass tort claims. Juridica's investment strategy provides business clients with financial choices that reduce risk and assist in maximizing claim value.

 

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

 

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

 

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

 

http://www.juridicainvestments.com 

 

 

Chairman's statement

 

On behalf of the Board, I am pleased to present the results of Juridica Investments Limited ("JIL" or the "Company") for the six-month period ended 30 June 2014.  JIL was formed at the end of 2007 in order to develop a portfolio of investments focused exclusively on business-to-business related claim investments.  The portfolio is comprised of the following sectors: antitrust and competition; patents and other forms of intellectual property; and general commercial litigation.  We do not invest in shareholder class actions, personal injury, product liability, or mass tort claims.

 

Over our six and a half year history we have experienced significant success and have changed how litigation related assets are financed and monetised.  It is fair to say that it has taken longer than Juridica Asset Management Limited ("JAML" or the "Manager") expected for the majority of our cases to come to fruition either through settlements or judicial decisions. However, during the six-month period ended 30 June 2014, five settlements occurred in our anti-trust portfolio.

 

Highlights of the Company's performance include:

·      Current year settlements in our antitrust portfolio have generated gross proceeds of approximately US$84.6 million of which we estimate approximately US$31.1 million has fulfilled contingency obligations on cases still active in the antitrust portfolio and estimated taxes.  The remaining US$53.5 million in estimated net proceeds will be paid to the Company on 31 December 2014.

·      From inception to date, our investments have generated approximately US$241.2 million in gross proceeds.  Approximately US$63.2 million of these proceeds have been directed towards meeting contingent investment funding obligations and reserving for estimated taxes.  The remaining US$178.0 million represents our investments' life-to-date net proceeds for which US$124.5 million has been paid to the Company and US$53.5 million will be paid to the Company on 31 December 2014.

·      The fair value of the Company's investments at 30 June 2014 was US$157.2 million which represents the present value of all the investments' expected terminal value, not including the cash receivable of US$53.5 million payable at 31 December 2014.

·      The NAV per ordinary share increased from US$2.02 at 31 December 2013 to US$2.11 at 30 June 2014. This increase in NAV per ordinary share was attributable to total comprehensive income of approximately US$10.3 million generated during the six-month period ended 30 June 2014.

We also have reasonable grounds for anticipating further realisation of part of the carrying value of our investments into cash returns over the next 12 to 18 months.

 

The cash results generated thus far in 2014 and the estimated fair value of the Company's investments reflect the continued maturation of our existing portfolio and highlight the ability of the Manager to identify and invest in strong cases, and to effectively manage those assets to conclusion. 

 

Investment Valuation and Net Asset Value

The fair value of our investment portfolio is US$157.2 million, a reduction of US$34.0 million from the US$191.2 million fair value reflected at 31 December 2013 and is in addition to the US$53.5 million in net cash proceeds due to be received by the Company on 31 December 2014. 

 

The current change in investment valuation of US$34.0 million reflects the following:

·      The reclassification of the US$53.5 million in estimated net proceeds from financial assets to other receivables and prepayments.

·      Cash additions to our investments of US$6.2 million

·      Net increase of US$15.1 million in the carrying value of the Company's investment portfolio.  This amount reflects the present value of changes in our expectations, in terms of timing and quantum, for the terminal value of our investments.

·      Net reduction of US$1.8 million from the maturity of our forward currency contract that was purchased to protect the Company from currency fluctuations after it declared its 2013 dividend which was paid on 15 January 2014.

 

Operating Results

For the six-month period ended 30 June 2014, the Company reported total comprehensive income attributable to ordinary shareholders of approximately US$10.3 million as compared to total comprehensive loss attributable to ordinary shareholders of approximately US$3.0 million for the six-month period ended 30 June 2013.  The total comprehensive income for the six-month period ended 30 June 2014 was due to the net of the following:

·      Net unrealised gain generated from the change in valuation of the Company's investments of approximately US$13.3 million.  This change in valuation was driven by revisions made to the expected quantum or timing of our portfolio of investments.

·      Net realised gain of approximately US$1.3 million generated by the exercise of a forward currency contract that was purchased to protect the Company from currency fluctuations after it declared its 2013 dividend.

·      Foreign exchange gain of approximately US$720,000.

·      Fund operating expenses of approximately US$4.4 million.

·      Intangible amortisation expense of approximately US$580,000.

 

Investment Portfolio Activity

As more fully described in the Investment Manager's report, the Company's investments continue to have significant activity in their underlying cases. 

 

The Company's antitrust portfolio had five settlements during the six-month period ended 30 June 2014 as follows:

·      Settlement for a single defendant case that generated a significant amount of gross proceeds.  This case survived many delays and its ultimate award reached the high-end of JAML's settlement expectations.

·      Settlement from the final defendant in a multi-defendant case.

·      Settlements from three small defendants in a multi-defendant case.  This case recently had its trial delayed following an adverse ruling on the scope of the plaintiff's damages.  This settlement occurred as the adverse ruling is being appealed.  The Manager has been advised that the adverse ruling is expected to be partially or wholly overturned in favour of the plaintiff and thus we expect additional settlements from this case.

 

Gross proceeds from these settlements totalled approximately US$84.6 million.  As part of our investment agreement, we are obligated to return a portion of these proceeds to specific cases in the antitrust portfolio in the form of supplemental investment capital. Additionally, we are obliged to set aside reserves for future funding of the antitrust portfolio.  Finally, the Company is also required to pay certain taxes on these proceeds.  The level of tax owed on the proceeds has been estimated for our reporting at 30 June 2014.  The final determined amount is highly dependent on the performance of the antitrust portfolio during the remainder of 2014. 

 

We have estimated the net amount of proceeds from these settlements to be approximately US$53.5 million.  In accordance with our facility agreement (the "Facility") with Fields Law PLLC ("Fields Law"), which is structured as a loan, these net proceeds will be paid to the Company on 31 December 2014.  Under the terms of the Facility, approximately US$5.0 million of these proceeds will be applied as a repayment of the Facility's principal with the balance of the proceeds being applied against accrued interest and payments due to JIL's wholly owned subsidiary, Riverbend Investments Limited, in accordance with the terms of its swap agreement with Fields Law.

 

Within our antitrust portfolio during the six-month period ended 30 June 2014, one investment has been dismissed in favour of the defendant.  Our Manager recognised this risk and afforded this case a negligible fair value at 31 December 2013.  Within our commercial portfolio, two investments continue to show indications of enhanced risk.  Accordingly, our Manager has further reduced the fair value of these investments.  The remaining investments in all our portfolios continue to make progress with the majority of our older investments moving closer to their ultimate conclusion.

 

New Investments and Pipeline

During the six-month period ended 30 June 2014, the Company has continued to execute its new patent investment strategy by expanding certain existing patent investments through the creation of additional patents in support of existing patents.  Our strategic investment with ipCreate, Inc. ("ipCreate") has enabled this strategy to move forward at an accelerated pace.  As such, the Company has funded three supplemental investments, each of which has a relationship to existing investments and is affiliated with our investment in ipCreate.  Additionally, the Company has funded one new patent investment to develop and monetise a large portfolio of patents in the technology and sports market.  The National Football League Players Association is a partner in this endeavour with the Company.  This investment is also affiliated with our investment in ipCreate.

 

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

 

Dividend

The Company's dividend policy dictates that the Company distributes net cash profit from its investments after making appropriate reserves and paying expenses of the Company. As such, and based on the following:  (i) the Company's results for the six-month period ended 30 June 2014; and (ii) our expectations for the remainder of 2014, we anticipate declaring a dividend to shareholders in the amount of US$37 million (approximately 20 pence per share at today's exchange rate).  The actual dividend declaration amount will be determined by the end of 2014.  Following this distribution, the Company will have returned to shareholders approximately US$101.3 million (58.6 pence per share).

 

Outlook

The Manager believes several investments are likely to be completed over the next 12 to 18 months with several additional investments generating partial settlements.  These are discussed in greater detail within the Investment Manager's Report.

 

The Directors thank investors for their continued confidence and we look forward to announcing additional cash returns to the Company.

 

Lord Daniel Brennan QC

Chairman

19 September 2014

 

Investment Manager's report

 

Operating Highlights

During the six-month period ended 30 June 2014, the Company's investment portfolio generated gross cash proceeds of approximately US$84.6 million from five settlements.  After fulfilling contingency funding obligations for remaining cases in the antitrust portfolio, estimated taxes and other required reserves, the net value of these proceeds, estimated to be approximately US$53.5 million, will be transferred to the Company on 31 December 2014.  These settlements came from three different cases, two of which were final settlements and one which was a partial settlement. 

 

Based on the above mentioned cash proceeds, and subject to our expectations for the remainder of 2014, we anticipate the Company declaring a dividend to shareholders of US$37 million (approximately 20 pence per share at today's exchange rate) by the end of 2014.

 

The majority of the Company's remaining investments have continued to progress as expected with several coming closer to what we believe is their conclusion.  The calendar of upcoming case events leads us to believe that the Company's investment portfolio will continue to generate significant cash returns over the next 12 to 18 months.  In particular, while not guaranteed, we expect that two antitrust cases are likely to reach conclusion by the end of 2015.

 

Thus far during 2014, the Company made three supplemental investments related to existing patent cases.  Each of these investments involves the development of new patents in conjunction with subject matter experts and ipCreate.  These supplemental investments were made as part of the Company's strategy to maximise the potential value of its intellectual property assets by creating additional patents in support of existing patents.  In addition, the Company has funded one new patent investment through a special purpose vehicle and in partnership with ipCreate and the National Football League Players Association. As described in more detail below, the special purpose vehicle will monetise these intellectual property assets through sales, licensing and, if necessary, litigation.

 

Net asset value:

JIL's net asset value ("NAV") increased from US$2.02 per ordinary share at 31 December 2013 to US$2.11 per ordinary share at 30 June 2014. This increase in NAV per ordinary share was primarily due to the total comprehensive income of approximately US$10.3 million.

 

Comprehensive net income:

The Company's US$10.3 million in total comprehensive income for the six-month period ended 30 June 2014 was attributable to the net of the following: 

 

•     net unrealised gain generated from the change in valuation of the Company's investments of approximately US$13.3 million;

•     net realised gain of approximately US$1.3 million;

•     foreign exchange gain of approximately US$720,000;

•     fund operating expenses of approximately US$4.4 million; and

•     intangible amortisation expense of approximately US$580,000.

 

Fair value of investments:

The fair value of the Company's investments at 30 June 2014 was US$157.2 million all of which related to the Company's core investments, which are categorised as contractual interests, debt securities, or equity investments.  These categories reflect the following changes from the carrying value at 31 December 2013:

 

	31 Dec 2013 Fair Value	Additions During Six-Month Period Ended 30 June 2014	Net Proceeds Attributable to the Six-Month Period Ended 30 June 2014	Fair Value Change During the Six-Month Period Ended 30 June 2014	30 June 2014 Fair Value
	$USM	$USM	$USM	$USM	$USM
Contractual Interests	47.2	5.0	-	2.4	54.6
Debt Securities	129.3	-	-53.5*	11.6	87.4
Equity Investments	12.9	1.2	-	1.1	15.2
Total	189.4	6.2	-53.5	15.1	157.2

 

^*Estimated US$53.5 million in net proceeds have been generated and is expected to be paid to JIL on 31 December 2014.  The value of these estimated net proceeds is reflected as a receivable as at 30 June 2014.

 

In addition to the above changes, the Company also had a fair value reduction of approximately US$1.8 million and a realised gain of approximately US$1.3 million both of which are associated with forward currency contracts held at 31 December 2013.  The forward currency contracts were purchased to protect the Company from foreign currency fluctuation after it declared its 2013 dividends.  The Company received value for the gain associated with this investment at the time the dividend was paid.

 

Portfolio performance:

During the six-month period ended 30 June 2014, the Company's portfolio realised approximately US$84.6 million in gross cash proceeds from several settlements and cost recoveries.  All of these settlements were generated from cases in our antitrust portfolio.  Our antitrust portfolio was funded to Fields Law by the Facility.  As outlined in the Facility and the related case funding agreements, certain reserves must be set aside for future case obligations within the antitrust portfolio.  In addition, once certain recovery thresholds are met, proceeds received from certain cases must first be used to satisfy certain deferred legal fees for cases in the antitrust portfolio.  Lastly, Fields Law is required to set aside certain reserves to satisfy US Federal and state tax obligations related to the gross proceeds.  The tax obligations and certain reserve requirements have been estimated because the final amount of tax obligations is dependent on the performance of the antitrust portfolio for the remainder of 2014.  After deducting the estimate for taxes and other required reserves, the net value of these proceeds is expected to be approximately US$53.5 million and will be transferred to the Company on 31 December 2014.

 

From inception to the date of this report, and including the estimated net cash proceeds generated during the six-month period ended 30 June 2014, the Company's portfolio has generated net cash proceeds of approximately US$178.0 million.

 

The portfolio since inception has performed as follows: 

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

•    Four investments that have produced returns still remain active even though some settlements have been reached.  Included is our large antitrust investment which consists of six cases.  Two of these cases reached their completion during the six-month period ended 30 June 2014.  Two other cases in this portfolio have had partial settlement or expense recoveries.  In addition to our antitrust investment, three additional investments, with cases that are multi-defendant in nature, had partial settlements.  Total net proceeds from active investments with partial settlements are approximately US$133.6 million.  Included in this amount are the net proceeds (after taxes and other reserves) totalling approximately US$53.5 million that are expected to be paid to the Company on 31 December 2014.

 

Investment Number		Amount Invested (includes related transaction costs)	Amount Recovered (net of fees, reserves and taxes)		IRR %
		$US	$US
Completed Investments:
0208-G		12,050,211	13,750,000		29.99
0308-R		9,294	3,500,000		-
0908-U		3,119,371	4,337,693		60.81
6308-F		1,522,802	2,487,749		60.91
0408-W		2,872,424	3,793,389		19.53
6509-A		2,476,681	4,500,000		54.76
6409-V		785,819	5,302,905		260.52
0210-M		1,526,040	2,478,220		45.05
2510		1,059,994	3,000,000		38.11
7608-A		2,141,121	1,239,032		-27.58
Total - Completed Investments		27,563,757	44,388,988		66.67
Investments With Partial Recoveries:
7508-O		5,944,486	333,943
0708-B		4,554,090	1,618,500
3608-A		96,067,433	127,695,322
1610		4,214,938	4,000,000
Total - Investments With Partial Recoveries		110,780,947	133,647,765
Total Cash Recovered to Date:			178,036,753

 

 

New patent investments made during the six-month period ended 30 June 2014:

 

During the six-month period ended 30 June 2014, JIL funded three supplemental investments for a total incremental commitment of US$2.9 million.  In addition to its supplemental investments, JIL made one new investment for a total commitment of US$3.37 million.  Each of these investments reflects the Company's execution of its new patent investment strategy which, with the help of ipCreate, has moved forward at an accelerated pace.

 

Matter 7508-O:

This investment was initiated in 2009 and was originally structured with an interest in two related litigation cases and patents that were being developed by a third party management team.  To date, we have successfully sold two patents for a combined total of US$525,000.  Towards this end, we believe that the value of the remaining portfolio would best be realised through its expansion.  The litigation associated with this Matter is ongoing, producing modest returns, and is expected to complete in 2015.

 

The amplified deal structure involves supplemental funding of approximately US$600,000. These supplemental funds, coupled with the US$400,000 of recent returns from the litigation interests, are being used to enhance the remaining portfolio.  In exchange for these capital contributions, JIL will retain an 80% economic interest in the new special purpose vehicle, which shall be assigned the underlying litigation patents as well as the new complementary intellectual property.  Approximately US$750,000 of earmarked funds has been deployed.  Broadly, the project calls for the development of 42 patent applications.  To date, 34 US provisional patent applications have been filed, of which 10 have advanced to non-provisional filings.  One has received a notice of allowance.   We intend to work with ipCreate to sell or license the portfolio to one or more major industry players beginning in the fourth quarter of 2014.

 

Matter 0808-C:

Following a strategic review of this ongoing litigation, it was determined that the specific patent assets, notwithstanding a modest judgement in one of two cases, have meaningful additional value that cannot easily be unlocked through litigation.

 

The claimant has assigned patents related to the technology involved in the litigation to a special purpose vehicle majority owned by JIL. ipCreate will work with the claimant to develop complimentary IP which, when taken with the core technology, will comprise a robust patent portfolio in the 3D printing and non-linear optimisation spaces.

 

The restructured deal involved a US$2.25 million investment in exchange for three pronged exposure to the underlying IP. First, JIL obtained a 64% interest in a special purpose vehicle tasked with the development of 25 new patent applications.  Second, JIL obtained a 5% share in the common equity interest in AC Kinetics Inc., an industrial motors company (an interest in this technology was acquired as additional collateral at the time of financing of the two litigation cases), as well as a US$6.25 million preference to protect the original investment in the litigation. Finally, JIL retains its interest in the original litigation.

 

Matter 0708-B:

Despite reasonable settlement proceeds, it was determined that additional litigation should not be pursued without first exhausting pre-litigation monetisation opportunities. Moreover, it has been determined that the core patent at the heart of the dispute retains meaningful value that would best be captured through the development of a complementary IP portfolio.

 

The claimant has assigned the core patent to a special purpose vehicle majority owned by JIL.  This vehicle has retained ipCreate to abstract the core patent into different, broader, and commercially relevant areas with a particular focus on rich media.

 

The restructuring called for the advancement of US$2.37 million, to acquire a 71% stake in the special purpose vehicle.  Funding for this restructuring has come from money remaining in the original investment facility authorised when this investment was initiated in 2008.  To date, approximately US$1 million has been deployed to ipCreate for the purposes of IP research and development. The special purpose vehicle, in consultation with ipCreate, will file 60 patent applications centred on rich media and multimedia.

 

Matter 9713:

This investment was made in partnership with National Football League Player's Association and ipCreate to develop and monetise a large portfolio of patents relevant to the sporting market.  The patents in this portfolio will cover such areas as wearable technology, social media, fan experience, and the use of Visible Light Communications in sports stadiums to solve bandwidth problems.  This investment was made through a special purpose vehicle.

 

JIL invested US$3.37 million investment in exchange for a 65% share of the special purpose vehicle. To date, approximately US$1.05 million has been deployed to ipCreate for the purposes of industry analytics and IP development. All 100 invention disclosures have been drafted and 100 provisional patent applications have been filed.  Further efforts to grow this portfolio will begin later this year and efforts to monetise the portfolio will begin in 2015.  We expect the Company to monetise this investment through pre-litigation opportunities in the form of sales, joint ventures, and licensing.

 

Portfolio Update

The Company's current portfolio is diversified amongst three primary groups:  antitrust, patent and other forms of intellectual property, and commercial.  The cash summary for each of these groups is as noted on the following table:

 

Type of claim or litigation	Life-to-Date Net Proceeds Generated1	Amount Invested in Current Portfolio Holdings2	Commitment Available for Current Portfolio Holdings3
Antitrust and competition	US$127.7 million	US$92.8 million	US$2.0 million
Patents and intellectual property	US$13.4 million	US$35.0 million	US$5.7 million
Commercial	US$36.9 million	US$20.6 million	US$700,000
Total	US$178.0 million	US$148.4 million	US$8.4 million

 

¹Life-to-Date Net Proceeds Generated refers to current investments and completed investments.  Antitrust and competition includes estimated US$53.5 million in net proceeds generated during six-month period ended 30 June 2014 that are expected to be delivered to the Company on 31 December 2014.

 

²Amount Invested in Current Portfolio Holdings reflects cash investment as at 31 December 2013 (excludes any related transaction costs) by JIL for the current investment holdings in each portfolio.  Antitrust and competition portfolio reflects advances under the Facility net of repayment totalling US$3.2 million.

 

³Commitment Available for Current Portfolio Holdings reflects remaining funding commitment by JIL for the current investment holdings in each portfolio and does not include certain antitrust funding to be made directly from settlement proceeds within our antitrust portfolio.

 

Antitrust portfolio:

Five cases in the Company's antitrust and competition portfolio involve violation of US or European antitrust law and three of these cases also involve multi-defendant, price fixing cartels.  Two of these cases came to full completion during the six-month period ended 30 June 2014.  One case failed after its appeal was denied by the US Supreme Court.  Of the remaining two cases both have had a series of settlements with additional settlements expected.  The sixth case in this portfolio is a special situation involving statutory claims and this case is presently in trial for some of its claims.  All of the active cases in this portfolio are reaching maturity.

 

Investment in the antitrust and competition portfolio was arranged through the Facility with Fields Law.  The Facility agreement provides for a specific terms on how principal is to be repaid.  Under the terms of the Facility, approximately US$5.0 million will be applied as a repayment of the Facility's principal with the balance of the proceeds being applied against accrued interest and payments due to JIL's wholly owned subsidiary, Riverbend Investments Limited, under the terms of the swap agreement with Fields Law.

 

Case summaries:

•     Case 1208-A has come to full completion and has generated gross proceeds at the high end of our range.

 

•     Case 5608-N was dismissed in favour of the defendant and the claimant subsequently lost its appeal.  A writ of certiorari was filed with the US Supreme Court and during the six-month period ended 30 June 2014, was denied.  As at 30 June 2014, the value of this case is zero, with no chance of recovery.

 

•     Case 8008-L was scheduled for trial in first quarter 2014, but, during the six-month period ended 30 June 2014, it was announced that the trial would be delayed following an adverse ruling on the scope of the Plaintiff's damage claim.  That ruling is being appealed.  We have been advised that the adverse ruling is expected to be partially or wholly overturned in favour of the Plaintiff although it will result in a nine to eighteen month delay.  Three settlements with smaller defendants were reached during the six-month period ended 30 June 2014, with additional settlements expected over the next 12 to 18 months.  This investment has thus far delivered proceeds to the Company in excess of US$70 million.

 

•     Case 5208-E has come to full completion during the six-month period ended 30 June 2014.  Net proceeds delivered to the Company met our expectations.

 

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

 

•     Case 1008-A is currently in trial for a portion of the claims. Other claims are awaiting further appellate proceedings.

 

Patent portfolio:

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

 

Case summaries:

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

 

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

 

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

 

•     Case 0808-C now involves several components.  The underlying litigation of a key patent was subject to an adverse ruling which the plaintiff is appealing.  While the litigation has continued, the Company, through its association with ipCreate, has been developing a portfolio of patents related to the key patent involved in the litigation, as described in more detail above.  These patents have broad appeal especially in the field of 3D printing. 

 

•     Case 2709-E received a favourable ruling on one of two patents that are subject to a re-examination proceeding. A third patent was not subject to re-examination.  Due to the lengthy re-examination process, the plaintiff has decided to abandon the patent that remains in re-examination and restart the litigation process with the remaining two patents.  The case was stayed pending the re-examination process but we believe the stay will be lifted in 2014 and legal proceedings will resume.

 

•     Case 0708-B, as described in detail above, has undergone a restructuring. Although the Company has received proceeds from previous litigation proceedings involving the underlying patent, we believe that significant value can be unlocked by developing a portfolio of related patents.  ipCreate is developing these patents. 

 

•     Case 7508-O, as described in detail above, has undergone a strategic restructuring. The Company engaged ipCreate to enhance and expand the existing portfolio of patents in the vehicle and an additional 42 patent applications are now in the process of being filed.  These filings will be completed by the end of 2014.  We believe that these additions to the patent portfolio have the potential to significantly enhance the return on this investment. A supplement funding arrangement has been established to support the costs of expanding the existing portfolio of patents. 

 

•     Investment 7313 reflects the Company's investment in ipCreate.  JIL has taken a 7.8% preferred ownership in this company which will enable the Company to profit from the patent monetisation strategy ipCreate employs.  Our relationship with ipCreate has also provided the potential for enhanced proceeds from several existing patent investments.

 

•     Investment 9713, ProSports IP is a new investment established to develop and monetise a large portfolio of patents in the technology and sports market.  The Company has partnered with the National Football League Players Association in this endeavour.  ipCreate is also affiliated with this new investment.

 

Commercial portfolio:

The Company's commercial portfolio consists of investments in six cases that involve claims related to commercial disputes including:  theft of trade secret, breach of contract and insurance subrogation.

 

Case summaries:

•     Case 1610 has resulted in a favourable arbitration award in the amount of US$4.0 million. While JIL has recouped US$4.0 million in cash proceeds from the settlement, the Company is poised to profit from its security interest in a US based coal mine, which served as a cross collateral hedge against unfavourable litigation results. The Company anticipates further proceeds from the sale of this collateral within the next 12 to 18 months.

 

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

 

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

 

•     Case 5009-S involves alleged theft of trade secrets and other contractual claims.  Claimed damages are in excess of US$500 million.  Any settlement is expected to be for less than claimed damages.  The case has not been set for trial but trial is expected to occur during 2014 or early 2015.

 

•     Case 1410 involves a theft of business claim.  The trial court ruling on liability resulted in a positive ruling.  Cross-appeals on liability and plaintiffs appeal on damages are underway for which we expect decisions in early 2015.

 

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

 

Valuation

We value JIL's investments using valuation and accounting methods that are applied in a manner that follows International Financial Reporting Standards' ("IFRS") accounting principles.  In particular, we follow guidance provided by IFRS 13 in establishing the method of applying fair value accounting.  Under this guidance, we develop a fair value of a case or investment by discounting its expected terminal value from its expected completion date.  We determine our initial expectations on quantum and timing of case results by assigning a probability of various scenarios coming to fruition and applying risk factors that:  i) are intrinsic to the specific case; and ii) reflect general risks within and outside of the legal process. Our assumptions behind fair value accounting are revisited on a semi-annual basis. If needed, we will re-run the investment's valuation model and revise its expected future cash flow which we then discount to the reporting date.  The discount rate used for valuation purposes is the Company's cost of equity.  All due diligence and transaction costs related to an investment are expensed. 

 

As at 30 June 2014, we examined the valuation for all of JIL's core investments. In doing so, the following adjustments were made to their individual valuations:

•     Since the year ended 31 December 2013, valuation of the Company's contractual interests increased by approximately US$7.4 million reflecting US$5.0 million in additional investment funding and a US$2.4 million net increase due to each investment's individual change in fair value.

•     Since the year ended 31 December 2013, valuation of the Company's debt securities decreased by approximately US$41.9 million reflecting the net of US$53.5 million in estimated net proceeds to be received by the Company on 31 December 2014 and US$11.6 million increase in the fair value

•     Since the year ended 31 December 2013, valuation of the Company's equity investments increased by approximately US$2.3 million reflecting US$1.2 million in additional investment funding and US$1.1 million net increase in each investment's individual change in fair value.

 

In addition to the above changes, since the year ended 31 December 2013, the valuation of the Company's intangible assets decreased by approximately US$500,000 reflecting the net impact of additional investment funding and amortisation charge.

 

Lastly, at 31 December 2013, the Company held an investment in a forward currency contract purchased to protect it from currency fluctuations after it declared its 2013 dividend.  During the six-month period ended 30 June 2014 this contract matured resulting in an additional decrease of approximately US$1.8 million in the valuation of our financial assets.  This decrease reflects the net of approximately US$500,000 decrease in the carrying value (from 31 December 2013 value) of the asset prior to maturity and US$1.3 million gain generated at maturity.

 

Notable Activities 

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

 

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

 

Outlook

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

 

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

 

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

 

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

 

Disclaimer on Forward Looking Statements

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

 

 

Juridica Asset Management Limited

19 September 2014

 

 

 

Independent Review report

 

Introduction

We have been engaged by the Company to review the unaudited condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014, which comprises the unaudited condensed statement of comprehensive income, the unaudited condensed statement of financial position as at 30 June 2014, the unaudited condensed statement of changes in equity, the unaudited condensed cash flow statement, the comparative figures and associated notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements.

 

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the unaudited condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the unaudited condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the AIM Rules for Companies.

 

Emphasis of Matter

Without qualifying our conclusion, we draw attention to Notes 5 and 6 to the unaudited condensed financial statements surrounding the fair value of non-current assets. The unaudited condensed set of financial statements includes non-current assets stated at their fair value of US$157.2 million. Due to the inherent uncertainty associated with the valuation of such non-current assets and the absence of a liquid market, these fair values may differ from their realisable values, and the differences could be material.

 

 

PricewaterhouseCoopers CI LLP

Chartered Accountants

Guernsey, Channel Islands

19 September 2014

 

 

The maintenance and integrity of the Juridica Investments Limited website is the responsibility of the Directors; the work carried out by us does not involve consideration of these matters and, accordingly, we accept no responsibility for any changes that may have occurred to the unaudited condensed financial statements since they were initially presented on the website.

 

Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

		1 January 2014 to 30 June 2014	1 January 2013 to 30 June 2013 (restated)
	Notes	US$	US$
INCOME
Finance income		-	3,373
Foreign exchange gain/(loss)		716,773	(199,735)
		716,773	(196,362)
EXPENSES
Management fees	11(a)	2,260,692	2,532,425
Due diligence and transaction costs		179,452	141,994
Directors' fees and expenses	11(f)	348,699	313,960
Audit fees		129,407	122,662
Legal and professional expenses		1,134,223	389,960
Administration fees	11(e)	172,669	170,809
Other expenses		220,717	181,403
		4,445,859	3,853,213
INVESTMENT MOVEMENTS
Amortisation of intangible assets	4	(582,688)	(450,520)
Realised gains on financial assets at fair value through profit or loss	5	1,329,326	-
Movement in unrealised gain on financial assets at fair value through profit or loss	5	13,328,204	1,507,646
		14,074,842	1,057,126
Profit/(loss) for the period		10,345,756	(2,992,449)
Total comprehensive income/(loss) for the period		10,345,756	(2,992,449)
Earnings per Ordinary Share
Basic	Cents	9.35	(2.86)
Fully diluted	Cents	9.31	(2.85)

 

The notes on pages 22 to 32 form an integral part of these financial statements.

 

 

		30 June	31 December
		2014	2013
	Notes	US$	US$
ASSETS
Non-current assets
Intangible assets	4	3,033,439	3,496,127
Financial assets at fair value through profit or loss	5	157,241,145	191,181,242
		160,274,584	194,677,369
Current assets
Other receivables and prepayments	7	56,893,766	4,868,836
Cash and cash equivalents		21,911,334	49,972,981
		78,805,100	54,841,817
TOTAL ASSETS		239,079,684	249,519,186
EQUITY AND LIABILITIES
Equity
Special reserve		202,846,946	202,846,946
Revenue reserve		31,144,930	20,799,174
Net assets attributable to ordinary shareholders		233,991,876	223,646,120
Total equity		233,991,876	223,646,120
Current liabilities
Dividend payable		-	25,674,394
Other payables	8	5,087,808	198,672
Total liabilities		5,087,808	25,873,066
TOTAL EQUITY AND LIABILITIES		239,079,684	249,519,186
Number of ordinary shares		110,701,754	110,701,754
Net asset value per ordinary share		$2.1137	$2.0203

 

These half yearly unaudited condensed financial statements were approved by the Board of Directors on

19 September 2014 and signed on its behalf by:

 

RJ Battey

Director

 

The notes on pages 22 to 32 form an integral part of these financial statements. 

 

 

	30 June 2014
	Special reserve	Revenue reserve	Treasury Shares	Total
	US$	US$	US$	US$
Balance at 1 January 2014	202,846,946	20,799,174	-	223,646,120
Changes in equity for 2014
Profit for the period	-	10,345,756	-	10,345,756
Total comprehensive profit	-	10,345,756	-	10,345,756
Balance at 30 June 2014	202,846,946	31,144,930	-	233,991,876
	30 June 2013
	Special reserve	Revenue reserve	Treasury Shares	Total
	US$	US$	US$	US$
Balance at 1 January 2013 (restated)	199,013,730	41,353,202	(9,925,024)	230,441,908
Changes in equity for 2013 (restated)
Loss for the period	-	(2,992,449)	-	(2,992,449)
Total comprehensive loss	-	(2,992,449)	-	(2,992,449)
Balance at 30 June 2013 (restated)	199,013,730	38,360,753	(9,925,024)	227,449,459

 

The notes on pages 22 to 32 form an integral part of these financial statements.

 

 

	1 January 2014 to 30 June 2014	1 January 2013 to 30 June 2013 (restated)
	US$	US$
Cash flows from operating activities
Profit/(loss) for the period	10,345,756	(2,992,449)
Adjusted for:
Realised gains on financial assets at fair value
through profit or loss	(1,329,326)	-
Movement in unrealised gains on financial assets at fair value
through profit or loss	(13,328,204)	(1,507,646)
Amortisation of intangible assets	582,688	450,520
Finance income	-	(3,373)
Foreign exchange (gains)/losses	(716,773)	199,735
Changes in working capital
Purchases of non-current assets at fair value through profit or loss	(1,433,560)	(3,229,915)
Settlement of non-current assets at fair value through profit or loss	54,850,915	1,247,555
(Increase)/decrease in trade and other receivables	(52,145,283)	121,234
Increase/(decrease) in trade and other payables	69,408	(426,001)
Net cash flow from operating activities	(3,104,379)	(6,140,340)
Cash flows from investing activities
Interest received	353	3,272
Net cash outflow from investing activities	353	3,272
Cash flows from financing activities
Dividend paid	(25,674,394)	(22,107,357)
Net cash flow from financing activities	(25,674,394)	(22,107,357)
Net decrease in cash and cash equivalents	(28,778,420)	(28,244,425)
Cash and cash equivalents at the beginning of the period	49,972,981	38,287,417
Effect of foreign exchange rate changes	716,773	(197,241)
Cash and cash equivalents at the end of the period	21,911,334	9,845,751

 

The notes on pages 22 to 32 form an integral part of these financial statements.

 

 

1.   LEGAL FORM AND PRINCIPAL ACTIVITY

 

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

 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The principal accounting policies applied in the preparation of the financial statements are set out below. 

 

Basis of Preparation

These half yearly condensed financial statements for the six months ended 30 June 2014 have been prepared in accordance with International Accounting Standard 34:  Interim Financial Reporting ("IAS 34").  The condensed financial statements should be read in conjunction with the annual Financial Statements for the year ended 31 December 2013 which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ("IASB"), interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") and applicable legal and regulatory requirements of Guernsey Law.

 

Accounting policies

The preparation of financial statements in conformity with IAS 34 requires the use of certain critical accounting estimates.  It also requires the Board of Directors to exercise its judgement in the process of applying the Company's accounting policies.  The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2013.

 

In the annual financial statements for the year ended 31 December 2013, the Company adopted IFRS 10, 'Consolidated financial statements', IFRS 11, 'Joint arrangements', IFRS 12, 'Disclosure of interests in other entities', IFRS 13 'Fair value measurement', IAS 28, 'Investments in associates and joint ventures', and the amendments to IFRS 7 'Disclosures - Offsetting financial assets and financial liabilities', and applied the transition guidance amendments to IFRSs 10, 11 and 12, all effective 1 January 2013.

 

The Company early adopted IFRS 9 'Financial instruments', which is effective 1 January 2018, and also early adopted the Investment Entities amendments to IFRS 10, IFRS 12 and IAS 27 (the ''Amendments'') for the year ending 31 December 2013, which are mandatory 1 January 2014, with early adoption permitted. The Amendments define an investment entity and introduce the exemption from consolidation requirements for investment entities.  The Company had determined that it meets the definition of an investment entity, as the Company has multiple unrelated investors and indirectly holds multiple investments through the subsidiary companies.  As a result, the Company changed its accounting policy with respect to its investment in its subsidiaries.

 

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

 

The adoption of the above standards and amendments has had no impact on the 'net assets attributable to ordinary shareholders'.  It has had an impact on the presentation of the financial statements and the restatement of the prior period comparatives, as shown in Note 13.

 

Financial risk management

The Company's activities expose it to a variety of financial risks. The main risks arising from the Company's financial instruments are market risk, insurance risk, credit risk and liquidity risk. These condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements and, accordingly, should be read in conjunction with the Company's annual financial statements as at 31 December 2013.

 

Fair value estimation

The Company's investments are categorised as level 3 within the fair value hierarchy under IFRS 13 (as was the case at 31 December 2013). There have been no transfers between levels during the six months to 30 June 2014.

 

3.   UNCONSOLIDATED SUBSIDIARY INVESTMENTS

 

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

 

				% Share holdings
	Date incorporated	Country of incorporation		30 June 2014	31 December 2013
Riverbend Investments Limited	08-Oct-08	Guernsey		100%	100%
Juridica Ventures KFT	02-Mar-09	Hungary		100%	100%
Juridica Ventures (US) Inc.	31-May-09	United States		100%	100%
Juridica Sports Technology LLC	22-Apr-14	United States		100%	-
ProSports Technologies, LLC	22-Apr-14	United States		65%	-
Spinal Spot LLC	28-Feb-11	United States		52%	52%
Spinal Ventures LLC	25-Mar-11	United States		100%	100%
Juridica Kinetics, LLC	13-May-14	United States		100%	-
Smooth 3D IP, LLC	13-May-14	United States		64%	-
OTO Technologies LLC	25-Feb-09	United States		100%	85%

 

There are no outstanding commitments with these unconsolidated subsidiaries at the period end, other than those disclosed in Note 9.

 

4.   INTANGIBLE ASSET

			30 June 2014	31 December 2013
			US$	US$
Balance at start of the period/year			3,496,127	2,703,118
Additions			120,000	1,745,555
Amortisation			(582,688)	(952,546)
Balance at end of the period/year			3,033,439	3,496,127

 

The Company's intangible asset comprises an investment structured as an agency agreement. In addition, the Company purchased common and preferred stock related to the intangible asset in 2012.  As at 30 June 2014, the cost of US$1,602,510 is deemed an appropriate approximation of fair value (31 December 2013: US$1,602,510), and has been classified as a financial asset at fair value through profit or loss (Note 5).  No provision for impairment is deemed to be required.

 

The Company amortises the intangible asset on a diminishing balance basis at a rate of 16.7 per cent every 6 months.

 

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

	30 June 2014
	Contractual interests	Equity investments	Debt securities	Forward FX contracts	Total
	US$	US$	US$	US$	US$
Balance at 1 Jan 2014	47,153,900	12,855,971	129,337,700	1,833,671	191,181,242
Additions	5,003,288	1,250,000	-	-	6,253,288
Disposal proceeds	-	-	(53,521,589)	(1,329,326)	(54,850,915)
Movement in fair value	2,393,602	1,105,510	11,662,763	(1,833,671)	13,328,204
Realised gains	-	-	-	1,329,326	1,329,326
Balance at 30 June 2014	54,550,790	15,211,481	87,478,874	-	157,241,145
	31 December 2013
	Contractual interests	Equity investments	Debt securities	Forward FX contracts	Total
	US$	US$	US$	US$	US$
Balance at 1 Jan 2013	43,103,722	10,380,608	153,593,259	-	207,077,589
Additions	3,523,067	2,000,000	2,000,000	-	7,523,067
Disposal proceeds	(3,228,572)	(4,000,000)	(30,000,000)	-	(37,228,572)
Movement in fair value	2,588,438	3,133,613	3,744,441	1,833,671	11,300,163
Realised losses	1,167,245	1,341,750	-	-	2,508,995
Balance at 31 Dec 2013	47,153,900	12,855,971	129,337,700	1,833,671	191,181,242

 

a.   Contractual interests

Contractual interests have been accounted for using the fair value model.  At 30 June 2014, the Company had investments in 12 contractual interests (31 December 2013: 11 contractual interests).

 

The Company had no contractual interests that came to full settlement during the period.  Fair value movements of contractual interests are due to amendments in estimated cash flows arising from changes in expectations surrounding each case.  The valuation of the Company's contractual interest investments includes a new investment through the Company's new subsidiary Juridica Sports Technology LLC, as disclosed in note 3.

 

b.   Equity investments

The Company's equity investments include a holding in JCML 2007 Limited ("JCML") (formerly Juridica Capital Management Limited). The fair value of the Company's investment in JCML was assessed as at 30 June 2014 to be US$5,609,764 (31 December 2013: US$5,501,158). This assessment of fair value is deemed appropriate given the investment in the company, the level of assets (including intellectual property), and the quality of income and earnings and the projection of future cash flows.  The valuation of the Company's equity investments includes additional investment through the Company's new subsidiary Juridica Kinetics LLC, as disclosed in note 3.

 

c.   Debt securities

Note 11(c) details arrangements between the Company and Fields Law. The Loan and the Swap have been aggregated and treated as a single claim asset.  Returns on the Loan and the Swap are dependent on returns in claims financed by Fields Law.

 

During the period, the Company settled five investments from its antitrust portfolio, which has resulted in expected net proceeds due back to the Company of $53.5 million on 31 December 2014, from its debt security investments.  In addition, there has been an increase US$11.4 million in unrealised gains.

 

Fair value movements of debt securities are due to amendments in estimated cash flows arising from changes in expectations surrounding each investment

 

d.   Forward foreign currency contracts

The company has no forward foreign currency contracts at 30 June 2014.  The contracts held at 31 December 2013 were in place to settle declared dividend distributions in Sterling, and were settled prior to payment of the distributions in January 2014. On settlement of these contracts the Company received proceeds of approximately $1.3 million, which are shown as a realised gain on the Statement of Comprehensive Income.

         

6.   FAIR VALUE ESTIMATION

 

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

 

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

 

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

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

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

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

 

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

 

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

 

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

 

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

 

All of the Company's financial assets and liabilities are classified as Level 3 and there were no transfers between levels for the period ended 30 June 2014 (31 December 2013: None).

 

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

 

		30 June 2014
		Contractual interests	Equity investments	Debt securities	Total
		US$	US$	US$	US$
Opening balance		47,153,900	12,855,971	129,337,700	189,347,571
Additions		5,003,288	1,250,000	-	6,253,288
Settlements		-	-	(53,521,589)	(53,521,589)
Gains/(losses)		2,393,602	1,105,510	11,662,763	15,161,875
Closing balance		54,550,790	15,211,481	87,478,874	157,241,145
Total gains on assets held at the end of the period		2,393,602	1,105,510	11,662,763	15,161,875
		31 December 2013
		Contractual interests	Equity investments	Debt securities	Total
		US$	US$	US$	US$
Opening balance		43,103,722	10,380,608	153,593,259	207,077,589
Additions		3,523,067	2,000,000	2,000,000	7,523,067
Settlements		(3,228,572)	(4,000,000)	(30,000,000)	(37,228,572)
Gains/(losses)		3,755,683	4,475,363	3,744,441	11,975,487
Closing balance		47,153,900	12,855,971	129,337,700	189,347,571
Total gains on assets held at the end of the year		2,648,432	4,475,363	3,744,441	10,868,236

 

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

 

Expected quantum

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

 

Expected duration

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

 

Cost of equity

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

 

Unobservable input	Investment IRR	Reasonable possible shift (+/-)	Change in valuation (due to +/- change in input)
	29%		±38.35%
Quantum	41%	10%	±26.05%
	216%		±11.41%
	29%		(38.01%) / 42.19%
Timing	41%	1 year	(25.81%) / 28.65%
(years)	216%		(11.30%) / 12.55%
Cost of equity	11%	3%	(4.46%) / 4.78%

 

7.   OTHER RECEIVABLES AND PREPAYMENTS

				30 June 2014	31 December 2013
				US$	US$
Settlement proceeds				56,746,127	4,776,376
Prepayments and accrued bank interest				147,639	92,460
				56,893,766	4,868,836

 

8.   OTHER PAYABLES

				30 June 2014	31 December 2013
				US$	US$
Payable on investment purchases				4,819,728	-
Audit fees				129,407	182,240
Other creditors				138,673	16,432
				5,087,808	198,672

 

9.   COMMITMENTS & GUARANTEES

 

Under the terms of some of its contracts, JIL provides a line of credit to counterparties.  As at 30 June 2014, the maximum commitment under these lines of credit was US$8.4 million (31 December 2013: US$5.8 million).

 

10.  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 exchange rate was applicable as at 30 June 2014:

				Closing rate
				30 June 2014	31 December 2013
				US$	US$
British pounds (GBP)				1.7106	1.6566

 

11.  RELATED PARTY TRANSACTIONS

 

Richard Battey, as investor representative and non-executive director of the Company, is also a non-executive director of JCML.  The principal of JCML is Richard Fields, who owns 257,545 Ordinary Shares in the Company (0.233 per cent equity interest) (31 December 2013: 232,545), which include 50,000 Ordinary Shares in the Company as reimbursement of £100,000 of pre-IPO costs.  JCML owns 495,000 Ordinary Shares in the Company (0.447 per cent equity interest) (31 December 2013: 495,000 shares).  Mr Fields is also sole beneficial owner of Juridica Asset Management Limited ("JAML"). 

 

a.   Management fee

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

 

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

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

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

 

Management fees for the period ended 30 June 2014 are US$2,260,692 (30 June 2013: US$2,532,425 payable to JCML), and the amount which remains payable to JAML as at 30 June 2014 is US$Nil (31 December 2013: US$Nil, due from JCML US$18,506).

 

b.   Performance fee

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

 

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

 

As at 30 June 2014, the minimum hurdle rate (which is based on the adjusted net asset value) was not achieved. Therefore, no performance fee was paid or payable for the period ended 30 June 2014 (30 June 2013: US$Nil; 31 December 2013: US$Nil), and no accrual for performance fee has been recognised as at 30 June 2014 (31 December 2013: US$Nil). However, the current net asset value (unadjusted) is greater than the minimum hurdle rate as at 30 June 2014.  To the extent that this net asset value is realised, a performance fee will become payable in respect of future financial periods.  JCML will continue to be entitled to a performance fee in the future in respect of investments made prior to the termination of its appointment on 31 December 2013.

 

For future financial periods any performance fee payable on investments will be split based on the date on which investments were made, and attributable to JCML for existing investments, and to JAML for all new investments made post 1 January 2014. JAML will become entitled to a performance fee of 20 per cent of the annualised increase in the adjusted net asset value over the hurdle rate.  As at 30 June 2014, the minimum hurdle rate (which is based on the adjusted net asset value) was not achieved. Therefore, no performance fee was paid or payable for the period ended 30 June 2014 (30 June 2013: US$Nil; 31 December 2013: US$Nil), and no accrual for performance fee has been recognised as at 30 June 2014 (31 December 2013: US$Nil).

 

c.   Facility agreement and collateral account

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

 

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

 

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

 

d.   Investment in JCML 2007 Limited

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

 

e.   Administration fees

The Company entered into an administration agreement with Legis Fund Services Limited ("Legis"), effective 1 October 2013, replacing the administration agreement with Bordeaux Services (Guernsey) Limited ("Bordeaux").  Fees payable to Legis for the period were US$172,669, of which US$121,031 remain payable as at 30 June 2014 (31 December 2013: US$16,214).  No fees were due to Bordeaux for the period (30 June 2013: US$170,809), and no fees remain payable as at 30 June 2014 (31 December 2013: US$Nil).

 

f.    Directors' fees and expenses

Fees and expenses are attributable to the Directors of the Company as follows:

				30 June 2014	30 June 2013
				US$	US$
Directors' remuneration
Lord Daniel Brennan				154,489	146,214
Richard Battey				62,406	58,486
Kermit Birchfield				62,500	62,500
				279,395	267,200
Director expenses				69,304	46,760
				348,699	313,960

 

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

 

Lord Daniel Brennan has an interest in 447,817 shares (31 December 2013: 447,817 shares) under a Share Option Agreement, details of which were disclosed in the Admission Document.  Lord Brennan can exercise these share options at any time up until 17 December 2017.

 

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

 

g.   Escon Capital Inc.

The Company has an interest in 38% (31 December 2013: 38%) of the voting common stock and 100% of the issued preference shares of Escon Capital Inc. ("Escon"), a Delaware corporation of which Kermit Birchfield and Richard Fields are directors.

 

Kermit Birchfield and Richard Fields each receive a fee from Escon.  Mr Birchfield receives a director's fee of US$50,000 per annum, and Mr Fields receives an employment fee of US$12,000. During the period to 30 June 2013, Juridica Asset Management US Inc. (formerly Juridica Capital Management US Inc.), a company ultimately owned by Richard Fields (from 1 January 2014, formerly owned by JCML), received a fee from Escon for overhead support of US$260,000.The overhead support agreement was terminated with effect from 30 June 2013 and no payments were made during this period.

 

h.   Eleven Engineering Game Control LLC

The Company has provided a loan of US$575,000 to Eleven Engineering Game Control LLC, a company ultimately owned and controlled by JCML (31 December 2013: US$575,000). As at 30 June 2014 no further facility remains available to be drawn (31 December 2013: US$Nil).  Interest will be accrued at a rate of 10% per annum, and the loan and interest are repayable on Eleven Engineering Game Control LLC's receipt of net recoveries.

 

12.  SEASONALITY

 

The Company's operations are not affected by seasonality or cyclicality and as such they have no impact on the unaudited condensed financial statements.

 

13.  CHANGE IN ACCOUNTING POLICY AND TRANSITION

 

In the annual financial statements for the year ended 31 December 2013, the Company adopted IFRS 10 and the Amendments to IFRS 10.  As a result, the Company has changed its accounting policy with respect to its investment in its subsidiaries. The subsidiaries which were previously consolidated are now accounted for at fair value through profit or loss. The transition provisions require retrospective application in accordance with IAS 8. However, they specify that an entity need only present the quantitative information required by paragraph 28(f) of IAS 8 for the period immediately preceding the date of initial application. Comparative amounts have been restated in accordance with the transition guidance.

 

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

 

Statement of Comprehensive Income:
	1 January to 30 June 2013		1 January to 30 June 2013
	(Consolidated)	Adjustment	(Restated)
	US$	US$	US$
Expenses
Due diligence and transaction costs	58,316	83,678	141,994
Directors' remuneration and expenses	267,200	46,760	313,960
Other operating expenses	228,661	(47,258)	181,403
Investment movements
Other expense arising on contractual interests	(2,288,374)	2,288,374	-
Other income arising on available for sale debt security	9,874,732	(9,874,732)	-
Loss on revaluation of case proceeds obligation	(33,145)	33,145	-
Movement in unrealised gain on financial assets at fair value through profit or loss	-	1,507,646	1,507,646
Other comprehensive income
Fair value change in available for sale financial assets	1,880,541	(1,880,541)	-
Fair value change in available for sale debt securities	(8,044,456)	8,044,456	-
Comprehensive income attributable to non-controlling interests	(35,168)	35,168	-

 

14.  SUBSEQUENT EVENTS

 

On 31 July 2014, the Company entered into an agreement to restructure a contractual interest investment.  The restructuring called for the advancement of US$2.37 million, to acquire a 71% stake in a special purpose vehicle.