JURIDICA INVESTMENTS LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
JURIDICA INVESTMENTS LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
CONTENTS
Pages
Corporate Information
2
Chairman’s Statement
3–6
Investment Manager’s Report
7 – 16
Directors’ Report
17 – 18
Independent Auditor’s Report
19 – 23
Statement of Comprehensive Income
24
Statement of Financial Position
25
Statement of Changes in Equity
26
Statement of Cash Flows
27
Notes to the Financial Statements
28 – 49
1
JURIDICA INVESTMENTS LIMITED
CORPORATE INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2016
Directors of the Company:
Lord Daniel Brennan (Non-executive Chairman)
Richard Battey (Non-executive Director)
Kermit Birchfield (Non-executive Director)
Registered Office:
11 New Street
St Peter Port
Guernsey
GY1 2PF
Channel Islands
Nominated Adviser and Joint Broker:
Cenkos Securities plc.
6.7.8 Tokenhouse Yard
London
EC2R 7AS
Investment Manager:
Brickell Key Asset Management Limited
(formerly Juridica Asset Management Limited)
11 New Street
St Peter Port
Guernsey, GY1 2PF
Channel Islands
Joint Broker:
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Administrator and Company Secretary:
Vistra Fund Services (Guernsey) Limited
(formerly Orangefield Legis Fund Services Limited)
11 New Street
St Peter Port
Guernsey, GY1 2PF
Channel Islands
Independent Auditor:
PricewaterhouseCoopers CI LLP
Royal Bank Place
PO Box 321
1 Glategny Esplanade
Guernsey, GY1 4ND
Channel Islands
Guernsey Legal Advisor:
Carey Olsen
Carey House
Les Banques
St. Peter Port
Guernsey, GY1 4BZ
Channel Islands
English Legal Advisor:
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Custodian:
Ravenscroft Limited
PO Box 222
The Market Buildings
St Peter Port
Guernsey, GY1 4JG
Channel Islands
Registrar:
Capita Registrars (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue,
St Sampson,
Guernsey, GY2 4LH
Channel Islands
2
JURIDICA INVESTMENTS LIMITED
CHAIRMAN’S STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2016
On behalf of the Board, I present the results of Juridica Investments Limited (“JIL” or the “Company”) for
the year ended 31 December 2016.
Financial Results
During 2016, the net asset value (“NAV”) per share has fallen by US$0.8891 per share from US$1.1432 per
share at 31 December 2015 to US$0.2541 per share at 31 December 2016. The change in NAV was due to
the following:
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payment of dividends during 2016 amounting to US$60.3 million (US$0.5461 per share); and
total comprehensive loss of US$37.8 million (US$0.3430 per share).
The total comprehensive loss of US$37.8 million was primarily attributable to net realised loss on resolved
investments and net unrealised loss on revaluation of case investments totalling US$30.7 million (US$0.2780
per share), most of which (US$24.5 million) was previously reported in our 30 June 2016 interim accounts.
Corporate Run-off Strategy
The Board announced on 18 November 2015 that the Company would not make any new investments (other
than further funding of existing investments where such funding was reasonably required in the interests of
shareholders) and it would seek to make distributions to shareholders in the most appropriate manner,
following the completion of investments. In early 2016, the Board made a new agreement with the
Company’s investment manager, Brickell Key Asset Management Limited (“BKAML” or “Manager’’),
formerly named Juridica Asset Management Limited, for continued services for a further two years until 31
December 2017. On that date, the Company is entitled to terminate these arrangements. This timing reflected
our view of the circumstances of the remaining portfolio. Nevertheless, we reiterate the approach set out in
my statement in the 2015 Annual Report that should circumstances involve the continuation of any
significant investments into 2018 then the Company will make appropriate arrangements as required.
In accordance with the Company’s run-off strategy, the Board instructed BKAML, to look into the
resolution and monetisation of the remaining litigation assets as their circumstances reasonably permit, and
for non-litigation assets where reasonable, by on or about 31 December 2017.
For those investments that are likely to extend beyond 31 December 2017 before reaching their natural
completion, the Board, with input from the Manager, has reviewed the values of certain remaining assets to
reflect the potential likelihood of monetising them where reasonably possible by the end of 2017.
As part of the Company’s run-off strategy, and as previously announced in my 2015 year-end statement, the
Board and the Manager agreed to a programme of cost reductions over and above the cuts to investment
management fees with target savings of US$900,000 for 2016 compared with 2015. We were successful in
meeting this objective as the Company’s reported results reflect 2016 operating expenses lower by US$1.0
million as compared to 2015 results (excluding the non-cash impact of foreign exchange loss).
Assessment of Going Concern
In a year of run-off, the Board has made their regular assessment that the Company is a going concern in
respect of a period of at least one year from the date of approval of these accounts.
The Board concluded that there are no material uncertainties related to events or conditions that might cast
doubt on the ability of the Company to continue as a going concern. The Board is of the opinion that the
Company will have sufficient resources to meet its liabilities as they fall due and is positioned to continue into
2018 if necessary.
3
JURIDICA INVESTMENTS LIMITED
CHAIRMAN’S STATEMENT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
Investment Results
During the year ended 31 December 2016 there were settlements in the final two cases in the Company’s
large antitrust and competition investment. Gross proceeds totalling US$71.3 million were generated from
these combined settlements. Net proceeds remitted to the Company (after reserves for taxes and
contingencies were held by the law firm that is the counterparty to the Company’s investment) totalled
US$46.5 million. We believe additional proceeds from these reserves may be released to the Company once
actual tax returns are filed (expected no later than third quarter 2017) and again once all contingencies are
cleared.
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Case 5308-U: Settlement was reached during trial that generated US$69.1 million in gross proceeds
and cost reimbursement. After reserving for taxes and other contingencies, net proceeds of US$46.0
million were received in July 2016. Additional proceeds from this settlement may be remitted to the
Company after filing of tax returns, which is expected no later than third quarter 2017.
Case 1008-A: A partial settlement was reached generating approximately US$2.2 million, in gross
proceeds. After reserving for taxes and other contingencies, net proceeds of US$500,000 were
received by the Company in July 2016. Although the case continues, the Board determined that the
quantum of potential additional returns was not worth the additional investment required to
continue to retain an interest in the case.
Further details of the closing of the structures supporting the antitrust and competition portfolio are set out
in the footnotes (Notes 5 and 14) to these Financial Statements.
Investment Portfolio
The valuation of the portfolio has been carefully reviewed and several investments were written off during
2016.
Portfolio category
Number of Active
Investments
2015
2016
Fair value $US Million
2016
2015
% of Total NAV
2016
2015
Litigation investments
5
7
15.8
71.0
56.5%
56.3%
SPV investments
4
4
2.9
15.1
10.3%
11.9%
Other investments
3
4
0.3
6.7
1.0%
5.4%
Total investments
12
15
19.0
92.8
67.8%
73.6%
There were 15 investments active as of 1 January 2016, of which seven involved litigation. During 2016, two
of these litigation investments had significant adverse judicial decisions that prompted us to write off the
Company’s remaining interest. Specifically, these investments were Case 12013 and Case 1608-T.
4
JURIDICA INVESTMENTS LIMITED
CHAIRMAN’S STATEMENT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
Of the remaining five litigation investments:
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Investment 3608-A has come to completion relative to the underlying cases but remains active until
residual reserves are transferred to the Company.
Case 2709-E and Case 5009-S are both being appealed for decisions adverse to our position.
Case 1410 won its initial appeal to increase damages, however both parties have now filed further
legal appeals.
Case 114107, an investment we made in early 2015, had several partial settlements in 2015 and 2016
providing for US$1.7 million in total proceeds. In March 2017, the Company received additional
proceeds of US$890,000 which completed the Company’s interest in this case. Total proceeds
received by the Company for this case was $US2.6 million on an investment of US$1.3 million.
Four investments are in special purpose vehicles (“SPV”). These investments began in 2014.
As to ACK / Smooth3D, after extensive investigation it was determined that the inventions had no
commercial value and during 2016, approximately US$330,000 of excess investment was returned to the
Company. The remaining investment is a negotiable note.
As to Rich Media, 25 patent filings occurred in 2016 and, as of 31 December 2016, none have been issued
and all remain under review by the United States Patent and Trademark Office (“USPTO”). Monetisation of
this vehicle continues.
As to GrandiOS, 37 US domestic patents have been filed, and as of 31 December 2016, 23 patents have
either been granted or allowed by the USPTO. Monetisation efforts continue.
As to ProSports, 55 domestic patent filings have been made and, as of 31 December 2016, 14 patents have
been granted or allowed by the USPTO. A shareholder partner is the National Football League Players
Association (“NFLPA”). Marketing is underway.
These SPVs are commercial ventures and their fair value considers circumstances and conditions relevant to
each SPV market.
For the remainder of the Company’s investments, those that are not litigation or SPV, the Company began
2016 with four. During 2016, one investment, specifically Investment 1610 is facing potential bankruptcy
and has been written off. Of the three remaining investments, two of them (investments 7313 and 6609-S)
are facing enhanced risk and their respective fair value has been reduced accordingly. The final investment is
the Company’s interest in our former investment manager, JCML 2007 Limited (“JCML 2007”) and retains
value equal to the Company’s share of JIL stock held by JCML 2007.
Further details on the status of each investment can be found in the Investment Manager’s Report that
follows.
Dividend
For 2016, the Company paid dividends totalling 40 pence per share (US$60.3 million). The Board will
continue to evaluate the appropriate timing of future dividends.
Exchange rate movements
Since the vote by the UK on 23 June 2016 to leave the EU and concerns about the future economic effect on
the UK there has been a fall in the value of the Sterling against the US Dollar. This has been beneficial to the
Company as its assets are almost entirely denominated in US Dollars.
5
JURIDICA INVESTMENTS LIMITED
CHAIRMAN’S STATEMENT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
Conclusion
The Board appreciates that investors wish run-off to be effective and efficient and we will seek to achieve
this. The Board and the Company’s Manager continue to work to monetise all of the Company’s
investments by 31 December 2017 and investors should be assured that we will continue to efficiently
operate the Company and manage our remaining investments beyond this date, if so required.
Lord Daniel Brennan QC
Chairman
31 March 2017
6
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT
FOR THE YEAR ENDED 31 DECEMBER 2016
The Company began operations in December 2007 and has, since inception, made 30 investments (some of
which have multiple underlying cases or other assets and some which have had supplemental investments).
A total of 19 of these investments have come to full conclusion, including one investment which came to full
conclusion in March 2017. Of the remaining 11 investments, five have had some return on the Company’s
investment, including the Company’s investment in JCML 2007, either from settlements or other
distributions, and still remain active.
During the year ended 31 December 2016, the Company continued to move forward in its strategy to
monetise its remaining investments by 31 December 2017. This strategy, which was announced on 18
November 2015, directs us to manage the Company’s existing investments by balancing the desired
conclusion date with what we believe is each investment’s optimal conclusion and to make distributions to
shareholders in the most appropriate manner. For the year ended 31 December 2016, and since the adoption
of the run-off strategy, the Company has achieved the following:
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settlement in two cases within our antitrust and competition portfolio generating approximately
US$71.3 million in gross proceeds (US$46.5 million in net proceeds after reserving for taxes and
contingencies);
additional settlements and return of excess invested cash totalling US$750,000; and
dividends totalling 40 pence per share paid to shareholders on the Register at 27 May 2016 (8 pence
per share) and 16 September 2016 (32 pence per share).
We continue to seek resolution and monetisation of all the remainder of the Company’s assets, if possible by
the end of 2017.
Financial Performance During 2016
The NAV per ordinary share decreased from US$1.1432 (77 pence per share as at 31 December 2015 to
US$0.2541 (21 pence per share) as at 31 December 2016. This decrease of 88.91 cents in NAV per ordinary
share was attributable to the declaration and payment of dividends totalling US$60.3 million or 54.61 cents
per ordinary share and a total comprehensive loss of US$37.8 million or 34.30 cents per ordinary share.
The Company’s US$37.8 million total comprehensive loss for the year ended 31 December 2016 was due to
the net unrealised loss of US$20.3 million generated from the change in valuation of the Company’s
investments, net realised loss of US$10.4 million associated with the write-off of three investments partially
offset by a realised gain associated with one investment, intangible impairment and amortisation expenses of
intangible of US$2.1 million, impairment of settlement proceeds of US$500,000 and net operating expenses
of US$4.5 million.
The Company’s net unrealised loss from net reduction in the valuation of the Company’s investments of
US$20.3 million was attributable to the following:
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US$15.1 million reduction in value associated with the Company’s contractual interests. This was
due to changes in our expectations on probability of a successful resolution, changes in projected
quantum and timing of a successful resolution and application of additional risk factors on certain
investments (principally the patent special purpose vehicles (“SPV”) accounted for as contractual
interests to incorporate the potential of monetising those investments within a shortened
development period following the Board’s instructions in accordance with the Company’s run-off
strategy. The risk factors associated with monetising the investment within a shorter development
period were increased from the Company’s 30 June 2016 interim accounts and may be adjusted in
future reporting periods based on our ongoing monetisation efforts.
US$3.4 million reduction in value associated with the Company’s debt securities consisting
exclusively of our antitrust and competition portfolio.
7
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
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US$1.8 million reduction in value associated with the Company’s equity investments. This change
was partially due to changes in our expectations on the quantum and timing and application of
additional risk factors on one equity investment to incorporate the potential of monetising this
investment within a shortened growth period following the Board’s instructions in accordance with
the Company’s run-off strategy. The risk factors associated with monetising the investment within a
shorter growth period were increased from the Company’s 30 June 2016 accounts and may be
adjusted in future reporting periods based on our ongoing monetisation efforts.
Investment Results During 2016
Proceeds Received:
Investment 3608-A: During the year ended 31 December 2016, the two remaining cases in our large antitrust
and competition investment, Case 5308-U and Case 1008-A, reached their conclusion.
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Case 5308-U reached a final settlement during 2016 generating gross proceeds of approximately
US$69.1 million. As per the terms of the Company’s investment arrangement, Fields Law Firm
PLLC (“Fields Law”), which is the law firm that is counterparty to this investment, is permitted to
set aside reserves for taxes and contingencies resulting from the settlement or other matters related
to the investment. After netting out these reserves, a total of US$46.0 million was paid to the
Company.
Case 1008-A reached partial settlement during 2016 which generated total gross proceeds of US$2.2
million that was paid in several tranches. After providing for the appropriate reserves (similar to
those described above for Case 5308-U), US$500,000 in net proceeds was paid to the Company.
Although the case continues, the Company determined that the quantum of potential additional
returns was not worth the additional investment required to continue to retain an interest in the case.
As noted above, the Company’s interest in the underlying cases in Investment 3608-A reached their
conclusion during 2016 and on 25 August 2016, the loan and swap arrangements that served as the
Company’s facility agreement with Fields Law were terminated through a series of agreements and cash
arrangements that resulted in no additional net cash gain or loss to the Company. The loan and swap
arrangements were replaced with termination agreements that provide for additional proceeds to ultimately
be remitted to the Company, if additional proceeds become available. Specifically, additional proceeds may
become available once Fields Law’s 2016 tax returns are filed (which is expected no later than third quarter
2017) and again once Fields Law’s contingencies are cleared (which is expected no later than end of year
2020). The expected release of US$10.5 million in excess reserves is reflected as the remaining valuation of
this investment. The final amount of excess reserves that may be released could vary significantly from the
estimate we have developed due to actual taxes and expected contingency payments being different from our
estimates. (See notes 5 and 14 for further details).
Investment 114107: During the year ended 31 December 2016, Investment 114107 generated gross proceeds
of US$400,000 from two partial settlements. This investment became finalised in March 2017 with receipt of
US$890,000 additional proceeds. The Company received a total of US$2.6 million on an investment of
US$1.3 million.
Other proceeds received: In addition to the above activity, US$40,000 in residual proceeds related to Case
8008-L and Case 5208-E were received by the Company during the year ended 31 December 2016 and
approximately US$330,000 in residual cash from one of the Company’s SPVs was returned to JIL.
Investments Written Off:
Investment 12013: The Company invested US$250,000 in a case involving a legal claim of misappropriation
of trade-secrets. The Company’s investment was used for funding an appeal which, during the fourth quarter
of 2015, was lost. All subsequent legal actions, including the Plaintiff’s petition for Writ of Certiorari in
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JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
February 2016, have failed. As a result, during 2016, the investment was written off. Approximately
US$95,000 of the Company’s 2015 year-end NAV was applicable to this investment.
Case 1608-T: In 2008, the Company invested US$500,000 in a case involving a judgement on behalf of
insurance companies against a foreign government. This investment was structured whereby the Company
would receive US$2.0 million once collection was made. In 2014, we identified potential problems with the
investment and wrote down our valuation to reflect this increased risk. At year-end 2015, this investment
carried a valuation of US$446,000. During 2016, the United States Court of Federal Claims granted the
Defendant’s motion for summary judgment denying the Plaintiff’s claims. As such, during 2016, this
investment was written off.
Investment 1610: This investment began as an investment in litigation which resulted in a favourable
arbitration award obtained in 2013 in the amount of US$4.0 million. While this settlement enabled the
Company to recoup its entire investment, the Company intended to recover further proceeds from its
security interest in a revenue stream to be generated from a US based coal mine. Due to unfavourable
market conditions for the coal industry, at year-end of 2015, we retained an industry expert to provide input
into valuation and likelihood to monetise the Company’s interest. At year-end 2015, this investment carried a
valuation of US$600,000. Shortly before 31 December 2016, we learned that the parent company of the
mine was facing potential bankruptcy which will eliminate the Company’s interest. As such, at 31 December
2016, this investment has been written off.
In addition to the above investments written off, the Company wrote off a portion of the ACK / Smooth3D
investment (formerly Investment 0808-C) which was deemed to no longer hold value and returned
US$300,000 of unspent investment to the Company. At year-end 2015, the now written off portion of this
investment carried a valuation of US$600,000.
Fair Value of Investments
The fair value of the Company’s investments at 31 December 2016 was US$18.9 million. From an accounting
standpoint, these investments are categorised as contractual interests, debt securities, or equity investments.
These categories reflect the following changes from the carrying value as at 31 December 2015:
9
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
31 December
2015 Fair
Value
$USM
Contractual
Interests:
includes assets
from the
Company’s
patent and
commercial
claims portfolios
Additions
During the
Year Ended
31 December
2016
$USM
Net
Proceeds
Attributable to
the Year
Ended 31
December
2016
$USM
Realised Loss
Attributable to
the Year
Ended 31
December
2016
$USM
Fair Value
Change
During the
Year Ended
31 December
2016
$USM
31 December
2016 Fair
Value
$USM
29.4
1.0
(0.8)
(6.7)
(15.1)
7.8
55.4
30.4
(71.9)
-
(3.4)
10.5
6.0
0.1
-
(3.7)
(1.8)
0.6
90.8
31.5
(72.7)
(10.4)
(20.3)
18.9
1
Debt Securities:
includes assets
from our
antitrust and
competition
portfolio 2, 3, 4
Equity
Investments:
includes assets
from our patent
and commercial
claims portfolios
as well as other
investments 5, 6
Total
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Realised loss within the Company’s contractual interests resulted from the write off of Case 12013
(US$250,000) and the write off of a portion of the ACK / Smooth3D SPV investment (US$6.4
million) that was treated as contractual interest. The write off amount reflects the remaining basis in
each of these investments and does not reflect the fair value of each investment prior to write off.
The remaining value associated with the Company’s ACK / Smooth3D SPV is treated as an equity
investment.
2 Additions within the Company’s investments accounted for as debt securities were provided from:
i) US$5 million clawback of prior year swap payments to Fields Law for purposes of making required
contributions into the underlying cases; ii) US$11.1 million clawback of prior year swap payments
made to Riverbend Investments Limited (“Riverbend”) enabling Fields Law to prepay a portion of
accrued interest and principal on the facility between the Company and Fields Law; and iii) US$14.3
million enabling Riverbend to fulfil its obligation under the swap agreement and allowing for Fields
Law to pay all remaining accrued interest and principal on the facility once the Company’s interest in
the underlying cases was deemed complete.
1
10
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
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Net proceeds within the Company’s investments accounted for as debt securities include: i)
US$46.5 million of net proceeds provided by settlements in the Company’s antitrust and competition
portfolio; and ii) a total of US$25.4 million paid by Fields Law from the US$11.1 million clawback of
prior year swap payments made to Riverbend and the US$14.3 million provided by Riverbend
fulfilling its obligation under the swap agreement and allowing for Fields Law to pay all remaining
accrued interest and principal on the facility once the Company’s interest in the underlying cases was
deemed complete.
4 Current valuation of the Company’s investments accounted for as debt securities reflects expected
release of excess reserves currently being held by Fields Law. The reserves held relate to taxes
resulting from the two settlements in this portfolio that occurred during 2016 and contingencies
related to the investment. The final amount of excess reserves that may be released could vary
significantly from this estimate.
5 Realised loss for the Company’s equity investments reflects US$3.7 million of remaining basis in
Investment 1610 which was written off at 31 December 2016. This investment generated US$4.0
million of proceeds in 2013 of which approximately US$300,000 was allocated to the recovery of our
investment. At year-end 2015, this investment carried a valuation of US$600,000.
6 Equity investments exclude an intangible, with amortised value of approximately US$111,000.
3
As discussed in previous reports, 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 an investment’s fair
value are revisited on a semi-annual basis (to coincide with the Statement of Financial Position date). 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.
Unlike an investment that is backed by a physical asset, litigation assets are subject to certain legal hurdles
each of which has the potential to cause the litigation portion of any investment to be worthless. A key
element in selecting investment worthy cases is the likelihood of a particular case overcoming any remaining
hurdles and generate either a settlement or trial victory.
For the Companyǯs litigation investments, we consider the current legal merits of each underlying case, the
legal history of the case, the current legal environment, and any other factors we feel are relevant as of the
date of our valuation. Working with the lawyers assigned to each case, we develop scenarios of potential
outcomes, including the various situations that can generate outsized returns, moderate returns, or a
complete loss, and assign each scenario a probability. The Monte Carlo simulation runs the statistically
relevant number of iterations to provide us with an expected value and timing. These results are then
discounted to the reporting date at the Companyǯs cost of equity. For certain of the Companyǯs investments,
we found it more appropriate to value them by using discounted cash flow models incorporating the various
risks associated with the investment.
Of significance is the risk of loss that is assigned to each case. This must be considered given the typical
binary characteristics of a legal case (i.e. win or lose).
Beginning in 2016 and in response to the Companyǯs run-off strategy, as part of us reaching a fair value
assessment of the Companyǯs investments, we have considered the potential likelihood of monetising certain
investments within a shortened development period.
11
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
Our accounting fair value on the Company’s investments is not intended to express our prediction about the
ultimate outcome of any investment, but rather our fair value estimate based on the best information
available to us at the Statement of Financial Position date using a range of possible outcomes.
Portfolio Update
As the Company’s portfolio has progressed, it has evolved into three types of investments: litigation related
investments; SPV related investments; and other investments. As such, our investment update will be
grouped in the same manner.
The summary of our investment holdings at 31 December 2016 for each of these groups is as noted on the
following table, together with the current concentration risk:
Portfolio category
Number of Active
Investments
2015
2016
Fair value $US Million
2016
2015
% of Total NAV
2016
2015
Litigation investments 1
5
7
15.8
71.0
56.5%
56.3%
SPV investments
4
4
2.9
15.1
10.3%
11.9%
Other investments 2
3
4
0.3
6.7
1.0%
5.4%
12
15
19.0
92.8
67.8%
73.6%
Total investments
1 Includes
Investment 114107 which became finalised in March 2017.
Includes the Company’s investment in JCML 2007. Also includes an investment in which US$111,000 of
its fair value at 31 December 2016 is categorised as an intangible.
2
Litigation investments
The Company began 2016 with seven investments in litigation. During 2016, two of these investments,
Investment 12013 and Case 1608-T, were written off (as detailed above) leaving five investments in litigation
remaining active as of 31 December 2016.
Case summaries:
• Investment 3608-A: This investment originally included six cases of which five were related to
antitrust and competition and one was related to statutory claims against an international bank. The
investment was initiated in 2008 with terms that required funding obligations by the Company
through 2016 with an annual option providing for the Company to extend the funding obligation
beyond 2016. During 2016, the Company declined to exercise its option to continue funding the
investment.
Under the terms of the facility agreement (consisting of a consolidated loan agreement and a swap
agreement), gross proceeds generated from the investment are received and held by Fields Law,
which is the law firm that is the counterparty to the Company͛s investment. Deducted from the
gross proceeds are taxes and reserves required for certain contingencies. Per the terms of the facility
agreement, the Company received net proceeds at the end of each calendar year, or earlier if
approved by JIL and Fields Law.
As of 31 December 2016 all of the Company͛s interest in the underlying cases have come to
conclusion either through final settlement or, for Case 1008-A, partial settlement and the Company͛s
determination to no longer fund an ongoing interest in the case.
12
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
Although the Company’s interest in the underlying cases in Investment 3608-A has ended, additional
proceeds may be delivered once Fields Law’s 2016 tax returns are filed (which is expected to occur
in the third quarter 2017) and again once all contingencies are cleared (which is expected by the end
of 2020). The expected release of US$10.5 million in excess reserves is reflected as the remaining
valuation of this investment. The final amount of excess reserves released could vary significantly
from this estimate.
On 25 August 2016, the loan and swap arrangements that served as the Company’s investment
agreement were terminated and replaced with termination agreements that provide for arrangements
described above.
•
Case 2709-E: This case originally consisted of three patents against three defendants. After a
protracted patent re-examination, one patent was abandoned. During 2016, an unexpected event
occurred which severely impacted one of the remaining patents and resulted in partial settlements
relating to this patent. Proceeds generated were far below our expectations and were reinvested into
the case to further the legal proceedings on the remaining patent. A Markman hearing on the
remaining patent completed during 2016 with the plaintiff prevailing on validity. The issue of
infringement remains in question and both parties are seeking to get appellate review of the ruling by
the Court of Appeals for the Federal Circuit. We will continue to closely monitor this investment as
the case progresses.
•
Case 5009-S: This case completed its trial by jury during 2015. Although the plaintiff fully won on
liability, the jury only awarded an amount of damages which will result in proceeds to the Company
of approximately US$2.0 million as compared to an investment of approximately US$3.5 million.
Both sides filed post-trial motions for a new trial with the plaintiff requesting a new trial on damages
and the defendant requesting a new trial on all issues. These motions were decided in favour of the
defendant; however, the plaintiff has appealed this adverse decision of the trial court. We believe
there remains a low possibility that a new trial on damages will occur.
•
Case 1410: This case completed its trial during 2014 with a positive ruling on liability but damages
awarded were far less than expected. Cross-appeals on liability and plaintiff͛s appeal on damages
were filed after the ruling. In early 2016, the plaintiff͛s appeal received a favourable appeals court
ruling overturning the trial court͛s damages award and subsequent to 31 December 2016, the trial
court judge added punitive damages to the award. Although the total award has increased, the
plaintiff and their counsel still believe damages should be higher. Both parties have now filed further
legal appeals. Although risk remains, we believe there is the possibility of a new award on damages
without a further trial.
•
Case 114107: This investment was made in early 2015. The underlying case consists of five separate
patent portfolios comprising several hundred patents related to information technology. As of 31
December 2016, the Company had received proceeds totalling US$1.7 million on an investment of
US$1.3 million. In March 2017, additional proceeds of US$890,000 were received bringing total
proceeds received on this investment to US$2.6 million and finalising the Company’s interest in the
case.
SPV investments
In early 2014, we identified a changing patent market whereby value was maximised by developing operating
entities around a portfolio of patents. We identified several existing patent investments in which the
underlying patents were at risk of not realising their full potential. Working with subject matter experts, new
inventions were developed with the intention of obtaining patents, developing commercial applications, and
monetising each SPV through litigation or other commercial strategies. These investments were funded
through SPVs in order to facilitate monetisation of each developed entity.
13
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
A total of four SPVs were created. Three of these SPVs were developed around existing core patents. The
fourth SPV was developed in partnership with the National Football League͛s Players Association
(͞NFLPA͟).
SPV summaries:
y
Rich Media: This investment originated with litigation involving an underlying patent for which the
Company previously has received proceeds. In 2014, we began to develop a portfolio of related
patents in the areas of rich media and multimedia. The inventor of the patent that was the subject of
the original litigation, along with other subject matter experts, developed 25 additional inventions all
of which were filed as patent applications in early 2016. At 31 December 2016, no patents had yet
completed their review by the United States Patent and Trademark Office (͞USPTO͟). We are
working with the original inventor to monetise the SPV.
y
ACK / Smooth3D: This investment consisted of three components:
o The investment originated with litigation that resulted in a judgment of liability but low
damages and which provided no proceeds to the Company. During 2015, the case had
progressed to the point where we determined that there was no prospect of generating any
proceeds from the original litigation and no value has been assigned to the litigation
component.
o During 2014, we worked with the inventor of the patents that were the subject of the
original litigation and other subject matter experts to develop a portfolio of related
inventions with the intention of procuring patents. In early 2016, it was determined that the
underlying inventions had no commercial value and all work on these inventions has ceased.
The remaining cash in the SPV (approximately US$330,000) was transferred back to the
Company.
o As collateral for the Company͛s original investment in the litigation, JIL received an equity
interest in a company that has developed energy-saving software for electrical motors. The
energy-saving software continues to be tested by a major industrial conglomerate. During
the year ended 31 December 2016, JIL exchanged its equity interest in the company for a
note subject to agreed discounts if redeemed early. The redemption discounts, along with
other risk factors, have been factored into the Company͛s reported fair value for this
investment at 31 December 2016.
y
GrandiOS: This investment consists of two components:
o The investment originated with litigation surrounding core computer technology. Although
prior settlements have provided the Company with some small return, during the year ended
31 December 2016 we learned of new hurdles related to the original litigation which we
believe put severe doubt on the ability of the Company to generate any further proceeds. As
such, the Company has no longer assigned any value to the litigation component.
o The original investment included an interest in certain mobile phone related patents. In
2014, we worked with subject matter experts to develop a portfolio of patents related to
mobile phone technology and a total of 37 patent applications have been filed with the
USPTO. At 31 December 2016, a total of 23 patents have either been granted or been
allowed by the USPTO. We continue to market this developing portfolio of patents and
inventions to prospective buyers.
14
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
y
ProSports: This SPV was established to develop and monetise a large portfolio of patents in the
technology and sports market. The Company has partnered with the NFLPA in this endeavour. As
of 31 December 2016, a total of 55 patent applications have been filed with the USPTO. At 31
December 2016, a total of 14 patents have either been granted or been allowed by the USPTO. We
continue to market this developing portfolio of patents and inventions to prospective buyers.
Other investments:
The Company began 2016 with four investment that are not directly related to litigation and are not specific
to a particular SPV. During 2016, one of these investments, Investment 1610, was written off (as detailed
above) leaving three active investments as of 31 December 2016, that are not directly related to litigation and
are not specific to a particular SPV. These are detailed below:
y
Investment 7313: As part of the Company͛s 2014 revised patent strategy, the Company acquired a
7.8% preferred ownership in ipCreate, Inc. (͞ipCreate͟) with an expectation to monetise this
investment as part of future capital raising by ipCreate. In the second half of 2016, ipCreate
underwent a restructuring that severely diluted the Company͛s interest. The valuation of this
investment at 31 December 2016 reflects this dilution.
y
Investment in JCML 2007: At admission of the Company͛s shares to AIM on 21 December 2007,
the Company acquired 15 per cent (subsequently diluted to 13.6 per cent) of JCML 2007 for US$2.9
million. In 2012, the Company acquired a further holding in JCML 2007, its then investment
manager, for US$4.3 million, bringing its overall holding in JCML 2007 to 36.17%. As a result of its
interest in JCML 2007, the Company is entitled to its percentage share of any performance fees paid
to JCML 2007 as well as its percentage share of any assets distributed. In 2015, the Company
received dividend income of approximately US$5.4 million from a combination of performance fees
and a distribution of the Company͛s shares held by JCML 2007. No further performance fees are
expected to be earned by JCML and at 31 December 2016, the value attributable to JIL͛s investment
in JCML 2007 is based on the Company͛s share of JIL stock still held by JCML 2007.
y
Investment 6609-S: Beginning in 2010, the Company made a series of investments in a large, multiparty pre-litigation settlement opportunity that we believed had the potential to generate significant
proceeds for the Company. This highly complex investment had significant activity in 2016 with
increased prospect for a partial settlement to occur. However, just prior to the end of 2016, these
prospects had a significant setback which has greatly increased the risk associated with monetisation
of the investment. At 31 December 2016, this investment represented approximately US$250,000 of
the Company͛s NAV.
Outlook
We will continue to work with the Company’s Board of Directors to maximise shareholder value and to
make distributions to shareholders in the most appropriate manner, following the completion of investments.
15
JURIDICA INVESTMENTS LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
Disclaimer on Forward Looking Statements
This report contains forward looking statements, which are based on the current expectations and
assumptions of the Investment Manager and involve known and unknown risks and uncertainties that could
cause actual results or performance to differ materially from those expressed or implied in such
statements. It is believed that the expectations reflected in these statements are reasonable but they may be
affected by a number of variables that could cause actual results or trends to differ materially. Each forward
looking statement speaks only as of the date of this report. Except as required by the AIM Rules or
otherwise by law, the Company and the Manager expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statements contained herein to reflect any change in
the Companyǯs or Managerǯs expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Brickell Key Asset Management Limited
31 March 2017
16
JURIDICA INVESTMENTS LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2016
The Directors present their report together with the audited financial statements of Juridica Investments
Limited (the “Company”) for the year ended 31 December 2016, with comparative information for the year
ended 31 December 2015.
Principal activities
The Company is an authorised closed-ended investment company incorporated under The Companies
(Guernsey) Law, 2008 (the “Law”). The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a market operated by the London
Stock Exchange, on 21 December 2007. The address of the Company’s registered office is 11 New Street, St
Peter Port, Guernsey, GY1 2PF.
Corporate update
The investment objective of the Company had been to build a diversified portfolio of investments in claims
and to provide shareholders with an attractive level of dividends and capital growth through investing directly
and indirectly in litigation and arbitration cases, claims and disputes. These investments have been made
predominantly in the United States. On 18 November 2015, the Company announced that it would not make
new investments (other than for funding existing investments in the Company’s portfolio where such
funding is reasonably required to realise maximum shareholder value) but, instead, would make distributions
to shareholders in the most appropriate manner following the completion of investments.
Results and dividend
The results for the year are shown in the Statement of Comprehensive Income on page 24. The Company
declared a dividend of 8 pence per share on 19 May 2016 which was paid on 24 June 2016 to shareholders on
the register at 27 May 2016 and a dividend of 32 pence per share on 6 September 2016 which was paid on 30
September 2016 to shareholders on the register at 16 September 2016. These dividends were funded by the
cash proceeds of US$47.0 million from settlements that were transferred to the Company during the year.
Audit Committee
The Audit Committee consists of Richard Battey, Lord Daniel Brennan and Kermit Birchfield. The Audit
Committee is chaired by Mr Battey, and meets to review the financial statements, audit timetable, and other
risk management and governance matters.
Statement of Directors’ responsibilities in respect of financial statements
The Directors are responsible for preparing financial statements for each financial year which give a true and
fair view, in accordance with applicable Guernsey law and International Financial Reporting Standards, of the
state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those
financial statements, the Directors are required to:
y
y
y
y
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the Company will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the financial
statements.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy
at any time the financial position of the Company and enable them to ensure that the financial statements
comply with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
17
JURIDICA INVESTMENTS LIMITED
DIRECTORS’ REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
Statement of Directors’ responsibilities in respect of financial statements (continued)
The maintenance and integrity of the Company’s website is the responsibility of the Directors. The work
carried out by the Auditor does not involve consideration of these matters and, accordingly, the Auditor
accepts no responsibility for any changes that may have occurred to the financial statements since they were
initially presented on the website. Legislation in the United Kingdom and Guernsey governing the
preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
To the best of our knowledge, and in accordance with the applicable reporting principles, the financial
statements give a true and fair view of the assets, liabilities, financial position, comprehensive income and
cash flows of the Company, although there is uncertainty around valuation of the Company’s investments in
the absence of an established market. The Investment Manager’s report includes a fair review of the
development and performance of the business and the position of the Company, together with a description
of the principal opportunities and risks associated with the expected development of the Company.
Furthermore, to the best of our knowledge and belief, this annual report includes a fair review of the
development and performance of the business and the position of the Company as at 31 December 2016
together with a description of the principal risks and uncertainties that the Company faces.
Auditor confirmation
Each of the Directors, at the date of approval of the financial statements, confirms that:
1. So far as the Director is aware, there is no relevant audit information of which the Group’s auditor is
unaware; and
2. Each Director has taken all steps he ought to have taken to make himself aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 249 of The
Companies (Guernsey) Law, 2008.
Independent Auditor
The Auditor, PricewaterhouseCoopers CI LLP, have expressed their willingness to continue in office and a
resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting.
Continuation and going concern
In accordance with the Company’s Admission Document of 17 December 2007, the Directors convened an
extraordinary general meeting of the Company, on 14 November 2013, at which a resolution was proposed
(as required) that the Company be wound up voluntarily. The resolution was not passed by the Company’s
members.
The Company’s members resolved to remove the requirement to convene an extraordinary general meeting
for the voluntary wind-up of the Company every three years from the date of the original meeting, at the
Annual General Meeting held on 10 May 2016.
Although the Company is in a run-off strategy, the Directors have given consideration to the maturity of the
Company’s existing portfolio, the performance of the portfolio to date, the prospects of expected future cash
flows, and existing cash reserves. In addition, the Directors have reviewed the Company’s budgets and cash
flows for the year ahead and, accordingly, are satisfied on reasonable grounds that it is appropriate to prepare
these financial statements on a going concern basis.
Approved by the Board of Directors on 31 March 2017 and signed on their behalf:
RJ Battey
Director
18
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED
FOR THE YEAR ENDED 31 DECEMBER 2016
Report on the audit of the financial statements
_________________________________________________________________________
Our opinion
In our opinion, the financial statements give a true and fair view of the financial position of Juridica Investments
Limited (the “Company”) as at 31 December 2016, and of its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting Standards and have been properly prepared in
accordance with the requirements of The Companies (Guernsey) Law, 2008.
_________________________________________________________________________
What we have audited
The Company’s financial statements comprise:
Ɣ the statement of financial position as at 31 December 2016;
Ɣ the statement of comprehensive income for the year then ended;
Ɣ the statement of changes in equity for the year then ended;
Ɣ the statement of cash flows for the year then ended; and
Ɣ the notes to the financial statements, which include a summary of significant accounting policies.
_________________________________________________________________________
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
________________________________________________________________________________
Independence
We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants (“IESBA Code”). We have fulfilled our other ethical responsibilities in
accordance with the IESBA Code.
________________________________________________________________________________
Our audit approach
Overview
Materiality
ł
Overall materiality for the Company was $0.7 million which represents 2.5% of
net assets
Audit scope
ł The Company is based in Guernsey with the Investment Manager located in the
United States of America. The financial statements consist of the parent
company and a number of subsidiary investments held at fair value and not
consolidated.
ł We conducted the majority of our audit work in Guernsey, with a visit to the
Investment Manager to discuss the portfolio, obtain supporting documentation
and also to hold discussions with the underlying lawyers for each of the
investments.
Key audit matters
ł Valuation of investments
භ Realisation of investments
Audit scope
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular, we considered where the directors made subjective judgements; for example, in
respect of significant accounting estimates that involved making assumptions and considering future events that are
inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls,
including among other matters, consideration of whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Our understanding of the controls environment was informed by our review of the controls report available on Vistra
Fund Services (Guernsey) Limited (“the Administrator”) as well as our visit to the Investment Manager in The United
States of America, however our approach remained predominantly substantive in nature.
19
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the
financial statements as a whole, taking into account the structure of the Company, the accounting processes and
controls, and the industry in which the Company operates.
ͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺ
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable
assurance whether the financial statements are free from material misstatement. Misstatements may arise due to
fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the
overall Company materiality for the financial statements as a whole as set out in the table below. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Overall Company materiality
$0.7 million
How we determined it
2.5% of Net Assets
Rationale for the materiality benchmark
We believe that net assets is the most appropriate
benchmark because, being an investment fund, we
believe this to be the key metric of interest to investors.
It is also a generally accepted measure used for
companies of a similar structure within the same
industry.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
$35,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
ͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺͺ
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
Key audit matter
How our audit addressed the Key audit matter
Valuation of Investments
We draw your attention to Notes 2(d), 3 and
15(a) to the financial statements surrounding
the fair value of non-current assets. The
financial statements include non-current
assets stated at their fair value of
US$19,024,625.
Our audit of the investment valuation was fully substantive in
nature and focused on understanding the portfolio movements
during the year and validating the significant assumptions driving
the fair value model for each investment.
The Company’s investment portfolio is split
between contractual interests, equity
investments and debt securities and
constitutes a significant element of the
financial statements.
The investments are highly complex and
include but are not limited to interests in
intellectual property, patents and active
litigation. Investments are either held
directly or through a Special Purpose Vehicle
We selected a sample of investments from across the portfolio
based on our materiality level. For each investment selected, we
agreed the valuation model for mathematical accuracy, considered
the appropriateness of the methodology used and the consistency
of the model with prior years.
Contractual interests
For contractual interests, we met with the lawyers involved in the
underlying litigation to ascertain key developments and the
expected future outcome of each case. We compared these findings
to our previous knowledge, our conversations with management,
the fair value models prepared by management and supporting
documentation, where available.
20
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
(“SPV”), and are measured at fair value.
Fair value is determined through using
models which take into account various
inputs.
The level of subjectivity involved, and the
significance of the investments balance in
the statement of financial position, meant
that this was a key audit matter for us.
The key assumptions used in the fair value
model include but are not limited to:
-
Forecasting
future
expected
developments in litigation cases;
Forecasting timings, amounts and
probability of future cash flows;
Considering amounts that may be
paid by market participants to
purchase the investment; and
Estimating future tax liabilities that
may be incurred at the investment
level.
Valuing these investments therefore requires
significant judgement by management.
We also considered the professional competency and objectivity of
the lawyers involved in each case.
Equity investments
For patent investments held by the SPVs, we corroborated the
assumptions in the valuation of the patent portfolios through
discussion with the patent development manager. The assumptions
included the status of each underlying patent application, the
probability of successfully filing and monetising the patent and the
associated impact on the estimated net future cash flows. We also
agreed a sample of successful patent applications to the US patent
register to confirm their ownership by the Company.
Due to the published realisation policy, management revised some
of the assumptions and expectations applied to the valuation of the
SPVs carrying these investments from the prior year. This resulted
in a significant net decrease in the fair value of these investments.
We understood and validated the current year assumptions and
expectations with reference to the directors’ stated realisation
strategy as documented in the statutory minutes of the Company
and through discussion with management.
We compared the assumed aggregated price per patent applied by
management at a portfolio level to available market information
within similar industries for reasonableness.
Debt securities
The significant unobservable input in the calculation of debt
securities was the estimated tax liability to be incurred on gross
settlement proceeds receivable. We obtained the model prepared
by management estimating future settlement proceeds to be
received net of expected tax liabilities deducted at the investment
level. Our testing involved agreeing tax rates used within the model
to statutory rates applicable in the United States and considering
the reasonableness of prior year estimates made by management in
light of proceeds received during the year.
Conclusion
During the performance of our procedures, we noted some
observations on the fair valuations derived by management which
have subsequently been rectified. In our view, those observations
were not indicative of a wider issue. We continue to emphasise
however that due to the inherent uncertainty associated with the
valuation of the investments and the absence of a liquid market,
the fair values may differ from their realisable values, and the
differences could be material.
Realisation of Investments
Realised gains and losses and disposal
proceeds from investments are disclosed in
Note 5 to the financial statements.
The realisation of investments is also
determined to be a key audit matter as legal
agreements exist that contain complex
distribution hierarchies governing the
Our audit testing focussed on the criteria required to recognise a
realisation. We challenged management to ensure that any
realisations are appropriately related to ‘disposals’ and also
whether any other investments should be realised where a decision
has been made to no longer invest / pursue. Our work in this area
consisted of corroborating board minutes, discussions with the
board of directors and the Investment Manager and considering
the results of our interviews with the case lawyers.
21
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
payment of proceeds to the Company.
In addition, the esoteric nature of the legal
agreements creates uncertainty over the derecognition of investments, the rights to any
future proceeds that may be generated and
whether the Company is entitled to those
proceeds following a decision to no longer
invest in that investment.
Proceeds received from the realisation of
investments for the year ended 31 December
2016 is material, with a significant realised
loss recognised only on the contractual
interests asset class.
Recognising a realisation is not always a
straightforward process, as there is no
physical asset or note/shares that are being
disposed of. In many cases, there are cash
receipts received yet an interest in the
investment remains but the extent of that
interest continues to be uncertain.
Where the de-recognition criteria was met, we understood and
recalculated the associated distribution hierarchy governing
payments in line with the relevant agreements up from the
underlying gross proceeds through to the Company. This included
assessing any amounts held back for future tax liabilities (see
Valuation of Investments above).
We tested the mathematical accuracy of the realised gains and
losses in the year by tracing the historic cost of the investments to
the original investment amount. Where proceeds were received we
agreed the amounts to cash receipts to verify the net loss of
$10,417,718 in the statement of comprehensive income.
Where significant judgment was used, we have reviewed the
disclosures of the financial statements to ensure these judgements
are sufficiently disclosed.
Conclusion
Judgements made by management over the de-recognition of
investments and the calculation of realised gains and losses are
deemed to be reasonable.
Other information
The directors are responsible for the other information. The other information comprises the Corporate Information,
the Chairman’s Statement, the Investment Manager’s Report, and the Directors’ Report (but does not include the
financial statements and our auditor’s report thereon).
Our opinion on the financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
________________________________________________________________________________
Responsibilities of the directors for the financial statements
The directors are responsible for the preparation of financial statements that give a true and fair view in accordance
with International Financial Reporting Standards, the requirements of Guernsey law and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as
a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
________________________________________________________________________________
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
22
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
JURIDICA INVESTMENTS LIMITED (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism
throughout the audit. We also:
Ɣ
Ɣ
Ɣ
Ɣ
Ɣ
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the directors.
Conclude on the appropriateness of the director’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events in a manner that achieves
fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
________________________________________________________________________________
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
Ɣ we have not received all the information and explanations we require for our audit;
Ɣ proper accounting records have not been kept; or
Ɣ the financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this responsibility.
This report, including the opinion, has been prepared for and only for the members as a body in accordance with
Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion,
accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in writing.
Joanne Peacegood
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
31 March 2017
23
JURIDICA INVESTMENTS LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2016
INCOME
Finance income
Dividend income
Foreign exchange gain
EXPENSES
Management fees
Due diligence and transaction costs
Directors’ fees and expenses
Audit fees
Legal and professional expenses
Administration fees
Foreign exchange loss
Other expenses
2016
2015
Notes
US$
US$
14(b)
1,029
-
5,369,711
805,211
1,029
6,174,922
3,000,000
65,723
345,953
156,569
199,639
151,593
233,179
339,015
4,795,036
477,111
599,549
233,383
212,109
242,209
498,813
4,491,671
7,058,210
14(a)
2(e)
14(f)
14(e)
INVESTMENT MOVEMENTS
Amortisation of intangible asset
Impairment of intangible asset
4
4
(1,069,398)
(1,078,011)
(829,070)
-
Realised (losses)/gains on financial assets and financial
liabilities at fair value through profit or loss
5
(10,417,718)
(369,946)
Movement in unrealised loss on financial assets and
financial liabilities at fair value through profit or loss
Impairment of settlement proceeds
5
8
(20,257,942)
(533,171)
(47,073,882)
-
(33,356,240)
(48,272,898)
(37,846,882)
(49,156,186)
(34.30)
(34.16)
(44.49)
(44.31)
Total comprehensive loss for the year
Deficit per Ordinary Share
17
Basic
Diluted
Cents
Cents
The notes on pages 28 to 49 form an integral part of these financial statements.
24
JURIDICA INVESTMENTS LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016
2016
US$
2015
US$
111,387
18,913,238
2,058,796
90,777,677
19,024,625
92,836,473
4,167,210
5,017,077
6,207,781
27,384,242
9,184,287
33,592,023
28,208,912
126,428,496
28,036,878
(645,459)
126,783,917
28,036,878
126,138,458
172,034
290,038
172,034
290,038
28,208,912
126,428,496
110,340,019
110,340,019
$0.2541
$1.1432
Notes
ASSETS
Non-current assets
Intangible assets
Financial assets at fair value through profit or loss
4
5
Current assets
Other receivables and prepayments
Cash and cash equivalents
8
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Treasury shares
Reserves
13
13
Total assets attributable to ordinary shareholders
Current liabilities
Other payables
10
Total liabilities
TOTAL EQUITY AND LIABILITIES
Number of ordinary shares (excludes treasury shares)
Net asset value per ordinary share
16
These financial statements were approved and authorised for issue by the Board of Directors on 31 March
2017 and signed on its behalf by:
RJ Battey
Director
The notes on pages 28 to 49 form an integral part of these financial statements.
25
JURIDICA INVESTMENTS LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
Treasury
Shares
US$
Reserves
Notes
US$
Balance at 1 January 2015
Total
US$
184,158,780
-
184,158,780
Loss for the year
(49,156,186)
-
(49,156,186)
Total comprehensive loss
(49,156,186)
-
(49,156,186)
Changes in equity for 2015
Treasury shares acquired
-
Dividends declared
(8,218,677)
Balance at 31 December 2015
126,783,917
(645,459)
(645,459)
(645,459)
(8,218,677)
126,138,458
Changes in equity for 2016
Loss for the year
(37,846,882)
-
(37,846,882)
Total comprehensive loss
(37,846,882)
-
(37,846,882)
(60,254,698)
-
(60,254,698)
Dividends declared
9
Treasury shares cancelled
(645,459)
Balance at 31 December 2016
28,036,878
The notes on pages 28 to 49 form an integral part of these financial statements.
26
645,459
-
28,036,878
JURIDICA INVESTMENTS LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2016
2016
2015
US$
US$
(37,846,882)
(49,156,186)
Realised losses on financial assets and financial liabilities at fair value
through profit or loss
10,417,718
369,946
Movement in unrealised losses on financial assets and financial
liabilities at fair value through profit or loss
Impairment of intangible asset
Amortisation of intangible assets
Finance income
Impairment of settlement proceeds
Foreign exchange losses / (gains)
20,257,942
1,078,011
1,069,398
(1,029)
533,171
233,179
47,073,882
829,070
(805,211)
(30,574,299)
(38,417,376)
Settlement of non-current assets and financial liabilities at fair value
through profit or loss
Decrease / (increase) in other receivables and prepayments
(Decrease) in other payables and performance fee
72,301,200
769,278
(118,004)
98,570,910
(697,681)
(15,555,250)
Net cash flow from operating activities
38,119,683
42,212,104
Interest received
1,029
-
Net cash flow from investing activities
1,029
-
Dividends paid
(59,017,109)
(42,710,577)
Net cash flow from financing activities
(59,017,109)
(42,710,577)
Net decrease in cash and cash equivalents
(20,896,397)
(498,473)
Cash and cash equivalents at the beginning of the period
27,384,242
27,962,963
Effect of foreign exchange rate changes
(1,470,768)
(80,248)
5,017,077
27,384,242
Cash flows from operating activities
Loss for the year
Adjusted for:
Changes in working capital
Purchases of non-current assets at fair value through profit or loss
Cash flows from investing activities
Cash flows from financing activities
Cash and cash equivalents at the end of the period
The notes on pages 28 to 49 form an integral part of these financial statements.
27
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
1.
LEGAL FORM AND PRINCIPAL ACTIVITY
The Company is an authorised closed-ended investment company incorporated under The Companies
(Guernsey) Law, 2008 (the “Law”). The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a market operated by the London
Stock Exchange, on 21 December 2007. The address of the Company’s registered office is 11 New Street, St
Peter Port, Guernsey, Channel Islands, GY1 2PF.
The investment objective of the Company had been to build a diversified portfolio of investments in claims
and to provide Shareholders with an attractive level of dividends and capital growth through investing
directly and indirectly in litigation and arbitration cases, claims and disputes. These investments have been
made predominantly in the United States. On 18 November 2015 the Company announced that it would not
make new investments (other than for funding existing investments in the Company’s portfolio where such
funding is reasonably required to realise maximum shareholder value) but, instead, would seek to return
capital to shareholders in the most appropriate manner following the completion of investments.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
(a)
Basis of preparation
The financial statements of the Company have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) and all applicable requirements of The Companies (Guernsey) Law, 2008.
They have been prepared on a going concern basis, under the historical cost convention as modified by the
revaluation of financial assets and financial liabilities at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of
applying the Company’s accounting policies. The areas involving a degree of judgement or complexity, or
areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
There have been no new IFRS or IFRIC interpretations that are effective for the first time for the financial
year beginning 1 January 2016, which have had a significant effect on the Company.
For the financial year beginning 1 January 2013, the Company early adopted IFRS 9 ‘Financial instruments’,
effective for periods beginning on or after 1 January 2018.
The following IFRS standards or interpretations have been issued but are not yet effective, and have not
been adopted by the Company:
y
y
y
Amendments to IFRS 9 ‘Financial Instruments’ effective for periods commencing on or after 1
January 2018. This IFRS introduces a new approach to the classification of financial assets, which is
driven by the business model in which the asset is held and their cash flow characteristics.
Amendment to IAS 7 ‘Statement of Cash Flows’, effective for periods commencing on or after 1
January 2017. Amendments requiring entities to disclose information about changes in their
financing liabilities ; and
Annual Improvements 2014 -2016 Cycle, effective for periods commencing on or after 1 January
2017.
The adoption of the above standards is not anticipated to have any significant bearing on the Company’s
financial statements.
28
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a)
Basis of preparation (continued)
In accordance with the Company’s Admission Document of 17 December 2007, the Directors convened an
extraordinary general meeting of the Company, on 14 November 2013, at which a resolution was proposed
that the Company be wound up voluntarily. The resolution was not passed by the Company’s members.
Although the Company is under a run-off strategy, the Directors have given consideration to the maturity of
the Company’s existing portfolio, the performance of the portfolio to date, the prospects of expected future
cash flows, and existing cash reserves. In addition, the Directors have reviewed the Company’s budgets and
cash flows for the year ahead and, accordingly, are satisfied on reasonable grounds that it is appropriate to
prepare these financial statements on a going concern basis.
(b)
Investment entity
The Company has multiple unrelated investors and indirectly holds multiple investments through the
subsidiary companies. Ownership interests in the Company are in the form of redeemable shares which are
classified as equity in accordance with IAS 32 and which are exposed to variable returns from changes in the
fair value of the Company’s net assets. The Company has been deemed to meet the definition of an investment
entity per IFRS 10, and therefore does not prepare consolidated financial statements, as the following
conditions exist:
(a) The Company has obtained funds for the purpose of providing investors with investment management
services.
(b) The Company’s business purpose, which was communicated directly to investors, is investing solely for
returns from capital appreciation and investment income.
(c) The performance of investments made through the Company are measured and evaluated on a fair value
basis.
(c)
Geographical and segmental reporting
Since the Company is engaged in the provision of similar products and services within a particular economic
environment, being subject to similar risks and returns, management considers that the Company has only one
business segment and geographical focus, being investments in legal claims primarily in the United States
(“US”), and accordingly does not present additional business and geographical segment information. The
Investment Manager is responsible for the investment decisions for the Company’s entire portfolio and
considers the business to have a single operating segment. The Investment Manager’s asset allocation decisions
are based on a single, integrated investment strategy, and the Company’s performance is evaluated on an
overall basis.
(d)
Financial assets at fair value through profit or loss
(i) Contractual interests
Classification
Unless otherwise determined by the Company, investments in claims will be categorised as contractual interests
held at fair value through profit or loss. These financial assets will initially be measured as the cash sum
provided to acquire an interest in a plaintiff’s claim or as the cash advanced to law firms under loan
agreements. Attributable due diligence costs are expensed when they occur.
29
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d)
Financial assets at fair value through profit or loss (continued)
(i) Contractual interests (continued)
Recognition, derecognition and measurement
Subsequent measurement of contractual interests will be at fair value utilising a fair value model developed by
the Investment Manager. The principal assumptions to be used in the fair value model are as follows:
y Estimated duration of each contractual interest; and
y Best estimate of anticipated outcome.
Movements in fair value arising on all performing contractual interests is recognised in the Statement of
Comprehensive Income, as determined by utilising the fair valuation model.
The fair value model is a way of calculating the fair value of a financial asset or liability and of recognising the
fair value gains and losses in that period.
Fair value estimation
Fair value will be reviewed semi-annually on an individual case basis. Events that will trigger changes to the fair
value of each contractual interest include the following:
y Changes in general US dollar interest rate assumptions (market assumption) and the time value of
money;
y 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;
y Successful judgement of a claim in which the Company has a contractual interest;
y Unsuccessful judgement of a claim in which the Company has a contractual interest;
y Outstanding appeals against both successful and unsuccessful judgements;
y A contractual interest to be sold at a discount or to be settled out of Court by a binding agreement;
y Legal impediments to collectability of claims (in the US Chapter 7 Bankruptcy or Chapter 11 Court
Protection from Creditors); and
y A case is dismissed with prejudice (meaning, it can never be re-filed anywhere).
Partial settlement
Partial settlement of contractual interests occurs 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:
y Proceeds are discounted at a rate equal to the Company’s cost of equity;
y 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
y The amount representing the gain is then compared against any prior gain recognised on the portion
of the proceeds attributed to a return of investment (calculated by using the fair valuation model) with
the difference reflected as current year realised gain or loss.
Full settlement
Full settlement of contractual interests occurs when all parties involved in the matter agree to terms on a
settlement amount or the full legal process has concluded with either proceeds being awarded or dismissal (no
proceeds awarded). Proceeds received by the Company are first allocated to the return of any remaining
principal with the remainder allocated to gain. The amount representing the gain is then compared against any
prior gain recognised on the portion of the proceeds attributed to a return of investment (calculated by using
the fair valuation model) with the difference reflected as current year realised gain or loss.
30
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d)
Financial assets at fair value through profit or loss (continued)
(ii) Equity investments
Classification
The Company classifies its equity investments at fair value through profit or loss at inception. These financial
assets will initially be measured as the cash sum provided to acquire the investment. Attributable due diligence
costs are expensed when they occur.
Equity investments are intended to be held for an indefinite period of time, and that may be sold in response
to needs for liquidity or changes in interest rates, exchange rates or equity prices. The Company could be seen
to have significant influence over certain of its equity investments as a result of its stake in each of those assets.
If significant influence exists, that investment, under IFRS, should be accounted for as an ‘Associate’ and
hence the equity accounting method should be applied. However, the Board has taken the view that (a) there is
no material difference in accounting for these investments as associates and accounting for them as financial
assets at fair value; (b) there is no material difference in the disclosure; and (c) the strategy of the Company is
to hold investments as part of an investment portfolio with a view to the ultimate realisation of capital gains
rather than as a medium to carry out its own business, hence accounting for these investments as non-current
assets is the most appropriate method.
Recognition, derecognition and measurement
Equity investments will initially be measured at cost and are subsequently carried at fair value. Gains and losses
arising from changes in the fair value are recognised in the Statement of Comprehensive Income.
Fair value estimation
The assessment of fair value is determined by the level of assets of the investments (including intellectual
property), the quality of income and earnings and the present value of future cash flows of the equity
investments, discounted at the cost of equity. The estimates and assumptions made by the Investment Manager
in determining this fair value have been outlined in Note 3.
Settlement
When equity investments are sold or impaired, the movement in fair value will be recognised in the Statement
of Comprehensive Income.
(iii) Debt securities
Classification
Debt security investments are classified at fair value through profit or loss at inception. These financial assets
will initially be measured as the cash sum advanced to the law firm.
Recognition, derecognition and measurement
The debt security investments will initially be measured at cost and are subsequently carried at fair value. Gains
and losses arising from changes in the fair value are recognised in the Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the present value of future cash flows, at the discount rate of the Company. The
estimates and assumptions made by the investment manager in determining this fair value have been outlined
in Note 3.
Settlement
When debt security investments are sold, the movement in fair value will be recognised in the Statement of
Comprehensive Income.
31
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d)
Financial assets at fair value through profit or loss (continued)
(iv) Forward foreign currency contracts
Classification, recognition, derecognition and measurement
Forward foreign currency contracts are classified as financial instruments at fair value through profit or loss at
inception. They will initially be measured at the contractual amount at the date the contract is entered into.
Accordingly, only gains and losses arising from changes in the fair value are recognised in the Statement of
Comprehensive Income.
Fair value estimation
Fair value is determined by the foreign currency exchange rate prevailing at that date.
Settlement
Settlement will occur at the date the contract is due to expire. Gains and losses on the settlement of the
contracts will be recognised as realised gains or losses at this time in the Statement of Comprehensive Income.
(e)
Due diligence and transaction costs
The due diligence and transaction costs attributable to investments in contractual interests, equity investments
and debt securities, and any other due diligence and transaction costs not directly relating to an investment,
have been expensed immediately in the Statement of Comprehensive Income.
Due diligence and transaction costs associated with investments characterised as intangible assets are expensed
until such time as the following has been affirmed: i) the technical feasibility of completing the intangible so
that it will be available for use or sale; ii) the intention to complete the intangible asset and use or sell it; iii) the
ability to use or sell the intangible asset; iv) how the intangible asset will generate probable future economic
benefits; v) the availability of adequate technical, financial and other resources to complete the development
and to use or sell the asset; and vi) the ability to measure reliably the expenditure attributable to the intangible
asset during its development, at which time they are capitalised as an intangible asset and held at cost less
accumulated amortisation and any impairment loss.
(f)
Foreign currency
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The functional currency of the Company
as determined in accordance with IFRS is the United States Dollar (“US Dollar”) because this is the currency
that best reflects the economic substance of the underlying events and circumstances of the Company. The
financial statements are presented in US Dollars, the presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at
the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the Statement of Comprehensive Income.
(g)
Finance income
Finance income arising on cash and cash equivalents is recognised in the Statement of Comprehensive Income
on the effective interest basis.
(h)
Cash and cash equivalents
Cash and cash equivalents comprised of cash balances and deposits held at banks with a maturity profile of 3
months or less.
32
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Taxation
The Company has obtained exempt company status in Guernsey. The Company is, therefore, only liable to an
annual exemption fee of £1,200 (2015: £1,200). The Company’s subsidiaries are subject to income tax in their
respective jurisdictions.
To the extent that any foreign withholding taxes or any form of profits taxes become payable, these will be
accrued on the basis of the event that created the liability to taxation.
(j)
Expenses
Expenses are accounted for on an accruals basis. Expenses for monitoring claims will generally be paid by the
Investment Manager except in extraordinary circumstances approved by the Board of Directors of the
Company.
(k)
Dividends
Dividends declared during the period will be disclosed directly in equity via the Statement of Changes in
Equity. A final dividend proposed by the Board and approved by the shareholders prior to the year-end will be
disclosed as a liability. Dividends proposed and not approved will be disclosed in the Notes.
(l)
Other receivables and prepayments
Other receivables and prepayments are recognised initially at fair value and subsequently measured at cost less
provision for impairment.
(m)
Other payables
Other payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest rate method.
(n)
Capital and reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are
shown in equity via the reserves as a deduction from the issue proceeds.
Where the Company purchases the Company’s own 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. Where such ordinary shares are cancelled their value is transferred to reserves.
(o)
Intangible asset
Where the Company has entered into an agency agreement involving licensing of intellectual property, the
resulting transaction will be categorised as an intangible asset (see Note 4). The cost of the intangible asset will
be capitalised once it is possible to demonstrate that the intangible asset will generate probable future
economic benefit. Intangible assets will be held at cost less any accumulated amortisation and any accumulated
impairment losses. Amortisation will be on a systematic basis over the asset’s useful life.
(p)
Impairment of intangible assets
The carrying amounts of intangible assets are assessed on a semi-annual basis to determine whether there is
any indication of impairment. If such indication exists, the Company estimates the recoverable amount of the
asset, being the higher of the asset’s net selling price and its value in use. Any impairment loss is recognised for
the amount which the asset’s recoverable amount is lower than its carrying value and the difference being taken
to the Statement of Comprehensive Income.
33
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p)
Impairment of intangible assets (continued)
The Company first assesses whether objective evidence of impairment exists. In assessing value in use, the
estimated future cash flows are discounted to their present value using the discount rate that reflects current
assessment of the time value of money and the risks specific to the asset for which the estimates of future cash
flows have not been adjusted.
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. The carrying amount of the asset is reduced and the amount of the loss is
recognised in the Statement of Comprehensive Income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised
impairment loss is recognised in the Statement of Comprehensive Income. In the year ended 31 December
2016 an impairment of US$1.1 million was determined and is reflected in the Statement of Comprehensive
Income (2015: US$Nil).
(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 PLC (“Nominated Adviser and Broker”) as set out in the
Company’s Admission Document. The fair value of the services received is measured by reference to the fair
value of the shares or share options granted on the date of the grant. The fair value of the share options is
recognised in the Statement of Comprehensive Income over the period that the services are received, which is
the vesting period.
The fair value of the options granted is determined using the Black-Scholes option pricing model, which takes
into account the exercise price of the option, the current share price, the risk free interest rate, the expected
volatility of the share price over the life of the option and other relevant factors. Except for those which
include terms relating to market conditions, vesting conditions included in the terms of the grant are not taken
into account in estimating the fair value.
Non-market vesting conditions are taken into account by adjusting the number of shares or share options
included in the measurement of the cost of the services so that, ultimately, the amount recognised in the
Statement of Comprehensive Income reflects the number of vested shares or share options. Where vesting
conditions are related to market conditions, the charges for the services received are recognised regardless of
whether or not the market conditions-related vesting condition is met, provided that the non-market vesting
conditions are met.
(r)
Earnings/deficit per share
The basic earnings/deficit 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 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 (see Note 17).
(s)
Net asset value per share
Net asset value per share is calculated by taking the net assets attributable to ordinary shareholders and dividing
it by the number of shares in issue at the year-end (see Note 16).
34
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
3.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Investment Manager makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined
below.
Critical accounting judgements in applying the Company’s accounting policies
The Company makes investments in claims that may involve litigation. The nature of the investments made by
the Company reduces by some predetermined amount the cost of litigating a matter to a plaintiff and/or a law
firm. A typical investment by the Company will include cash and may also include cash commitments subject
to certain restrictions. In most arrangements, the Company is paid only from proceeds generated from the
litigation and any related settlement or award. If a lawsuit fails to generate any proceeds and all legal remedies
are exhausted, the Company will often not be entitled to reimbursement of the facility they advanced to the
counterparty for the specific claim. In these cases the Company will write off their investment in the claim as a
loss. The Company is compensated for this risk through the return structure built into the investment. The
Company mitigates this risk through the use of their Investment Manager which is experienced in evaluating
the investment worthiness of a particular opportunity.
In the process of applying the Company’s accounting policies, which are described in Note 2, the Directors
have reviewed the Investment Manager’s assessment of the fair value of contractual interests including the
probability of success on the merits of each claim, likelihood of settlement and claim duration. This is most
evident in the assessment of the fair value applied to contracts entered into by the Company, as disclosed in
Note 5.
To determine the appropriate fair value to apply to each contract, the Investment Manager follows a formal
process of developing a set of scenarios for each case and assigns probabilities to each potential outcome. The
probabilities are phased based on the expected progression path of each particular case. In addition, each
potential successful scenario has a range of likely settlement proceeds assigned to it as well as a most likely
resolution or settlement date. The scenarios not only incorporate the merits of each particular case but also
consider known risks intrinsic to the particular matter, as well as general risks found in any litigation matter.
The Investment Manager then runs a Monte-Carlo method analysis which dictates that the Investment
Manager runs algorithms that rely on random sampling based on the variables within each scenario and their
related probabilities. The results of the analysis provide expected outcomes and other statistical data which is
used to calculate the future valuation of each particular contractual interest. A discount rate is then applied to
the future value to determine the current fair value.
For certain of the Company’s investments, the Investment Manager determines fair value by developing a
discounted cash flow model incorporating various risk factors such as: quantum risk; timing risk; execution
risk; and for certain investments, consideration of monetising an investment within a shortened development
period (following the Company’s intention to seek resolution and monetisation of the remaining investments if
possible by the end of 2017).
Determining whether intangible assets are impaired requires an estimation of the future cash flows of the
intangible assets, and the use of a suitable discount rate in order to calculate present value. During the year, an
impairment to the intangible asset was recognised. The carrying amount of the intangible asset is shown in
Note 4.
35
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
4.
INTANGIBLE ASSET
Balance at start of the year
Additions
Amortisation
Impairment of Intangible Asset
Balance at end of the year
31 December
2016
US$
2,058,796
200,000
(1,069,398)
(1,078,011)
31 December
2015
US$
2,647,866
240,000
(829,070)
-
111,387
2,058,796
The Company’s intangible asset comprises an investment structured as an agency agreement. Additions to the
intangible asset during the first half of the year are deemed to have occurred at 30 June 2016 and additions
during the second half of the year are deemed to have occurred at 31 December 2016. The Company amortises
the intangible asset on a straight-line basis so that the balance is US$Nil by 31 December 2017. The Directors
consider that the straight-line basis of amortisation most accurately reflects the pattern in which the asset’s
future economic benefits are expected to be consumed by JIL.
In addition, the Company purchased common and preferred stock related to the intangible asset, which has
been classified as a financial asset at fair value through profit or loss (Note 5).
As at 31 December 2016 the Intangible Asset and related common and preferred stock was assessed to have a
fair value of $250,000. A provision for impairment of the Company’s intangible asset has been recognized
accordingly.
5.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT
AND LOSS
31 December 2016
Balance at
Movement
Realised
Balance at
Disposal
31 Dec
in fair
Additions
losses
1 Jan 2016
proceeds
2016
value
Financial assets
US$
US$
US$
US$
US$
Contractual
29,435,299
997,274
(748,210) (15,159,640) (6,733,161)
7,791,562
interests
Equity investments
5,950,296
100,000
(1,744,063) (3,684,557)
621,676
Debt securities
55,392,082 30,431,136 (71,968,979)
(3,354,239)
- 10,500,000
Total
90,777,677
31,528,410 (72,717,189) (20,257,942) (10,417,718) 18,913,238
Financial liabilities
Forward FX
-
-
-
-
-
-
Total
-
-
-
-
-
-
36
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
5.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT
AND LOSS (CONTINUED)
31 December 2015
Balance at
1 Jan 2015
Financial assets
Contractual interests
Equity investments
Debt securities
Total
Financial liabilities
Forward FX
Total
Balance at
31 Dec
2015
Additions
Disposal
proceeds
Movement
in fair value
Realised
gains
US$
54,553,859
12,963,078
82,544,923
US$
2,866,104
468,328
35,000,000
US$
(24,117,413)
(27,000,000)
US$
(5,126,834)
(7,481,110)
(35,152,841)
US$
1,259,583 29,435,299
- 5,950,296
- 55,392,082
150,061,860
38,334,432
(51,117,413)
(47,760,785)
1,259,583
90,777,677
(686,903)
(686,903)
-
1,629,529
1,629,529
686,903 (1,629,529)
686,903 (1,629,529)
-
(a)
Contractual interests
Fair value movements of contractual interests are due to amendments in estimated cash flows arising from
changes in expectations surrounding each case. The valuation of the Company’s contractual interests decreased
by approximately US$21.6 million reflecting the net of US$1.0 million in additional investment funding,
US$0.7 million of disposal proceeds, US$6.7 million of realised losses on disposals and US$15.2 million net
decrease due to each investment’s individual change in fair value.
(b)
Equity investments
The valuation of the Company’s equity investments decreased by US$5.3 million reflecting the net of US$0.1
million in additional investment funding, US$3.7 million of realised loss due to the write-off of one investment,
and US$1.7 million net decrease due to each investment’s individual change in fair value.
The Company’s equity investments include a holding in JCML 2007. The fair value of the Company’s
investment in JCML 2007 was assessed as at 31 December 2016 to be US$9,240 (2015: US$27,257). This
assessment of fair value is deemed appropriate given the investment in the company, the level of assets, and
the quality of income and earnings and the projection of future cash flows.
(c)
Debt securities
Historically the facility agreement with Fields Law (consisting of a consolidated loan agreement and a swap
agreement) 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. In accordance with provisions under the swap,
proceeds previously paid by Fields Law to Riverbend can be clawed back by Fields Law if needed to meet
funding obligations within the antitrust and competition portfolio or to prepay accrued interest and principal if
agreed to by Fields Law and the Company.
Additions to the Company’s debt securities during 2016 totalled US$30.4 million and consisted of the
following: i) a clawback of US$5.0 million paid to Fields Law to fund the underlying investment; ii) a clawback
of US$11.1 million paid to Fields Law enabling Fields Law to prepay a portion of accrued interest and principal
owed under the loan; and iii) US$14.3 million enabling Riverbend to fulfil its obligation under the swap and
allowing for Fields Law to pay all remaining accrued interest and principal on the loan coinciding with the
termination of the loan and swap.
During 2016, the Company received payments under the loan totalling US$72.0 million consisting of: i)
US$46.5 million from proceeds received by Fields Law from settlements in the cases financed through Fields
Law; and ii) a total of US$25.4 million paid by Fields Law from the US$11.1 million clawback of prior year
37
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
5.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT
AND LOSS (CONTINUED)
(c)
Debt securities (continued)
swap payments made to Riverbend and the US$14.3 million provided by Riverbend fulfilling its obligation
under the swap agreement and allowing for Fields Law to pay all remaining accrued interest and principal owed
under loan. Subsequent to the receipt of these funds, the loan and swap agreements were terminated and
replaced with termination agreements (see Note 14).
Fair value movements of debt securities are due to amendments in estimated cash flows arising from changes
in expectations surrounding each investment. The fair value at 31 December 2016 includes an estimate of
reserves that may be released by Fields Law after filing of tax returns (expected to be no later than third quarter
2017) and again after all contingencies are cleared (expected to be no later than end of year 2020).
To the extent proceeds received by the Company in any year exceeds the excess of the total prior unrealised
gain, a realised gain equal to the excess will be reflected in the financial statements. At completion of the
investment, any residual unrealised gain or loss will be reclassified to a realised gain or loss.
(d)
Forward foreign currency contracts
The Company held no forward foreign currency contracts at 31 December 2016 (2015: none).
6.
FAIR VALUE ESTIMATION
For instruments for which there is no active market and for which reliable pricing sources cannot be obtained,
the Company may use internally developed models, which are usually based on valuation methods and
techniques generally recognised as standard within the industry. Valuation models are used primarily to value
unlisted equity, debt securities and other debt instruments for which markets are or have been inactive during
the financial year. Some of the inputs to these models may not be market observable and are therefore
estimated based on assumptions.
In response to the Companyǯs run-off strategy, as part of the fair value assessment of the Companyǯs
investments in the current year, the potential likelihood of monetising certain investments within a shortened
development period has been considered.
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:
y Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
y 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).
y 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.
38
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
6.
FAIR VALUE ESTIMATION (CONTINUED)
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 investments, the
Company has used valuation techniques to derive their fair value.
All of the Company’s other financial assets and liabilities are classified as level 3. There were no transfers
between levels for the year ended 31 December 2016 (2015: Nil).
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.
Not all of these unobservable inputs are applicable to every investment.
Expected quantum
The greater the quantum expected at conclusion, the greater the valuation at any point in time. The reduction
of the quantum expected at conclusion, will reduce the valuation at any point in time.
Expected duration
The greater the expected duration of an investment, the lower the valuation at any point in time, other than at
conclusion. The reduction of the expected duration of an investment will increase the valuation at any point in
time, other than at conclusion.
Cost of equity
The Company’s cost of equity is 11%. 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 summarises the sensitivities:
Unobservable input
Reasonable possible
shift (+/-)
Change in valuation
(due to +/- change in input)
Quantum
10%
8.89% / (9.31%)
Timing
1 year
(14.02%) / 6.55%
Cost of equity
3%
(2.13%) / 2.66%
39
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
7. UNCONSOLIDATED SUBSIDIARY AND ASSOCIATE INVESTMENTS
The following subsidiary and associate investments are held by the Company but have not been consolidated,
following the Investment Entities exemption per IFRS 10 (see Note 2 (b)):
% Share holdings
Date
incorporated
Country
of incorporation
31 December
2016
31 December
2015
28-Nov-07
08-Oct-08
25-Feb-09
02-Mar-09
31-May-09
26-Apr-10
28-Feb-11
25-Mar-11
22-Apr-14
22-Apr-14
13-May-14
13-May-14
31-Jul-14
31-Jul-14
15-Jun-16
22-Oct-08
05-Aug-09
Guernsey
Guernsey
United States
Hungary
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United Kingdom
United States
36.2%
100.0%
100.0%
100.0%
100.0%
38.6%
65.9%
100.0%
100.0%
81.3%
100.0%
86.6%
100.0%
100.0%
100.0%
36.2%
100.0%
100.0%
100.0%
100.0%
38.6%
65.8%
100.0%
100.0%
81.3%
100.0%
76.2%
100.0%
89.9%
-
JCML 2007 Limited #
Riverbend Investments Limited
GrandiOs Technologies, LLC
Juridica Ventures KFT
Juridica Ventures (US) Inc.
Escon Capital, Inc. #
Spinal Spot LLC
Spinal Ventures LLC
Juridica Sports Technology LLC
ProSports Technologies, LLC
Juridica Kinetics, LLC *
Smooth 3D IP, LLC *
Juridica RMIP Holdings, LLC
Rich Media Ventures, LLC
Juridica Holdings LLC ~
Turtle Bay Technologies Limited ^
Eleven Engineering Game Control LLC
There are no outstanding commitments with these unconsolidated subsidiaries and associates at the year end,
other than those disclosed in Note 11.
#JCML
2007 Limited and Escon Capital, Inc. are not subsidiaries however, Juridica Investments Limited has a
significant interest in them.
*Juridica Kinetics, LLC and Smooth 3D IP, LLC were dissolved during 2016.
~Juridica Holdings LLC, a Delaware limited liability company formed and registered on 15 June 2016, is 100%
owned by JIL. Its only asset is a US$7.25 million note received in exchange for the shares of AC Kinetics.
^Turtle Bay Technologies Limited, previously owned by JCML 2007, became 100% owned by JIL during 2016.
Turtle Bay Technologies Limited is the sole owner of Eleven Engineering Game Control LLC.
8.
RECEIVABLES AND PREPAYMENTS
Settlement proceeds
Management fees
Prepayments and accrued bank interest
31 December
2016
31 December
2015
US$
4,135,159
366
31,685
4,167,210
US$
5,430,086
719,549
58,146
6,207,781
Settlement proceeds has been reduced by US$533,171 to reflect expected collectability of outstanding
receivable.
40
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
9.
DIVIDENDS
The following dividends were declared and paid during the year:
Declaration
date
Payment
date
Dividend
per share
19 May 2016
6 September 2016
24 June 2016
30 September 2016
8 pence
32 pence
Total dividends
US$
12,904,817
47,349,881
60,254,698
During the year to 31 December 2016, dividends totalling US$60,254,698 (2015: US$8,218,677) had been
declared. No dividends remained payable as at 31 December 2016 (2015: US$Nil).
10.
OTHER PAYABLES
31 December 31 December
2015
2016
US$
US$
9,460
28,735
59,216
196,495
103,358
64,808
Payable on investment purchases
Audit fees
Other creditors
172,034
11.
290,038
COMMITMENTS & GUARANTEES
Under the terms of some of its contracts, the Company provides a line of credit to counterparties. As at 31
December 2016, the maximum commitment under these lines of credit was US$7,000 (2015: US$7.3 million).
A portion of commitment may be fulfilled from investment returns.
12.
FUNCTIONAL AND PRESENTATION CURRENCY / EXCHANGE RATES
The financial statements are presented in United States Dollar (“US$”) which is also the Company’s functional
currency. The following rate was applicable as at 31 December:
Closing rate
British pounds (GBP)
13.
31 December
2016
US$
31 December
2015
US$
1.2337
1.4734
CAPITAL AND RESERVES
Authorised share capital: Unlimited number of ordinary shares of no par value (“shares”).
Issued share capital: 110,340,019 shares as at 31 December 2016 (2015: 110,701,754 shares).
Issuance of shares included 80,000,000 shares issued at a premium of £1 per share on admission, and
30,701,754 shares issued at a premium of £1.14 on 6 April 2009. On 4 June 2015, the Company received
361,735 of its own shares as a result of an in-specie dividend received from JCML 2007 at £1.16. During 2016
these shares were cancelled.
41
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
13.
CAPITAL AND RESERVES (CONTINUED)
Under a Share Buyback Programme, the Company acquired 6,000,000 shares at a price of £1.02 per share on 3
November 2010 and the Company also received 126,607 of its own shares subsequent to an in-specie dividend
received from the previous Investment Manager, JCML 2007 on 27 November 2013. These shares were held
in treasury, however were subsequently sold for a premium at £1.39.
The Company’s capital is represented by ordinary shares of no par value and share premium. Each share
carries one vote and is entitled to dividends when declared. The relevant movements in capital are shown on
the statement of changes in equity through reserves.
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 30 April 2014. 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.
14.
RELATED PARTY TRANSACTIONS
Richard Battey, as investor representative and non-executive director of the Company, is also a non-executive
director of JCML 2007. The principal of JCML 2007 is Richard Fields, who owns 103,000 Ordinary Shares in
the Company (0.09 per cent equity interest) (2015: 103,000). JCML 2007 owns 118,254 Ordinary Shares in the
Company (0.107 per cent equity interest) (2015: 118,254 shares). Mr Fields was also sole beneficial owner of
Juridica Asset Management Limited (“JAML”) until 11 January 2017.
(a)
Management fee
The Investment Manager changed its name from Juridica Asset Management Limited to Brickell Key Asset
Management Limited (“BKAML”) on 19 January 2017.
Previously, BKAML was 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)
(ii)
deducting any unrealised gains on non-current assets; and
adding the amount of any write downs with respect to contractual interests which have not been written
off.
On 8 February 2016, the Company entered into an amended management agreement with BKAML. Under the
terms of the amendments the existing arrangements for management fees to BKAML as stated above have
been altered to state that from 1 January 2016, the Company will pay US$3,000,000 in management fees for the
year ending 31 December 2016, and US$1,750,000 in management fees for the year ending 31 December 2017.
In compliance with the management agreement, management fees paid during 2015 (which was based on
adjusted net asset value at 31 December 2014) was trued up against actual adjusted net asset value at 31
December 2015 and resulted in a receivable from BKAML of which US$366 remains at 31 December 2016
(2015: US$719,549). This receivable is being offset against the agreed 2016 management fee of
US$3,000,000. The total resulting net management fee that was paid to BKAML during 2016 was
US$2,280,451.
42
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
14.
RELATED PARTY TRANSACTIONS (CONTINUED)
(b)
Investment in JCML 2007 Limited
The Company acquired 15 per cent of JCML 2007 on Admission, which was subsequently diluted to 13.6 per
cent by the exercise of share options by certain of JCML 2007’s employees. In 2012, the Company acquired a
further holding in JCML 2007, taking the Company’s overall holding in JCML 2007 to 36.17 per cent. An
impairment review of JCML 2007 has been performed as part of the fair value assessment and continues to be
carried out on a semi-annual basis. The Company received dividend income from JCML 2007 during the year
of US$Nil (2015: US$5,369,711).
(c)
Performance fee
Under the terms of the Management Agreement, JCML 2007, as former Investment Manager, was entitled to a
performance fee based on the adjusted net asset value (“ANAV”) (being the NAV of the Company before
taking into account any performance fee payable less any unrealised gains on investments plus the value of any
write downs in any investments that have been written down but not written off) of the Company. The
performance fee payable was for an amount equal to the sum of: (i) 20 per cent of the amount by which the
ANAV exceeded a 8 per cent annually compounding hurdle but was less than an amount equal to a 20 per cent
annually compounding hurdle; (ii) 35 per cent of the amount by which the ANAV exceeded a 20 per cent
annually compounding hurdle but was less than an amount equal to a 40 per cent annually compounding
hurdle; and (iii) 50 per cent of the amount by which the ANAV exceeded a 40 per cent annually compounding
hurdle.
The performance fee was subject to a high water mark such that no performance fee will be paid if the
performance of the Company does not exceed the ANAV at the end of the previous year in which the
performance fee was paid.
As at 31 December 2016, the ANAV was below the high water mark and no performance fee is payable for the
year ended 31 December 2016. (2015: US$Nil)
BKAML replaced JCML 2007 as Investment Manager with effect from 1 January 2014. For financial periods
following this date, any performance fee payable on investments will be calculated based on the date on which
investments were made, and attributable to JCML 2007 for investments held at 31 December 2013, and to
BKAML for all new investments. BKAML 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 31 December 2016, this hurdle
rate had not been achieved on investments attributable to BKAML.
(d)
Facility agreement and collateral account
The Company had entered into a facility agreement (the “Facility”) with which it agreed 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. Prior to adopting its run-off strategy, the Company expected to enter into loan
arrangements with other law firms (which could have included other law firms established by the Principal of
the Company) on terms and conditions similar to those contained in the Facility. The Facility available to
Fields Law was to 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.
On 25 August 2016, the Facility (consisting of a consolidated loan agreement and a swap agreement) was
terminated with the receipt by the Company of US$71.9 million in respect of the loan, which was funded by
the following: (i) payment by Fields Law to JIL of US$46.5 million from proceeds received from settlements
in the underlying cases; and ii) a total of US$25.4 million paid by Fields Law from the US$11.1 million
clawback of prior year swap payments made to Riverbend and US$14.3 million provided by Riverbend
fulfilling its obligation under the swap agreement and allowing Fields Law to pay all remaining accrued interest
and principal on the facility once the Company’s interest in the underlying cases was deemed complete. The
series of transactions resulted in a net cash gain to JIL of US$46.5 million.
43
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
14.
RELATED PARTY TRANSACTIONS (CONTINUED)
(d)
Facility agreement and collateral account (continued)
On 20 December 2016, and in conjunction with the termination of the Facility and planned wind-up of Fields
Law, an additional US$3.0 million was returned by Fields Law to Riverbend. This amount is to be held in
escrow for certain contingencies relating to JIL’s investment in Fields Law. The escrow requirements will
terminate three years after the filing of Fields Law’s final tax return which is expected to occur by the end of
the third quarter of 2017. Upon termination of the escrow requirements (which is expected to occur by the
end of 2020), any unused funds in the escrow will be paid to JIL.
In addition to the reserves held under the escrow arrangement describe above, at 31 December 2016, Fields
Law holds reserves from the settlement proceeds described above for expected tax payments. Once Fields
Law determines and pays its final tax obligation (expected no later than end of third quarter 2017), all
remaining funds held in reserve at Fields Law will be returned to Riverbend.
(e)
Administration fees
The Company has an administration agreement with Vistra Fund Services (Guernsey) Limited (the
“Administrator”). Fees payable to the Administrator for the year were US$151,593 (2015: US$242,209), of
which US$50,961 remained payable as at 31 December 2016 (2015: US$36,372).
(f)
Directors’ fees and expenses
Directors' remuneration
Lord Daniel Brennan (GBP90,000 per annum 2015: GBP187,500 per annum)
Richard Battey (GBP50,000 per annum 2015: GBP75,000 per annum)
Kermit Birchfield
Director expenses
31
December
2016
US$
121,817
68,825
110,000
31
December
2015
US$
284,813
113,925
125,000
300,642
523,738
45,311
75,811
345,953
599,549
No pension contributions were paid or were payable on behalf of the Directors.
Lord Daniel Brennan has an interest in 447,817 shares (2015: 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 of 38.6% (2015: 38.6%) in the voting common stock and 100% (2015: 100%) of
the issued preference shares of Escon Capital, Inc. (“Escon”), a Delaware corporation of which Kermit
Birchfield and Richard Fields are directors.
During the year ended 31 December 2016, Kermit Birchfield received a director’s fee of US$50,000 (2015:
US$50,000).
44
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
14.
RELATED PARTY TRANSACTIONS (CONTINUED)
(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 JIL (31 December 2015: US$575,000). Prior to 2016, Eleven Engineering
Game Control LLC was owned and controlled by JCML 2007. As of 31 December 2016, no further facility
remains available to be drawn (31 December 2015: US$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.
(i)
Special purpose vehicles
As compensation for providing management services, Kermit Birchfield receives a fee from each of Smooth
3D IP, LLC (until 31 December 2016), Rich Media Ventures, LLC, and GrandiOs Technologies, LLC. For the
year ending 31 December 2016, Kermit Birchfield received fees totalling US$90,000 for provision of these
services (2015: US$67,500).
15.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
(a)
Investment risk
There is no established market for the Company’s assets. The Investment Manager’s assessment of the
quantum and timing of returns is subjective and based on the Investment Manager’s experience and due
diligence. The estimates of the outcome and financial effect on the Company of the assets are determined by
the judgement of the Investment Manager. In coming to its best estimate of fair value, the Investment
Manager has estimated the probability, timing and quantum of particular outcomes.
(b)
Cash flow and fair value interest rate risk
Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rate on the fair
value of financial assets and liabilities and future cash flows. The Company holds fixed and variable rate
interest securities that expose the Company to fair value interest rate risk. For 2016, debt securities were fixed
at a regular interest rate of 15.0%.
The Company is exposed to interest rate risk related to its cash balances. The Company does not actively
manage this risk.
2016
Fixed
Variable
Non-interest
Total
interest
interest
bearing
US$
US$
US$
US$
Assets
Intangible assets
111,387
111,387
Contractual interests
7,791,562
7,791,562
Equity investments
621,676
621,676
Debt securities
10,500,000
10,500,000
Other receivables and
4,167,210
4,167,210
prepayments
Cash and cash equivalents
5,017,077
5,017,077
Total assets
-
5,017,077
23,191,835
28,208,912
Liabilities
Other payables
-
-
(172,034)
(172,034)
Total liabilities
-
-
(172,034)
(172,034)
Total exposure to interest sensitivity
-
5,017,077
23,019,801
28,036,878
45
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
15.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(b)
Cash flow and fair value interest rate risk (continued)
2015
Assets
Intangible assets
Contractual interests
Equity investments
Debt securities
Other receivables and
prepayments
Cash and cash equivalents
Total assets
Liabilities
Other payables
Total liabilities
Total exposure to interest sensitivity
Fixed
interest
Variable
interest
Non-interest
bearing
Total
US$
US$
US$
US$
55,392,082
-
2,058,796
29,435,299
5,950,296
-
2,058,796
29,435,299
5,950,296
55,392,082
-
-
6,207,781
6,207,781
55,392,082
27,384,242
27,384,242
43,652,172
27,384,242
126,428,496
-
-
(290,038)
(290,038)
(290,038)
(290,038)
55,392,082
27,384,242
43,362,134
126,138,458
At 31 December 2016, if variable interest rates had moved by 75 basis points with all other variables remaining
constant, the change in net assets attributable to holders of ordinary shares for the year would amount to
approximately +/- US$37,628 (2015: +/- US$205,382), arising substantially from the cash and cash
equivalents. No interest was receivable on the collateral cash deposit.
(c)
Credit risk
The Company is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in
full when they fall due.
The Company has in place various policies and procedures to guide the Investment Manager’s evaluation and
management of investment opportunities and, particularly, the credit risk associated with investment
counterparties (law firms and claim interest holders) and investments. The policies include Investment
Restrictions (which contain prohibitions on pursuing investments with certain kinds of claims and claim
holders, those being prosecuted by certain law firms, and those where collection, counterparty or compliance
risk is significant), Investment Policies (which contain guidelines for diversification of the Company’s portfolio
based on certain claimholder characteristics, jurisdiction(s) involved, prosecuting law firm, claim size and
investment structure), and Investment Process Guidelines (which define the due diligence, investment and
investment monitoring processes to be followed by the Investment Manager in claim evaluation, valuation and
investment completion). Collectively, these Investment Parameters are designed to guide the investment
opportunity analysis so to limit credit, collection and portfolio concentration risks associated with Company
investments. In addition, the Investment Manager has, pursuant to its own Underwriting Guidelines,
developed and implemented systems and procedures to analyse and (pursuant to investment contracts) manage
credit risk associated with Company investments.
The main concentration to which the Company was exposed arises from the Company’s loan to Fields Law.
This loan was terminated during 2016. The Company is also exposed to counterparty credit risk on trading
contractual interests, cash and cash equivalents and other receivables.
46
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
15.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(c)
Credit risk (continued)
In accordance with the Company’s policy, the Investment Manager monitors the Company’s credit position on
a daily basis, and the Board of Directors reviews it on a quarterly basis.
The Company is also exposed to material credit risk in respect of the contractual interests and cash and cash
equivalents. The credit risk of the cash and cash equivalents is mitigated as all cash is placed with reputable
banking institutions with a sound credit rating. The maximum credit risk exposure represented by total assets
excluding intangible assets amounted to US$28,097,525 (2015: US$124,369,700).
(d)
Concentration risk
The Company has sought to minimise concentration risk by investing in a diverse portfolio of contractual
interests through a number of different law firms, including interests in antitrust, patent, property damage,
insurance subrogation, shareholder dispute, contract claim and arbitration cases.
The Company further sought to minimise concentration risk by utilising a variety of Investment Parameters
which are designed to guide the investment opportunity analysis so as to minimise, amongst other things,
concentration risk. These Investment Parameters are further detailed in Note 15(c).
As the Company will no longer make new investments in line with the run-off strategy, the level of
concentration of investments will increase as investments in the existing portfolio mature.
(e)
Liquidity risk
The Company is exposed to liquidity risk. The contractual interests are acquisition of claims, as well as loans to
lawyers to fund participation in claims on a contingency fee basis, and therefore require significant capital
contribution with little or no immediate return and no guarantee of return or repayment. The market for such
contractual interests is not active. In the opinion of the Directors the current liquidity risk at 31 December
2016 is low as cash and cash equivalents exceed unmatched liabilities or other contractual commitments.
Maturity analysis
2016
Investment purchases payable
Audit fees
Other creditors
<3
<6
months
months
US$
US$
9,460
59,216
103,358
172,034
-
< 12 months
US$
-
Total
US$
9,460
59,216
103,358
172,034
2015
Maturity analysis
Investment purchases payable
<3
months
US$
28,735
Audit fees
< 12 months
-
-
196,495
-
-
196,495
64,808
-
-
64,808
290,038
-
-
290,038
47
US$
Total
US$
28,735
Other creditors
<6
months
US$
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
15.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(f)
Capital risk management
The capital of the Company is represented by the net assets attributable to holders of ordinary shares. The
Company’s objectives when managing this risk are to safeguard the Company’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a
strong capital base to support the development of the investment activities of the Company.
The Company is closed-ended and therefore the capital risk is reduced as shareholder funds are locked in until
the closure of the Company. The level of capital funding is monitored by the Board of Directors, who will
ensure adequate solvency is in place prior to making distributions.
(g)
Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in
foreign exchange rates.
The Company’s policy, generally, is not to manage exposure to foreign exchange movements (both monetary
and non-monetary) by entering into any foreign exchange hedging transactions. However, the Company did
enter into a forward currency contract, maturing 14 January 2015, to lock in the US dollar equivalent of the
dividends declared during the year, which were paid to shareholders on 14 January 2015. The Directors
considered that this was a prudent step in order to mitigate the cash flow impact of adverse exchange rate
fluctuations on the amount of the dividends, which were declared in GBP.
The Company holds assets denominated in currencies other than the functional currency. It is therefore
exposed to currency risk, as values of the assets denominated in other currencies will fluctuate due to changes
in exchange rates. The Company may hedge future investment opportunities in the functional currency.
As at 31 December 2016, a proportion of the net financial assets/(liabilities) of the Company are denominated
in currencies as follows:
2016
2015
US$
US$
USD
27,485,151
126,255,337
GBP
551,727
(116,879)
28,036,878
126,138,458
At 31 December 2016, if exchange 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$30,242 (2015: +/- US$5,844). Management assesses the risk of exposure to the general banking system,
and specific banks, and invests cash in US government securities when there is perceived risk to principal.
(h)
Fair value estimation
The fair value of financial assets and liabilities that are not traded in an active market is determined by using
valuation techniques. See Note 6 for further details.
The carrying value less impairment provision of other receivables and payables is assumed to approximate their
fair value. The fair value of financial liabilities for disclosure purposes is not discounted as the Company does
not expect there to be any material differences.
48
JURIDICA INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2016
16.
NET ASSET VALUE ATTRIBUTABLE TO EACH ORDINARY SHARE
The net asset value attributable to each ordinary share is calculated by dividing the net asset value attributable
to ordinary shareholders of US$28,036,878 (2015: US$126,138,458) by the 110,340,019 ordinary shares in issue
at 31 December 2016 (2015: 110,340,019), and excludes shares held in treasury. As at 31 December 2016 there
were no shares held in treasury (2015: 361,735 shares).
17.
DEFICIT PER SHARE
Basic and diluted deficit per share is calculated by dividing the Total Comprehensive Loss for the Year of
US$37,846,882 (2015: US$49,156,186) by the weighted average number of ordinary shares during the year.
For basic deficit per share, the weighted average number of ordinary shares excludes treasury shares for the
period in which they are held in treasury during the year. The basic weighted average number of ordinary
shares for the year is 110,340,019 (2015: 110,493,632).
The diluted deficit per share figure is calculated by adjusting the basic weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary shares under the Share Option
Agreement (see Note 14(f)). The diluted number of ordinary shares for the year is 110,787,836 (2015:
110,941,449).
18.
SUBSEQUENT EVENTS
Investment 114107 was finalised in March 2017 with receipt of US$890,000 additional proceeds.
Company received a total of US$2.6 million on an investment of US$1.3 million.
The
Effective January 2017, ownership of the Company’s Investment Manager, BKAML, changed from Richard
Fields to Solomon Asset Management LLC.
49