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Annual Report and Accounts
For the year ended 31 December 2014
T R A N S F O R M I N G U . S . I N V E N T I O N I N T O I N N O V A T I O N
T R A N S F O R M I N G U . S . I N V E N T I O N I N T O I N N O V A T I O N
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Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Chairman’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Strategic Report
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CEO’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Portfolio Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Subsidiary Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Partner Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Key Performance Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Portfolio Review and Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Management and Governance
The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Directors’ Remuneration Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Financial Statements
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Company Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Company Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
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Overview
Allied Minds is an innovative US-focused science and technology development and commercialisation
company . The Group commenced operations in 2006 to invest in and advance science and technology
innovation developed at many of the leading US universities . Our business model is to form, fund, manage
and build start-up companies which undertake research and product development and ultimately to
commercialise the scientific research and innovations emerging from the universities and US federal
research institutions with which we collaborate .
The Group currently has 22 subsidiary businesses at varying stages of maturity across the life sciences
and high technology sectors with a range of technological innovations in medical devices, biologics,
pharmaceutical compounds, cyber security, wireless communications, semiconductors, medical
diagnostics and food safety .
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Chairman’s Report
It gives me great pleasure to present our first annual
report as a public company and to welcome you as a
shareholder in Allied Minds plc .
I am pleased to note that 2014 was a year of
significant milestones for the Group, with strong
performance and third-party equity
investments
driving a meaningful increase in the value of the
Group . Both the Group and its subsidiary businesses
had a very active year . The execution of a successful
initial public offering (IPO) on the Main Market of the
London Stock Exchange, raising gross proceeds
of $155 .0 million, was the highlight of the first half
of 2014, and provided the Group with the capital
necessary to support its business strategy and long-
term growth .
Investment Model and Opportunity
The funding of basic research to generate new intellectual property (IP) is now largely driven by government
sources, be it through higher education systems or directly funded research bodies . Once created, these
ideas require an effective, efficient and sustainable channel to develop and mature into products or services
which can benefit the wider economy .
A strong economy requires innovation to drive new products, new markets and ultimately enhance
productivity and promote employment . There are a number of paths to commercialising promising
technology, the most obvious being the formation of a new company . The disruptive force of start-ups has
been shown to be a significant driver of innovation and an important and necessary feature of productive,
growing economies .
In our experience there is no shortage of high-quality IP being generated by research institutions, particularly
in the United States where Allied Minds operates . What is often lacking is an active and supportive eco-system
to enable start-ups to mature and evolve into high-growth, impactful and valuable companies . Building a
successful start-up is not easy and requires not only great ideas, but also high-quality management and
consistent access to capital, ideally delivered within a model which can also ensure high-fidelity control and
governance . Above all, start-ups often require considerable time to mature in order to truly deliver value .
Competition for investment funds amongst different asset classes is driving the need for shorter investment
time frames . Few venture funds have the flexibility or the operational emphasis to focus on early-stage
investment in IP-centric projects . This has meant that many venture investors, particularly in the US, have
increasingly focused on internet and media deals with the inevitable escalation of asset valuations . True
early-stage investment in IP-based start-ups still remains a relatively rare commodity .
I believe we are seeing the emergence of a new type of investment model to help address this problem,
which is better suited for building the next generation of technology companies and seeks to deliver above
average returns for investors . These public venture companies focus on developing portfolios of IP-based
early-stage start-ups and seek to help build them into companies over a much longer time horizon, providing
capital and management support along the way .
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Chairman’s Report (continued)
I am proud to say that Allied Minds has been at the forefront of pioneering this model in the US and is
its leading proponent . The United States is the most important market in the world for both generating
valuable technology and in consuming the end product or services . The market opportunity facing our
company is truly enormous; we are the market leader in the leading market .
In utilising the strengths of our investment model and successfully executing to our strategic plan, I believe
there is every opportunity to take Allied Minds to the next level as one of the most significant and valuable
global technology driven businesses .
People
During the year and in anticipation of our IPO, we reviewed the Board composition and welcomed two new
independent Directors, Peter Dolan and Jeff Rohr . Peter has 30 years of operating experience, including 18
years at Bristol-Myers Squibb, where he served as Chairman and CEO . He is currently the Chairman of the
Board of Trustees of Tufts University in Massachusetts . Jeff has 30 years of senior management experience
at Deloitte LLP, having last served in the role of Vice Chairman and Chief Financial Officer .
In order that we fully comply with UK corporate governance guidelines, the Group Chairman needs to
be an independent director and accordingly I will be standing down at our forthcoming Annual General
Meeting . I am delighted to report that Peter, who currently serves as the Senior Independent Director, has
agreed to transition to the role of Non-Executive Chairman . I will remain on the Group Board in an executive
capacity in the short term but intend to step down from the Board later in the year, although I expect to stay
actively engaged with the Group . The Nomination Committee is actively considering adding an additional
independent director in the near future .
We are fortunate at Allied Minds to have a dynamic and dedicated group of people both at the corporate
level and at our subsidiary businesses who are all determined to build further on the success we have had
to date . The Group would not be in the position it is today without the contributions of our employees and,
as always, I am proud of and thankful for their efforts . On behalf of the Board I also want to express our
particular thanks to those employees directly involved in the stock market listing for their tremendous hard
work and dedication .
Finally, I would like to formally note my thanks to all the Group’s stakeholders, but particularly for the strong
support from shareholders for the Group’s IPO and subsequent subsidiary financings .
Outlook
It has been both a highly active and exciting year for the Group . I believe that the Group’s track record and
expertise in its field, coupled with extensive US university and US federal research institution partnerships,
and strong balance sheet, leaves Allied Minds well placed to continue to generate significant value for
shareholders over the medium and long term . I look forward to the future with much confidence .
Mark Pritchard
Executive Chairman
28 April 2015
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Highlights
Period Highlights
Corporate
Completed successful initial public offering (IPO), and admission to the premium listing segment of the
Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange
(LSE), raising proceeds of $155 .0 million
New Businesses
Formed and funded four new businesses:
• Allied-Bristol Life Sciences (ABLS), in collaboration with Bristol-Myers Squibb, to identify and foster
research and pre-clinical development of biopharmaceutical innovations
• Seamless Devices, with technology from Columbia University, to develop a novel signal processing
technique for analog to digital converters
• Percipient Networks, with technology from The MITRE Corporation, to develop next-generation
security technologies for enterprise network defence
• Whitewood Encryption Systems, with technology from Los Alamos National Laboratory, to develop
the next-generation systems of data encryption that leverage advanced quantum cryptography
technologies
Team
Hired additional key senior leadership at Allied Minds and its subsidiaries, including the first General
Counsel of the Group, a new Vice President to lead the partnerships with US research universities, and
new experienced CEOs at each of ABLS, Federated Wireless, Novare Pharmaceuticals and Optio Labs, as
well as an overall increase of more than 90 new employees and consultants during the year
Investment
Attracted third-party investment and grants directly into several subsidiaries, including:
• Spin Transfer Technologies, in connection with a $70 .0 million equity financing
• Optio Labs, in connection with a $10 .0 million equity financing
• SiEnergy, which was awarded a $2 .65 million US government ARPA-E REBELS grant
Valuation
Increased Group Subsidiary Ownership Adjusted Value (GSOAV) from $367 .3 million to $488 .0 million, an
increase of $120 .7 million, or 32 .9%
Subsidiary Milestones
Achieved numerous technical milestones, including:
• STT completing its first phase of integration of magnetic and CMOS wafer technology to demonstrate
the technology’s capability to integrate with existing fabrication processes standard in the industry
• SciFluor advancing two lead compounds through key in-vivo, pre-clinical tests, successfully testing its
retinal disease lead in a leading choroid neovascular study in rabbits, and successfully testing its lead
focused on neurological disease through an agency within the US National Institutes of Health (NIH)
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Highlights (continued)
• RF Biocidics quadrupling revenues during 2014 to $6 .5 million, acquiring a 28 .5% interest in its supplier
Stalam SpA in Italy, a manufacturer of radio frequency equipment, and successfully launching its new
fourth generation APEX machine
• Precision Biopsy continuing development of its commercial system in preparation for eventual
regulatory submissions, successfully completing in-vivo human feasibility study in patients undergoing
prostatectomies, and additional testing of ex-vivo post-prostatectomy showing favourable results when
compared to traditional pathology
• LuxCath demonstrating real time heart lesion visualisation proof of concept system in large animals
using LuxCath catheter system, expanding potential applications by incorporating LuxCath optics into
leading 3rd party ablation catheters, and demonstrating real-time tissue contact assessment as well
as cardiac lesion progression monitoring in animals, all while preparing for First-In-Man studies with a
leading cardiologist in 2015
Intellectual Property
Received grant of numerous patents, including two patents granted by the US Patent and Trade Office to
SciFluor for claims covering novel compounds for retinal and neurological diseases
Partner Network
Welcomed three new universities and seven new federal laboratories to the Allied Minds partner network
Financial Highlights
Net cash and deposits*:
Revenue:
Net loss:
Group Subsidiary Ownership Adjusted
Value (GSOAV):
Share price performance:
$261 .5m (2013: $104 .6m)
$7 .7m (2013: $2 .9m)
$57 .9m (2013: $42 .7m), of which $45 .6m (2013: $34 .5m)
attributable to Allied Minds
$488 .0m (2013: $367 .3m), an increase of 32 .9%
367p at 31 December 2014, an increase of 93 .2% over the initial
public offering price of 190p at 25 June 2014; welcomed to the
FTSE 250 in December 2014
_______________
* includes excess cash in form of fixed income securities
Post-Year-End Highlights
•
In February 2015, Allied Minds formed and funded BridgeSat, in collaboration with The Aerospace
Corporation, Draper Laboratory, Massachusetts Institute of Technology Assistant Professor Dr . Kerri L .
Cahoy and the graduate student team in the Space, Telecommunications, Astronomy, and Radiation
(STAR) Laboratory, to develop an optical connectivity system that aims to increase the speed, security
and efficiency of data transmissions from Low Earth Orbit (LEO) satellites compared to traditional radio
frequency solutions
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Highlights (continued)
•
•
•
In April 2015, SciFluor successfully raised $30 .0 million in a Series A preferred stock financing .
Significant participants in the funding round were Invesco Asset Management and Woodford Investment
Management, demonstrating their continued support for the commercialisation model of academic and
federal research pioneered in the US by Allied Minds
In April 2015, Optio Labs purchased the assets of Maryland-based security company Oculis Labs, and
its CEO, Dr . Bill Anderson, joined Optio Labs as Chief Product Officer . Oculis Labs develops products
that protect data displayed on a user’s computer and mobile device screen from visual eavesdroppers
In April 2015, the Federal Communications Commission (FCC), in a unanimous decision, approved the
formal Rule & Order governing the dynamic sharing of federal spectrum in the 3 .5 GHz band, thereby
ensuring the necessary regulatory authority for Federated Wireless to go to market with its proprietary
Spectrum Access System
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CEO’s Report
I am pleased to present my first report as Allied Minds plc’s CEO .
Allied Minds has been at the forefront of developing a US-based
public venture company that creates, invests in, and actively
manages high-potential technology businesses . Prior to our
London Stock Exchange listing on 25 June 2014, Allied Minds
dedicated itself to building a strong foundation to this purpose .
Before our listing, we created and managed 18 subsidiary
businesses; employed more than 200 people, of which 125 held
advanced degrees, including 65 PhDs; and developed a robust
pipeline emanating from a network of 64 leading US universities
and federal research centres of excellence . During the IPO
roadshow, the Chairman and I outlined Allied Minds’ near-term
objectives, which were: to invest in (with third party participation)
the acceleration of key subsidiary businesses; to create the
Group’s first corporate partnership with a major international
conglomerate; to progress the commercial development across our portfolio of businesses; and to create
new high-impact businesses . I am happy to report that Allied Minds accomplished all of these objectives .
The Group’s significant expertise across a range of science and technology disciplines, its highly skilled
workforce, as well as its capital resources, allowed it to expand upon its strong foundations . Since mid-2014,
Allied Minds attracted third-party investment and grants and co-invested $123 million into Spin Transfer
Technologies (STT), Optio Labs, SiEnergy, Allied-Bristol Life Sciences (ABLS) and SciFluor . In August 2014,
we formed ABLS, a partnership with Bristol-Myers Squibb (BMS), to create 10 new businesses that aim
to develop novel biopharmaceutical assets . Further, the Group established collaborations with additional
university and federal labs that led to the formation of new businesses; and continued to progress ongoing
scientific research and development for the commercialisation of products in its portfolio .
Allied Minds is building a diversified portfolio of businesses in the life and high-technology sectors . I believe
that the US continues to produce a wealth of potentially world-class intellectual property from its universities
and federal government laboratories, and that the Group is well-positioned to continue to back IP-based
early-stage projects and businesses given its strong track record, patient development timelines, strong
management and cash position . The Group aims to achieve growth and value creation over the medium
and long term as its subsidiary businesses’ products and services mature through the commercialisation
cycle .
Milestones Achieved
Allied Minds has access to an extensive array of intellectual property and technology opportunities in the
US through its network of universities and federal government laboratories . In 2014, our partner network
grew to 68 partners, to include the addition of three new universities and seven new federal laboratories:
University of Massachusetts, Lowell; Worcester Polytechnic Institute; University of Texas, San Antonio;
Los Alamos National Laboratory; Oak Ridge National Laboratory; Pacific Northwest National Laboratory;
Sandia National Laboratories; Georgia Tech Research Institute; MITRE National Cyber Security Centre of
Excellence; and Charles Stark Draper Laboratory .
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CEO’s Report (continued)
The partner network and technology pipeline led the Group to form three new businesses:
• Seamless Devices, with technology from Columbia University, to develop a novel signal processing
technique for analog to digital converters;
• Percipient Networks, with technology from The MITRE Corporation, to develop next-generation security
technologies for enterprise network defence; and
• Whitewood Encryption Systems, with technology from Los Alamos National Laboratory, to develop next-
generation systems of data encryption that leverage advanced quantum cryptography technologies .
2014 also marked the year that we completed our first corporate partnership . We teamed with BMS to
form ABLS to identify and foster research and pre-clinical development of biopharmaceutical innovations .
ABLS plans to create 10 subsidiary companies, each developing a novel biopharmaceutical asset with the
intention of exiting the subsidiary business to BMS at the end of pre-clinical development .
Our subsidiary businesses progressed well in 2014, achieving numerous technical milestones . Notably,
STT completed its first phase of integration of magnetic and CMOS wafer technology, demonstrating the
technology’s capability to integrate with existing fabrication processes that are standard in the industry . The
Group also saw significant growth in its intellectual property estate, receiving grant of numerous patents,
including two by the US Patent and Trade Office to SciFluor for claims covering the novel compounds for
retinal and neurological diseases .
Allied Minds attracted third-party investment and grants directly into several subsidiaries, including a
$70 .0 million equity financing in STT, a $10 .0 million investment in the formation of ABLS, a $10 .0 million
equity financing in Optio Labs, and a $2 .65 million US government ARPA-E REBELS grant for SiEnergy .
The Group Subsidiary Ownership Adjusted Value increased to $488 .0 million as of 31 December 2014 from
$367 .3 million at 31 December 2013, an increase of $120 .7 million, or 32 .9% .
Continuing Momentum
Allied Minds has continued this progress into 2015 . The Group recently announced the formation and
funding of BridgeSat, which is developing an optical connectivity system that aims to increase the speed,
security and efficiency of data transmissions from Low Earth Orbit (LEO) satellites compared to traditional
radio frequency solutions . BridgeSat was formed in collaboration with The Aerospace Corporation, Draper
Laboratory, Massachusetts Institute of Technology Assistant Professor Dr . Kerri L . Cahoy, and the graduate
student team in the Space, Telecommunications, Astronomy, and Radiation (STAR) Laboratory .
In addition, SciFluor recently raised a $30 .0 million equity financing, which included $25 .2 million of third-
party funds, to commence clinical trials of its patent-protected compounds in retinal and neurological
diseases .
The Group also has two additional transactions near completion . ABLS I, LLC was formed to execute on the
first project approved for investment under our ABLS partnership with BMS . This project involves licensing
intellectual property with respect to prostate oncology from an Ivy League institution, and proceeding to
pre-clinical evaluation and development . In addition, ABLS II, LLC was formed to execute on a second
project approved for investment . This project involves licensing intellectual property with respect to fibrotic
diseases from a second Ivy League institution, and proceeding to pre-clinical evaluation and development .
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CEO’s Report (continued)
The Group is currently assessing new technologies we believe can have a significant commercial impact . We
have 13 technologies in final due diligence and 89 technologies in early due diligence . The Group expects
that its significant technology pipeline is likely to lead to the creation of a number of new subsidiaries during
the remainder of 2015, and aims to form and fund 5 to 10 new projects annually .
We continue to scale and add resources at the Group and its subsidiary businesses . Since the IPO, we
have added an additional 98 employees and contractors across our businesses . Our total workforce has
reached 298 employees and contractors, of which 180 hold advanced degrees, including 87 PhDs . We
intend to strengthen our highly skilled workforce as business needs require .
Outlook
As we continue to build from our strong foundation, the momentum we achieved with a successful IPO, and
the meeting of the near-term goals set out during the IPO process, I believe Allied Minds is well positioned
for meaningful further growth . In 2015, we will continue to focus on the commercial advancement of our
subsidiary businesses; intend to invest further in our businesses and together with third-party investment
where appropriate; expand our portfolio of high-impact businesses; and add key industry managers and
expertise to the Group . Importantly, as the Group and the subsidiary businesses mature, we aspire to attract
new corporate alliances, which we believe will further validate our model and the commercial potential of
the subsidiaries . Future corporate collaborations could include co-development agreements, licensing, joint
ventures, and direct equity investment . The Company and its businesses are well positioned for continued
execution excellence, commercial maturation and expansion, which should result in increased value for
shareholders over the medium and long term . In closing, I believe the outlook for Allied Minds is strong .
Chris Silva
Chief Executive Officer
28 April 2015
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Company Overview
Allied Minds is an innovative US-focused science and technology development and commercialisation
company . The Group commenced operations in 2006 to invest in and advance science and technology
innovation developed at many of the leading US universities . The Company’s business model is to form,
fund, manage and build start-up companies which undertake research and product development and
ultimately to commercialise scientific research and innovations emerging from US universities, and scientific
research and innovations emerging from US federal research institutions and laboratories .
Allied Minds’ strategy is to build a significant and diversified group of businesses and achieve strong
growth over the medium to long term through the maturation of its products through the commercialisation
cycle . Allied Minds’ business model centralises the support functions at the Group level, thereby enabling
its businesses to focus efforts primarily on commercialisation activities whilst achieving operational and
financial efficiency . We believe one of the foundations of the Group’s strategy is its ability to access a wide
range of innovative scientific research and technology by leveraging its relationships with leading research
institutions . In total, the Group currently has relationships with 68 research universities and US federal
government laboratories, providing it with an extensive pipeline of scientific and technological innovations
from which the Group can identify technology for potential development to commercially viable products .
Since inception, the Group has invested significant capital and resources in companies that focus on laboratory
based scientific research and product development . This has enabled Allied Minds to successfully progress
and complete testing of a number of innovative products . The Group currently comprises 22 subsidiary
businesses in the life sciences and high technology sectors based upon a broad range of underlying
innovative technologies ranging from molecular compounds to memory integrated circuit technology . Allied
Minds benefits from a highly skilled workforce, with significant expertise throughout the Group across a
range of science and technology disciplines . The Group has 298 employees and consultants of whom 180
hold advanced degrees and 87 have PhDs (as at 31 March 2015) . By leveraging this expertise, and through
its extensive research and development activity to date, Allied Minds has established a significant portfolio
of intellectual property to support and protect its research and innovation .
Allied Minds is structured as a diversified holding company with a strong central management team active
in the strategic development of its subsidiary businesses . We believe this is a key distinguishing feature
of the Company when compared with investment funds . Allied Minds’ core aim is to focus on early-stage
disruptive technologies that it believes have significant upside potential and to realise that potential through
supporting commercial development .
The Opportunity
The US is the world’s largest market for R&D investment . The investment by the US federal government
in research through the nation’s universities, federal laboratories, and non-profit institutions generates
innovations and inventions with considerable commercial potential . These innovations and inventions result
in thousands of US patent applications per annum . Though US universities and federal research institutions
have an established technology transfer process designed to commercialise this intellectual property, they
face a number of challenges . Marketing early-stage innovations to investors that often seek lower-risk,
more mature technologies is challenging . Universities also often lack the resources necessary to adequately
and efficiently identify the most marketable opportunities, coordinate between technology transfer offices
and researchers to render opportunities marketable, and locate investors and entrepreneurs to licence the
invention and carry concepts forward . As a result, many universities licence only a relatively small number
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Company Overview (continued)
of patents a year from a base of thousands, of which only a small fraction progress to the next stage of
development .
Allied Minds was established with the objective of collaborating with universities, and subsequently, US
federal government labs, to better identify high-potential innovations and inventions at an early stage, and
subsequently licensing those inventions into subsidiaries formed and funded by the Company . By providing
requisite commercial direction and management talent together with funding the research and product
development activities of its businesses, we believe Allied Minds has the potential to be able to unlock the
market potential inherent in promising technologies .
Our Strategy
Allied Minds aims to identify, develop and commercialise potentially transformative technologies . The
Company seeks to maximise growth by creating new businesses based around innovative intellectual
property . Allied Minds is actively engaged in focused scientific research and product development within its
businesses, with the objective of bringing commercially viable products to significant identifiable markets .
The Company’s objective is to build its businesses into commercially successful and valuable enterprises .
A key component of the Company’s strategy is to maintain strict capital discipline within an operationally
efficient model for new companies while the commercial viability of the technology is explored and tested .
The Company aims to ensure that only when there are sufficient additional proof points that the technology
is satisfactorily de-risked and could succeed commercially, is additional scale-up capital provided .
Should those proof points no longer support on-going commercialisation activity, a subsidiary’s business
is terminated . As part of Allied Minds’ strategy it is recognised that failure is an inherent but necessary
component of commercialising scientific research .
In order to execute this strategy, and more broadly to ensure alignment of stakeholder interests, we believe
that for early-stage businesses it is important to retain control of projects . Accordingly, the Company
currently maintains operating control of all of its businesses and we anticipate maintaining such control for
as long as practical subject to the demands and needs of each subsidiary and the overall management of
the Company’s business .
We review the development path of each business on an on-going basis and, at the appropriate time, it is
expected that each business will look to secure strategic, commercial and capital partners, as appropriate,
with a view to accelerate and maximise value appreciation . Where the commercial potential of a business
merits significant further investment, we may deem it to be in the best interests of the Company to dilute our
shareholding in that business to below 50% . In such circumstances, we believe that Allied Minds is likely to
remain the largest shareholder for a further period and should therefore retain influence over the strategic
direction of the businesses for that period .
The Company’s strategy is to drive each subsidiary business toward commercialisation but it does not
mandate a specific timeline in which this has to be accomplished . The development time of each technology
can vary enormously, particularly if regulatory approvals need to be secured before the product can reach
the market . Inherent in the commercialisation strategy is a belief that realisation of assets should not be
attempted until significant value inflection milestones have been reached . These milestones are typically
commercial traction and revenue generation .
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Achievement of such milestones is expected to provide the Board with strategic flexibility to explore a range
of avenues for value realisation, including initial public offerings, trade sales (in whole or in part), licensing
arrangements and joint ventures .
Our Business Model and Approach
Since inception, Allied Minds has sought to deliver the commercial potential of selected university owned
early-stage intellectual property by working with technology transfer offices (TTOs) and establishing a
structure to form, fund, manage and build start-up companies to develop innovative technologies . Allied
Minds maintains regular contact with its university partners, which includes Allied Minds campus visits and
interaction between Allied Minds staff and university technology transfer personnel and researchers . The
strategic relationships that Allied Minds maintains with universities provide Allied Minds with direct access to
scientific research which is potentially capable of developing into transformative technologies and products .
As an extension of its university model, in September 2012, Allied Minds reached agreements for first-of-
their-kind Public Private Partnerships (PPP) with several US Department of Defence laboratories and federal
government agencies, and subsequently reached agreements with other federal government agencies such
as the Department of Homeland Security and the Department of Energy . Under these PPPs, the Company
typically receives certain access and licensing rights to inventions originating from the US Department
of Defence laboratories and other federal government agencies . We believe that these PPPs create a
closer relationship between the Company and the respective institutions, thereby increasing the amount of
potential deal flow available in new intellectual property for the Company .
Through these collaborative relationships with research universities and federal government laboratories,
the Company and the corresponding research institutions work together to form, fund, manage and build
early stage companies to commercialise US innovation .
Form
The Company’s extensive network of relationships with universities and US federal government laboratories
provides access to the outcome of substantial research and development expenditure . In 2014, Allied
Minds evaluated approximately 2,160 potential projects from across a broad range of university and
federal laboratories and addressing a broad range of underlying technologies . These proposals frequently
represent the culmination of years of scientific research within university and federal government laboratory
environments .
Using a screening and investment selection process and supported by data on technical merit, commercial
potential and patentability, we believe Allied Minds is able to make timely and effective decisions on which
projects merit further consideration . We believe that use of this opportunity assessment system and the
efficiency of this process can substantially reduce transactional costs and enhance timely and effective
decision making for the Group .
In order for a project to proceed past the first review stage, it must score highly in terms of a number of
key technical assessment criteria . The starting point for this process is an assessment of the science that
underpins the project . As part of this assessment, projects are assessed on the following criteria: value
proposition; advantaged technology; initial commercial application; addressable market; business model;
potential intellectual property protection; competitive landscape, and regulatory path, if applicable .
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Company Overview (continued)
Approximately 5% of those projects reviewed are typically selected for further evaluation . At this stage
Allied Minds coordinates the involvement of domain experts, academic peers and, in certain cases, external
advisers to perform a deeper evaluation of the scientific and commercial potential of the project . Following
this second review stage, approximately 1% of those projects initially reviewed are selected for detailed
due diligence . The Company’s full due diligence process involves coordination with the inventor(s) and
institution to gain acceptance of the Allied Minds operating model as well as preparation of a detailed
product and business development plan and budget structured around key milestones . We intend to form
five to ten new projects per annum in the near and medium term .
After selecting a project, Allied Minds typically establishes a subsidiary that receives a licence for the
commercial rights (which is normally exclusive subject to certain exceptions) to the underlying intellectual
property . The subsidiary is usually majority owned by Allied Minds in either a limited liability company or
incorporated structure, with the originating university and inventor(s) each typically receiving a minority
shareholding in that entity .
Fund
Following the due diligence procedures to identify the technology and form a subsidiary to incubate, develop
and ultimately commercialise such technology, the subsidiary and partner university or federal government
agency often enter into a sponsored research agreement (SRA), cooperative research and development
agreement (CRADA) or equivalent . Pursuant to such agreements, the subsidiary will work with the partner
and fund a targeted scope of research, focused on validating the core scientific principles of the intellectual
property, to be performed by the principal investigator (PI) and other personnel qualified to advance the
science . This approach to developing technology allows an Allied Minds subsidiary to evaluate the progress
and likelihood of commercial success of a technology prior to making a significant additional commitment
to fund, develop and commercialise such technology .
Following this initial seed funding from the Company, Allied Minds aims to provide further incremental
funding to support the scientific research and product development activity within its subsidiaries .
Disbursement of funding and future rounds of financing for further research and development are often
based on achievement of key milestones, which are designed to measure technological and commercial
progress . Where a project has failed to deliver sufficient additional proof points, no longer supports on-
going development and commercialisation activity, and cannot be successfully redirected to an alternative
commercial path, Allied Minds will look to terminate the investment early . Since inception, Allied Minds has
terminated 11 underperforming businesses having spent approximately $1 .0 million, on average, on each
business .
As its businesses mature further, Allied Minds will also seek funding from third parties for its businesses
should it be in the Group’s strategic interests to do so . Allied Minds has a track record with certain
institutional investors which have co-invested with Allied Minds to finance its subsidiary businesses .
Manage
Allied Minds actively manages and monitors its businesses as they advance research and product
development activity towards commercialisation . During the early stages, Allied Minds typically utilises
technical and executive leadership to provide oversight of progress of its businesses toward preliminary
milestones . As those businesses evolve, Allied Minds actively contributes to the board composition of
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the companies and often appoints externally sourced dedicated management to advance the businesses
towards commercialisation . Scientific advisors are often integrated into the decision making processes to
ensure the appropriate technical direction is pursued . We believe the Company is well placed to continue
to attract talented executives to its businesses .
Allied Minds expects to directly control each start-up company in its early stages, and retain board seats
in the later stages of such company’s development . Throughout this process, Allied Minds expects to
continue to directly provide strategic and other advice or retain expert advisors for the businesses, as
needed .
Build
Allied Minds applies a structured approach to building the business infrastructure that is critical to the
growth of its businesses . In addition to providing executive leadership, Allied Minds can provide sales
and marketing research, consulting, competitive analysis, technology analysis, commercial development
support, shared services such as payroll and IT support, and operational advice . In doing so, Allied Minds’
business model maintains central support functions at Group level, thereby enabling its businesses to
focus on research and product development activity whilst achieving operational and financial efficiency .
We believe that the support provided to each of the Group’s businesses distinguishes them from many
comparably-sized and -aged businesses in terms of availability of resources that aid in their planning and
decision making .
Allied Minds is focused on pursuing projects with the objective of bringing commercially viable products to
significant identifiable markets . Accordingly, we evaluate on an on-going basis the progress and potential
of each of the Company’s businesses, and take strategy and funding decisions based on the achievement
of key milestones . The Company’s policy is, wherever feasible, to look for each subsidiary to capture early
revenue as a means of commercially validating the technology and business case .
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Portfolio Summary
During 2014, the Group, together with third parties, deployed $125 .0 million of capital into the Company’s
businesses, which includes, together with the ordinary course annual funding of the subsidiaries, the $10 .0
million invested in ABLS at formation, and the equity financing transactions at STT ($70 .0m), Optio Labs
($10 .0m) and Federated Wireless ($5 .0m) . Allied Minds currently has majority ownership in, or operating
control of, all of its subsidiary investments, and continues to invest in and support its most promising
companies . Below we provide an overview of our current existing subsidiary companies, including year
formed, and Allied Minds’ ownership interest .
Subsidiary
Life Sciences
Allied-Bristol Life Sciences, LLC
Year
Formed
Ownership
Interest (1) Overview
2014
80 .00% Created with Bristol-Myers Squibb to
identify and foster research and pre-
clinical development of biopharmaceutical
innovations, and convert discoveries from
university research institutions into therapeutic
candidates for clinical development
ABLS I, LLC
2014
80 .00% Formed to execute the first ABLS project
ABLS II, LLC
2014
approved for investment; this project involves
licensing intellectual property with respect
to prostate oncology from an Ivy League
institution, and proceeding to pre-clinical
evaluation and development
80 .00% Formed to execute the second ABLS project
approved for investment; this project involves
licensing intellectual property with respect to
fibrotic diseases from a second Ivy League
institution, and proceeding to pre-clinical
evaluation and development
Biotectix, LLC
2007
64 .35% Aiming to enable the next generation of
implantable electrostimulation and sensing
products through the development of
proprietary, high-performance, conducting
polymer coatings
Cephalogics, LLC
2006
95 .00% Developing a non-invasive, bedside
CryoXtract Instruments, LLC
2008
neuroimaging system, which seeks to improve
monitoring of patients with neurological injury
93 .24% A suite of automated product solutions that
seeks to allow the global scientific community
to access valuable frozen biosamples without
exposing them to damaging freeze/thaw
cycles
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Subsidiary
Life Sciences (continued)
LuxCath, LLC
Year
Formed
Ownership
Interest (1) Overview
2012
98 .00% A catheter-based real-time tissue and lesion
Precision Biopsy, LLC
2008
ProGDerm, Inc . d/b/a Novare
Pharmaceuticals
2008
visualisation technology for potential use
during cardiac ablation procedures initially
focused on atrial fibrillation ablation
80 .35% A medical device platform utilising tissue
spectroscopy, which seeks to distinguish
tissue characteristics in real-time and seeks
to guide clinicians toward areas of disease for
optimum therapy initially focused on prostate
cancer
90 .38% A biologic that aims to represent a natural
approach to generate subcutaneous fat to
enhance the appearance of skin using the
body’s own processes
SciFluor Life Sciences, Inc .
2010
69 .94% Developing a portfolio of proprietary
SoundCure, Inc .
2009
compounds by harnessing the
transformational power of fluorine with a view
to optimising drug discovery and accelerating
the clinical development of innovative new
therapeutics
84 .62% Developed an FDA-cleared consumer medical
device for tinnitus therapy offering customised
acoustic technology
High Technology
Allied Minds Federal
Innovations, Inc .
BridgeSat, Inc .
2015
2012
100 .00% Through a series of public-private partnerships
(PPPs) with the US federal government,
aims to develop and commercialise the next
generation of transformative technologies from
US federal research institutions
100 .00% Developing an optical connectivity system
that aims to increase the speed, security
and efficiency of data transmissions from
Low Earth Orbit (LEO) satellites compared to
traditional radio frequency solutions
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Portfolio Summary (continued)
Subsidiary
High Technology (continued)
Federated Wireless, Inc .
Year
Formed
Ownership
Interest (1) Overview
2012
90 .88% Focused on enabling technologies for the
next-generation of wireless communications
by seeking to improve supply, demand,
and delivery of spectrum for future cellular
communications
Foreland Technologies, Inc .
2013
100 .00% A cyber security platform company which
aims to discover, incubate and commercialise
emerging technologies
Optio Labs, Inc .
2012
81 .23% Developer of mobile security technologies for
the evolving cyber operating environment
Percipient Networks, LLC
2014
100 .00% Developing next-generation security
technologies for enterprise network defence
RF Biocidics, Inc .
2008
67 .14% Developer of equipment that seeks to disinfect
Seamless Devices, Inc .
2014
food from insects and pathogens through a
process that does not use chemicals
79 .85% Developer of semiconductor devices using a
novel approach to analog signal processing,
building upon patented switched-mode signal
processing technology and algorithms
SiEnergy Systems, LLC
2007
100 .00% Developing thin film low temperature solid
oxide fuel cells that seek to bring efficient, and
affordable clean energy systems for broad
application
Spin Transfer Technologies, Inc .
2007
48 .40% MRAM computer memory that is being
Whitewood Encryption
Systems, Inc .
2014
developed with the aspiration of becoming a
leading universal memory technology in the
$60 billion per annum worldwide computer
memory market
100 .00% Develop the next-generation systems of data
encryption that leverage advanced quantum
cryptography technologies uniquely capable
of meeting intensifying market demand for
secure, computationally efficient, and low-
latency encryption
Notes:
(1) Ownership interests are as at 27 April 2015 (being the latest practicable date prior to the publication of this Annual Report) . Allied
Minds’ ownership of SciFluor was 79 .00% as at 31 December 2014, prior to a funding round (involving both Allied Minds and
external investors) of $30 .0 million in April 2015 . Allied Minds ownership of Optio Labs was 79 .86% as at 31 December 2014,
prior to its final contribution and purchase of shares in January 2015 in the $10 .0 million financing round . Allied Minds ownership
of Seamless Devices was 80 .00% as at 31 December 2014, prior to an exercise of employee stock options that reduced its
ownership percentage .
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Subsidiary Valuation
The Group currently has 22 subsidiary businesses, whose activities are principally in the life sciences and
high technology sectors .
All of the Company’s subsidiary companies are currently majority owned and/or controlled and therefore
fully consolidated in the Company’s consolidated financial statements prepared in accordance with
International Financial Reporting Standards (IFRS) . As a result, the Consolidated Statements of Financial
Position incorporated within the Company’s consolidated financial statements do not include current
valuations of the Company’s subsidiary companies . As a means of promoting transparency, we also
present, as supplementary information, ownership adjusted valuations of each of the Group’s top ten
subsidiary businesses by value, as well as an aggregated sum-of-the-parts valuation of all the Group’s
subsidiary businesses . This supplementary valuation disclosure has been prepared on the basis of the
American Institute of Certified Public Accountants’ Valuation of Privately-Held-Company Equity Securities
Issued as Compensation (AICPA Guidelines) . The AICPA Guidelines do not represent, but are consistent
with valuation principles adopted under IFRS . The subsidiary company valuations are not presented as
alternative measures to, and should be read in conjunction with, the Company’s consolidated financial
information prepared in accordance with IFRS as set out in this Annual Report .
There can be no guarantee that the aforementioned valuation of the Group will be considered to be correct
in light of the future performance of the various Group businesses, or that the Group would be able to realise
proceeds in the amount of such valuations, or at all, in the event of a sale by it of any of its subsidiaries .
At the close of each annual financial period, the Directors formally approve the value of all subsidiary
businesses in the Group which is used to derive the “Group Subsidiary Ownership Adjusted Value” . The
Group Subsidiary Ownership Adjusted Value was $488 .0 million as at 31 December 2014, as set out in
the table below, which has been extracted without material adjustment from the Company’s consolidated
financial statements prepared in accordance with IFRS as set out in this Annual Report . We believe there
has been no significant change in the Group Subsidiary Ownership Adjusted Value since 31 December
2014 .
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Subsidiary Valuation (continued)
The Group Subsidiary Ownership Adjusted Value (GSOAV) of $488 .0 million as of 31 December 2014,
compared to $367 .3 million at 31 December 2013, was an increase of $120 .7 million, or 32 .9% .
Subsidiary Business
Early Stage
Spin Transfer Technologies, Inc .
SciFluor Life Sciences, Inc .
Optio Labs, Inc .
Cephalogics, LLC
ProGDerm, Inc . d/b/a Novare
Pharmaceuticals
Precision Biopsy, LLC
SiEnergy Systems, LLC
Commercial Stage
RF Biocidics, Inc .
CryoXtract Instruments, LLC
SoundCure, Inc .
Top 10 Subsidiaries by Value
Other Subsidiaries
Group Subsidiary Ownership
Adjusted Value
Notes:
Allied Minds
Invested
Capital
$’000
Total
Invested
Capital
$’000
OAV as at
31 December
2014
$’000
OAV as at
31 December
2013
$’000
28 .5
17 .9
9 .1
8 .2
3 .9
7 .5
7 .2
23 .4
12 .9
16 .3
30 .6
107 .5
43 .1
11 .6
8 .2
3 .9
7 .5
7 .2
31 .4
12 .9
16 .3
32 .8
121 .0
91 .4
32 .8
22 .3
16 .7
16 .2
15 .3
69 .6
17 .8
11 .5
414 .6
73 .4
488 .0
76 .9
30 .8
33 .0
22 .5
15 .6
15 .9
22 .7
62 .8
16 .5
14 .3
311 .0
56 .3
367 .3
(1) Ownership adjusted value represents Allied Minds’ interest in the equity value of each subsidiary: = (Business Enterprise Value
– Long Term Debt + Cash) x Allied Minds percentage ownership plus the value of debt provided by Allied Minds plc to each
subsidiary business . Allied Minds commits post-seed funding to its subsidiaries in the form of loans .
(2) The Group Subsidiary Ownership Adjusted Value includes cash balances held by Allied Minds subsidiaries at 31 December 2014
amounting to $86 .1 million (including those valued based on recent financing founds, of which $68 .6 million was held by STT) on
an ownership adjusted basis . As at 31 December 2014, the Group reported total consolidated net cash and other investments
balances of $261 .5 million, the balance being net cash and investments of $175 .4 million held at the parent level and available for
investment in the Group .
(3) Where subsidiaries have raised financing from external parties since 31 December 2014, the ownership adjusted value in the table
above has been updated to reflect the current percentage ownership and the valuation implied by that external investment on a
post new money basis, as well as the current Allied Minds’ and total invested capital . SciFluor Life Sciences completed a funding
round of $30 .0 million in April 2015 .
The Group Subsidiary Ownership Adjusted Value above excludes net cash and other investments balances
of $175 .4 million held at the parent level as at 31 December 2014 (2013: $85 .7 million) .
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Partner Network
The Group has established relationships with 34 of the most prestigious academic research institutions
across the United States, as set out below . Allied Minds aims to gain direct access to technologies at the
forefront of research by working to develop the existing university network and selectively adding highly
regarded research centres across the US .
In addition, the Group has established relationships with 34 US Department of Defence laboratories and
other federal agency laboratories, such as the Department of Energy, with the objective of systematically
commercialising the US federal government’s technological inventions developed in the corresponding US
federal government laboratory .
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Boston University
Brown University
Columbia University
Cornell University
University of Florida
George Washington University
Harvard University
New York University
Penn State
Tufts University
University of Massachusetts, Lowell
Virginia Polytechnic Institute
Worcester Polytechnic Institute
Yale University
University Partners (West)
Arizona State University
Colorado State University
UC Berkeley
UC Davis
UC Irvine
UCLA
UC San Diego
UC San Francisco
University of New Mexico
University of Colorado
University of Washington
University Partners (Central)
Univ . of Arkansas for Medical
Science
University of Michigan
University of Missouri
University of Nebraska, Lincoln
Univ . of Nebraska Medical Centre
University of Texas, San Antonio
Vanderbilt University
Washington University in St . Louis
Wayne State University
Department of Defence ê
Air Force Research Lab - Avionics
Air Force Research Lab -
Electronics Tech
Air Force Research Lab - Flight
Dynamics
Air Force Research Lab - Material
Air Force Research Lab - Aero
Propulsion and Power Laboratory
Air Force Research Lab - Armament
Air Force Research Lab -
Information Directorate
Naval Air Weapons Station - China
Lake
Naval Air Weapons Station - Point
Mugu
Naval Surface Warfare Centre -
Crane
U .S . Army AMRDEC
U .S . Army ARDEC
U .S . Army CERDEC
U .S . Army ECBC
U .S . Army Natick Soldier Labs
U .S . Army RDECOM
U .S . Army Research Lab
U .S . Army TARDEC
Department of Energy
Lawrence Berkeley National
Laboratory
Lawrence Livermore National
Laboratory
Los Alamos National Laboratory
Oak Ridge National Laboratory
Pacific Northwest National
Laboratory
Sandia National Laboratories
Other Key Federal R&D
Organisations
Aerospace Corporation
Georgia Tech Research Institute
Charles Stark Draper Laboratory
MITRE National Security
Engineering Centre
MITRE National Cyber Security
Centre of Excellence
MITRE Centre for Advanced
Aviation System Development
MITRE Centre for Enterprise
Modernisation
MITRE Homeland Security Systems
Eng . & Dev .
MITRE Judiciary Engineering and
Modernisation Centre
MITRE CMS Alliance to Modernise
Healthcare
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Key Performance Indicators
We believe the following Key Performance Indicators (KPIs) accurately measure the performance of the
Company .
• Number of subsidiary businesses;
• Ownership adjusted value (OAV) of subsidiary companies;
• Group revenue growth; and
• Graduation of subsidiaries to the next development level, with the two levels being consistent with the
Group’s reporting segments as follows:
(a) Early Stage: subsidiary businesses that are in the early stage of their lifecycle characterised by
incubation, research and development activities;
(b)
Commercial Stage: subsidiary businesses that have substantially completed their research and
development activities, and that have developed one or more products that are actively marketed .
2014 KPIs are set forth below:
KPI
Subsidiary Businesses
2014
22
2013
18
Performance
+4/ 22 .2% growth
Group Subsidiary Ownership Adjusted
Value
$488 .0 million
$367 .3 million +$120 .7 million / 32 .9% growth
Revenue
$7 .7 million
$2 .9 million +$4 .8 million / 165 .5% growth
Commercial Stage Subsidiaries
3
3
No change
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Portfolio Review and Developments
For the purposes of this section, the Company’s top 10 operating businesses by estimated value, accounting
for approximately 85% of the Group Subsidiary Ownership Adjusted Value as at 31 December 2014, have
been identified as Material Subsidiaries .
Material Subsidiaries
Early Stage
Spin Transfer Technologies, Inc.
Spin Transfer Technologies, Inc . (STT) engages
in the development of Orthogonal Spin Transfer
(OST) Magneto-Resistive Random Access Memory
(MRAM), an innovative memory integrated circuit
technology . OST-MRAM aims to combine the
advantages of high- speed volatile memory (i .e .
DRAM and SRAM) and non-volatile memory (Flash) in
a single memory element . OST- MRAM’s potentially
unique combination of fast write speed, low power,
and virtually unlimited endurance is expected to
enable it to address a wide range of applications
in the standalone and embedded memory markets,
which collectively had a combined estimated value
of greater than $60 billion per annum worldwide in
2014 .
its
first phase
During 2014, STT completed
of integration of magnetic and CMOS wafer
technology . This is an important step to demonstrate
the technology’s capability to integrate with existing
fabrication processes standard in the industry . Also
the company successfully raised $70 .0 million in a
Series A preferred stock financing, the proceeds
of which will be used to procure capital equipment
and other infrastructure; strengthen the company’s
product development, sales and operations teams;
and expand the intellectual property portfolio .
For 2015, key milestones include the development of
a fully functional technology demonstrator memory
integrated circuit, completion of the company’s
expansion of its clean room to accommodate the
installation of a variety of fabrication equipment and
expansion of existing partnership relationships and
development of new ones .
On 10 October 2013, Crocus Technology S .A . filed
a petition at the US Patent Office (PTO) requesting
that the PTO grant an inter partes review (IPR) of
US Patent No . 6,980,469 which relates to magnetic
devices for memory cells that can serve as non-
volatile memory . This patent is licensed by STT
from the New York University (NYU) . The IPR is
a form of proceeding permitted under the Leahy-
Smith America Invents Act, which permits third
parties to challenge the validity of issued patents .
No damages are available in such IPR proceedings .
On 26 March 2015, the PTO entered a judgment
on the IPR and cancelled several claims under
the NYU patent as being invalid over prior art
references . The Company believes that STT’s
ability to develop and market its technology and
products will not be materially impaired by this
judgment . IPR proceedings do not make any
findings regarding patent infringement, and thus this
judgment provides no legal authority holding that
STT infringes any patents held by third parties . In
addition, the NYU patent portfolio licensed by STT
contains other patent claims that are unaffected by
the IPR action . Further, as STT has developed its
technology, it has filed its own additional patents .
The Company believes that the claims remaining
under the licensed NYU patents, as well as under
STT’s owned patents, provide substantial defense
against other competitors who may enter the
market .
SciFluor Life Sciences, Inc.
SciFluor Life Science, Inc . (SciFluor) engages in
drug discovery and development using fluorine
and is building a portfolio of proprietary fluorinated
compounds serving billion dollar markets . Fluorine
modification of the underlying chemical structure of
a drug has been demonstrated to improve potency,
selectivity, rates of absorption and metabolic
stability in many cases, and approximately 25% of
drugs currently marketed or in the pipeline contain
fluorine . SciFluor’s principal products are two lead
compounds:
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• SF0166, a patented small molecule integrin
antagonist wholly owned by SciFluor and
intended to treat eye conditions including age-
related macular degeneration, diabetic macular
edema and retinal vein occlusion, representing
an estimated 50 million patients worldwide .
SF0166 is a topical drug intended to replace
drugs requiring injection into the eye .
• SF0034, a KCNQ2/3 modulator and a fluorinated
derivative of ezogabine, is also patented and
is wholly owned by SciFluor . SF0034 could
eliminate key safety issues associated with
ezogabine and serve markets totaling $5 billion
in aggregate
including: epilepsy/seizures;
tinnitus; amyotrophic lateral sclerosis (ALS or
Lou Gehrig’s disease); and channelopathies
(genetic orphan rare diseases) .
raised
In April 2015, SciFluor successfully
$30 .0 million in a Series A preferred stock financing .
For the remainder of 2015, the company expects to
advance the pre-clinical research so that SF0166
and SF0034 will be ready to enter Phase I clinical
trials late in the year or early 2016 . It is envisaged
that the Phase I trials will cover up to four indications
for these two drugs . Additionally the company will
execute pre-clinical tests on its existing pipeline
compounds in respiratory disease, pain therapy,
fibrosis, cardiovascular disease, and neurology .
Inc .
(Optio Labs)
Optio Labs, Inc.
Optio Labs,
is a software
security company engaged in the development
and deployment of mobile security solutions for
global organisations . The company’s three current
prototype/early stage products include:
• OptioCore, an adaptive, policy-driven mobile
device software solution secures information
and applications for Google’s Android operating
system . OptioCore has the distinct advantage
over all other platforms because it monitors,
informs and resolves mobile security threats at
the Inter-process, Communication (IPC) layer .
• OptioGrizzly, is an application which leverages
OptioCore to provide real-time identification of
malware on mobile devices . Additional features
include the remediation of the malware and
notification at both the enterprise and end user
level .
• Kodomo is Optio Labs’ consumer offering
allowing parents to “monitor, teach and trust”
their child’s mobile behaviour and experiences .
Kodomo allows parents the ability to review and
control SMS traffic, YouTube video review, bad
language notification and driver’s speed .
In March 2014, Optio Labs closed a Series A round
of funding . The company continued development
of its products with OptioCore placed with a large
aerospace OEM and beta roll-out for Kodomo .
During 2014 and early 2015, Optio Labs welcomed
several new executives . Gregg Smith, the former
Chief Executive Officer of KoolSpan, Inc . and
Acuity Mobile, Inc ., joined to become Optio Labs’
CEO . Bryan Glancey, the former Chief Technology
Officer of CellTrust and Director of Public Sector
and Security for Samsung Electronics Co ., joined
Optio Labs as its new CTO . Francis Knott, whose
corporate development experience included Aether
Systems and Telecommunications Systems, joined
as Senior Vice President, Corporate Development .
In April 2015, Optio Labs purchased the assets of
security company Oculis Labs, and its CEO, Dr . Bill
Anderson, joined Optio Labs as Chief Product
Officer . Oculis Labs developed products that
protect data displayed on a user’s computer and
mobile device screen from visual eavesdroppers .
The company’s enterprise and consumer product,
PrivateEye, protects computer screens against
unauthorised viewers by using computer vision
technology . For 2015, the company intends to focus
on market deployment and sales development for
its three main products: Grizzly, Private Eye and
Kodomo .
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Cephalogics, LLC
Cephalogics, LLC (Cephalogics) is working to
develop and commercialise a non-invasive bedside
neuroimaging system . The Cephalogics system
aims to provide continuous data and imaging from
clinically relevant cerebrovascular regions . This
technology is aimed at improving on current neuro-
monitoring technologies and bringing non-invasive
neuro monitoring and imaging to the bedside in this
estimated $1 billion market .
During 2014, the company continued development
as well as bench, phantom, and clinical testing of its
algorithms and prototype system . Cephalogics has
collected data on normal subjects as well as a total
of 24 patients at three hospitals and was able to
utilise the data to interpret system performance and
for input into algorithm development .
The focus for 2015 is to complete the company’s
commercial prototype and initiate testing on blood
phantoms, animals and human subjects . A variety
of tests are to be completed on healthy human
volunteers or “normals .” Patient testing should
follow through existing relationships at university
hospitals such as Duke University, Washington
University or Tufts University .
ProGDerm, Inc. d/b/a Novare Pharmaceuticals
ProGDerm, Inc ., d/b/a Novare Pharmaceuticals
(Novare) holds the exclusive licence rights to a
technology that represents a potentially revolutionary
breakthrough in tissue engineering and disease
control – based on the observation by Dr . Eva
Turley (founder) that blocking RHAMM (Hyaluronan-
reduces
mediated Motility Receptor, CD168)
inflammation and enhances normal tissue formation
through unique anti-inflammatory properties and
directed stem cell activation .
We believe that Novare is the only biotechnology
company that is dedicated to treating catastrophic
disease by using RHAMM-based cellular responses
to aid the body’s natural regenerative processes .
Novare is positioned to provide novel therapies that
range from promoting women’s health and post-
mastectomy breast regeneration, to reducing pain
and joint damage in crippling arthritis, to aesthetics
and to preventing life-threatening lung damage
in infants with Bronchopulmonary Dysplasia and
adults with Idiopathic Pulmonary Fibrosis .
During 2014, Dr . Mike Delmage joined the company
to serve as Chief Executive Officer . Dr . Delmage
earned his PhD in cellular and molecular biology,
is an expert in Hyaluronic Acid and has served as
Chief Technical Officer and CEO at Senetek PLC
and Transvivo, Inc ., respectively, with experience
in the aesthetics, medical device and therapeutic
drug sectors . Novare licenced additional RHAMM
compounds discovered by Dr . Turley for research
and development into therapeutics for inflammatory
conditions and expanded the company’s focus
beyond aesthetics .
For 2015, the company intends to optimise peptide
targets for the indications highlighted above . These
peptides will be characterised and supported by
a variety of in-vitro tests as well as limited animal
studies . Expansion of the patent portfolio is intended
to support these advancements .
(Precision Biopsy)
Precision Biopsy, LLC
is
Precision Biopsy, LLC
developing a next generation prostate cancer
biopsy system, with the aim of being able to analyse
prostate tissue in real-time for signs of cancer
during the biopsy procedure, and of minimising
unnecessary tissue coring as well as the associated
pathology costs . Current biopsy procedures require
random or ‘‘blind’’ sampling, and often multiple and
repeated biopsies per procedure . The Precision
Biopsy system is intended to be used within the
typical biopsy procedure and the company aims to
develop a system along with a disposable needle
biopsy unit, creating a capital equipment and
recurring revenue model .
In 2014, Precision Biopsy continued development
of its commercial system by evaluating multiple
product design options, developing prototypes,
and conducting testing on bench and in human
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excised prostate tissue to select optimum design .
The company also established its own quality
management system (QMS) to adhere to the
FDA and CE Mark regulatory requirements . The
company expanded its team and began evolving its
reimbursement strategy .
300-500 °C without the use of a fuel reformer . The
awarded 3-year project entails the commitment
by SiEnergy of cost share funds, part of which is
offset by a $300,000 convertible grant provided by
Massachusetts Clean Energy Centre in 2015, under
their AmplifyMass programme .
regulatory strategy
two separate submissions
In 2015, Precision Biopsy intends to complete its
product development and complete FDA 510k and
IDE (investigational device exemption) submissions .
The current US
includes
to support
these
commercialisation based on the indications for use .
Precision Biopsy also intends to initiate a clinical trial
to evaluate its commercial system in humans . This
clinical data is expected to support the regulatory
approvals . Precision Biopsy aims to expand its
intellectual property portfolio .
SiEnergy Systems, LLC
SiEnergy Systems, LLC (SiEnergy) is developing
thin film Solid Oxide Fuel Cell (SOFC) technology .
The technology uses silicon-based microfabrication
and nanometer scale electrolytes with the aim of
creating SOFCs that operate at a commercially
desirable temperature and are scalable to meet
various power requirements . Thin film SOFC could
be a promising technology for meeting cost and
reliability challenges facing fuel cell developers .
SiEnergy seeks to integrate its ultra-thin film SOFC
technology into fuel cells and stacks, and will
target joint development partners to integrate its
technology into systems and end applications .
to develop
In 2014, SiEnergy continued
its
technology and received an award of $2 .65 million in
US government ARPA-E funds under their Reliable
Electricity Based on Electrochemical Systems
(REBELS) programme . Under this programme,
SiEnergy will collaborate with Harvard University to
develop a multi-functional electrode to allow the cell
to perform both as a battery and fuel cell, which
enables the system to respond rapidly to changes
In addition, non-precious
in power demand .
catalysts will be developed to allow the direct
use of hydrocarbon fuels, such as natural gas, at
In 2015, the company will continue to improve yield,
degradation and power characteristics of its fuel
cells and stacks . Additionally, as part of the ARPA-E
programme, the company will seek to demonstrate
In-situ charge storage to enable the battery-like
capability .
Inc .
(RF Biocidics) engages
Commercial Stage
RF Biocidics, Inc.
RF Biocidics,
in
the development, manufacturing, and sale of
environmentally friendly, chemical-free food safety
solutions using radio frequency technology . RF
Biocidics operates in the area of disinfection and
disinfestation of agricultural products
the
elimination of pathogens, pests and fungi in a
variety of food commodities . Today, RF Biocidics’
addressable market includes the dried fruit, tree nut
and seed/grain markets representing an estimated
500 million metric tonnes (MMt), in aggregate,
globally per annum . The company currently has two
lines of RF processing equipment:
for
• The SENTINEL line uses high frequency RF to
process high moisture products, such as prunes
and raisins .
• The APEX line uses low frequency RF to process
lower moisture products, such as nuts, grains,
seeds and flours .
In March 2014, RF Biocidics acquired a minority
interest of 28 .5% in its supplier Stalam SpA
(Stalam) in Italy, a manufacturer of radio frequency
equipment, for $1 .5 million . With Stalam, RF
Biocidics successfully designed, built, and launched
our new fourth generation APEX machine . 2014
also marked the transition to our new office and lab
in Sacramento .
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In addition to pursuing further sales opportunities, in
2015 the company will apply for additional regulatory
approvals for pasteurisation, roasting and other
capabilities . Treatment for new commodities could
also be pursued .
Singapore . Scientific data supporting the company’s
products are critical for the sales process and is
best achieved with industry partners . The company
will build on data sets and publications completed
in 2014 with GSK, IBBL and others .
CryoXtract Instruments, LLC
CryoXtract Instruments, LLC (CryoXtract) develops
automated solutions to protect the long-term
biological integrity and quality of biosamples used
to advance next generation life-science R&D . The
company has commercialised a frozen biospecimen
sampling (aliquotting) technology platform that
enables the research community to access and re-
access biospecimens in the frozen state, avoiding
the damaging freeze/thaw cycles common today .
The technology does not require US FDA approval
and the company’s instruments are currently being
marketed and sold both in and outside the US .
CryoXtract has developed two principal products to
date:
• The CXT 750 Fully-Automated Frozen Sample
Aliquotter is directed at large-scale automated
access to frozen biofluids and feces .
• The CXT 350 Frozen Sample Aliquotter is a
semi-automated solution directed at smaller-
scale semi-automated access to frozen tissue
samples, bone, and cells as well as frozen
biofluids and feces . It is specifically designed to
service a lower volume lab or biobank .
In 2014, the company focused its efforts on building
its commercial capabilities, strengthening its global
distributor network, restructuring its work force,
developing application specific data sets and
working with customers to enhance the company’s
products .
In 2015, the company will pursue sales and expand
its installed base of units . Additional US direct sales
resources added in 2014 and early 2015 are being
augmented by an expanded set of international
distributors . Recent expansion has focused on Asia
with new distributors targeted for Japan, Korea and
SoundCure, Inc.
is a consumer
(SoundCure)
Inc .
SoundCure,
medical device company with a core technology
based on neuroscience used to treat tinnitus
through its acoustic therapy, branded as S-Tones .
S-Tones are temporally patterned sounds which are
customised specifically for each patient’s unique
tinnitus, generating neural activity which researchers
consider may suppress tinnitus .
SoundCure’s first product is an FDA 510(k) cleared
and CE Marked medical device in a handheld
configuration
incorporating
called Serenade
customised tracks of sound therapy including
S-Tones . An estimated 50 million Americans
experience tinnitus to some degree . Nearly a third of
this number seek medical advice and approximately
two million Americans experience tinnitus as a life-
altering, disabling condition .
Sales growth in 2014 has not been as robust as first
envisioned and 2015 will see an expanded emphasis
on market development . With e-commerce sister
company, Tinnitus Treatment Solutions (TTS), the
company will be focused on becoming the number
one online tinnitus therapy source . TTS is a cutting
edge telemedicine tinnitus health care provider and
will offer for sale, in addition to the Serenade medical
device, a variety of tinnitus and hearing products
from other manufacturers . As of this writing, supply
agreements had been completed among others
with hearing aid companies Starkey, Widex and
Resound (note that most tinnitus sufferers also have
hearing loss) .
In April 2015, SoundCure received FDA clearance
for the Remote Programing of the SoundCure
Serenade . To the company’s knowledge, this is the
first FDA clearance for a tinnitus therapy device to
be programed in a patient’s home via telemedicine .
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This would represent a unique tinnitus care tool for
telemedicine providers such as TTS, and potentially
the US Veterans Administration (VA) – many
returning soldiers suffer from tinnitus and look to the
VA for therapies upon return from duty .
Other Subsidiaries
Allied-Bristol Life Sciences, LLC
Allied-Bristol Life Sciences, LLC (ABLS) is a drug
discovery and development platform company
created in August 2014 through a partnership
between Allied Minds and Bristol Myers Squibb
(BMS) . Allied Minds and BMS provided $10 .0
million to the company resulting in Allied Minds
ownership of 80 .0% and BMS ownership of 20 .0% .
The company’s mission is to create novel drug
candidates (Early Candidate Nominations, “ECNs”
or New Chemical Entities, “NCEs”) against serious
diseases with large market size . These include
fibrosis, genetically defined diseases, cardiovascular
and immunological diseases, immune-oncology,
oncology, and virology . The focus on these diseases
is by design well aligned with the strategy of BMS .
It is intended that up to 10 drug candidates will be
sourced from US universities and national labs and
a new subsidiary will formed around each of these
candidates . Additional funding will be required to
further advance these subsidiaries .
We believe that this partnership is a “win-win”
for both parties . It provides Allied Minds with a
seasoned large pharmaceutical partner as well a
natural early stage acquirer of developing assets .
It provides BMS access to Allied Minds’ broad
licensing
university network and experienced
practices and provides a capital efficient, structured
format through which early university breakthrough
research can be advanced into the formal drug
discovery process at BMS . This partnership is
structured to reduce risk for both partners since
it is intended to drive exits of novel early stage
assets to BMS prior to human testing or clinical
trials . Both parties intend to agree on development
milestones for each subsidiary programme prior to
launching any given subsidiary and upon successful
achievement of such milestones, it is anticipated
that BMS would acquire the subsidiary or asset .
We believe that this model of upfront agreement on
exit milestones is typically deemed “early” relative to
most exits in the pharmaceutical marketplace which
require additional capital to enter clinical testing .
Since formation, ABLS has achieved the following
milestones:
• Hired Chief Executive Officer, Satish Jindal,
Ph .D ., formerly Vice President of R&D within
BMS, with prior executive positions at Vedantra
Inc ., Verastem Inc ., and NeoGenesis Inc .;
• Retained Catherine D . Strader, Ph .D . and Ben
Askew, Ph .D ., each with more than 20 years
of experience in senior research and executive
leadership positions in the biotechnology and
pharmaceutical industries, as advisors to ABLS;
• Retained Synergy Partners R&D Solutions,
LLC (Synergy) to assist with due diligence
and project management, utilizing their team
of scientists with expertise in areas such as
disease biology, medicinal chemistry, process
chemistry, toxicology, pharmacology and drug
safety, with proven track records at many of the
world’s leading biopharmaceutical companies,
including Bristol-Myers Squibb, Merck & Co .,
AstraZeneca, Pfizer Inc ., Johnson & Johnson
and Eli Lilly & Co .;
• Sourced more than 625 potential projects from
our US university partner network;
• Completed
initial evaluation of more
than
450 projects, with due diligence teams from
Allied Minds, BMS and Synergy;
• Selected approximately 20 projects
for
continued due diligence, based upon strength
of the project and alignment with BMS disease
area focus; and
• Two companies have been formed as described
below . Three additional projects are in final due
diligence .
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ABLS I, LLC
ABLS I, LLC was formed to execute on the first
project approved for investment . This project
involves licensing intellectual property with respect
to prostate oncology from an Ivy League institution,
and proceeding to pre-clinical evaluation and
development . Allied Minds expects this investment
to be completed in the second quarter of 2015 .
ABLS II, LLC
ABLS II, LLC was formed to execute on the second
project approved for investment . This project
involves licensing intellectual property with respect
to fibrotic diseases from a second Ivy League
institution, and proceeding to pre-clinical evaluation
this
and development . Allied Minds expects
investment to be completed in the second quarter
of 2015 .
Inc .
federal
research
Innovations,
Allied Minds Federal Innovations, Inc.
Allied Minds Federal
(AMFI)
was created as a vehicle designed specifically to
commercialise US federal laboratory inventions,
(PPP) with a
via public private partnerships
number of US
institutions .
The company represents the first PPP formed
between the US Department of Defence and a US
technology commercialisation firm dedicated to
bringing government inventions to market . AMFI
has a team of six employees, all of whom have
advanced degrees . As at the date of this Annual
Report, five companies have been created from
federally sourced intellectual property, including:
BridgeSat, Inc .; Federated Wireless, Inc .; Foreland
Technologies, Inc .; Whitewood Encryption Systems,
Inc .; and Percipient Networks, LLC each described
further below .
Biotectix, LLC
to develop a
(Biotectix) aims
Biotectix, LLC
new class of conductive polymer materials and
coatings for medical devices which electrically
communicate with the body including implantable
medical devices and sensors as well as other
markets . The company’s technology seeks to
address key limitations faced by the medical device
industry including foreign body reactions, surgical
invasiveness, component stability, and long-term
electrical performance in vivo . The company’s first
commercially available coating, AmpliCoat™, is
under evaluation by prospective medical device
manufacturing customers . The company has had
the following patent issue in 2014: AUSTRALIAN
PATENT# 2011224383 – Electrically Conductive
And Mechanically Supportive Materials For
Biomedical Leads (the corresponding US Patent #
8,577,476 was granted on 11/5/2013) . We believe
that this technology has the potential to offer key
benefits such as improved electrical performance,
biocompatibility and tissue response . The core
technology underlying Biotectix was sourced from
the University of Michigan .
BridgeSat, Inc.
BridgeSat, Inc . (BridgeSat) was formed in February
2015 to seek out new applications for technologies
at partner Federally Funded Research and
Development Centre, The Aerospace Corporation .
The resulting portfolio of technologies that has
been licenced or optioned to licence to BridgeSat
encompass intellectual property from Aerospace’s
small satellite efforts and select technologies from
Cambridge, Massachusetts-based MIT . BridgeSat
is developing an optical connectivity system that
aims to increase the speed, security and efficiency
of data transmissions from Low Earth Orbit (LEO)
satellites at a reduced cost compared with traditional
radio frequency solutions . Demand for accurate
and frequent data collection from LEO satellites is
expected to accelerate aggressively over the next
decade amidst declining costs for building and
launching satellites . Traditional RF communications
are constrained by
lower
bandwidth, and large transmitter payloads . Near
term, BridgeSat will deploy a downlink payload and
its associated ground stations to fully demonstrate
its advantages in volume, mass, power, and
bandwidth .
limited spectrum,
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Federated Wireless, Inc.
Federated Wireless,
(Federated Wireless)
Inc .
engages in the development and deployment of
mobile connectivity and spectrum management
software and hardware for mobile enterprises,
building and venue owners and small businesses .
flagship product, Spectrum
The company’s
Management System (SAS), is a cloud-based
dynamic spectrum management platform built
to support FCC spectrum rules for the 3 .55 GHz
band, and it allows customer to deploy high quality
in-building LTE systems at costs competitive with
enterprise Wi-Fi products .
Founded in August 2012 (originally as Allied
Communications, LLC), Federated Wireless was
formed to develop and commercialise innovative
spectrum management systems
to capitalise
on the planned restructuring by the Federal
Communications Commission (FCC) of the way
in which wireless spectrum is made available to
commercial and government users . The core
technologies underlying Federated Wireless were
sourced from Virginia Polytechnic Institute, The
Aerospace Corporation and the Naval Surface
Warfare Centre Crane Division .
the Federal Communications
In April 2015,
Commission (FCC), in a unanimous decision,
approved the formal Rule & Order governing the
dynamic sharing of federal spectrum in the 3 .5 GHz
band, thereby ensuring the necessary regulatory
authority for Federated Wireless to go to market
with its proprietary Spectrum Access System .
Foreland Technologies, Inc.
Foreland Technologies, Inc . (Foreland) was created
as a platform company for the discovery, incubation
and commercialisation of cyber security related
intellectual property, leveraging AMFI’s access to
technical innovation within Allied Minds’ partner
network . The company focuses on the following
areas:
•
large scale data management; infusion and
analytics;
•
information provenance and integrity;
• native IPv6 security technologies;
•
forensics and attribution automation;
• geo- location and data tagging / tracking;
• self-configuring and self-optimising autonomous
systems;
• cloud computing, cloud-based
information
assurance, and virtualisation security;
• active defence and cyber exploitation;
• supply chain security and hardware integrity
verification; and
• secure data storage .
intellectual property
In 2014, Foreland created
two subsidiaries,
Percipient Networks, LLC which is commercialising
intellectual property from The MITRE Corporation,
and Whitewood Encryption Systems, Inc ., which
is commercialising
from
Los Alamos National Laboratories . Foreland
Technologies is currently evaluating several core
technologies in due diligence to become the
basis of new Foreland subsidiaries; these core
technologies include those sourced from Oak
Ridge National Laboratories, the Massachusetts
Institute of Technology Lincoln Laboratory, and the
Massachusetts Institute of Technology .
LuxCath, LLC
LuxCath, LLC (LuxCath) is developing a catheter
based real-time visualisation technology for use
during cardiac ablation procedures to ensure
electrophysiologists are treating the right parts of the
heart in atrial fibrillation patients effectively . LuxCath
seeks to significantly improve the speed of ablation
procedures and outcomes and is initially focused on
optimising atrial fibrillation ablation . The technology
has been proven to identify and distinguish viable
from ablated cardiac tissue in preclinical tests . It
has been used to monitor the progression of lesion
formation as well as to determine the presence
and quality of catheter-tissue contact in preclinical
testing . All of these accomplishments have been
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performed both with standalone LuxCath devices
as well as through the integration of LuxCath
technology into an existing FDA approved ablation
catheter . Various results from these tests were
presented at the Heart Rhythm Society conference
on May 8, 2014 .
Atrial fibrillation is a commonly occurring cardiac
arrhythmia or irregular heartbeat and leads to an
increased risk of stroke, affecting approximately
2 .5 million people in the US alone . Atrial fibrillation
catheter ablation is a minimally invasive procedure
used to disconnect electrical pathway and restore
normal heartbeat and is expected to be one of the
fastest growing catheter-based cardiac procedures
in Europe in the next 5-10 years . In conjunction with
its product development partner, Nocturnal Product
Development, the LuxCath technology
is the
basis of a US government STTR (Small Business
Technology Transfer) grant titled “New Generation
of Catheters for Treatment of Atrial Fibrillation”
amounting to $200,000 . The LuxCath technology
is based on discoveries by cardiologist Dr . Marco
Mercader and colleagues at George Washington
University .
Percipient Networks, LLC
Percipient Networks, LLC (Percipient) is developing
cyber security technologies to provide network
defenders more options against advanced
threats . The company uses automated threat
remediation
interdiction capabilities, advanced
techniques, and shared intelligence platforms as
the foundational building blocks upon which the
company is developing its solution for enterprise
network defence . Percipient Networks is currently
in the commercialisation stage on its first enterprise
focused cybersecurity product . The company’s
is
first technology to be brought to market
STRONGARM, a malware protocol parser that
automates precise malware
identification and
remediation on proprietary networks . The core
technology underlying Percipient was sourced from
The MITRE Corporation and was formally licenced in
Q4 2014 as the company transitioned development
efforts of the technology from the MITRE lab to the
company’s own development team, which is led
by Todd O’Boyle (CTO) and Steven DiCato (VP,
Engineering) both previously malware analysts at
MITRE .
Since transitioning the technology from MITRE to
Percipient in late 2014 the company has introduced
its first product: STRONGARM Intelligent DNS
Blackhole, an enterprise level solution to ingest threat
intelligence and operationalise the analysis of DNS
traffic to fingerprint malware and support incidence
response in an automated fashion, saving enterprise
time and money . The product has achieved
significant technical milestones by completing a
SaaS deployment mechanism with a multi-tenant
architecture in its commercially available version
1 .0 . The company completed its first corporate
partnership agreement with Threatconnect, a
leader in threat intelligence aggregation with its
threat intelligence framework . The relationship will
help Percipient customers derive more value during
testing, pilots and ultimately in commercial use
given the high fidelity nature of this intelligence . The
company has also filed a subsequent utility patent
around the intelligent DNS black-hole capability .
Seamless Devices, Inc.
Seamless Devices, Inc . (Seamless) is a fabless
semiconductor company based in Silicon Valley,
California, that is developing devices using a
novel approach to analog signal processing . The
Seamless technology aims to simplify production of
high-performance devices even as transistors are
scaled down deep into the nanoscale . Developed
in the Columbia University Electrical Engineering
laboratory of Professor Peter Kinget, Seamless
builds upon patented switched-mode signal
processing algorithms and extends their capability
to serve a wide range of applications across
several industries, including consumer electronics,
telecommunications hardware,
instrumentation,
network hardware, healthcare devices and
even
transportation and military systems . As
semiconductor chips scale to increasingly finer
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Portfolio Review and Developments (continued)
features, the available voltage to circuit elements
also diminishes, presenting difficulties in analog and
mixed-signal applications . Typically these issues
are addressed by adding additional complexity to
the design or suffer with lower efficiency . Seamless
Devices’ switched-mode analog signal processing
technology takes advantage of the fact that as
timing resolution in integrated circuits becomes
more accurate, transforming analog signals into
a time-based form can preserve a high degree of
signal fidelity in an elegant, lower power solution .
Seamless Devices will initially develop solutions
for the semiconductor intellectual property (IP)
market, which involves licensing IP blocks that
are incorporated into system-on-chip integrated
circuits . Within the analog IP market, the company
expects to offer analog-to-digital converters (ADC)
for wireless connectivity applications, meeting an
accelerating demand for ADCs that can operate at
high bandwidth and high resolution in a low power
environment .
Whitewood Encryption Systems, Inc.
Whitewood Encryption Systems, Inc . (Whitewood)
commenced operations in August 2014 with a seed
round of funding following incubation at Foreland
Technologies, Allied Minds’ cyber security platform
company, to produce next generation systems of
data encryption that leverage advanced quantum
cryptography technologies originating from Los
Alamos National Lab (LANL) . In current network
infrastructures, the increasing mass quantity and
speed requirements of data being transferred is
considered to be presently at odds with the market
demand for more ubiquitous encryption to protect
consumers and businesses from malicious, costly
attacks and data leakages . While businesses and
government entities have expressed a greater need
for encryption of data both at rest and in transit,
the performance of current encryption technologies
may not scale linearly to address this need; rather,
as encryption algorithms become more complex
the
improving adversarial capabilities,
given
encryption keys necessary to support the encryptor
will become increasingly longer and more prolific .
As a result, scaling current software and hardware
encryption systems may have a significant impact
on network latency and computational intensity,
making the widespread adoption of improved data
encryption potentially costly and discouraging .
Additionally, the development of high performance
quantum computing capabilities in the future puts
into jeopardy the cryptographic capabilities of
existing systems of public key cryptography .
Against this backdrop, Whitewood is producing
key management systems for encryption which
are designed to be of lower computational intensity
and lower latency, while providing for a high level of
data integrity believed to be impervious to quantum
computing attacks and offered at lower price points
than that of existing competitive systems . Since
the company’s inception, Whitewood has formally
licenced 21 patents and patent submissions from
LANL and has funded a Cooperative Research and
Development Agreement (CRADA) at LANL for the
further technical development and productisation
of the company’s first product, a high throughput,
high entropy quantum random number generator
and entropy management system for providing the
necessary randomness to support existing systems
of key management, which is anticipated for market
release in Q3 2015 . Additionally, the company
received a new patent approval in February 2015
for the patent Secure Multi-Party Communication
with Quantum Key Distribution Managed by Trusted
Authority .
Dissolved Subsidiaries
Consistent with the Allied Minds’ model, where a
project has failed to deliver sufficient additional
proof points and no longer supports on-going
development and commercialisation activity, and
cannot be successfully redirected to an alternative
commercial path, Allied Minds will look to terminate
the investment early .
Allied Minds Devices, LLC
In April 2015, Allied Minds terminated and dissolved
its subsidiary Allied Minds Devices, LLC (AMD) .
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The company was initially formed to develop
commercially viable medical device products . Allied
Minds determined that the two technologies in the
development stage did not meet key milestones
which were designed to measure technological and
commercial progress . At the time of dissolution,
Allied Minds had invested $1 .3 million in AMD, and
had an Ownership Adjusted Value (OAV) in the
investment of $nil .
Broadcast Routing Fountains, LLC
In April 2015, Allied Minds terminated and dissolved
its subsidiary Broadcast Routing Fountains, LLC
(BRF) . The company was initially formed to develop
an internet infrastructure technology that would
supplement the border gateway protocol with a
view to improving the way networks communicate .
Allied Minds determined that the technology did
not meet key milestones which were designed to
measure technological and commercial progress .
At the time of dissolution, Allied Minds had invested
$0 .6 million in BRF, and had an Ownership Adjusted
Value (OAV) in the investment of $nil .
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ANNUAL REPORT AND ACCOUNTS 2014
Financial Review
The financial results of the year reflect the Group’s sustainable model of deploying patient capital into
our continuously growing portfolio of Group controlled businesses at the right pace . We significantly
strengthened our balance sheet with the proceeds from the Company’s listing on the London Stock
Exchange in 2014 which raised $155 .0 million (before issue costs) as well as $54 .5 million raised from
external investors directly into our subsidiaries .
Consolidated Statement of Comprehensive Loss
For the years ended 31 December
Revenue
Cost of revenue
Selling, general and administrative expenses
Research and development expenses
Finance income/(cost)
Other comprehensive (loss)/income
Total comprehensive loss of which attributable to:
Equity holders of the parent
Non-controlling interests
2014
$’000
7,715
(5,416)
(38,032)
(22,195)
222
(159)
(57,865)
(45,637)
(12,228)
2013
$’000
2,936
(2,342)
(27,472)
(15,689)
(140)
35
(42,672)
(34,466)
(8,206)
Revenue increased by $4 .8 million, to $7 .7 million in 2014 (2013: $2 .9 million) . This increase is mainly
attributable to the higher product revenue at RF Biocidics, as well as the increasing sales at CryoXtract
systems when compared to last year . The revenue in the early stage companies segment remained
relatively consistent at $0 .4 million in 2014 (2013: $0 .5 million) . Cost of revenue increased by $3 .1 million,
proportionately to the increase in revenue from prior year .
Selling, general and administrative (SG&A) expenses increased by $10 .5 million, to $38 .0 million for the
year ended 31 December 2014 (2013: $27 .5 million) largely due to incremental cost incurred due to the
IPO in June 2014 as well as the overall growth of the Group . Of this increase $4 .9 million relates to an
increase in personnel expenses reflecting the increase in headcount and salaries as well as the increase
in non-cash share-based compensation expense by $2 .7 million, of which $2 .4 million was due to the
acceleration of vesting of options under the old US Stock Plan upon the IPO in addition to instituting the
new UK LTIP plan under Allied Minds plc . The increase is also attributed to some incremental cost incurred
in 2014 associated with the listing of Allied Minds on the London Stock Exchange, which is not otherwise
offset against the net proceeds from the offering, reflected mainly in a $3 .0 million increase in professional
services to $5 .6 million (2013: $2 .6 million) .
Research and development (R&D) expenses increased by $6 .5 million to $22 .2 million for the year ended
31 December 2014 (2013: $15 .7 million) . The increase is attributed to the overall growth of the Group’s
research and development activities, reflecting the creation of six new subsidiaries in 2014 and ramping up
full scale of R&D activities of companies created in late 2012 and into 2013 .
As a result of the above discussed factors, total comprehensive loss increased by $15 .2 million to
$57 .9 million for the year ended 31 December 2014 (2013: $42 .7 million) . Total comprehensive loss for the
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Financial Review (continued)
year attributed to the equity holders of the Group was $45 .6 million (2013: $34 .5 million) and $12 .2 million
(2013: $8 .2 million) was attributable to the owners of non-controlling interests .
Consolidated Statement of Financial Position
As of 31 December
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Current assets
Total assets
Non-current liabilities
Current liabilities
Equity
Total liabilities and equity
2014
$’000
44,039
248,991
293,030
717
12,499
279,814
293,030
2013
$’000
23,027
108,778
131,805
3,210
8,736
119,859
131,805
Significant performance-impacting events and business developments reflected in the Company’s financial
position at year end include:
• Property and equipment decreased by $1 .7 million to $16 .3 million as at 31 December 2014 (2013:
$18 .0 million), mainly reflecting depreciation expense of $2 .3 million for the period, the sale of machines
in normal trade for $2 .8 million and reclass of remaining systems into inventory for $1 .3 million at RF
Biocidics, offset by capital purchases for the period of approximately $4 .7 million, of which $3 .9 million
by Spin Transfer;
•
•
Intangible assets as of 31 December 2014 decreased by $1 .1 million to $3 .4 million (2013: $4 .5 million)
mainly as a result of amortisation expense of $0 .6 million and impairment of $1 .1 million of intellectual
property returned by SciFluor, offset by new additions of $0 .4 million in software and licences purchases
and $0 .2 million in capitalised development costs in CryoXtract;
Investment in associate increased to $1 .6 million (2013: nil) as a result of the investment by one of the
subsidiaries . In March 2014, RF Biocidics acquired a minority interest of 28 .5% in Stalam SpA (Stalam)
in Italy, a manufacturer of radio frequency equipment for $1 .5 million;
• Other investments, non-current increased to $22 .2 million (2013: nil) reflecting the investment of excess
cash into fixed income government and corporate securities that have maturities longer than twelve
months;
• Other non-current assets, including non-current financial assets remained relatively consistent at
$0 .5 million when compared to prior year;
• Cash and cash equivalents increased by $119 .5 million to $224 .1 million at 31 December 2014 from
$104 .6 million at 31 December 2013 . The increase is mainly attributed to the net proceeds from the
IPO of approximately $142 .9 million and $11 .5 million from the exercise of options in Allied Minds,
plus approximately $54 .5 million from the third-party investors in subsidiary rounds in 2014, of which
$50 million was invested in Spin Transfer . The increase in cash and equivalents for the year was offset
by $45 .4 million net cash used in operations, $40 .7 million used in capital and other investing activities,
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Financial Review (continued)
of which $37 .4 million for the purchase of fixed income security investments, and $3 .3 million used in
financing activities for repayment of loans;
• Other investments, current increased to $15 .2 million (2013: nil) reflecting the investment of excess cash
into fixed income government and corporate securities that have maturities shorter than twelve months;
•
Inventories increased by $1 .9 million to $2 .9 million as at 31 December 2014 (2013: $1 .0 million)
reflecting the purchases of inventories of $2 .2 million and the reclass of $1 .3 million from property and
equipment mentioned above, offset by cost of goods sold of $2 .5 million;
• Trade and other receivables increased by $3 .4 million to $6 .3 million at 31 December 2014 (2013:
$2 .9 million) as a result of increase in prepaid and other current assets of $4 .2 million, net of their
amortisation, mainly from advance payments for inventory units at RF Biocidics of $3 .0 million, offset by
trade receivables net decrease of $0 .8 million reflecting collections of receivables from sales that were
invoiced close to 31 December 2013 at RF Biocidics and CryoXtract;
• The loans balance, current and non-current, decreased to $0 .6 million as of 31 December 2014 (2013:
$3 .8 million) reflecting the repayment of the loans at CryoXtract and Spin Transfer . The loan at Spin
Transfer was fully repaid in 2014;
• With the increase of its sales and pipeline, RF Biocidics is collecting deposits from customers as
installment payments against purchases of its products . This accounts for the majority of the deferred
revenue balance (current and non-current) of $1 .1 million as of 31 December 2014, which decreased
from $2 .8 million as of 31 December 2013 as revenue from these sales was recognised in 2014; and
• As noted above, Allied Minds completed an IPO and listed on the Main Market of the LSE in June
2014, which is the main factor for the increase in the share premium to $153 million as of 31 December
2014 (2013: nil) . Additionally, other reserve increased by approximately $9 .0 million to $28 .8 million
(2013: $19 .8 million) as a result of the share-based compensation expense charge for the period .
Due to the merger of Allied Minds, Inc . (now Allied Minds LLC) into Allied Minds plc as part of the IPO
process in June 2014 all issued and outstanding options under the US Stock Plan vested on 19 June
2014 and 7,662,424 options were exercised, resulting in the accelerated share-based payment charge
of additional $2 .4 million for the period . Furthermore, $54 .5 million from the third-party investors in
subsidiary rounds were contributed to non-controlling interests in 2014 . The additions to total equity
were offset by the net comprehensive loss for the year of $57 .9 million (2013: $42 .7 million) .
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Financial Review (continued)
Consolidated Statement of Cash Flows
For the years ended 31 December
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents in the beginning of the year
Cash and cash equivalents at the end of the year
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$’000
(45,377)
(40,731)
205,632
119,524
104,551
224,075
2013
$’000
(35,078)
(10,675)
116,555
70,802
33,749
104,551
The Group’s net cash outflow from operating activities of $45 .4 million in 2014 (2013: $35 .1 million) was
primarily due to the net operating losses for the year of $57 .9 million plus the net effect from movement in
working capital and other net finance cost of $1 .0 million, offset by adjustment for non-cash items such as
depreciation, amortisation, and share-based expenses of $13 .3 million and interest received net of paid of
$0 .2 million .
The Group had a net cash outflow from investing activities of $40 .7 million in 2014 (2013: $10 .7 million)
mainly reflecting the purchases of fixed income investment securities of $37 .4 million and the acquisition
of minority interest in associate by RF Biocidics of $1 .6 million . These outflows were offset by $9 .3 million
lower purchases of property and equipment, when compared to higher capital purchases in 2013 due to
the build out of a ‘clean room’ for the research and development activities at Spin Transfer Technologies,
as well as capital purchases of equipment at some of the other subsidiaries .
The Group’s net cash inflow from financing activities of $205 .6 million in 2014 (2013: $116 .6 million) largely
reflects the net proceeds from the IPO of approximately $142 .9 million and $11 .5 million proceeds from
the exercise of stock options under the US Stock Plan, compared to net proceeds from the Series B
round in Allied Minds, Inc . (now Allied Minds, LLC) in 2013 . Additionally, this increase reflected higher
proceeds from issuance of share capital in subsidiaries of $54 .5 million from the rounds in Allied- Bristol
Life Sciences, Optio Labs and Spin Transfer in 2014, compared to the second tranche of $14 .5 million
from STT’s financing round received in 2013 . The cash provided in financing activities was offset by the net
repayments of loans at CryoXtract and STT of $3 .2 million compared to net borrowings against the loans
of $2 .9 million in 2013 .
The Group’s strategy is to maintain healthy, highly liquid cash balances that are readily available to
support the activities of its subsidiaries by providing working capital, maintaining the level of research and
development activities required to achieve the set milestone goals, and acquiring capital equipment where
necessary to support research and development activities . To further minimise its exposure to risks the
Group does not maintain any material borrowings or cash balances in foreign currency .
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Risk Management
The execution of the Group’s strategy is subject to a number of risks and uncertainties . A key focus for the
Board is to formally identify the main risks facing the Group and develop a robust and effective framework
to ensure that the risks are both well understood and appropriate to achieve the stated corporate goals .
This process needs to address both risks arising from the internal operations of the Group and those arising
from the business environment in which it operates . It is possible that one or more of these identified risks
could impact on the Group in a similar timeframe which may compound their effects .
As an early-stage investor in start-ups, the Group inherently operates in a high risk environment . The
overall aim of the risk management policy is to achieve an effective balancing of risk and reward, although
ultimately no strategy can provide an absolute assurance against loss .
The major risks and uncertainties identified by the Board are set out below along with the consequences
and mitigation strategy of each risk .
1 . The science and technology being developed or commercialised by the Group’s businesses may fail
and/or the Group’s business may not be able to develop their intellectual property into commercially
viable products or technologies . There is also a risk that certain of the subsidiary businesses may fail or
not succeed as anticipated, resulting in an impairment of the Group’s value .
Impact: The failure of any of the Group’s subsidiary businesses would impact the Group’s value . A
failure of one of the major subsidiary businesses could also impact on the perception of the
Group as a builder of high value businesses and possibly make additional fund raising at the
Group or subsidiary level more difficult .
Mitigation:
• Before making any investment, extensive due diligence is carried out by the Group which
covers all the major business risks including market size, strategy, adoption and intellectual
property .
• The initial seed round investment is typically quite small with incremental investment only
being made on successful completion of milestones .
• A capital efficient approach is pursued such that proof of concept has to be achieved
before substantial capital is committed .
• Members of the Group’s management team who carry out the initial due diligence initially
run the subsidiary in its incubation phase and subsequently move to becoming independent
directors staying with the project to help ensure consistency of management . The Group’s
point of contact will stay in regular contact with the senior management of the subsidiary
business .
• During incubation phase, we closely monitor milestone developments should a project fail
to achieve sufficient progress, we terminate the investments .
• The investment committee carries out face to face quarterly reviews with the management
of each of the subsidiary businesses .
• The shared services model provides significant administrative support to the subsidiary
business whilst the budgetary and financial controls ensure good governance .
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Risk Management (continued)
• Within the Group there is a wealth of management expertise which can be called upon to
support each of the subsidiary businesses where necessary .
•
In addition, the Group actively uses third party advisors and consultants, specific to the
particular domain in which subsidiary business operates to assist on market strategy and
direction .
2 . The Group expects to continue to incur substantial expenditure in further research and development
activities of its businesses . There is no guarantee that the Group will become profitable and, even if it
does so, it may be unable to sustain profitability .
Impact: The strategic aim of the business is to generate profits for its shareholders through the
investment into IP-based start-ups, delivering value through capital gain . As such profits will
be generated on exits . The timing and size of these potential inflows is uncertain and should
exits not be forthcoming, or in the event that they are achieved but at values significantly less
than the amount of capital invested, then it would be difficult to sustain the current levels of
investment in the subsidiary businesses and continue to make new investments . This will lead
to reduced activity across the Group . In turn this could make raising additional capital at the
Group level difficult and it could ultimately lead to the failure of the Group as a whole .
Mitigation:
• The Group retains significant cash balances in order to support its internal cash flow
requirements .
• The Group has close relationships with a wide group of investors, including its shareholder
base to ensure it can continue to access the capital markets .
• Senior management continually seek to create additional strategic relationships for the
Group .
3 . If any of the Group’s relationships with US universities and federal government institutions were to break
down or be terminated or expire then the Group would lose any rights that it has to act as a private
sector partner in the commercialisation of intellectual property being generated by such universities,
other research intensive institutions or US federal research institutions .
Impact: Termination of certain of the Group’s existing relationships would impact the quantity and
potential quality of the Group’s deal flow . This may in turn prevent the Company from achieving
its stated aim of completing five to ten new deals per year . This could potentially have an
adverse effect on the Group’s long term prospects and performance .
Mitigation:
• The Group currently receives in excess of 2,000 items of intellectual property per year from
its 68 partner institutions . The risk of losing deal flow through the termination of relationships
is greatly lessened by the wide portfolio and geographic spread of our partners .
• The Group continues to add partners to its network .
• The Group has recently hired a dedicated resource to manage and expand the partner
network .
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Risk Management (continued)
4 . A majority of the Group’s intellectual property relates to technologies originated in the course of research
conducted in, and initially funded by, US universities or other federally-funded research institutions .
Although the Group has been granted exclusive licences to use this intellectual property there are
certain limitations inherent in these licences, for example as required by the Bayh-Dole Act of 1980 .
Impact: There are certain circumstances where the US government have rights to utilise the underlying
intellectual property without any economic benefit flowing back to the Group . In the event this
were to happen this could impact the financial return to the Group on its investment in the
subsidiary business .
Mitigation:
• To the Board’s knowledge, while these so called “march in” rights exist, the US government
has never had cause to use them .
• The Group seeks to develop dual use capabilities for the technology it licences and
generally tends to avoid use cases directly applicable to government use .
• This risk is also mitigated through employing experienced technology transfer experts
supported by our legal team to assess risks that may arise out of this eventuality .
5 . The Group currently has in place cooperative research and development agreements with certain US
Department of Defence laboratories and federal funded government institutions . Certain regulatory
measures apply to these agreements which restrict the export of information and material that may be
used for military or intelligence applications by a foreign person .
Impact: If the Group were to breach restrictions on the use of certain licenced technologies, particularly
those derived from federally funded research facilities, this could materially impact upon the
Groups ability to licence additional IP from these establishments . In certain circumstances it
may also lead to the termination of existing licences . In the event that this were to happen this
could materially affect a number of the Groups businesses and potentially harm the reputation
and standing of the Group and cause the termination of certain important relationships with
federally funded research institutions .
Mitigation:
• Prior to the commercialisation process the Group’s management seeks to obtain all
the necessary clearances from applicable regulatory bodies to ensure that the export of
products based upon the licenced IP is strictly in accordance with government guidelines .
• The Group employs a number of individuals with experience of working with various
government agencies .
• Senior management are fully cognisant with the regulations and sensitivities in relation
to this issue and in particular with International Traffic in Arms Regulations (ITAR) which
regulate the use of technologies for export, and has numerous mitigating actions available
should issues arise .
6 . The Group operates in complex and specialised business domains and requires highly qualified and
experienced management to implement its strategy successfully . All of the operations of the Group and
its subsidiary businesses are located in the United States which is a highly competitive employment
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market . There is a risk that the Group may lose key personnel, or fail to attract or retain new personnel .
Furthermore, given the relatively small size of the senior management at the corporate level, the Group
is reliant on a small number of key individuals .
Impact: The loss of key personnel would have an adverse impact on the ability of the Group to continue
to grow and may negatively affect the Group’s competitive advantage .
Mitigation:
• The Board annually seeks external expertise to assess the competitiveness of the
compensation packages of its senior management .
• Senior management continually monitor and assess compensation levels to ensure the
Group remains competitive in the employment market .
• While staff turnover has historically been low and the Group continues to attract highly
qualified individuals, management encourages development and inclusion through
coaching and mentoring programmes .
7 . A large proportion of the overall value of the Group’s businesses may be concentrated in a small
proportion of the Group’s businesses . If one or more of the intellectual property rights relevant to a
valuable business was terminated this would have a material adverse impact on the overall value of the
Group’s businesses .
Impact: The termination of critical IP licences would materially impact the value of the subsidiary
business and have a consequent effect on the value of the overall Group .
Mitigation:
•
In each subsidiary the management is specifically directed to pursue a policy of generating
and patenting additional intellectual property to both provide additional protection and
create direct IP ownership for the subsidiary business .
• Where possible the Group seeks to negotiate intellectual property ownership rights in any
research and development agreement it enters into with a network partner, such that the
Group becomes a part owner of the underlying IP .
• The Group has a diversified portfolio of subsidiary businesses . The value of any one of its
subsidiaries relative to the aggregate value of the Group is closely monitored to ensure that
the concentration risk of any on subsidiary is not disproportionate .
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Risk Management (continued)
8 . Clinical studies and other tests to assess the commercial viability of the product are typically expensive,
complex and time-consuming, and have uncertain outcomes . If the Company fails to complete or
experiences delays in completing tests for any of its product candidates, it may not be able to obtain
regulatory approval or commercialise its product candidates on a timely basis, or at all .
Impact: Significant delays in any of the clinical studies to support the appropriate regulatory approvals
could significantly impact the amount of capital required for the subsidiary business to
become fully sustainable on a cash flow basis . A critical failure in any stage of a clinical testing
programme would probably necessitate a termination of the project and a loss of the Group’s
investment .
Mitigation:
• The group has dedicated internal resource to establish and monitor each of the clinical
programmes in order to try and maximise successful outcomes .
• During the evaluation and due diligence phase prior to the initial investment focus is placed
on an analysis of the risks of the clinical phase of development .
• Prior to the launch of any clinical testing it will be normal for a dedicated management team
(and in certain cases an advisory team to include key opinion leaders (KOLs)) to be hired,
and experience with the management of clinical programmes would be a prerequisite
qualification .
•
In the event of the outsourcing of these trials, care and attention is given to assure the
quality of the Contract Research Organisation (CRO) vendors used to perform the work .
This Strategic Report has been approved by the Board of Directors .
ON BEHALF OF THE BOARD
Mark Pritchard
Executive Chairman
28 April 2015
Chris Silva
Chief Executive Officer
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G
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The Board
Executive Directors
Mark Pritchard – Executive Chairman
Mark founded Allied Minds in 2004 and has been directly involved in its strategic direction and growth
since inception . Mark spent his earlier career as an investment banker based in the City of London, latterly
working as a director in the corporate finance department of Nomura International . He has been an active
investor in a number of early stage companies, including FuturaGene a spin out from Purdue University,
Indiana . FuturaGene PLC was admitted to the AIM market in 2005 and Mark was Chairman from 2006
until its acquisition by Suzano Papel e Celulose, a Brazilian based multinational in 2010 . He graduated from
Cass Business School, London in 1984 with a B .Sc (Hons) . Mark was appointed to the Board in April 2014,
but was a member of the predecessor company board since 2004 .
Christopher Silva – Chief Executive Officer
Chris joined Allied Minds in March 2006 . Before joining Allied Minds, Chris was a Partner at JSA Partners,
a professional M&A and strategy consultancy in Boston, MA, which provides high technology companies
with market entry, competitive strategy, acquisitions and investment decisions . His consulting background
includes three years with A .T . Kearney’s Aerospace Aviation and Defence Practice . Chris was also the
Director of Business Development for GRC International, a scientific and technical support contractor to
the Department of Defence and US Intelligence Community . Earlier, Chris served in the US Air Force . Chris
holds a BA degree from Tufts University and a Masters of Business Administration . Chris was appointed to
the Board in April 2014, but was a member of the predecessor company board since 2006 .
Non-Executive Directors
Peter Dolan – Senior Independent Non-Executive Director
Peter joined Allied Minds in April 2014 . Peter has 30 years of operating experience, including 18 years
at Bristol-Myers Squibb, where he served as Chairman and CEO . He subsequently served as Chairman
and CEO of Gemin X, a venture capital backed oncology company that was sold to Cephalon . Peter is
the Chairman of the Board of Trustees of Tufts University having served in several leadership capacities,
including Vice Chair, and as a member of the Compensation, Academic Affairs and Audit Committees,
before his election as Chairman in November 2013 . Most recently, Peter served on the Board of Overseers
of the Tuck School at Dartmouth College and on the Board of Directors of the National Centre on Addiction
and Substance Abuse at Columbia University . Additionally, he has served on the Boards of the American
Express Company, C-Change (a cancer coalition organisation), and was Chairman of the Pharmaceutical
Research and Manufacturers of America . Peter holds a Bachelor of Arts degree from Tufts University
in Social Psychology and a Master of Business Administration degree from the Amos Tuck School of
Business at Dartmouth . Peter was appointed to the Board in May 2014, and serves on each of the Audit,
Nomination (Chairman), and Remuneration Committees .
Jeffrey Rohr – Non-Executive Director
Jeff joined Allied Minds in April 2014 . He has 30 years of senior management experience at Deloitte LLP .
Jeff has career long experience serving clients in a multitude of industries and extensive experience in
governance processes having last served in the role of Vice Chairman and Chief Financial Officer at Deloitte .
In the role of CFO, Jeff was responsible for all aspects of financial affairs of the Deloitte Global Firm and
the Deloitte US Firm, including strategy, accounting and financial reporting, treasury, capital adequacy,
liquidity, taxes, pensions, and risk management . Previously, Jeff served as the Managing Partner of
Deloitte’s Midwest and Mid-Atlantic regions as well as National Director of Deloitte’s Business Planning .
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The Board (continued)
Currently, Jeff serves on a number of Boards and Foundations . He is a member of the Board of Directors
of American Express Centurion Bank where he is the Chairman of the Audit and Risk Committee, has for
nine years served as Chairman of the Audit Committee of the Florida State University Foundation Board
of Trustees and is Chairmen of the College of Business Board of Governors . Jeff is a graduate of Florida
State University with a B .S degree in Accounting and is a Certified Public Accountant . Jeff was appointed
to the Board in May 2014, and serves on each of the Audit (Chairman), Nomination, and Remuneration
Committees .
Richard Davis – Non-Executive Director
Rick joined Allied Minds in August 2011 . Rick is an internationally recognised political leader with more than
30 years of experience in business and public affairs . Rick currently serves as a Partner and Chief Operating
Officer at Pegasus Capital Advisors, a $2 .2 billion private equity fund founded in 1995 . He has a long and
distinguished career in both the public and private sector . Having served on President Ronald Reagan’s
political team, Rick also served in three Reagan Administration Cabinet Agencies including as White House
Special Assistant to the President for the Domestic Policy Council . In his capacity in the White House Rick
managed all policy development related to Climate, Energy and Environment . President George H .W . Bush
appointed him as Deputy Executive Director for the White House Conference on Science and Economic
Research Related to Global Climate Change . While in the private sector Rick built one of the most influential
and successful public affairs companies in the United States . In 2000 and 2008 Rick served as Senator
John McCain’s national campaign manager leading all aspects of the campaign activity . While serving as
Senator McCain’s chief strategist and political advisor Rick was integral in the development of some key
legislative initiatives including ground breaking Climate Legislation and Campaign Finance Reform . Rick
currently serves on the Board of The Environmental Defence Action Fund developing initiatives and ties to
the corporate community that promotes better stewardship of the environment . Rick was appointed to the
Board in May 2014, but was a member of the predecessor company board since 2011, and serves on each
of the Audit, Nomination, and Remuneration Committees (Chairman) .
Table of Board Attendance
The table below summarises the attendance of the Directors at the scheduled meetings held during the
year:
Director
Mark Pritchard
Chris Silva
Rick Davis
Peter Dolan
Jeff Rohr
Meetings Attended
Audit
Committee
Nomination
Committee
Remuneration
Committee
–
–
4 of 4
4 of 4
4 of 4
–
–
1 of 1
1 of 1
1 of 1
–
–
2 of 2
2 of 2
2 of 2
Board
11 of 11
11 of 11
10 of 11
10 of 11
10 of 11
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Directors’ Report
The Directors present their report together with the audited financial statements for Allied Minds plc and
its subsidiaries for the year ended 31 December 2014 . The Company was incorporated on 15 April 2014
under the UK Companies Act 2006 .
Directors
The Directors of the Company as at 31 December 2014 were those listed on pages 43 to 44 . The only
changes to the composition of the Board during the year were the appointments of Peter Dolan and
Jeffrey Rohr as Non-Executive Directors prior to the completion of the initial public offering . Each of Mark
Pritchard, Chris Silva and Rick Davis served on the predecessor company board . The Directors’ interests
in the share capital of the Company are as shown in the Directors’ Remuneration Report on page 81 . None
of the Directors was materially interested in any significant contract to which the Company or any of its
subsidiaries were party during the year .
Corporate Governance
Information that fulfils the requirements of the corporate governance statement can be found in the
Corporate Governance Report on pages 51 to 60 and is incorporated into this Report of the Directors by
reference .
Employees
The Group’s policies in relation to employees are disclosed on page 62 .
Results and Dividends
During the period, the Group generated a net loss after taxation for the year ended 31 December 2014 of
$57 .9 million (2013: $42 .7 million) . The Directors do not recommend the payment of a dividend for 2014
(2013: nil) .
Strategic Report
The Group’s Strategic Report can be found on pages 5 to 42, and includes information as to the likely
future development of the Group . Financial key performance indicators can be found on page 22 .
The Strategic Report contains forward-looking statements with respect to the business of Allied Minds .
These statements reflect the Board’s current view, are subject to a number of material known and unknown
events, risks and uncertainties, and could change in the future . Factors that could cause or contribute to
such changes include, but are not limited to, general economic climate and trading conditions, as well as
specific factors relating to the financial or commercial prospects or performance of the Group’s individual
subsidiary companies, the ability to consummate expected transactions, and the ability to identify promising
new technologies invented by university or Federal laboratory partners .
Principal Risks and Uncertainties and Financial Instruments
The Group through its operations is exposed to a number of risks . The Group’s risk management objectives
and policies are described on pages 38 to 42 and in the Governance Report on pages 58 to 59 . Further
information on the Group’s financial risk management objectives and policies, including those in relation
to credit risk, liquidity risk and market risk, is provided in note 22 to the consolidated financial statements,
along with further information on the Group’s use of financial instruments .
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Directors’ Report (continued)
Significant Agreements
The Group has not entered into any significant agreements which may be impacted by a change of control
following a takeover bid .
Share Capital
Details of the structure of the Company’s share capital and the rights attaching to the Company’s shares
are set out in note 16 to the consolidated financial statements . Other than the lock-up agreements entered
into by all Executive Directors and Allied Minds’ employees in connection with the IPO which expire on
25 June 2015, there are no specific restrictions on the holding of securities or on the transfer of shares,
which are both governed by the general provisions of the Company’s Articles of Association (Articles) and
prevailing legislation . None of the ordinary shares carry any special rights with regard to control of the
Company and there are no restrictions on voting rights .
Articles of Association
The Company’s Articles may be amended by a special resolution of the shareholders .
Substantial Shareholders
As at 31 December 2014, the Company had been advised of the following shareholders with interests of
3% or more in its ordinary share capital . Other than as shown, so far as the Company (and its directors) are
aware, no other person holds or is beneficially interested in a disclosable interest in the Company .
Shareholder
Invesco Asset Management Limited
Woodford Investment Management
Mark Pritchard
SandAire
P3 Private Equity Fund
Number of
Shares
89,957,038
34,260,094
22,407,704
10,227,867
8,701,330
Percentage
41 .95%
15 .98%
10 .45%
4 .77%
4 .06%
Between the year end and 27 April 2015, the Company was advised pursuant to DTR 5 that Woodford
Investment Management had increased its holdings to 36,328,342 shares, or 16 .94% .
Relationship Agreement
In accordance with Listing Rule 9 .8 .4 (14), the Company has set out below a statement describing the
relationship agreement entered into by the Company with its principal shareholder .
On 19 June 2014, the Company entered into a Relationship Agreement with Invesco Investment Asset
Management Limited, which will came into force at the IPO . The principal purpose of the Relationship
Agreement is to ensure that the Company is capable at all times of carrying on its business independently
of Invesco .
If any person acquires control of the Company or the Company ceases to be admitted to the Official List,
the Relationship Agreement may be terminated by Invesco . If Invesco (together with its associates) ceases
to hold 30% or more of the voting rights over the Company’s shares, the Relationship Agreement shall
terminate save for certain specified provisions .
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Directors’ Report (continued)
The Relationship Agreement provides that Invesco undertakes to use all reasonable endeavors to procure
that its associates and any person with whom it is acting in concert shall:
• conduct all agreements, arrangements, transactions and relationships with any member of the Group
on an arm’s length basis and on a normal commercial basis and in accordance with the related party
transaction requirements of Chapter 11 of the Listing Rules;
• not take any action that would have the effect of preventing the Company from complying with its
obligations under the Listing Rules or precludes or inhibits any member of the Group from carrying on
its business independently of Invesco, its associates and any person with whom it is acting in concert;
• not propose or procure the proposal of a shareholder resolution which is intended to, or appears to be
intended to, circumvent the proper application of the Listing Rules; and
• not exercise any of its voting rights attaching to the shares held by it to procure any amendment to the
articles of association of the Company which would be inconsistent with, undermine or breach any of
the provisions of the Relationship Agreement .
The Board believes that the terms of the Relationship Agreement enable the Company to carry on its
business independently from Invesco and its affiliates, and ensure that all transactions and relationships
between the Company and Invesco are, and will be, at arm’s length and on a normal commercial basis .
The Company has and, in so far as it is aware, the Invesco and its associates have, complied with the
independence provisions set out in the Relationship Agreement from the date of the agreement, during the
relevant period under review . The ordinary shares owned by Invesco rank pari passu with the other ordinary
shares in all respects .
Political Donations
The Group did not make any political donations in 2013 or 2014 .
Corporate and Social Responsibility
Details on the Group’s policies, activities and aims with regard to its corporate and social responsibilities is
included in the Sustainability section on pages 61 to 62 .
Directors’ Indemnity and Liability Insurance
During the year, the Company has maintained liability insurance in respect of its directors . Subject to the
provisions of the Companies Act 2006, the Articles provide that every director is entitled to be indemnified
out of the funds of the Company against any liabilities incurred in the execution or discharge of his or her
powers or duties .
Issuance of Equity by Major Subsidiary Undertaking
On 9 October 2014, the Company’s major subsidiary, Spin Transfer Technologies (STT), raised $70 .0 million
to accelerate commercialisation of its innovative computer memory technology . Of the $70 .0 million raised
in the financing, the Company contributed $20 .0 million for the purchase of 1,686,340 preferred shares,
Woodford Investment Management (Woodford) contributed $27 .85 million for the purchase of 2,348,561
preferred shares, Invesco Asset Management (Invesco) contributed $21 .65 million for the purchase of
1,825,133 preferred shares, and SandAire contributed $0 .5 million for the purchase of 42,158 preferred
shares . Woodford and Invesco are each a substantial shareholder of Allied Minds pursuant to the Listing
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Directors’ Report (continued)
Rules, and thus this transaction was a smaller related party transaction falling within the scope of Listing
Rule 11 .1 .10R .
Requirements of the Listing Rules
The following table provides references to where the information required by Listing Rule 9 .8 .4R is disclosed:
Section Listing Rule requirement
Location
1
2
4
5
6
7
8
9
10
11
12
13
14
Interest capitalised
Publication of unaudited financial information
Details of long-term incentive schemes
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre-emptive issues of equity for cash
Non pre-emptive issues of equity for cash by any major
subsidiary undertaking
Parent participation in a placing by a listed subsidiary
Contract of significance with director
Provision of services by a controlling shareholder
Shareholder waivers of dividends
Shareholder waivers of future dividends
Relationship agreements with the controlling shareholder
Not applicable
Not applicable
Directors’ Remuneration Report,
page 63
Not applicable
Not applicable
Not applicable
Directors’ Report, page 47
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Directors’ Report, pages 46 to 47
Post Balance Sheet Events
Material events occurring since the balance sheet date are disclosed in the Strategic Report . In summary,
they are:
•
•
•
In February 2015, Allied Minds formed and funded BridgeSat, in collaboration with The Aerospace
Corporation, Draper Laboratory, Massachusetts Institute of Technology Assistant Professor Dr . Kerri L .
Cahoy and the graduate student team in the Space, Telecommunications, Astronomy, and Radiation
(STAR) Laboratory, to develop an optical connectivity system that aims to increase the speed, security
and efficiency of data transmissions from Low Earth Orbit (LEO) satellites compared to traditional radio
frequency solutions .
In April 2015, SciFluor successfully raised $30 .0 million in a Series A preferred stock financing .
In April 2015, Optio purchased the assets of Maryland-based security company Oculis Labs, and its
CEO, Dr . Bill Anderson, joined Optio as Chief Product Officer . Oculis Labs developed products that
protect data displayed on a user’s computer and mobile device screen from visual eavesdroppers .
Disclosure of Information to Auditor
Each of the persons who is a Director at the date of approval of this Annual Report confirms that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is
unaware; and
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Directors’ Report (continued)
•
the Director has taken all steps that he ought to have taken as a Director in order 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 418 of
the Companies Act 2006 .
Annual General Meeting
The Annual General Meeting (AGM) will be held on 28 May 2015 . The Notice of AGM circulated with this
Report and Accounts contains a full explanation of the business to be conducted at that meeting . This
includes a resolution to appoint KPMG LLP as the Company’s Auditors .
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent
company financial statements in accordance with applicable law and regulations .
Company law requires the Directors to prepare Group and parent company financial statements for each
financial year . Under that law they are required to prepare the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and
applicable law and have elected to prepare the parent company financial statements in accordance with
UK Accounting Standards .
Under company law the Directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group and parent company and of their profit or
loss for that period . In preparing each of the Group and parent company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
•
for the Group financial statements, state whether they have been prepared in accordance with IFRSs
as adopted by the EU;
for the parent company financial statements, state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed and explained in the parent company
financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the Group and the parent company will continue in business .
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial
position of the parent company and enable them to ensure that its financial statements comply with the
Companies Act 2006 . They have general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities .
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report,
Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies
with that law and those regulations .
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Directors’ Report (continued)
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website . Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions .
Responsibility Statement of the Directors in respect of the Annual Financial Report
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the applicable set of accounting standards, give
a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the
undertakings included in the consolidation taken as a whole; and
the Strategic Report includes a fair review of the development and performance of the business and the
position of the issuer and the undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they face .
We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s position and performance,
business model and strategy .
ON BEHALF OF THE BOARD
Mark Pritchard
Executive Chairman
28 April 2015
Chris Silva
Chief Executive Officer
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Corporate Governance
Compliance with the UK Corporate Governance Code
The Directors are committed to a high standard of corporate governance and to compliance with the best
practice of the UK Corporate Governance Code (Code) which was issued by the Financial Reporting Council
in 2010 and revised in September 2012 . The Code is available at the Financial Reporting Council website
at www.frc.org.uk . During the twelve months ended 31 December 2014, the Directors consider that the
Company has been in compliance with the provisions set out in the Code with the following exceptions:
• Contrary to provision A .3 .1 of the Code, Mark Pritchard, an Executive Director who has served as our
Chairman since our IPO, is not deemed to be independent . At the time of Admission, the Board deemed
it appropriate that our company founder lead the Company through the IPO in the role of Chairman .
The Company has announced that Peter Dolan, the Senior Independent Director, will succeed Mark
Pritchard as Chairman effective as of the conclusion of the AGM of to be held on 28 May 2015 .
• Contrary to provision B .6 .1 of the Code, due to the short period of time since the Board was constituted in
connection with the IPO, a performance evaluation of the Board and its Committees was not undertaken
in 2014 . Beginning in 2015, a performance evaluation of the Board and its Committees will be carried
out annually to ensure that they continue to be effective and that each of the Directors demonstrates
commitment to his respective role and has sufficient time to meet his commitment to the Company .
• Contrary to provision D .1 .3 of the Code, each of the Non-Executive Directors holds restricted ordinary
shares that vest over time, as set out on page 81 of the Directors’ Remuneration Report . These shares
were granted to the Non-Executive Directors prior to the IPO and do not have performance conditions .
The Board does not believe that ownership of these shares impacts the independence of the Non-
Executive Directors .
Further explanation as to how the provisions set out in the Code have been applied by the Company is set
out in the following statement, the Directors’ Remuneration Report, the Audit Committee Report and the
Strategic Report . The Company’s auditor, KPMG LLP, is required to review whether the above statement
reflects the Company’s compliance with the provisions of the Code specified for its review by the Listing
Rules of the UK Listing Authority and to report if it does not reflect such compliance; no such report has
been made .
The Board
Role and Responsibilities of the Board
The Board is responsible to shareholders for the overall management of the Group as a whole, providing
entrepreneurial leadership within a framework of controls for assessing and managing risk; defining,
challenging and interrogating the Group’s strategic aims and direction; maintaining the policy and
decisionmaking framework in which such strategic aims are implemented; ensuring that the necessary
financial and human resources are in place to meet strategic aims; monitoring performance against key
financial and non-financial indicators; succession planning; overseeing the system of risk management;
setting values and standards in governance matters and monitoring policies and performance on corporate
social responsibility . The Directors are also responsible for ensuring that obligations to shareholders and
other stakeholders are understood and met and a satisfactory dialogue with shareholders is maintained . All
Directors are equally accountable to the Company’s shareholders for the proper stewardship of its affairs
and the long-term success of the Group .
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Corporate Governance (continued)
The responsibility of the directors is collective, taking into account their respective roles as Executive Directors
and Non-Executive Directors . The Executive Directors are directly responsible for running the business
operations and the Non-Executive Directors are responsible for constructively challenging proposals
on strategy, scrutinising the performance of management, determining levels of remuneration and for
succession planning for the Executive Directors . The Non-Executive Directors must also satisfy themselves
on the integrity of financial information and that financial controls and systems of risk management are
robust .
The Board reviews strategic issues on a regular basis and exercises control over the performance of the
Group by agreeing on budgetary targets and monitoring performance against those targets . The Board
has overall responsibility for the Group’s system of internal controls and risk management, as described on
pages 58 to 59 . Any decisions made by the Board on policies and strategy to be adopted by the Group
or changes to current policies and strategy are made following presentations by the Executive Directors
and a detailed process of review and challenge by the Board . Once made, the Executive Directors are fully
empowered to implement those decisions .
Except for a formal schedule of matters which are reserved for decision and approval by the Board, the
Board has delegated the day-to-day management of the Group to the Chief Executive Officer who is
supported by the Executive Directors and other members of the senior management team . The schedule
of matters reserved for Board decision and approval are those significant to the Group as a whole due to
their strategic, financial or reputational implications .
This schedule is reviewed and updated regularly and currently includes those matters set forth below:
• Approval and monitoring of the Group’s strategic aims and objectives, and approval of the annual
operating budget .
• Strategic acquisitions by the Group .
• Major disposals of the Group’s assets or subsidiaries .
• Changes to the Group’s capital structure, the issue of any securities and material borrowing of the
Group .
• Approval of the annual report and half-year results statement, accounting policies and practices or any
matter having a material impact on future financial performance of the Group .
• Ensuring a sound system of internal control and risk management .
• Approval of all circulars, prospectuses and other documents issued to shareholders governed by
the FCA’s Listing Rules, Disclosure Rules or Transparency Rules or the City Code on Takeovers and
Mergers .
• Approving Board appointments and removals, and approving policies relating to directors’ remuneration .
• The division of responsibility between the Chairman and the Chief Executive Officer .
• Approval of terms of reference and membership of Board committees .
• Considering and, where appropriate, approving directors’ conflicts of interest .
• Approval, subject to shareholder approval, of the appointment and remuneration of the auditors .
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Corporate Governance (continued)
• Major changes in employee share schemes .
•
Insurance and litigation .
The schedule of matters reserved to the Board is available on request from the Company Secretary or
within the Investors section of the Group’s website at www.alliedminds.com .
The Board delegates specific responsibilities to certain committees that assist the Board in carrying out its
functions and ensure independent oversight of internal control and risk management . The three principal
Board committees (Audit, Remuneration and Nomination) play an essential role in supporting the Board in
fulfilling its responsibilities and ensuring that the highest standards of corporate governance are maintained
throughout the Group . Each committee has its own terms of reference which set out the specific matters
for which delegated authority has been given by the Board . The initial terms of reference for each of the
committees, which are fully compliant with the provisions of the Code and which reflect both best practice
and the recommendations arising from the external evaluation process undergone by the Board and its
committees in connection with the Group’s initial public offering, were adopted by the Board during 2014 .
These were reviewed in January 2015, and will be reviewed annually on an ongoing basis and updated
where necessary . All of these are available on request from the Company Secretary or within the Investors
section of the Group’s website at www.alliedminds.com .
Board Size and Composition
As at 31 December 2014, there were five Directors on the Board: the Executive Chairman, one Executive
Director and three Non-Executive Directors . The biographies of all of these Directors are provided on
pages 43 and 44 . During the year, Peter Dolan and Jeffrey Rohr joined the Board prior to the Group’s initial
public offering .
The Company’s policy relating to the terms of appointment and the remuneration of both Executive and
Non-Executive Directors is detailed in the Directors’ Remuneration Report on pages 66 to 78 .
The size and composition of the Board is regularly reviewed by the Board, and in particular the Nomination
Committee, to ensure there is an appropriate and diverse mix of skills and experience on the Board .
The Company’s Articles of Association require all Directors to submit themselves for re-election by the
shareholders at the Company’s AGM following their first appointment and thereafter at each AGM in
respect of which they have held office for the two preceding AGMs and did not retire at either of them . In
addition, each director who has held office with the Company for a continuous period of nine years or more
must retire and offer themselves up for re-election at every AGM .
However, because the Company is a FTSE 250 company, in accordance with the Code, all Directors will
submit themselves for annual re-election by shareholders at the AGM of the Company to be held on 28 May
2015 (2015 AGM) . The Board recommends to shareholders the reappointment of all Directors retiring at
the meeting and offering themselves for re-election on the basis that the independent performance reviews
demonstrated that they are all effective Directors of the Company and continue to display the appropriate
level of commitment in their respective roles . New directors may be appointed by the Board, but their
appointment is subject to election by shareholders at the first opportunity after their appointment .
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Corporate Governance (continued)
Diversity
The Board is committed to a culture that attracts and retains talented people to deliver outstanding
performance and further enhance the success of the Company . In that culture, diversity across a range of
criteria is valued, primarily in relation to skills, knowledge and experience and also in other criteria such as
gender and ethnicity . The Company will give careful consideration to issues of overall Board balance and
diversity in making new appointments to the Board and, in identifying suitable candidates, the Nomination
Committee will seek candidates from a range of backgrounds, with the final decision being based on merit
against objective criteria . In addition, the terms of reference of the Nomination Committee which were
adopted during the year include a requirement for the Committee to consider diversity, including gender, in
evaluating the composition of the Board and in identifying suitable candidates for Board appointments . A
breakdown of employee gender showing the number of persons who were Directors of the Company and
senior managers during the period covered by this Annual Report can be found on page 62 .
Non-Executive Directors
The Non-Executive Directors provide a wide range of skills and experience to the Group . They bring their
own senior level of experience in each of their own fields, robust opinions and an independent judgement
on issues of strategy, performance, risk and people through their contribution and are well placed to
constructively challenge and scrutinise the performance of management at Board and Committee meetings .
The Code sets out the circumstances that should be relevant to the Board in determining whether each
Non-Executive Director is independent . The Board considered Non-Executive Director independence
prior to the Company’s initial public offering during 2014, and will consider it on an annual basis as part
of each Non-Executive Director’s performance evaluation . Having undertaken this review and with due
regard to provision B .1 .1 of the Code, the Board has concluded this year that all of the Non-Executive
Directors are considered by the Board to be independent of management and free of any relationship or
circumstance which could materially influence or interfere with, or affect, or appear to affect, the exercise
of their independent judgement .
Non-Executive Directors are required to obtain the approval of the Chairman before taking on any further
appointments and the Executive Chairman and Executive Director require the approval of the Board before
adding to their commitments . In all cases, the directors must ensure that their external appointments do
not involve excessive time commitment or cause a conflict of interest .
The Roles of Chairman and Chief Executive
Mark Pritchard is the Executive Chairman . The division of responsibilities between the Chairman and the
Chief Executive Officer is clearly established, set out in writing and agreed by the Board . The Chairman is
responsible for the leadership and conduct of the Board, the conduct of the Group’s affairs and strategy
and for ensuring effective communication with shareholders . The Chairman facilitates the full and effective
contribution of Non-Executive Directors at Board and Committee meetings, ensures that they are kept
well informed and ensures a constructive relationship between the Executive Directors and Non-Executive
Directors . The Chairman also ensures that the membership of the Board is appropriate to the needs of the
business and that the Board committees carry out their duties, including reporting back to the Board either
orally or in writing following their meetings at the next Board meeting, depending on its proximity to the
meeting of the relevant committee .
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Corporate Governance (continued)
The role of the Chief Executive Officer, Chris Silva, is to lead the delivery of the strategy and the executive
management of the Group and its operating businesses . He is responsible, amongst other things, for
the development and implementation of strategy and processes which enable the Group to meet the
requirements of shareholders, for delivering the operating plans and budgets for the Group’s businesses,
monitoring business performance against key performance indicators (KPIs) and reporting on these to the
Board and for providing the appropriate environment to recruit, engage, retain and develop the high quality
personnel needed to deliver the Group’s strategy .
Senior Independent Director
Peter Dolan is the Senior Independent Director . A key responsibility of the Senior Independent Director
is to be available to shareholders in the event that they may feel it inappropriate to relay views through
the Chairman or Chief Executive . In addition, the Senior Independent Director serves as an intermediary
between the rest of the Board and the Chairman where necessary and takes the lead when the Non-
Executive Directors assess the Chairman’s performance and when the appointment of a new Chairman
is considered . Further, the Senior Independent Director will lead the Board in their deliberations on any
matters on which the Chairman is conflicted .
Board Support
The Company Secretary is responsible to the Board for ensuring Board procedures are followed, applicable
rules and regulations are complied with and that the Board is advised on governance matters and relevant
regulatory matters . All Directors have access to the impartial advice and services of the Company Secretary .
There is also an agreed procedure for directors to take independent professional advice at the Company’s
expense . In accordance with the Company’s Articles of Association and a contractual Deed of Indemnity,
directors have been granted an indemnity issued by the Company to the extent permitted by law in respect
of liabilities incurred to third parties as a result of their office . The indemnity would not provide any coverage
where a director is proved to have acted fraudulently or with willful misconduct . The Company has also
arranged appropriate insurance cover in respect of legal action against its directors and officers .
Board Meetings and Decisions
The Board meets regularly during the year, as well as on an ad hoc basis as required by business need .
The Board had eleven scheduled Board meetings in 2014 . Messrs . Pritchard and Silva were present at all
meetings during the year, and Messrs . Davis, Dolan and Rohr were present at all but one meeting during
their term in 2014 . The Senior Independent Director and Non-Executive Directors also met without the
presence of the Executive Directors once during the year .
The schedule of Board and Committee meetings each year is, so far as is possible, determined before
the commencement of that year and all Directors or, if appropriate, all Committee members are expected
to attend each meeting . Supplementary meetings of the Board and/or the Committees are held as and
when necessary . Each member of the Board receives in advance of each scheduled meeting detailed
Board packs, which include an agenda based upon the schedule of matters reserved for its approval
and appropriate reports and briefing papers . If a director is unable to attend a meeting due to exceptional
circumstances, he will still receive the supporting papers and is expected to discuss any matters he wishes
to raise with the Chairman in advance of the meeting . The Chairman, Chief Executive Officer, Director of
Finance and Company Secretary work together to ensure that the Directors receive relevant information
to enable them to discharge their duties and that such information is accurate, timely and clear . This
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Corporate Governance (continued)
information includes quarterly management accounts containing analysis of performance against budget
and other forecasts . Additional information is provided as appropriate or if requested . At each meeting, the
Board receives information, reports and presentations from the Chief Executive Officer and, by invitation,
other members of senior management as required . This ensures that all Directors are aware of, and are in
a position to monitor effectively, the overall performance of the Group, its development and implementation
of strategy and its management of risk .
Any matter requiring a decision by the Board is supported by a paper analysing the relevant aspects of the
proposal including costs, benefits, potential risks involved and proposed executive management action and
recommendations .
The majority of Board meetings are held at the Group’s offices in Boston, Massachusetts, USA, which gives
members of the Company’s senior management team, as well as the senior managers of the subsidiaries,
the opportunity to formally present to the Board on business development and new investment opportunities .
This assists the Board in gaining a deeper understanding of the breadth, stage of development and
diversity of the Group’s subsidiaries . The Board may have at least one of its scheduled meetings at one of
the Company’s subsidiary offices in Silicon Valley, California, USA, which is the location of several of the
Company’s subsidiaries, in order to encourage further interaction with the senior management teams of
those subsidiaries . Meetings between the Chairman and Non-Executive Directors, both with and without
the presence of the Chief Executive Officer, are also held as the need arises .
Directors’ Conflicts of Interest
Each director has a statutory duty under the Companies Act 2006 (CA 2006) to avoid a situation in which he
has or can have a direct or indirect interest that conflicts or may potentially conflict with the interests of the
Company . This duty is in addition to the continuing duty that a director owes to the Company to disclose to
the Board any transaction or arrangement under consideration by the Company in which he is interested .
The Company’s Articles of Association permit the Board to authorise conflicts or potential conflicts of
interest . The Board has established procedures for managing and, where appropriate, authorising any
such conflicts or potential conflicts of interest . It is a recurring agenda item at all Board meetings and this
gives the directors the opportunity to raise at the beginning of every Board meeting any actual of potential
conflict of interests that they may have on the matters to be discussed, or to update the Board on any
change to a previous conflict of interest already declared . In deciding whether to authorise any conflict, the
directors must have regard to their general duties under the CA 2006 and their overriding obligation to act
in a way they consider, in good faith, will be most likely to promote the Company’s success . In addition,
the directors are able to impose limits or conditions when giving authorisation to a conflict or potential
conflict of interest if they think this is appropriate . The authorisation of any conflict matter, and the terms
of any authorisation, may be reviewed by the Board at any time . The Board believes that the procedures
established to deal with conflicts of interest are operating effectively .
Induction, Awareness and Development
A comprehensive induction process is in place for new directors . The programme is tailored to the needs
of each individual director and agreed with him or her so that he or she can gain a better understanding
of the Group and its businesses . This will generally include an overview of the Group and its businesses,
structure, functions and strategic aims; site visits to the Group’s head office in Boston, Massachusetts,
USA; and, upon request, site visits to a number of the Group’s subsidiary companies, which will include
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Corporate Governance (continued)
meeting with such companies’ management and a presentation from them on their businesses . In addition,
the Company facilitates sessions as appropriate with the Group’s advisers, in particular its joint corporate
brokers, Jefferies Hoare Govett and Numis Securities Limited, as well as with appropriate governance
specialists, to ensure that any new directors are fully aware of and understand their responsibilities and
obligations as a director of a FTSE 350 company and of the governance framework within which they must
operate .
In order to ensure that the Directors continue to further their understanding of the issues facing the Group,
the Board is also exposed to the early-stage opportunities in which the Group has invested through
presentations at Board meetings by relevant members of the Group’s staff . It is also intended that, through
2015, other members of senior management will present to the Board to enhance the Board’s awareness
of how the Group operates on a day-to-day basis and how such functions operate so as to assist in the
execution of the Group’s core strategy of systematically developing an innovation company that forms,
funds, manages and builds startups based on early-stage technology originating from US universities and
federally funded research institutions .
As a further aspect of their ongoing development, each Director will also receive feedback on his or
her performance following the Board’s performance evaluation in each year and, through the Company
Secretary, access is facilitated to relevant training and development opportunities including those relevant
to the Non-Executive Directors’ membership on the Board’s committees .
Board Effectiveness and Performance Evaluation
Due to the short period of time since the Board was constituted in connection with the IPO, a performance
evaluation of the Board and its Committees was not undertaken in 2014 . Beginning in 2015, a performance
evaluation of the Board and its Committees will be carried out annually to ensure that they continue to be
effective and that each of the Directors demonstrates commitment to his respective role and has sufficient
time to meet his commitment to the Company . The Board will seek the assistance of an independent third
party provider at least once every three years in its evaluation in compliance with the Code, and otherwise
carry out an internally facilitated board evaluation led by the Chairman, assisted by the Company Secretary,
and covering the effectiveness of the Board as a whole, its individual Directors and its Committees . This
review will include each of the Board and Committee members completing a detailed and tailored online
survey and one-to-one discussions between the Chairman and each of the individual Directors . A summary
of the results of the review, together with the Chairman and Company Secretary’s observations and
recommendations, will be prepared and shared with members of the Board .
In addition to the above, the Non-Executive Directors, led by the Senior Independent Director, will appraise
the Chairman’s performance, following which the Senior Independent Director will provide feedback to the
Chairman . The performance of each of the Directors on the Board will be reviewed by the Chairman and
the operational performance of the other Executive Directors will be reviewed by the Chief Executive Officer
as part of the annual appraisal process . In addition to the aforementioned annual reviews, the performance
of Executive Directors will be reviewed by the Board on an ongoing basis, as deemed necessary, in the
absence of the Executive Director under review .
Committees of the Board
The composition of the three committees of the Board and the attendance of the members throughout
the year is set out in the diagram on page 44 . The terms of reference of each committee are is available
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Corporate Governance (continued)
on request from the Company Secretary or within the Investors section of the Group’s website at
www.alliedminds.com .
Remuneration and Audit Committees
Separate reports on the role, composition, responsibilities and operation of the Remuneration Committee
and the Audit Committee are set out on pages 85 to 86 and pages 88 to 91 respectively .
Nomination Committee
The Nomination Committee leads the process for Board appointments, re-election and succession of
directors and the Chairman . Its key objective is to ensure that the Board comprises individuals with the
necessary skills, knowledge and experience to ensure that it is effective in discharging its duties . It is
responsible for making recommendations to the Board concerning the composition and skills of the Board
including any changes considered necessary in the identification and nomination of new directors, the
reappointment of existing directors and the appointment of members to the Board’s committees . It also
assesses the roles of the existing directors in office to ensure there continues to be a balanced Board
in terms of skills, knowledge, experience and diversity . The Nomination Committee reviews the senior
leadership needs of the Group to enable it to compete effectively in the marketplace . The Nomination
Committee also advises the Board on succession planning for Executive Director appointments, although
the Board itself is responsible for succession generally .
The Committee is chaired by Peter Dolan and its other members as at 31 December 2014 were Richard
Davis and Jeffrey Rohr, being a majority of independent Non-Executive Directors as prescribed by the
Code . The Nomination Committee meets as and when required or requested by the Board and met one
time during 2014 to review the structure, size and composition of the Board, following which it discussed
the conclusions with the Chief Executive Officer . Messrs . Dolan, Davis and Rohr were present at all meetings
during the year .
Before selecting new appointees to the Board, the Nomination Committee shall consider the balance,
skill, knowledge, independence, diversity (including gender) and experience on the Board to ensure that a
suitable balance is maintained . The Committee shall adopt a formal, rigorous and transparent procedure
for the appointment of new directors to the Board . Consideration shall always be given as to whether
identified candidates have enough time available to devote to the role . When searching for appropriate
candidates, the Committee shall give consideration to using an external search company, but may also
consider candidates who are proposed by existing Board members or employees of the Group . When the
Committee has found a suitable candidate, the Chairman of the Committee will make a proposal to the
whole Board and the appointment is the responsibility of the whole Board following recommendation from
the Committee .
In the year ahead, the Nomination Committee will continue to assess the Board’s size and composition and
how it may be enhanced .
Internal control
The Board fully recognises the importance of the guidance contained in Internal Control: Guidance for
Directors on the Code (Turnbull) . The Group’s internal controls, which are Groupwide, were in place during
the whole of 2014, were reviewed by the Board of Directors and were considered to be effective throughout
the year ended 31 December 2014 .
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Corporate Governance (continued)
The Board is responsible for establishing and monitoring internal control systems and for reviewing the
effectiveness of these systems . The Board views the effective operation of a rigorous system of internal
control as critical to the success of the Group; however, it recognises that such systems are designed to
manage rather than eliminate risk of failure and can provide only reasonable and not absolute assurance
against material misstatement or loss . The key elements of the Group’s internal control system, all of which
have been in place during the financial year and up to the date these financial statements were approved,
are as follows:
Control environment and procedures
The Group has a clear organisational structure with defined responsibilities and accountabilities . It adopts
the highest values surrounding quality, integrity and ethics, and these values are documented and
communicated clearly throughout the whole organisation .
Detailed written policies and procedures have been established covering key operating and compliance
risk areas . These are reviewed and updated at least once a year . The effectiveness of the systems of
internal control is reviewed at least annually by the Board . The Board considers that the controls have been
effective for the year ended 31 December 2014 .
Identification and evaluation of risks
The Board actively identifies and evaluates the risks inherent in the business, and ensures that appropriate
controls and procedures are in place to manage these risks . The Board obtains an update regarding the
subsidiary businesses on a monthly basis, and reviews the performance of the Group and its subsidiaries on
a quarterly basis, although performance of specific investments may be reviewed more frequently if deemed
appropriate . The Board also obtains a risk management report from members of senior management on a
quarterly basis . The key risks and uncertainties faced by the Group, as well as the relevant mitigations, are
set out on pages 38 to 42 .
Information and financial reporting systems
The Group evaluates and manages significant risks associated with the process for preparing consolidated
accounts by having in place systems and controls that ensure adequate accounting records are maintained
and transactions are recorded accurately and fairly to permit the preparation of financial statements in
accordance with IFRS . The Board approves the annual operating budgets and each quarter receives
details of actual performance measured against the budget .
Principal risks and uncertainties
The operations of the Group and the implementation of its objectives and strategy are subject to a number
of key risks and uncertainties . Risks are formally reviewed by the Board at least annually and appropriate
procedures are put in place to monitor and, to the extent possible, mitigate these risks . Were more than
one of the risks to occur together, the overall impact on the Group may be compounded . A summary of the
key risks affecting the Group and the steps taken to manage these is set out on pages 38 to 42 .
Relations with stakeholders
The Company is committed to a continuous dialogue with shareholders as it believes that it is essential to
ensure a greater understanding of and confidence amongst its shareholders in the medium and longer term
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Corporate Governance (continued)
strategy of the Group and in the Board’s ability to oversee its implementation . It is the responsibility of the
Board as a whole to ensure that a satisfactory dialogue does take place .
The Board’s primary shareholder contact is through the Chairman and Chief Executive Officer . The Senior
Independent Director and other Directors, as appropriate, make themselves available for contact with major
shareholders and other stakeholders in order to understand their issues and concerns .
The Company shall use the AGM as an opportunity to communicate with its shareholders . Notice of the
AGM, which will be held at 2 p .m . on 28 May 2015 at the offices of DLA Piper LLP, 3 Noble Street, London
EC2V 7EE, United Kingdom, is enclosed with this report . In line with the Code, the Notice of AGM is sent
to shareholders at least 20 working days before the meeting . Details of the resolutions and the explanatory
notes thereto are included with the Notice . To ensure compliance with the Code, the Board proposes
separate resolutions for each issue and proxy forms allow shareholders who are unable to attend the AGM
to vote for or against or to withhold their vote on each resolution . The results of all proxy voting shall be
published on the Group’s website after the meeting and at the meeting itself to those shareholders who
attend . Shareholders who attend the AGM will have the opportunity to ask questions and the Chairman and
the Executive Directors are expected to be available to take questions .
The Group’s website at www.alliedminds.com is the primary source of information on the Group . The
website includes an overview of the activities of the Group, details of its subsidiary companies and its key
university and federal government partnerships, and details of all recent Group and subsidiary business
announcements .
Political expenditure
It is the Board’s policy not to incur political expenditure or otherwise make cash contributions to political
parties and it has no intention of changing that policy .
Going concern
The Directors confirm that they have a reasonable expectation that the Group will have adequate resources
to continue in operational existence for the foreseeable future and accordingly they continue to adopt the
going concern basis in preparing the financial statements .
Peter Dolan
Chairman of the Nomination Committee
28 April 2015
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Sustainability
Policy Statement
Allied Minds aims to conduct its business in a socially responsible manner, to contribute to the communities
in which it operates and to respect the needs of its employees and all of its stakeholders .
The Group is committed to growing the business while ensuring a safe environment for employees as well
as minimising the overall impact on the environment .
Allied Minds endeavours to conduct its business in accordance with established best practice, to be a
responsible employer and to adopt values and standards designed to help guide staff in their conduct and
business relationships .
Greenhouse Gas Emissions
Given the overall size of the Group, we consider the direct environmental impact of the Group as
relatively low . However, we firmly recognise our responsibility to ensure that our business operates in an
environmentally responsible and sustainable manner . The Group complies with all current regulations on
emissions including greenhouse gas emissions, where such regulation exists in our markets .
Though the Group’s day-to-day operational activities have a relatively limited impact on the environment,
we do recognise that the more significant impact occurs indirectly through the nature and operations of the
companies that we choose to support with human and financial capital .
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The Group therefore considers it important to establish and nurture businesses that comply with existing
applicable environmental, ethical and social legislation . It is also important that these businesses can
demonstrate that an appropriate strategy is in place to meet future applicable legislative and regulatory
requirements and that these businesses can operate to specific industry standards, striving for best
practice .
We are establishing detailed processes and controls to enable regular and routine reporting of greenhouse
gas emissions on a consistent basis . It has therefore not been practicable to provide data concerning the
annual quantity of emissions from activities for which the Group is responsible (including the combustion
of fuel and the operation of any facility); nor has it been practicable to disclose the annual quantity of
emissions resulting from the purchase of electricity, heat, steam, or cooling by the Group for our own use .
We fully anticipate complying in full, in future years, with the required reporting requirements .
Our Business Ethics and Social Responsibility
The Group seeks to conduct all of its operating and business activities in an honest, ethical and socially
responsible manner . We are committed to acting professionally, fairly and with integrity in all our business
dealings and relationships wherever we operate, and for its directors and staff to have due regard to
the interest of all of its stakeholders including investors, university and government partners, employees,
suppliers and the businesses in which the Group invests .
We take a zero tolerance approach to bribery and corruption and implement and enforce effective systems
to counter bribery . The Group is bound by the laws of the UK, including the Bribery Act 2010, and has
implemented policies and procedures based on such laws .
The Group’s management and employees are fundamental to our success and as a result we are
committed to encouraging the ongoing development of our staff with the aim of maximising the Group’s
overall performance . Emphasis is placed on staff development through work-based learning, with senior
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Sustainability (continued)
members of staff acting as coaches and mentors . Allied Minds has continued to employ regular all-staff
update meetings as the main source of employee communication .
Employee Diversity and Employment Policies
The Group seeks to operate as a responsible employer and has adopted standards which promote
corporate values designed to help and guide employees in their conduct and business relationships . The
Group seeks to comply with all laws, regulations and rules applicable to its business and to conduct the
business in line with applicable established best practice . The Group’s policy is one of equal opportunity in
the selection, training, career development and promotion of employees, regardless of age, gender, sexual
orientation, ethnic origin, religion and whether disabled or otherwise . The Group has 298 employees and
consultants of whom 180 hold advanced degrees and 87 have PhDs (as at 31 March 2015) . A breakdown
off staff by gender can be seen in the illustrations below . Allied Minds supports the rights of all people as
set out in the UN Universal Declaration of Human Rights and ensures that all transactions the Group enters
into uphold these principles .
Total Employees
Senior Management
Directors
18%
82%
12%
88%
Female Male
100%
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Directors’ Remuneration Report
Statement by Chairman of the Remuneration Committee
I am pleased to present, on behalf of the Board, the first remuneration report of the Remuneration Committee
following the initial public offering (IPO) on 25 June 2014 .
The Work of the Remuneration Committee
The year ended 31 December 2014 was a major milestone in the history of Allied Minds . The Committee
was formally constituted at IPO, but a significant amount of its work took place prior to that event with a
full review of the Company’s Remuneration Policy undertaken by the Non-Executive Directors who now
constitute the membership of the Remuneration Committee . The Committee met on two occasions during
the year subsequent to the IPO . Messrs . Davis, Dolan and Rohr were present at all meetings during the
year .
A key objective of this review was to ensure an appropriate Remuneration Policy was in place for a UK listed
company, whilst also ensuring that it was designed to continue to attract and retain US-based management
and employees of the highest caliber . The programme is weighted toward rewarding entrepreneurial
achievement and the creation of shareholder value over time .
Additionally, since its formation, the Committee has adopted a UK Long-Term Incentive Plan (LTIP) and
made initial awards under the LTIP, reviewed the cash incentive bonus awards and progress against LTIP
performance targets for the last financial year, and established base salaries and LTIP performance targets
for the current financial year . The Committee received professional advice from the Hay Group where
appropriate .
Objectives of the Remuneration Policy
In setting the Remuneration Policy, the Committee focused on simple and transparent market competitive
remuneration and incentive schemes . The proposed Remuneration Policy is designed to:
• attract, retain and motivate high caliber US-based senior management, and to focus them on the
delivery of the Company’s long-term strategic and business objectives;
• promote a strong and sustainable performance culture;
•
incentivise growth and the achievement of milestones;
• align the interests of Executive Directors and members of the senior management team with those of
shareholders through equity ownership; and
• be simple and designed taking into account best practice guidelines for UK listed companies .
The key components of remuneration are set out in detail within the Remuneration Policy, which will be
subject to a binding vote at our AGM .
Performance and Reward for 2014
As outlined earlier in this Annual Report, the Group’s performance has been strong, with progress across
many of the Group’s portfolio businesses contributing to a significant increase in the Group Subsidiary
Ownership Adjusted Value to $488 .0 million as of 31 December 2014, compared to $367 .3 million at 31
December 2013, an increase of $120 .7 million, or 32 .9% . In addition, the Group share price of 367p at 31
December 2014, was an increase of 93 .2% over the initial public offering price of 190p at 25 June 2014 .
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Directors’ Remuneration Report (continued)
As detailed in this Directors’ Remuneration Report, the Committee determined to provide cash incentive
bonus awards to the Executive Directors that reflected the level of performance and achievement in 2014 .
In addition, upon IPO, the Executive Directors received their first awards under the Company’s new LTIP,
which was adopted at IPO . These awards will vest after three years, and be paid out over the two years
following vesting, provided that stretching performance targets are met . The Committee intends to make
annual awards under the LTIP . Prior to the IPO, the Executive Directors had received awards under the
Company’s US Stock Option/Stock Issuance Plan (US Stock Plan) . All outstanding options issued to the
Executive Directors have already vested and become exercisable in accordance with the terms upon which
they were granted and/or as a consequence of the IPO . The Committee does not intend to make any
further grants under the US Stock Plan .
Shareholder Feedback
The Committee recognises that building a close relationship with shareholders can complement the work
of the Committee in developing the Remuneration Policy . Prior to the publication of our first Directors’
Remuneration Report we consulted with a number of our major shareholders . One of our overarching aims
has been to develop a Remuneration Policy which closely aligns the interests of our senior executives and
our shareholders, and with this in mind we have adopted the LTIP to encourage share ownership and
included malus and clawback provisions in LTIP .
As this is the first time we are reporting to you, and the first time we will be asking you to approve the
Remuneration Policy, we appreciate any feedback you may have .
Richard Davis
Chairman of the Remuneration Committee
28 April 2015
What is in this report?
The Directors’ Remuneration Report sets out the Remuneration Policy for the Company on pages 66 to
78, describes the implementation of that Remuneration Policy and discloses the amounts paid relating to
the year ended 31 December 2014 . It has been prepared in accordance with the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008, as amended . The Remuneration Policy
has been developed taking into account the principles of the UK Corporate Governance Code 2013, the
Listing Rules and shareholders’ executive remuneration guidelines .
The Remuneration Policy for the Executive and Non-Executive Directors on pages 66 to 78, will be put to
a binding shareholder vote at the AGM on 28 May 2015 . The Remuneration Policy will take formal effect
from that date .
The Statement by Chairman of the Remuneration Committee on pages 63 to 64, and the Annual
Remuneration Report on pages 79 to 87, will be subject to an advisory vote at the AGM .
As explained in the basis of consolidation accounting policy, the Group’s financial statements reflect the
continuation of the preexisting Group headed by Allied Minds, Inc . (now Allied Minds, LLC) In keeping with
that accounting, the Company has chosen to include the remuneration of these directors when they were
directors of Allied Minds, Inc . (now Allied Minds, LLC) or any of its subsidiaries .
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Directors’ Remuneration Report (continued)
Remuneration Policy Overview
The Remuneration Committee has responsibility for determining remuneration for the Executive Directors,
and monitoring the level and structure of remuneration for senior management . The Committee’s terms of
reference are available on the Company’s website .
The Committee designed this Remuneration Policy with close regard to market practice in other UK listed
companies so as to ensure that the arrangements are appropriately competitive and structured in line with
best practice . However, the Remuneration Policy also retains some of the key elements which helped to
drive the Group’s success prior to IPO, and other customary service arrangements and incentive elements
for US-based management and employees .
Allied Minds’ success depends in part on the talent of its management and employees . Allied Minds has
a highly skilled workforce, with significant expertise throughout the Group across a range of science and
technology disciplines, as well as a highly experienced management team . Allied Minds seeks to ensure that
its management team and its employees and consultants working within the Group’s individual businesses
are fairly and appropriately rewarded and incentivised . Allied Minds seeks to achieve this through a
combination of competitive levels of remuneration that is appropriate to the scale of responsibility and
performance of the employee or consultant, and incentives tied directly to increasing shareholder value .
The Group operates in the highly competitive US market, and attraction and retention of individual talent is
important to success of the Group’s businesses . Allied Minds deploys a careful and considered approach
to remuneration with the objective of attracting, motivating and retaining individuals of the necessary caliber .
It is important to note that each national market for talent is different making cross-border comparisons
very difficult . In addition to general standard of living costs, there are large differences with respect to taxes,
pensions, provision of cars, and medical plans and costs, among many others .
The Company believes that it is important that remuneration is weighted toward rewarding entrepreneurial
achievement and the creation of shareholder value over time as its employees work toward the
commercialisation of the scientific and technological innovations . Accordingly, Allied Minds has established
share incentive plans with the aim of incentivising and rewarding employees and Directors to achieve long
term shareholder value . The Directors believe the share incentive arrangements at the level of the subsidiary
businesses, as well as the overall Group, are an important factor in the promotion of shareholder value
creation .
The aim of the Remuneration Policy is to attract, retain and motivate high caliber senior management and
employees, and to focus them on the delivery of the Company’s long-term strategic and business objectives,
to promote a strong and sustainable performance culture, incentivise growth and the achievement of
milestones, and to align the interests of Executive Directors and senior management team with those
of Shareholders through equity ownership . In promoting these objectives the Remuneration Policy aims
to be simple in design, transparent and understandable both to participants and Shareholders, and has
been structured so as to adhere to the principles of good corporate governance and appropriate risk
management .
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Directors’ Remuneration Report (continued)
Remuneration Policy (pages 66 to 78)
The Remuneration Policy for the Executive and Non-Executive Directors will be put to a binding shareholder
vote at the AGM on 28 May 2015 . The Remuneration Policy will take formal effect from that date .
How the views of Shareholders and employees are taken into account
The Committee does not formally consult directly with employees on executive pay but does receive periodic
updates in relation to salary and bonus reviews across the Company . As set out in the Remuneration Policy
table below, in setting remuneration for the Executive Directors, the Committee takes note of the overall
approach to reward for employees in the Company and salary increases will ordinarily be considered in
light of those of the wider workforce . Thus, the Committee is satisfied that the decisions made in relation to
Executive Directors’ pay are made with an appropriate understanding of the wider workforce .
The Committee is conscious that this is the first time that shareholders will vote on the Remuneration Policy
since the Company’s IPO and with this in mind we offered our largest shareholders the opportunity to
discuss our Remuneration Policy in advance of publication . In addition, we will consider any shareholder
feedback received in relation to the AGM .
This, plus any additional feedback received from time to time, will be considered as part of the Committee’s
annual review of the Remuneration Policy .
The Committee will seek to engage with shareholders and their representative bodies when it is proposed
that any material changes are to be made to the Remuneration Policy . As Allied Minds has not held an AGM
since listing, no voting outcomes are available and we will publish details of remuneration related voting
outcomes in next year’s Directors’ Remuneration Report .
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Directors’ Remuneration Report (continued)
The Future Remuneration Policy Table for Executive Directors
The total remuneration package is structured so that variable elements (annual bonus and long-term
incentives) make up a significant proportion of the package, with the emphasis on variable pay focused on
long-term incentives . The tables below summarise the key aspects of the Company’s Remuneration Policy
for Executive Directors .
Element of
Remuneration
Salary
How it supports the
Company’s Short and
Long-Term Strategic
Objectives
The Committee’s overall
policy is to set a total on
target reward of up to
median level compared
with the Company’s peer
groups . Salaries are set as
part of this Remuneration
Policy and to achieve this
objective . The Company
is required to provide a
basic salary at this level
in order to be competitive
and to maintain its ability to
recruit and retain Executive
Directors .
For the purpose of
benchmarking salaries and
other remuneration, the
principal peer grouping
used by the Company
consists of companies
within similar industry
sectors which are either
US or UK listed with a
range of capitalisations .
The Committee wishes
to ensure that fixed costs
are minimised and that
total actual payments to
executives will only exceed
the median level within the
Company’s peer groups
through the operation of
the performance related
element of the package .
As described in this
Remuneration Policy, the
performance elements of
total reward are directly
linked to the achievement
of the Company’s strategy .
Operation
Opportunity
Performance
Metrics
There are no performance
conditions attached to the
payment of salary although
there are a number of
performance based factors both
at the individual and Company
level that influence the level of
salaries provided to Executive
Directors .
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The Remuneration Committee policy in
relation to salary is:
• up to median salary on appointment
depending on the experience and
background of the new Executive
Director;
• on promotion up to the median salary
for the new role .
The current salaries for the Executive
Directors are:
2015
$’000
2014
$’000
Review
Date
Christopher Silva $500 $400 1 Jan
Mark Pritchard
$425 $350 1 Jan
There is no prescribed maximum annual
salary . The Committee is satisfied that
the salaries conform to its strategy, whilst
remaining competitive against similar roles
within the relevant peer groups
An Executive
Director’s basic
salary is considered
by the Committee
on appointment and
normally reviewed once
a year or when there is
a significant change to
role or responsibility .
When making a
determination as
to the appropriate
remuneration, the
Committee where it is
relevant, benchmarks
the remuneration
against the Company’s
peer groups .
The results of
benchmarking will,
however only be one
of a number factors
taken into account
by the Remuneration
Committee and which
will include:
• scale, scope and
responsibility of the
role;
• skills and experience
of the individual;
• retention risk;
• base salary of other
employees; and
• economic
environment .
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Directors’ Remuneration Report (continued)
Element of
Remuneration
Benefits
How it supports the
Company’s Short and
Long-Term Strategic
Objectives
The Committee’s policy
is to provide a benefits
package with a value up
to median level within the
peer group and in line with
US employment market
practice .
The Company is required
to provide this benefits
package in order to
be competitive and to
maintain its ability to recruit
and retain Executive
Directors .
Operation
Opportunity
Performance
Metrics
The Executive Directors
may be entitled to the
following benefits:
This is the cost of providing those benefits
detailed above which in 2014 was as
follows:
There are no performance
conditions attached to the
payment of benefits .
Benefits
Cost
$’000
$40
$7
Christopher Silva
Mark Pritchard
The cost of benefits provided changes in
accordance with market conditions and
will, therefore, determine the maximum
amount that would be paid in the form
of benefits under the policy . There is
therefore no overall maximum opportunity
under this this component of the
Remuneration Policy
• l ife assurance;
• disability insurance;
• medical benefits and
dental care;
• a car allowance;
• an annual payment
to cover personal
legal and tax advice .
Executive Directors
may also participate in
any all-employee share
plans that may be
operated by the Group
from time to time on
the same terms as
other employees .
Additional benefits,
which may include
relocation expenses,
housing allowance or
other benefits-in-kind,
may be provided in
certain circumstances if
considered appropriate
and reasonable by the
Committee, including
as may be required on
recruitment .
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Directors’ Remuneration Report (continued)
Operation
Opportunity
Performance
Metrics
There are no caps on the amount of
bonus which may be paid . This cash
incentive bonus awards in 2014 were as
follows:
Cash Incentive
Bonus Award
$’000
Christopher Silva
Mark Pritchard
$500
$450
As noted in “Operation”,
decision to provide any cash
incentive bonus award and
the amount and terms of any
such award, shall be in the sole
and absolute discretion of the
Committee . Any award is based
on performance against criteria
and subject to such conditions
as the Committee may impose .
The Committee may consider
any and all performance criteria
in making its determination to
provide an award, and may
generally consider:
• the individual performance of
the Executive Director;
• the general performance of
the Company; and
• KPIs, the achievement of
company milestones, and
other company and individual
objectives .
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An Executive Director’s
cash incentive bonus
award is considered by
the Committee upon
completion of each
financial year . The
decision to provide
any cash incentive
bonus award and the
amount and terms of
any such award, shall
be in the sole and
absolute discretion of
the Committee . Any
award is based on
performance against
criteria and subject
to such conditions as
the Committee may
impose .
When exercising this
discretion to provide
an award, and making
a determination as
to the appropriate
remuneration,
the Committee
where it is relevant,
benchmarks the
remuneration against
the Company’s peer
groups . The results
of benchmarking will,
however only be one
of a number factors
taken into account
by the Remuneration
Committee and which
will include those set
forth in “Performance
Metrics” .
Element of
Remuneration
Cash
Incentive
Bonus
Awards
How it supports the
Company’s Short and
Long-Term Strategic
Objectives
The Committee’s overall
policy is to set a total on
target reward of up to
median level compared
with the Company’s peer
groups . Cash incentive
bonus awards are set as
part of this Remuneration
Policy and to achieve
this objective . The cash
incentive bonus award,
taken together with salary,
is required in order to
be competitive and to
maintain the ability to
recruit and retain Executive
Directors .
For the purpose of
benchmarking cash
incentive bonus awards
the principal peer grouping
used by the Company
consists of companies
within similar industry
sectors which are either
US or UK listed with a
range of capitalisations .
As described below, the
performance elements of
total reward are directly
linked to the achievement
of the Company’s strategy .
In addition, given the
absolute discretionary
nature of the cash
incentive bonus awards,
the Committee is able to
support the Company’s
strategic objectives
because (i) there is a risk
adjustment mechanism
in that awards need
not be granted, (ii) the
interests of shareholders
are served by having a
substantial amount of cash
remuneration subject to
annual discretion, and (iii)
the Committee can tailor
the awards to recognise
expected and unexpected
performance outcomes .
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Directors’ Remuneration Report (continued)
Element of
Remuneration
Pension
How it supports the
Company’s Short and
Long-Term Strategic
Objectives
It is the Committee’s policy
to provide pension benefits
in line with US employment
market practice .
The Company is not
required to provide pension
benefits in order to be
competitive and to ensure
its ability to recruit and
retain Executive Directors .
Operation
Opportunity
Performance
Metrics
None .
None .
No element of the
Executive Directors’
remuneration is
pensionable . The
Group does not
operate any pension
scheme or other
scheme providing
retirement or similar
benefits . The Group
does not contribute
to any personal
pension schemes for
employees .
However, the Company
offers a retirement plan
in accordance with
subsection 401(k) of
the Internal Revenue
Code (401(k) Plan)
in which Executive
Directors may make
voluntary pre-tax
contributions toward
their own retirement .
The Company does not
make any payments or
contributions to such
401(k) Plan .
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ANNUAL REPORT AND ACCOUNTS 2014
Directors’ Remuneration Report (continued)
Element of
Remuneration
How it supports the
Company’s Short and
Long-Term Strategic
Objectives
Allied
Minds plc
Long Term
Incentive Plan
(LTIP)
The LTIP provides a
competitive, performance-
linked long-term incentive
mechanism that will:
• attract, retain and
motivate individuals with
the required personal
attributes, skills and
experience;
• provide a real incentive
to achieve our long-term
strategic objectives; and
• align the interests of
management and
shareholders .
Operation
Opportunity
Performance
Metrics
Save in relation to the awards granted
at IPO, the maximum value of Ordinary
Shares over which awards under the LTIP
may be granted to a participant in any
financial year of the Company may not
generally exceed 300% of base salary for
that financial year, unless circumstances
arise which the Committee believe justify
granting an award outside this limit .
The Committee would only envisage
overriding the 300% in limit in exceptional
circumstances such as where there was a
need to do so to attract a new executive .
Awards were made under the LTIP
to the Chief Executive Officer at the
IPO in respect of a total of 1,398,341
Ordinary Shares . This was considered
an appropriate level of award by the
Committee after giving due consideration
to the fact that the Chief Executive Officer
would have no unvested equity following
the IPO .
The LTIP is reviewed
annually at or around
the start of each
financial year to
ensure the detailed
performance measures
and weightings are
appropriate and
continue to support the
business strategy .
Financial and/or non-
financial performance
targets are set at or
around the start of
each financial year .
Awards under the LTIP
to Executive Directors
will normally take the
form of restricted
share units (RSUs) (a
form of conditional
share award) in
respect of shares in
Allied Minds (although
instruments with similar
economic effect may
be used if considered
appropriate .)
Calculations of the
achievement of the
vesting targets are
reviewed and approved
by the Committee .
Awards are subject
to cancellation or
clawback provisions
under which in the
event of a material
correction of any
accounts of the
Company used to
assess satisfaction
of any performance
conditions, or in the
event of a participant’s
gross misconduct,
awards may be
reduced, adjusted
or cancelled as
determined by the
Committee . Clawback
applies for the two
year period following
vesting .
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In respect of the initial awards
which were made at the IPO,
vesting is dependent upon
performance metrics measured
as follows:
• 60% of each award will
be subject to performance
conditions based on the
Company’s total shareholder
return (TSR) performance in
respect of the period from
the date of the IPO until
31 December 2016; and
• 40% of each award will
be subject to performance
conditions based on a basket
of shareholder value metrics,
including but not limited to:
(i) the increase in quality of
pipeline intellectual property
reviewed; (ii) the increase
in quality of the partnership
pipeline; and (iii) subsidiary
level performance (assessed
by reference to such matters
as external funding raised,
corporate collaborations,
product co-development and
proof of principal commercial
pilots and revenues) .
Performance will be assessed
on these measures on a
scorecard basis over a three
year period .
At the end of the three year
period, performance against
the relevant measures will be
calculated to determine the
number of Ordinary Shares
capable of vesting . 50% of the
award will then vest at that time .
The remaining 50% will vest in
two equal tranches in years 4
and 5 subject to the relevant
participant still being employed
within the Group at the relevant
vesting date .
The level of vesting for threshold
performance is 33 .33% of the
maximum . The level of vesting
for target performance is
66 .67% of the maximum .
The Committee expects to
make annual awards under the
LTIP with similar vesting criteria,
including as to the percentage
levels of vesting for threshold
and target performance, and
as to the weighting of the
performance criteria between
TSR and other conditions, as
applied to these IPO awards,
with such vesting ordinarily
occurring on or about three
years from grant .
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ANNUAL REPORT AND ACCOUNTS 2014
Directors’ Remuneration Report (continued)
Element of
Remuneration
Allied Minds
Phantom Plan
How it supports the
Company’s Short and
Long-Term Strategic
Objectives
The Committee policy is
to reward participants for
a successful subsidiary
company liquidity event .
The Committee recognises
that successful subsidiary
company liquidity events
are a key strategic
objective of the Group
and its shareholders,
and believes that the
Phantom Plan is designed
to align the interests of
the Executive Directors
and management of Allied
Minds with such objective .
Operation
Opportunity
Performance
Metrics
The maximum aggregate number of units
that may be awarded under the Phantom
Plan is 200,000 units, The maximum
number of units which will be awarded in
aggregate to any Executive Director will
not exceed 20,000 units .
Upon a liquidity event Allied Minds will
distribute 80% of the Phantom Plan
account to the participants based on
their pro rata share of all vested units
on the date of the applicable liquidation
event, and the remaining 20% of the
Phantom Plan account will be distributed
to participants at the discretion of the
Committee .
No amounts accrue under the
Phantom Plan, and no amounts
are distributed to participants,
until and unless a successful
subsidiary company liquidity
event occurs, and the cash
generated in such liquidity
event exceeds the amount
Allied Minds invested in such
subsidiary company, plus
accrued interest and expenses
in respect of such investment .
No other performance metrics
apply .
The Phantom Plan is
a performance based,
cash settled bonus
plan for Allied Minds’
Executive Directors
and management . The
Plan is triggered by a
successful subsidiary
liquidity event, including
(i) a subsidiary IPO,
(ii) the sale of all or
substantially all of a
subsidiary company’s
assets, (iii) the sale of at
least two-thirds of the
outstanding shares of a
subsidiary company’s
voting equity, (iv) the
merger or consolidation
of a subsidiary
company with or into
another entity, or (v) a
subsidiary company’s
liquidation . Upon a
liquidity event, Allied
Minds will deduct the
amount it invested
in such subsidiary
company and deduct
the accrued interest
in respect of such
investment, and will
then allocate 10%
of the remaining
net proceeds to the
Phantom Plan account
for allocation among
the participants .
Participation in the
Phantom Plan is
evidenced by “units .”
Vesting of units is
determined at the time
of grant of the units .
Current policy is for a
proportion of the units
to vest at grant and the
remainder on an annual
basis over a two year
period .
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ANNUAL REPORT AND ACCOUNTS 2014
Directors’ Remuneration Report (continued)
The Future Remuneration Policy Table for the Chairman and the Non-Executive Directors
The Company Chairman’s fee is determined by the Committee (other than the Company Chairman himself) .
The fees for the Non-Executive Directors are reviewed by the Board, excluding the Non-Executive Directors .
The table summarises the key aspects of the Remuneration Policy for the Chairman and Non-Executive
Directors:
Performance
Metrics
There are no
performance
conditions
attached to the
payment of fees or
the vesting under
the awards granted
under the LTIP .
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Element of
Remuneration
Non-Executive
Directors Fees
How it supports the
Company’s Short and
Long-Term Strategic
Objectives
The Company’s policy
is to set fees at up
to median level and
at a level necessary
to attract and retain
experienced and skilled
Non-Executive Directors
with the necessary
experience and
expertise to advise and
assist in establishing
and monitoring the
strategic objectives of
the Company . Fees
also reflect the time
commitment and
responsibilities of the
roles .
An additional fee is paid
for Chairmanship of a
Board Committee and
to the Chairman of the
Board .
Operation
Opportunity
Non-Executive
Directors have specific
terms of engagement
provided in formal
letters of appointment .
Their remuneration
is determined by the
Board within the limits
set by the Articles of
Association and based
on equivalent roles in
FTSE 250 companies
and the peer groups
used for Executive
Directors . The fees
for Non-Executive
Directors are reviewed
annually and fixed for
the fiscal year . The
Non-Executive Directors
are appointed for a
three year term, subject
to annual re-election by
the shareholders, at the
Company’s AGM .
Non-Executive Directors
do not receive any cash
incentive bonus and
do not participate in
any Company pension
scheme .
The Non-Executive
Directors are eligible
for RSU awards under
the LTIP . Awards to
the Non-Executive
Directors will be subject
to time-based vesting
provisions, and will
not be subject to
performance metrics .
Each Non-Executive
Director is also entitled
to reimbursement of
reasonable and properly
documented expenses
incurred in performing
the duties of their office .
The Company’s policy is to set fees at up to median
on appointment depending on the experience and
background of the new Non-Executive Director .
The current fees payable to the Non-Executive Directors
are as detailed below . In each case the fees paid take
account of responsibilities in acting as Chairman of a
Board Committee or as Senior Independent Director .
2014
$’000
2013
$’000
Review
Date
Richard Davis
Peter Dolan
Jeffrey Rohr
$80
$55
$65
$50
1 Jan
–
–
1 Jan
1 Jan
The fees for the Non-Executive Directors were reviewed
in December 2014 and the decision taken to set the fees
for 2015, for any Non-Executive Directors serving in the
following capacities, as follows:
Cash Component
Non-Executive Director
Annual Fee
Audit Committee Chair
Annual Fee
Remuneration Committee
Chair Annual Fee
Nomination Committee
Chair Annual Fee
Chairman of the Board
Annual Fee
Equity Component
Non-Executive Director
LTIP Award Value
Chairman of the Board
LTIP Award Value
2015
$’000
2014
$’000
$75
$75
$25
$25
$10
$10
$10
$10
$75
$50
$75
–
-–
--
The fees proposed to be paid to the Chairman shall
only be payable where the Chairman is a Non-Executive
Director . Given the US-based nature of the Group’s
business, and the need to attract and retain independent
directors with significant US business and leadership
experience, the proposed fees above include an equity
component, based upon a recommendation from
the Hay Group . The Committee is satisfied that the
level of fees conform to its strategy, whilst remaining
competitive against similar roles within the relevant peer
groups . Careful consideration has been given as to
whether including an equity component would affect the
independence of the Non-Executive Directors, and the
conclusion was reached that it would not, given the level
of the awards and the fact that they are not performance-
related .
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ANNUAL REPORT AND ACCOUNTS 2014
Directors’ Remuneration Report (continued)
The Committee reserves the right to make any remuneration payments and payments for loss of office,
notwithstanding that they are not in line with the Remuneration Policy set out in the tables on the previous
pages, where the terms of the payment were agreed either: (i) before the policy came into effect, or (ii) at a
time when the relevant individual was not a director of the Company and, in the opinion of the Committee,
the payment was not in consideration for the individual becoming a Director of the Company . For these
purposes “payments” include the Committee satisfying awards of variable remuneration and, in relation to
an award over shares, the terms of the payment are “agreed” at the time the award is granted . Details of
any such payments will be set out in the Annual Remuneration Report as they arise .
Differences between the Remuneration Policy and that applied to employees generally
The components of remuneration set out on the previous pages for Executive Directors are also applied
to the Group’s senior management team and differ only in values and award maxima . The basic benefits
package is typically available to all US employees at the Group level following completion of a probationary
period . Overall there is more emphasis on variable pay for the Executive Directors and senior management,
but all US employees at the Group level are eligible for discretionary cash incentive bonus awards . In
addition, the Company is committed to fostering alignment with shareholders through widespread share
ownership, and thus all US employees at the Group level are eligible to participate in the LTIP . The Group
has also implemented equity incentive plans within its subsidiaries in order to incentivise employees within
the subsidiary businesses . The employees of the subsidiary businesses do not participate in any of the
Group level incentive plans .
Schemes or arrangements under which allocations or awards are no longer being made
In addition to the Executive Directors’ remuneration arrangements set forth in the Remuneration Policy,
the Group previously maintained the Allied Minds Stock Option/Stock Issuance Plan (US Stock Plan) .
The Company does not intend to make any further grants under the US Stock Plan . The interests of
the Executive Directors in outstanding options under the US Stock Plan are shown in the statement of
directors’ shareholding and share interest on page 81 of this Annual Report .
The exercise price of the options is equivalent to the fair market value of Common Stock of Allied Minds,
Inc . as at the date of grant of the options and all outstanding options have already vested and become
exercisable .
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Directors’ Remuneration Report (continued)
Illustration of the Application of the Remuneration Policy
The value and composition of the Executive Directors’ remuneration packages for the year ending
31 December 2015 at minimum, threshold and maximum scenarios under the Remuneration Policy are set
out in the charts below . The charts depict an estimate of the remuneration that could be received by each
executive director under the Remuneration Policy set out in this report .
Each bar is broken down to show how the total under each scenario comprises fixed remuneration (salary
and benefits), the annual cash incentive bonus award and the LTIP .
Maximum
20%
20%
60%
CEO
Threshold
44%
12%
44%
Minimum
100%
-
$500
$1,000
$1,500
$2,000
$2,500
Base
Bonus
LTIP
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Maximum
50%
50%
President
Threshold
80%
20%
Minimum
100%
-
$500
$1,000
$1,500
$2,000
$2,500
Base
Bonus
Notes:
·
·
·
Fixed remuneration reflects base salary as in effect as of 1 January 2015, and expected cost of benefits .
Cash incentive bonus award is not capped, but for the purposes of this illustration is assumed to be 100% of base salary at
maximum, 25% of base salary at threshold, and nil below threshold .
Awards are capped at 300% of base salary at maximum, 100% of base salary at threshold, and nil below threshold . Awards of
restricted share units under the LTIP are made based on a percentage of the participant’s salary in face value terms and therefore
the above amounts relating to the LTIP component reflect this . Changes in the value of those shares over the vesting period are
therefore ignored .
·
The current President, Mark Pritchard, is eligible to participate in the LTIP, but has currently elected to waive such remuneration .
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Directors’ Remuneration Report (continued)
Approach to Recruitment Remuneration
The Committee will apply the Remuneration Policy for any new Executive Director recruited to the Board
in respect of all elements of forward-looking remuneration . The maximum level of variable remuneration
under the cash incentive bonus awards and LTIP that may be awarded will be within the usual maximums
set out in the Remuneration Policy (i .e . no cap under the cash incentive bonus awards; and 300% of salary
under the LTIP, subject to the exceptions permitted under the LTIP) . The Committee retains flexibility to
provide benefits in kind, pensions and other allowances, such as relocation, education and tax equalisation,
required in order to recruit the intended candidate .
The Committee may make awards on hiring an external candidate to buy out remuneration arrangements
forfeited on leaving a previous employer . In doing so the Committee will seek to structure buyout awards
on a comparable basis to awards forfeited, taking into account relevant factors including any performance
conditions attached to these awards, the form in which they were granted (e .g . cash or shares) and the
timeframe of awards . It is intended that the value awarded would be no higher than the expected value of
the forfeited awards . The Committee would seek as far as possible to make such buyout awards under the
Company’s existing share plans but, if necessary, may rely on the Listing Rules exemption which allows for
the grant of awards to facilitate, in exceptional circumstances, the recruitment of a Director .
Similarly, the Remuneration Policy for a new Chairman or new Non-executive Directors would be to apply
the same remuneration elements as apply to existing Non-Executive Directors under the Remuneration
Policy .
In addition to the above principles, the following additional considerations may be applied as appropriate
depending on the circumstances:
•
•
•
In the case of internal promotion, any existing performance-related elements arising from an individual’s
previous role will continue to be honored under the Remuneration Policy, even if they may not otherwise
be consistent with the Remuneration Policy prevailing when the commitment is fulfilled .
In the case of promotion to executive director following an acquisition or other business combination,
the Committee may permit equity-based incentive arrangements to continue in force if they can be
“rolled-up” into awards over Allied Minds’ shares provided the performance and vesting conditions are
considered appropriate .
In the case of the recruitment of an executive at a time of the year when it would be inappropriate or
not possible to provide an LTIP award for that year (for instance due to price sensitive information or
if there is insufficient time to assess performance), the quantum in respect of the months employed
during the year may be transferred to and amalgamated with the subsequent year’s award if considered
reasonable to do so by the Committee .
The Committee will include details of the implementation of the Remuneration Policy in respect of any such
recruitment to the Board in its future Annual Remuneration Reports .
Service Contracts and Letters of Appointment
The Executive Directors (Christopher Silva and Mark Pritchard) each have a service contract that commenced
in May 2014 and has an initial term of employment that expires in May 2016 . Beginning in May 2016, and
at each anniversary thereafter, the service contracts shall be deemed to be automatically extended for
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Directors’ Remuneration Report (continued)
successive periods of one year unless either party provides at least ninety (90) days’ written notice prior to
the applicable renewal date of its intention not to extend the term of the service contract .
None of the Executive Directors’ contracts provide for extended notice periods or compensation in the
event of a change of control . However, as noted below, the rules of the LTIP provide that, in the event of
a change of control, awards would vest to the extent determined by the Committee where the Committee
considers that the performance conditions are satisfied at the date of such event .
If an Executive Director’s employment is terminated by Allied Minds for “Cause”, he shall only be entitled to
amounts that are accrued or owing but not yet paid and reimbursement of any properly incurred business
expenses but excluding any bonus payments or other compensation provided pursuant to Allied Minds’
incentive compensation plan (such amounts, the “Standard Benefit”) .
If the Executive Director terminates the service contract for “Good Reason” or Allied Minds terminates the
service contract without Cause or following delivery by Allied Minds of a Non-Renewal Notice, the Executive
Director shall be entitled to:
• payment of twenty four (24) months’ base salary in accordance with regular payroll;
• an annual incentive award equal to the product of: (A) the Executive Director’s average bonus for the
prior three (3) years (the “Average Bonus”); and (B) a fraction based on the number of days in which the
Executive Director was employed during that year;
• pro-rated payments equal to the Executive Director’s average bonus during any transition period whilst
the Executive continues to receive base salary; and
• payment of the Standard Benefit .
Mr Silva will also be entitled to: (i) continued participation under medical insurance plans for a period of
six (6) months for him and each of his eligible dependents; and (ii) continuation of life and disability insurance
coverage for six (6) months .
In the event of death or disability, similar payments will be made as those payable as a termination for Good
Reason save that the payment of base salary shall only continue for 90 days after the death of the Executive
Director and/or until the commencement of long term disability payments in the case of termination due to
disability .
The Executive Directors may terminate their service contract without Good Reason at any time during
the term of the employment, provided they give at least ninety (90) days’ advance written notice . If an
Executive Director terminates his employment with Allied Minds without Good Reason (and not because of
his death or due to disability) or if such Executive Director delivers to Allied Minds a Non-Renewal Notice,
the Executive Director shall be entitled solely to payment of the Standard Benefit .
Each of the Non-Executive Directors (Richard Davis, Peter Dolan and Jeffrey Rohr) have letters of
appointment that commenced May 2014, are for an initial fixed term of three years, which are reviewed and
may be extended, and are terminable on one months’ notice by either party . The letters of appointment for
the Non-Executive Directors do not provide for any compensation on termination .
The service contracts and letters of appointment are available for inspection at the Company’s registered
office . In accordance with the Code, all Directors submit themselves for annual re-election by shareholders
at each AGM .
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Directors’ Remuneration Report (continued)
Remuneration Policy on Payment for Loss of Office
The Directors believe the payments owed upon loss of office detailed below are customary and appropriate
to attract and retain US-based senior management of the highest caliber .
The Committee reserves the right to make payments where they are made in good faith in discharge of
an existing obligation (or by way of damages for breach of such an obligation) or by way of settlement or
compromise of any claim arising in connection with the termination of a Director’s office or employment
where they are in the best interest of Allied Minds and its shareholders and reflecting the directors’
contractual and legal rights .
Impact of Loss of Office on Awards under LTIP
Participants who cease to be employees, directors or service providers to the Group will normally forfeit
any unvested awards .
However, if a participant leaves as a result of death, disability, dismissal other than for cause or any other
reason determined by the Committee, awards will vest on the normal vesting date on a pro-rata basis
taking into account performance and the period of time since the grant of the award and the date on which
the participant ceased to provide services . The Committee may in its discretion determine that there are
exceptional circumstances justifying vesting to a greater or lesser extent .
Impact of Change of Control on Awards under LTIP
If there is a change of control of the Company, the number of Ordinary Shares over which awards will vest
will be calculated on the basis of the extent to which the performance criteria applicable to those awards
have been satisfied as at the date of the change of control . The resulting number of shares will then be
reduced on a pro rata basis to reflect the reduced period between the date the award was made and the
date of the change of control, unless the Committee decides otherwise . In exceptional circumstances, the
Committee may recommend full vesting . This discretion to accelerate vesting upon a change of control is
included in the LTIP to meet the expectations of a US-based workforce .
Statement of Consideration of Employment Conditions Elsewhere in the Company
In considering changes to the remuneration of the Executive Directors the Committee is mindful of pay and
conditions in the wider Group . Whilst the Group operates a range of bonus plans appropriate to its various
businesses the main drivers of these plans, in common with the cash incentive bonus awards to Executive
Directors, are the achievement of company milestones, and other company and individual objectives .
The Committee has not expressly sought the views of employees and no remuneration comparison
measurements were used when drawing up the Remuneration Policy . Through the Board, however, the
Committee is updated as to employees’ views on remuneration generally .
In the event that an employee is promoted to the Board that individual would be allowed to retain any pre-
existing incentive entitlement that had not vested at that time .
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Directors’ Remuneration Report (continued)
Annual Remuneration Report (pages 79 to 87)
The Annual Remuneration Report will be subject to an advisory vote at the AGM .
Single Total Figure of Remuneration for Each Director (audited)
The following table sets out the single total figure for remuneration for Directors for the financial years ended
31 December 2014 and 2013 .
Base salary/
fees(1)
2014
2013
Benefits(2)
2014
2013
Pension
2014
2013
Annual Bonus
2013
2014
EBP(3)
Total
2014
2013
2014
2013
400
350
335
294
40
7
34
2
80
55
65
50
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500
450
220 15,002
210
–
–
–
–
–
–
–
–
–
–
–
647 15,942 1,236
506
807
―
―
50
80
– ―
55
– ―
65
–
–
–
in $’000
Executive Directors
Christopher Silva
Mark Pritchard
Non-Executive Directors
Rick Davis (4)
Peter Dolan
Jeffrey Rohr
Notes:
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(1) Actual Non-Executive Directors’ fees, prorated for the portion of the year they served on the board .
(2) Includes, where applicable, Company contribution to medical and dental insurance premiums, car allowance, and reimbursement
for personal legal and tax advice .
(3) Equity-based payments include awards under the US Stock Plan . All equity awards, including stock options and restricted stock,
under the US Stock Plan became vested and fully exercisable, or vested and fully transferable, in connection with the IPO . No
equity-based awards vested under the LTIP during 2014 or 2013 . In addition, no equity-based awards are expected to vest under
the LTIP in 2015 or 2016 .
(4) Includes fees of $50,000 per year as director of Allied Minds, Inc . (now Allied Minds, LLC) before becoming director of Allied Minds
plc in 2014 .
(5) In addition, in connection with the IPO, Christopher Silva and Richard Davis exercised stock options under the US Stock Plan,
resulting in pre-tax gain of $6 .0 million and $1 .7 million, respectively .
Individual Elements of Remuneration
Base Salary and Cash Incentive Bonus Awards during 2014
In January 2014, prior to the IPO, the independent member of the Board engaged the Hay Group to
conduct a compensation benchmarking study for the Company’s senior management in conjunction with
the Company’s 2013 year-end compensation process, including an analysis of the traditional elements
of executive pay (base salary, annual cash incentive bonus, long-term equity incentives and total direct
compensation) . The Hay Group utilised a variety of information sources to evaluate the market for executive
compensation, including an analysis of nine US publicly-traded companies and three UK publicly-traded
companies . For the purpose of benchmarking salaries and other remuneration the principal peer grouping
used by the Company consisted of companies within similar industry sectors which are either US or UK
listed with a range of capitalisations .
Based upon the results of the benchmarking study, the independent director concluded that based upon
the modest cash incentive bonus awards that had been paid in the previous financial year, each of the
Executive Directors total direct compensation was below the 25th percentile of the peer group . Given the
strong company performance in 2013, and the achievement of company and individual goals, the Board
recommended an increase in the level of cash incentive bonus awards, and an increase in base salary to
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Directors’ Remuneration Report (continued)
move the Executive Director total direct compensation above the 25th percentile of the peer group . The
increase in base salary is reflected in the table above .
In December 2014, the Remuneration Committee engaged the Hay Group to conduct a compensation
benchmarking study for the Company’s senior management in conjunction with the Company’s 2014 year-
end compensation process, including an analysis of the traditional elements of executive pay (base salary,
annual cash incentive bonus, long-term equity incentives and total direct compensation) . The Hay Group
utilised a variety of information sources to evaluate the market for executive compensation, including an
analysis of eight US publicly-traded companies and three UK publicly-traded companies . For the purpose of
benchmarking salaries and other remuneration the principal peer grouping used by the Company consists
of companies within similar industry sectors which are either US or UK listed with a range of capitalisations .
Based upon the results of the benchmarking study, the Remuneration Committee concluded that based
upon the continued modest cash incentive bonus awards that had been paid in the previous financial year,
each of the Executive Directors total direct compensation was still at or below the 25th percentile of the peer
group . Given the strong company performance in 2014, and the achievement of company and individual
goals, the Board recommended an increase in the level of cash incentive bonus awards, and an increase
in base salary to move the Executive Director total direct compensation above the 25th percentile of the
peer group, and towards the 50th percentile of the peer group . The Remuneration Committee designed the
increases to reflect its policy of moving the Executive Director compensation, in connection with superior
performance, towards the 50th percentile of the peer group . The Remuneration Committee also designed
the increases to emphasise the variable component of compensation, by allocating more of the increase to
the cash incentive bonus award and not base salary . Notwithstanding the increases, the Executive Director
total direct compensation remained below the median for the peer group during 2014 . The increase in base
salary is set forth in the Remuneration Policy tables above . The increase in cash incentive bonus award is
reflected in the table above .
LTIP Awards made during 2014 (audited)
Type
Basis of
award
Number of
shares
Face value
of award
($’000)
% of value
to vest at
threshold
% of value
to vest at
target
Vesting conditions
Executive Directors
Christopher Silva
RSU
See below 1,398,341
$ 4,500
33%
67% Based on performance
achievement, 50% end of 2016,
25% end of 2017, 25% end of
2018
On the date of the IPO, the LTIP award above was granted to the Chief Executive Officer . The total value
of the award has been calculated using the IPO price of 190p . The level of award was determined by
the Committee after giving due consideration to the fact that the Chief Executive Officer would have no
unvested equity following the IPO .
Vesting of the LTIP award is dependent upon performance metrics measured over the three years to
31 December 2016, details of which are set out in the Remuneration Policy table on page 71 of the Report .
The level of vesting for threshold performance is 33 .33% of the maximum . The level of vesting for target
performance is 66 .67% of the maximum .
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Directors’ Remuneration Report (continued)
Long Term Incentive Plan Vesting during 2014 (audited information)
As described above, the Company did not make any awards under the LTIP prior to the IPO . Therefore, no
awards vested under the LTIP in 2014, or are expected to vest in 2015 .
US Stock Plan Awards made during 2014 (audited)
Type
Basis of
award
Number of
shares
Face value
of award
($’000)
% of value
to vest at
threshold
% of value
to vest at
target
Vesting conditions
Executive Directors
Christopher Silva
Option
Pre-IPO
634,326
$ 1,576
n/a
n/a
Fully vested at IPO
Non-Executive Directors
Rick Davis
Peter Dolan
Jeffrey Rohr
Shares
Shares
Shares
Pre-IPO
Pre-IPO
Pre-IPO
39,600
39,600
39,600
$ 98
$ 98
$ 98
n/a
n/a
n/a
n/a Three years to June 2017
n/a Three years to June 2017
n/a Three years to June 2017
Payments to Past Directors (audited information)
No payments to past Directors were made during the last financial year .
Loss of Office Payments (audited information)
No payments for loss of office were made to past Directors during the last financial year .
Total Pension Entitlements (audited information)
No payments for pension entitlements were made to Directors during the last financial year . The Company
offers a retirement plan in accordance with subsection 401(k) of the Internal Revenue Code (401(k) Plan)
in which Executive Directors may make voluntary pre-tax contributions toward their own retirement . The
Company does not make any payments or contributions to such 401(k) Plan .
Statement of Directors’ Shareholding and Share Interests (audited)
Share ownership plays a key role in the alignment of our executives with the interests of shareholders . While
we have not imposed minimum requirement for our Executive Directors, each of them has a very significant
shareholding and would exceed and reasonable limit that we would impose . The table below sets out the
number of shares held outright by Directors as at 28 April 2015 .
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Shares held
outright
Shares
conditional on
performance
Options to
purchase
shares
Total
22,407,704
2,844,402
–
1,398,341
550,000
3,105,498
22,957,704
7,348,241
259,600
39,600
39,600
–
–
–
–
–
–
259,600
39,600
39,600
Executive Directors
Mark Pritchard(1)
Christopher Silva
Non-Executive Directors
Rick Davis
Peter Dolan
Jeffrey Rohr
Notes:
(1) Includes shares held through connected persons .
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Directors’ Remuneration Report (continued)
Performance Graph
The graph below illustrates the Company’s Total Shareholder Return (TSR) performance relative to the
constituents of the FTSE 250 index excluding investment companies and the FTSE All Share index of which
the Company is a constituent, from the start of conditional share dealing on 25 June 2014 . The graph
shows performance of a hypothetical £100 invested and its performance over that period .
250
200
150
100
50
0
25-06
2014
ALM
FTSE 250
FTSE All Share
31-12
2014
Change in remuneration of Chief Executive compared to US Group employees
The table below sets out the increase in total remuneration of the Chief Executive and that of our US Group
employees (excluding Directors) from 2013 to 2014:
CEO
US Group Employees
% change in
base salary
% change in
cash bonus
% change in
benefits
19.5%
5.5%
127 .3%
9 .3%
15 .4%
13 .6%
Historical CEO remuneration outcomes
The table below summarises the Chief Executive single total figure for total remuneration, annual cash
incentive bonus award, and share award (US Stock Plan) as a percentage of maximum opportunity for the
last financial year . As the company listed in 2014, the comparative for 2013 only is provided .
CEO single total figure for remuneration
Annual cash incentive bonus award pay-out (% of maximum)(1)
Share award vesting (US Stock Plan) (% of maximum)(2)
Notes:
2014
$15,942
n/a
100%
2013
$1,236
n/a
100%
(1) The percentage of maximum is not applicable because the company did not have any cap on cash incentive bonus award
payments in those financial years . As a percentage of base salary, the award was 65 .7% in 2013, and 125 .0% in 2014 .
(2) Equity-based payments include awards under the US Stock Plan . All equity awards, including stock options and restricted stock,
under the US Stock Plan became vested and fully exercisable, or vested and fully transferable, in connection with the IPO . No
equity-based awards vested under the LTIP during 2013 or 2014 . In addition, no equity-based awards are expected to vest under
the LTIP in 2015 or 2016 .
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Directors’ Remuneration Report (continued)
Relative importance of spend on pay
The chart below shows the total employee costs, change in Group Subsidiary Ownership Adjusted Value,
and change in share price from 2013 to 2014 .
The information shown in this chart is based on the following:
• Total employee pay: Total US Group employee staff costs from note 5 on page 115, including wages
and salaries, social security and healthcare costs, and share-based payments .
• Change in Group Subsidiary Ownership Adjusted Value (GSOAV) taken from page 20 .
• Returns to shareholders: since the Group does not currently pay a dividend, returns to shareholders
are represented by the change in the Group’s share price over the period from 25 June 2014 to
31 December 2014 (annualised) .
29.6
19.9
488.0
367.3
367.0
190.0*
To
tal employee costs ($m)
GSOAV ($m)
Share Price (£p)
(+48.8%)
(+32.9%)
(+93.2%)
*Share price at IPO
2014
2013
Statement of implementation of remuneration policy in the following financial year
Base Salary and Benefits
Effective from 1 January 2015, the base salaries of the Executive Directors will be:
Christopher Silva
Mark Pritchard
Base Salary
Increase % Increase
$500,000
$425,000
$100,000
$75,000
25 .0%
21 .4%
As noted above, based upon the results of the benchmarking study, the Remuneration Committee
concluded that based upon the continued modest cash incentive bonus awards that had been paid in the
previous financial year, each of the Executive Directors total direct compensation was still at or below the
25th percentile of the peer group . Given the strong company performance in 2014, and the achievement
of company and individual goals, the Board recommended an increase in the level of cash incentive bonus
awards, and an increase in base salary to move the Executive Director total direct compensation above the
25th percentile of the peer group, and towards the 50th percentile of the peer group . The Remuneration
Committee designed the increases to reflect its policy of moving the Executive Director compensation, in
connection with superior performance, towards the 50th percentile of the peer group .
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Directors’ Remuneration Report (continued)
Cash Incentive Bonus Awards
The Remuneration Committee does not expect to implement any changes to the cash incentive bonus
awards . The Executive Director’s cash incentive bonus awards shall be considered by the Committee upon
completion of the financial year . The decision to provide any cash incentive bonus award and the amount
and terms of any such award, shall be in the sole and absolute discretion of the Committee . Any award shall
be based on performance against criteria and subject to such conditions as the Committee may impose .
When exercising this discretion to provide an award, and making a determination as to the appropriate
remuneration, the Committee where it is relevant, shall benchmark the remuneration against the Company’s
peer groups . The results of benchmarking will, however only be one of a number factors taken into account
by the Remuneration Committee and which will include those set forth below .
The Committee may consider any and all performance criteria in making its determination to provide an
award, and may generally consider:
•
•
the individual performance of the Executive Director;
the general performance of the Company; and
• KPIs, the achievement of company milestones, and other company and individual objectives .
Long Term Incentive Plan
The Remuneration Committee expects to make LTIP awards subsequent to the release of this Annual
Report . The number of awards is expected to be at a reduced level as compared to the awards made at
the time of the IPO . Whilst the maximum value of Ordinary Shares over which awards under the LTIP may
be granted to a participant in any financial year of the Company may not generally exceed 300% of base
salary for that financial year, the Committee expects that any grant to Executive Directors will not exceed
200% of base salary per financial year .
In respect of the 2015 awards, the Committee expects vesting to be dependent upon performance metrics
as follows:
• 60% of each award will be subject to performance conditions based on the Company’s total shareholder
return performance in respect of the period from the date of the IPO until 31 December 2016; and
• 40% of each award will be subject to performance conditions based on a basket of shareholder value
metrics, including but not limited to: (i) the increase in quality of pipeline intellectual property reviewed;
(ii) the increase in quality of the partnership pipeline; and (iii) subsidiary level performance (assessed by
reference to such matters as external funding raised, corporate collaborations, product co-development
and proof of principal commercial pilots and revenues) . Performance will be assessed on these measures
on a scorecard basis over a three year period .
In respect of the 2015 awards, at the end of the three year period, performance against the relevant measures
will be calculated to determine the number of Ordinary Shares capable of vesting . The level of vesting for
threshold performance will be 33 .33% of the maximum . The level of vesting for target performance will be
66 .67% of the maximum .
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Directors’ Remuneration Report (continued)
Chairman and Non-Executive Directors
Effective from 1 January 2015, the base salaries of the Chairman and Non-Executive Directors will be:
Cash Component
Non-Executive Director Annual Fee
Audit Committee Chair Annual Fee
Remuneration Committee Chair Annual Fee
Nomination Committee Chair Annual Fee
Chairman of the Board Annual Fee
Equity Component
Non-Executive Director LTIP Award Value
Chairman of the Board LTIP Award Value
2015
$75,000
$25,000
$10,000
$10,000
$75,000
$50,000
$75,000
The Non-Executive Director annual fees, and Committee Chair annual fees set forth in the table above
remain unchanged from 2014 . The fees proposed to be paid to the Chairman shall only be payable where
the Chairman is a Non-Executive Director . Given the US-based nature of the Group’s business, and the
need to attract and retain independent directors with significant US business and leadership experience,
the proposed fees above include an equity component, which will have a time-based vesting schedule .
Christopher Silva and Mark Pritchard, as Executive Directors, will not be entitled to any Board fees .
Outside Appointments for Executive Directors
Any proposed external directorships are considered and approved by the Board to ensure they do not
cause a conflict of interest but, subject to this, Executive Directors may accept outside non-executive
appointments .
Limits on the number of shares used to satisfy share awards (dilution limits)
All of the Group’s incentive schemes that contain an element that may be satisfied in Allied Minds plc shares
incorporate provisions that in any ten-year period (ending on the relevant date of grant), the maximum
number of the Shares that may be issued or issuable under all such schemes shall not exceed 10% of
the issued ordinary share capital of the Company from time to time (excluding shares issued pursuant to
awards granted prior to IPO under the US Stock Plan) .
The Committee regularly monitors the position and prior to the making of any share-based award considers
the effect of potential vesting of outstanding awards to ensure that the Company remains within these
limits . Any awards which are required to be satisfied by market purchased shares are excluded from such
calculations . No treasury shares were held or utilised in the year ended 31 December 2014 .
Consideration by the Directors of matters relating to Directors’ remuneration
The full terms of reference of the Committee, which are reviewed annually, are available on the Group’s
website at www.alliedminds.com . In summary, the Remuneration Committee has specific responsibility
for advising the Group’s Board on the remuneration and other benefits of executive directors, an overall
policy in respect of remuneration of other employees of the Group and establishing the Group’s policy with
respect to employee incentivisation schemes .
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ANNUAL REPORT AND ACCOUNTS 2014
Directors’ Remuneration Report (continued)
The Remuneration Committee comprises the following independent non-executive directors, all of whom
served from the IPO through the end of the financial year, and whose backgrounds and experience are
summarised on pages 43 to 44:
• Richard Davis (Chair)
• Peter Dolan
• Jeffrey Rohr
Committee meetings are administered and minuted by the Company Secretary . In addition, the Committee
received assistance from the Chief Executive Officer, President and Director of Finance, each of who attend
meetings by invitation, except when matters relating to their own remuneration are being discussed .
During the year, the key activities carried out by the Committee were:
• Reviewed and approved an appropriate Remuneration Policy for a UK listed company, whilst also
ensuring that it was designed to continue to attract and retain US-based management and employees
of the highest caliber;
• Designed and adopted a UK LTIP to advance the Committee’s policy to provide a competitive,
performance-linked long-term incentive mechanism that will: (i) attract, retain and motivate individuals
with the required personal attributes, skills and experience, (ii) provide a real incentive to achieve our
long-term strategic objectives, and (iii) and align the interests of management and shareholders;
• Considered (i) the individual performance of the Executive Directors, (ii) the general performance of the
Company, and (iii) KPIs, the achievement of company milestones, and other company and individual
objectives, and carried out benchmarking, in order to determine the cash incentive bonus awards for
the Executive Officers for the last financial year;
• Considered the (i) scale, scope and responsibility of the role, (ii) skills and experience of the individual,
(iii) retention risk, (iv) base salary of other employees, (v) and economic environment, and carried out
benchmarking, in order to determine base salaries of the Executive Directors, for the period starting 1
January 2015;
•
Issued the initial LTIP awards at the time of the IPO;
• Reviewed progress against LTIP performance targets for the last financial year;
• Established LTIP performance targets for the current financial year; and
• Reviewed of the remuneration reporting regulations in connection with the development of the Group’s
Remuneration Policy and preparation of the Directors’ Remuneration Report .
External advisers
The Remuneration Committee is authorised, if it wishes, to seek independent specialist services to provide
information and advice on remuneration at the Company’s expense, including attendance at Committee
meetings .
During the year the Remuneration Committee continued its review of executive remuneration and took into
consideration professional advice from Hay Group carried out in in January 2014, in the months leading
up to the IPO in June 2014, and in December 2014 . Hay Group performed peer benchmarking to assist
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ANNUAL REPORT AND ACCOUNTS 2014
Directors’ Remuneration Report (continued)
the Committee with determinations regarding base salary and cash incentive bonus awards, and assisted
in the design of the LTIP adopted at the IPO . Fees paid to Hay Group in connection with advice to the
Committee in 2014 were $83,000 (2013: nil) . Hay Group did not provide any other services or advice to the
Group during the year . They are a member of the Remuneration Consultants Group and adhere to its Code
of Conduct in relation to executive remuneration consulting in the UK .
Statement of voting at general meeting
As mentioned previously, Allied Minds has not held an AGM since listing and therefore no voting outcomes
are available . We will publish details of remuneration related voting outcomes in next year’s Directors’
Remuneration Report .
Remuneration disclosure
This report complies with the requirements of the Large and Medium-sized Companies and Groups
Regulations 2008 as amended in 2013, the provisions of the UK Corporate Governance Code (September
2012) and the Listing Rules .
Approval
This Directors’ Remuneration Report, including both the Remuneration Policy and Annual Remuneration
Report has been approved by the Board of Directors .
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Richard Davis
Chairman of the Remuneration Committee
28 April 2015
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ANNUAL REPORT AND ACCOUNTS 2014
Audit Committee Report
The Committee plays an integral role in assisting the Board fulfil its oversight responsibilities . In performing
its duties, the Committee strives to maintain effective working relationships with the Board, the Company’s
management and the external auditors . The Committee reviews the integrity of the financial statements of
the Group, reviews all proposed half-yearly and annual results, and advises the Board whether it believes
the annual report and accounts, taken as a whole, fairly present the Company’s financial position and
provide the necessary information to the shareholders of the Company to assess the Group performance,
business model, and strategy .
Membership
The Committee comprises three independent Non-executive Directors . Members of the Committee are
appointed by the Board . The CEO, COO, Director of Finance, General Counsel and external auditors also
participate in Committee meetings by invitation . As Chair of the Committee, Mr . Jeffrey Rohr has the relevant
financial experience being a Certified Public Accountant with over thirty years of senior management and
executive experience . In 2014, Mr . Peter Dolan and Mr . Rich Davis served as the other two independent
members of the Committee .
Being the first year since incorporation of the Company, the Committee met four times in 2014, of which
the external auditors participated in three of the meetings . Messrs . Rohr, Davis and Dolan were present at
all meetings during the year .
Duties
The Committee’s main responsibilities are to monitor the integrity of the financial statements of the Company,
including its annual and half-yearly reports and accounts and any other formal announcement relating to
its financial performance, reviewing and reporting to the Board on significant financial reporting issues and
judgements which they contain having regard to matters communicated to it by the auditor . The roles and
responsibilities of the Audit Committee additionally include:
• Review the Company’s internal financial controls and the Company’s internal control and risk
management systems;
• Advise on the need and monitor and review the effectiveness of the Company’s internal audit function;
• Make recommendations to the board, for it to put to the shareholders for their approval in general
meeting, in relation to the appointment of the external auditor and to approve the remuneration and
terms of engagement of the external auditor;
• Review and monitor the external auditor’s independence and objectivity and the effectiveness of the
audit process, taking into consideration relevant UK professional and regulatory requirements;
• Develop and implement policy on the engagement of the external auditor to supply non-audit services,
taking into account relevant ethical guidance regarding the provision of non-audit services by the
external audit firm; and to report to the board, identifying any matters in respect of which it considers
that action or improvement is needed, and making recommendations as to the steps to be taken; and
• Report to the board on how it has discharged its responsibilities .
The Committee carries out these duties for the Company, major subsidiary undertakings and the Group as
a whole, as appropriate .
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Audit Committee Report (continued)
Activities during the year
The Committee’s activities for the year ended 31 December 2014, are set out below:
Financial reporting
• Reviewed and approved the appropriate audit plan, before the start of the annual audit cycle;
• Reviewed and provided comments and recommendations in respect of the financial statements in the
half-yearly report for the period ended 30 June 2014, the financial information included in the short form
of the prospectus prepared in connection with the Company’s initial public offering, covering the three
year period ended 31 December 2013, and the financial statements in the annual report and accounts
for the year ended 31 December 2014;
• Reviewed the Company’s approach and methodology for determining the fair value of investments,
including review of the fair value reports on the individual investments . Considered and recommended
the involvement of external valuation specialist firm to assist management and the Board in deriving the
fair value of the subsidiary undertakings;
• Considered significant matters, risk areas, and areas of judgement in relation to the Group’s financial
statements taking into account the areas highlighted by the external auditors in their presentations to
the committee, and challenged where necessary .
The Committee is satisfied with the integrity of the financial statements of the Company in all material
aspects, including the application of significant accounting policies, the methods used to account for
significant transactions, use of judgements and estimates made by management, including those made in
deriving the fair value of the subsidiary undertakings, and the quality and completeness of the disclosures
in the financial statements of the Company .
Internal controls and risk management systems
• Reviewed the principal elements of the Company’s risk management framework as set out on pages
38 to 42 of this annual report . The Committee gives consideration and provides guidance on enhancing
the internal controls and risk management framework, as needed;
• Reviewed the established procedures, which provide a reasonable basis for the Board to make proper
judgements on an ongoing basis as to the financial position and prospects (FPP) procedures of the
Company following the adopted risk approach;
• A formal whistleblower policy was established and approved by the Board, which has been communicated
to employees . The Audit Committee is satisfied that the policy has been designed to encourage staff to
report suspected wrongdoing as soon as possible, provide staff with guidance on how to raise those
concerns, and ensure staff that they should be able to raise genuine concerns without fear of reprisals,
even if they turn out to be mistaken .
Significant areas reported to the Board
Valuation of Group subsidiaries
At the close of each annual financial period, the Directors formally approve the value of all subsidiary
businesses in the Group, which is used to derive the Group Subsidiary Ownership Adjusted Value (GSOAV) .
This Group Subsidiary Ownership Adjusted Value is a sum-of-the-parts (‘‘SOTP’’) valuation of all the
subsidiaries that make up the Group .
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ANNUAL REPORT AND ACCOUNTS 2014
Audit Committee Report (continued)
The Audit Committee discusses with management and the auditors the appropriateness of the adopted
methodology and approach in deriving the GSOAV . Further details of the Group valuation methodology are
outlined in note 11 on pages 127 to 131 . Although the fair values of the Group’s investments in subsidiaries
are not included in the Group’s Consolidated Statement of Financial Position, additional disclosures are
provided in the notes to the Consolidated Financial Statements . This is a significant performance metric for
the Group and an important part of the annual audit .
Share-based incentives
In 2014, the Group adopted the UK Long Term Incentive Plan (LTIP) and made awards under the LTIP upon
the Company’s admission to the LSE in respect of a total of 4,618,842 Ordinary Shares . The respective
share-based payment charge to the financial statements is determined by reference to the fair value of
the award and based on key judgements . The choice of valuation methodology and the inputs used to
calculate the initial fair value and number of shares expected to be issued is one of the key areas of the audit
based on the materiality of the awards .
Capitalisation of development cost
Given the nature of our business, the Group incurs significant research and development costs . Due to the
early stage of development of most of our subsidiaries, there is a limited history of achieving both technical
feasibility and commercial viability that can be used as a base for assessing and determining whether
the development costs have met the criteria for capitalisation . As such, as key judgements are made in
determining whether the capitalisation criteria are met and there is therefore a risk of development cost not
being appropriately capitalised, which is a significant risk for the financial statements and an important part
of the annual audit .
External audit
• Reviewed and approved the scope of the external audit procedures over the half-yearly report for the
period ended 30 June 2014, and the annual report and accounts for the year ended 31 December
2014;
• Discussed with management and agreed the terms of the engagement of the external auditors and
the auditors’ remuneration for audit and non-audit services . In assessing independence, the Audit
Committee received the auditor’s presentation and confirmation that in their professional judgment,
KPMG is independent within the meaning of regulatory and professional requirements and the objectivity
of the partner and audit staff is not impaired . The Committee was satisfied that throughout the year that
the objectivity and independence of KPMG was not in any way impaired by the non-audit services they
provided to the Group during the year, by the amounts of non-audit fees, or by any other factors;
• Assessed the independence, objectivity and qualifications of KPMG as the external auditor and evaluated
the quality and effectiveness of the audit procedures . In doing so, the Committee reviewed the audit plan
and monitored performance against the plan, reviewed the periodic reports of KPMG to the Committee
that highlighted hey areas of focus during the audit and the applied audit approach, obtained feedback
from the finance department in respect to quality and status of KPMG work in the course of the audit .
The Committee concluded that the audit process during the year was effective;
• Reviewed and discussed the principal areas of financial reporting risk, as highlighted above, and report
to the Board .
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ANNUAL REPORT AND ACCOUNTS 2014
Audit Committee Report (continued)
KPMG has been the external auditor of the Group since the first audit of the consolidated financial
statements in 2008 . The total fees to KPMG for the year ended 31 December 2014 were $2 .3 million, of
which $1 .9 million were for non-audit services primarily related to the listing on the LSE in June 2014 (see
note 5 of the consolidated financial statements) .
The Audit Committee currently intends to recommend to the Board a resolution to shareholders to appoint
KPMG LLP as the external audit firm at the AGM to be held on 28 May 2015 .
Internal audit
Given the size and composition of the Group, taking into account relevant significant matters, risk areas,
areas of judgement in relation to the Group’s financial statements, and the centralised internal controls
system in respect to the Group’s financial reporting process, the Board did not consider it necessary to
have an internal audit function during the year .
Jeffrey Rohr
Chairman of the Audit Committee
28 April 2015
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ANNUAL REPORT AND ACCOUNTS 2014
Independent Auditor’s Report
to the members of Allied Minds plc only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Allied Minds plc for the year ended 31 December 2014 set out
on pages 97 to 151 . In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s
affairs as at 31 December 2014 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
the parent company financial statements have been properly prepared in accordance with UK Accounting
Standards; and
the financial statements have been prepared in accordance with the requirements of the Companies Act
2006 and, as regards the group financial statements, Article 4 of the IAS Regulation .
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had
the greatest effect on our audit were as follows:
Group Subsidiary Ownership Adjusted Value ($488 .0 million)
Refer to page 89 (Audit Committee Report) and pages 127 to 131 (financial disclosures)
The Group owns 25 subsidiaries in which it has ownership stakes of between 48% and 100% . The results
and financial position of the subsidiaries are consolidated in the group accounts . Although the fair values
of the Group’s holdings in subsidiaries are not included in the Group’s Statement of Financial Position,
the financial statements do include additional disclosure in relation to the Group Subsidiary Ownership
Adjusted Value of the subsidiaries, as, in the Directors’ view, the fair value of the subsidiaries is very
pertinent to the shareholders and other users of the financial statements . The valuation methodologies
are based primarily on net present value or risk-adjusted net present value from discounted cash flows . A
small minority of the valuations are based on recent third party investment or asset-based methodologies
(see note x for more details) . The Group’s subsidiaries are, for the most part, still at the development stage
and the majority do not yet generate revenues . Due to the inherent uncertainty involved in forecasting
the trading of such companies and the relevance of the Group Subsidiary Ownership Adjusted Value
disclosures in the Group accounts, this has been determined to be a significant risk .
Our response – In this area our audit procedures included, among others,
• Assessing the appropriateness of the valuation model used for each subsidiary, obtaining an
understanding of how the forecasts are compiled and assessing for consistency with the approach
taken in the prior year .
• We obtained and analysed the valuations prepared by an external expert on behalf of the company .
• We used our own valuation specialist to assist us in evaluating the assumptions and methodologies
used in the valuations .
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ANNUAL REPORT AND ACCOUNTS 2014 Independent Auditor’s Report
to the members of Allied Minds plc only (continued)
• We critically assessed the appropriateness of the assumptions underlying the forecasts, including
assumptions over projected revenue and operating costs and the discount rates applied, assessing
also for consistency with the assumptions used in the prior year . In doing this we used our knowledge of
each subsidiary and its industry with reference to both internal management information and externally
derived data and benchmarks, including market size data, royalty rates and competitor analyses based
on information from public material .
• Where valuations are based on the implied value from the most recent third party investment we
assessed the accuracy of the data used and the reasonableness of the conclusion in the context of the
wider value of the entity .
• We also assessed whether the Group’s disclosures were consistent with the valuations performed and
whether the group’s disclosures adequately highlight the uncertainty inherent in the valuations .
Share based incentives – Long Term Incentive Plan (LTIP) ($1 .3 million)
Refer to page 90 (Audit Committee Report), page 108 (accounting policy) and pages 117 to 118 (financial
disclosures)
The risk – During 2014 the group made equity-settled awards over 4,619,842 ordinary shares under a Long
Term Incentive Plan (LTIP) made to employees, officers and directors of, and other individuals providing
services to the Company and its subsidiaries which has resulted in a share based payments charge in the
Group’s financial statements . The respective share based payments charges are principally determined
by reference to the fair value of the equity instruments awarded and the number of shares expected to
be issued . The choice of valuation methodology and the inputs used to calculate the initial fair value and
number of shares expected to be issued is one of the key judgemental areas of our audit . This is deemed
to be an area of significant risk in view of the materiality of the amounts involved, the sensitivity of these
amounts to a change in the assumptions used and the technical complexity (for example, in order to value
the total shareholder return element the Group utilises the Monte Carlo simulation analysis) .
Our response – In this area our audit procedures included, among others,
• Assessing the appropriateness of the valuation model used and evaluating the assumptions and
methodologies used by the Group to value awards and estimate the number of shares that will eventually
be issued .
• We agreed key inputs in the models to internally and externally derived sources .
• We used our own valuation specialists to assist us in critically assessing the key inputs which require
significant estimation and judgement in their selection and can have a significant impact on the derived
fair value and estimate of the number of shares that will be issued, specifically the risk free rate,
share volatility, leaver assumptions and performance conditions . These key inputs were assessed for
reasonableness by reference to external data or internal information such as past history in the case of
leaver assumptions, along with reports from the group’s external consultants .
• We also considered the adequacy of the Group’s disclosures in relation to the key assumptions related
to the scheme .
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ANNUAL REPORT AND ACCOUNTS 2014Financial Statements Independent Auditor’s Report
to the members of Allied Minds plc only (continued)
Capitalisation of development costs ($0 .2 million)
Refer to page 90 (Audit Committee Report), page 106 (accounting policy) and pages 123 to 124 (financial
disclosures)
The risk – The Group incurs significant research and development costs . Due to the early stage of development
of most of the Group’s subsidiaries, management has limited history on which to base its assessment of
both technical feasibility and commercial viability in order to ascertain whether the development costs
have met the criteria for capitalisation . There is therefore a risk that development costs which have met the
requirements of the relevant accounting standards have not been capitalised, and this is therefore one of
the key judgemental areas of our audit .
Our response – In this area our audit procedures included, among others,
• Critically assessing on a product by product basis the Group’s assessment of whether technical and
commercial feasibility had been achieved . The assessment of technical viability included reviewing
whether successful product testing had been performed and whether regulatory approval had been
achieved . In relation to commercial viability we challenged the assumptions made as to whether the
current market proposition, sales recorded or orders received in relation to specific products were
indicative of commercial feasibility, using our knowledge of each subsidiary and of the industry in which
it operates .
• We have also considered the adequacy of the Group’s disclosures and related judgements in relation to
the capitalisation of development costs .
3. Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at $0 .9m . This has been determined
with reference to a benchmark of total expenses (of which it represents 1 .5%), which we consider to be
one of the principal considerations for the members of the company in assessing the financial performance
of the group, since the Group’s activities are currently principally in relation to expenditure on developing
forms of intellectual property which can be exploited commercially to generate income and growth in the
future .
We agreed with the audit committee to report to it all corrected and uncorrected misstatements we identified
through our audit with a value in excess of $45,000, in addition to other audit misstatements below that
threshold that we believe warranted reporting on qualitative grounds .
All subsidiaries in the Group are located in the US and are centrally administered and therefore we performed
the audit as if it was a single aggregated set of financial information using the materiality level set out above .
The audit covered 100% of total Group revenue, Group profit before tax, and total Group assets . The audit
is performed by the UK Group team assisted by a US component auditor . The UK Group audit team issued
detailed audit instructions to the component auditor . These instructions covered the significant audit areas
that should be covered by the audit (which included the relevant risks of material misstatement detailed
above) and set out the information required to be reported back to the Group audit team .
The Group audit team maintained close communication with the component audit team throughout the
engagement including but not limited to discussions and meetings in relation to risks identified, the audit
approach to be adopted, the results of procedures performed and significant findings .
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ANNUAL REPORT AND ACCOUNTS 2014 Independent Auditor’s Report
to the members of Allied Minds plc only (continued)
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
5. We have nothing to report in respect of the matters on which we are required to
report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during
our audit, we have identified other information in the annual report that contains a material inconsistency
with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise
misleading .
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our audit and
the directors’ statement that they consider that the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides the information necessary for shareholders to
assess the Group’s performance, business model and strategy; or
•
the Audit Committee Report does not appropriately address matters communicated by us to the audit
committee .
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
•
the parent company financial statements and the part of the Directors’ Remuneration Report to be
audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit .
Under the Listing Rules we are required to review:
•
•
the Directors’ statement, set out on page 60, in relation to going concern; and
the part of the Corporate Governance Statement on page 51 relating to the company’s compliance with
the ten provisions of the 2012 UK Corporate Governance Code specified for our review .
We have nothing to report in respect of the above responsibilities .
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ANNUAL REPORT AND ACCOUNTS 2014Financial Statements Independent Auditor’s Report
to the members of Allied Minds plc only (continued)
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 49, the Directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and
fair view . A description of the scope of an audit of financial statements is provided on the Financial Reporting
Council’s website at www .frc .org .uk/auditscopeukprivate . This report is made solely to the company’s
members as a body and is subject to important explanations and disclaimers regarding our responsibilities,
published on our website at www .kpmg .com/uk/auditscopeukco2014a, which are incorporated into this
report as if set out in full and should be read to provide an understanding of the purpose of this report, the
work we have undertaken and the basis of our opinions .
Charles le Strange Meakin (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
28 April 2015
Page 96 of 152
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ANNUAL REPORT AND ACCOUNTS 2014 Consolidated Statement of Comprehensive Loss
For the year ended 31 December
Note
Revenue
Operating expenses:
Cost of revenue
Selling, general and administrative expenses
Research and development expenses
Operating loss
Finance income/(cost), net
Loss before taxation
Taxation
Loss for the year
Other comprehensive (loss)/income:
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences
Other comprehensive (loss)/income, net of taxation
Total comprehensive loss
Loss attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive loss attributable to:
Equity holders of the parent
Non-controlling interests
Loss per share
Basic
Diluted
See accompanying notes to consolidated financial statements .
3
4,5
4,5
4,5
7
17
8
8
2014
$’000
7,715
(5,416)
(38,032)
(22,195)
(57,928)
222
(57,706)
—
(57,706)
(159)
(159)
(57,865)
(45,478)
(12,228)
(57,706)
(45,637)
(12,228)
(57,865)
$
(0.24)
(0.24)
2013
$’000
2,936
(2,342)
(27,472)
(15,689)
(42,567)
(140)
(42,707)
—
(42,707)
35
35
(42,672)
(34,501)
(8,206)
(42,707)
(34,466)
(8,206)
(42,672)
$
(0 .24)
(0 .24)
Page 97 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial Statements
Consolidated Statements of Financial Position
As of 31 December
Non-current assets
Property and equipment
Intangible assets
Investment in equity accounted investees
Other investments
Other financial assets
Other non-current assets
Total non-current assets
Current assets
Cash and cash equivalents
Other investments
Inventories
Trade and other receivables
Other financial assets
Total current assets
Total assets
Equity
Share capital
Share premium
Merger reserve
Other reserve
Translation reserve
Accumulated deficit
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Non-current liabilities
Loans
Deferred revenue
Other non-current liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Deferred revenue
Loans
Total current liabilities
Total liabilities
Total equity and liabilities
Note
2014
$’000
9
10
11
12
21
13
12
14
15
21
16
16
16
16
16
16
16,17
18
3
19
19
3
18
16,330
3,409
1,560
22,176
418
146
44,039
224,075
15,231
2,919
6,305
461
248,991
293,030
3,411
153,442
185,544
28,753
(61)
(123,186)
247,903
31,911
279,814
338
197
182
717
11,339
947
213
12,499
13,216
293,030
2013
$’000
18,001
4,504
—
—
484
38
23,027
104,551
—
1,045
2,870
312
108,778
131,805
2,445
—
185,544
19,814
98
(90,648)
117,253
2,606
119,859
2,744
188
278
3,210
5,038
2,642
1,056
8,736
11,946
131,805
See accompanying notes to consolidated financial statements.
Registered number: 8998697
The financial statements on pages 97 to 147 were approved by the Board of Directors and authorised for
issue on 28 April 2015 and signed on its behalf by:
Christopher Silva
Chief Executive Officer
Page 98 of 152
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ANNUAL REPORT AND ACCOUNTS 2014
Consolidated Statements of Changes in Equity
For the year ended 31 December 2014
Note
Share capital
Shares
Amount
$’000
Share
premium
$’000
Merger
reserve
$’000
Other
reserve
$’000
Trans lation
reserve
$’000
Accumu-
lated
deficit
$’000
Total parent
equity
$’000
Non-
control ling
interests
$’000
Total
equity
$’000
Balance at 31 December 2012
122,923,416
1,922
—
86,957
14,839
63
(55,142)
48,639
9,675
58,314
Total comprehensive loss for
the year
Loss from continuing
operations
Foreign currency translation
Total comprehensive loss for
the year
–
–
–
–
Issuance of ordinary shares
16,17
34,468,742
522
New funds into non-controlling
interest
16,17
Gain/(loss) arising from change
in non-controlling interest
16,17
Deconsolidation of subsidiaries
17
–
–
–
Exercise of stock options
Equity-settled share based
payments
6
6
71,632
–
–
–
–
1
–
Balance at 31 December 2013
157,463,790
2,445
Total comprehensive loss for
the year
Loss from continuing
operations
Foreign currency translation
Total comprehensive loss for
the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issuance of ordinary shares
16,17
48,164,365
818
142,243
New funds into non-controlling
interest
16,17
Gain/(loss) arising from change
in non-controlling interest
16,17
Exercise of stock options
Equity-settled share based
payments
6
6
–
–
–
–
–
–
8,817,424
148
11,199
–
–
–
–
–
98,612
–
–
(80)
55
–
–
–
–
–
–
–
–
4,975
–
35
(34,501)
(34,501)
(8,206)
(42,707)
–
35
–
35
35
(34,501)
(34,466)
(8,206)
(42,672)
99,134
–
99,134
–
–
–
52
(2,212)
(2,212)
2,212
1,207
1,127
(1,127)
–
–
56
4,975
–
–
52
–
–
56
4,975
–
–
–
–
–
–
185,544
19,814
98
(90,648)
117,253
2,606
119,859
–
–
–
–
–
–
–
–
–
–
–
–
–
8,939
–
(45,478)
(45,478)
(12,228)
(57,706)
(159)
–
(159)
–
(159)
(159)
(45,478)
(45,637)
(12,228)
(57,865)
–
–
–
–
–
–
–
143,061
–
143,061
–
54,473
54,473
12,940
12,940
(12,940)
–
–
–
11,347
8,939
–
–
11,347
8,939
Balance at 31 December 2014
214,445,579
3,411
153,442
185,544
28,753
(61)
(123,186)
247,903
31,911
279,814
See accompanying notes to consolidated financial statements .
Page 99 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial Statements
Consolidated Statements of Cash Flows
For the year ended 31 December
Note
Cash flows from operating activities:
Net operating loss
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation
Amortisation
Impairment losses on property and equipment
Impairment losses on intangible assets
Share-based compensation expense
Changes in working capital:
Increase in inventory
Increase in trade and other receivables
Increase in trade and other payables
Decrease in other non-current liabilities
(Decrease)/increase in deferred revenue
Interest received
Interest paid
Other finance cost
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment, net of disposals
Purchases of intangible assets, net of disposals
Purchases of investment in equity accounted investees
Purchases of other investments
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
(Repayment)/issuance of notes payable
Proceeds from issuance of share capital
Proceeds from issuance of share capital in subsidiaries
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
See accompanying notes to consolidated financial statements .
9
10
9
10
5,6
14
15
19
19
3
7
7
7
9
10
11
12
16
18
16
17
2014
$’000
2013
$’000
(57,928)
(42,567)
2,312
580
416
1,063
8,939
(1,874)
(3,626)
6,301
(96)
(1,686)
545
(320)
(3)
1,352
532
5
884
4,975
(402)
(2,540)
951
(51)
1,923
324
(306)
(158)
(45,377)
(35,078)
(1,217)
(547)
(1,560)
(37,407)
(40,731)
11,347
(3,249)
143,061
54,473
205,632
119,524
104,551
224,075
(10,527)
(148)
—
—
(10,675)
55
2,865
99,135
14,500
116,555
70,802
33,749
104,551
Page 100 of 152
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ANNUAL REPORT AND ACCOUNTS 2014
(1) Accounting Policies
Basis of Preparation
Allied Minds plc (“Allied Minds” or the “Company”) is a company incorporated and domiciled in the
UK . The Annual Report and Accounts of Allied Minds and its subsidiaries (together referred to as
the “Group”) are presented for the year ended 31 December 2014 . The group financial statements
consolidate those of the Company and its subsidiaries and the Group’s interest in associates . The
Group financial statements have been prepared and approved by the directors in accordance with the
International Financial Reporting Standards, International Accounting Standards, and Interpretations
(collectively “IFRS”) issued by the International Accounting Standards Board (“IASB”) as adopted by
the European Union (“adopted IFRSs”) . The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these consolidated financial statements .
Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis .
Use of Judgements and Estimates
In preparing these consolidated financial statements, management has made judgements, estimates
and assumptions that affect the application of the Group’s accounting policies and the reported
amounts of assets, liabilities, income and expenses . Actual results may differ from these estimates .
Estimates and underlying assumptions are reviewed on an on-going basis . Revisions to estimates are
recognised prospectively .
Significant estimates made by the Group include those used in calculating share-based payment
expense and related valuations, in particular when using Black Scholes or Monte Carlo models to
determine the value of the equity based awards, the judgements involved in determining the point
of capitalisation of development costs, the judgements used in considering any impairment required
in relation to intangible assets, and the judgements made in determining control over subsidiaries .
Significant estimates are also made when determining the appropriate valuation methodology and
deriving the fair estimated fair value of subsidiary undertakings . These judgements include making
certain estimates of the future earnings potential of the subsidiary businesses, appropriate discount
rate and earnings multiple to be applied, marketability and other industry and company specific risk
factors . Information about these critical judgements and estimates is included in the following notes .
Changes in Accounting Policies
In these financial statements the Group has changed its accounting policies in the following areas:
IFRS 10 Consolidated Financial Statements: As a result of IFRS 10 (2011), the Group has changed its
accounting policy for determining whether it has control over and consequently whether it consolidates
its investees . IFRS 10 introduces a new control model that focuses on whether the Group has power
over an investee, exposure or rights to variable returns from its involvement with the investee and ability
to use its power to affect those returns .
In accordance with the transitional provisions of IFRS 10, the Group reassessed the control conclusion
for its investees at 1 January 2014 . No modifications of previous conclusions about control regarding
the Group’s investees were required .
IFRS 12 Disclosure of Interest in Other Entities: As a result of IFRS 12, the Group has expanded
disclosures about its interests in subsidiaries and equity-accounted investees .
Page 101 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements Going Concern
The Directors have prepared trading and cash flow forecasts for the Group covering the period to
31 December 2016 . Despite the fact that the Group is currently loss making and is likely to continue
to be so, at least in the short term, after making enquiries and considering the impact of risks and
opportunities on expected cashflows, and given the fact that the Group has in excess of $250 million of
available funds in the form of cash and fixed income securities as at 31 December 2014, the Directors
have a reasonable expectation that the Group has adequate cash to continue in operational existence
for the foreseeable future . For this reason, they have adopted the going concern basis in preparing the
financial statements .
Basis of Consolidation
Allied Minds plc was formed on 15 April 2014 and on 19 June 2014 acquired Allied Minds Inc . (now
Allied Minds, LLC) by share exchange . Each issued and outstanding common stock of Allied Minds
Inc . held by stockholders of Allied Minds, Inc . (now Allied Minds, LLC) was converted into the right to
receive twenty two ordinary shares of Allied Minds plc . This has been accounted for as a common
control transaction under IFRS 3 .B1 (see note 16), therefore the consolidated financial statements for
each of the years ended 31 December 2014 and 2013 comprises the financial statements of Allied
Minds plc and the consolidated financial statements of Allied Minds, Inc . (now Allied Minds, LLC) and
its subsidiaries .
Subsidiaries
The financial information of the subsidiaries is prepared for the same reporting period as the parent
Company, using consistent accounting policies . Subsidiaries are entities controlled by the Group . The
Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity . The financial
statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases . Losses applicable to the non-controlling interests
in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling
interests to have a deficit balance .
Changes in the group’s interest in a subsidiary that do not result in a loss of control are accounted
for as equity transactions . Where the group loses control of a subsidiary, the assets and liabilities are
derecognised along with any related NCI and other components of equity . Any resulting gain or loss
is recognised in profit or loss . Any interest retained in the former subsidiary is measured at fair value
when control is lost .
Associates
Associates are those entities in which the Group has significant influence, but not control, over the
financial and operating policies . Significant influence is presumed to exist when the Group holds
between 20 and 50 percent of the voting power of another entity .
Associates are accounted for using the equity method (equity accounted investees) and are initially
recognised at cost . The Group’s investment includes goodwill identified on acquisition, net of any
accumulated impairment losses . The consolidated financial statements include the Group’s share of
the total comprehensive income and equity movements of equity accounted investees, from the date
that significant influence commences until the date that significant influence ceases . When the Group’s
Page 102 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is
reduced to nil and recognition of further losses is discontinued except to the extent that the Group has
incurred legal or constructive obligations or made payments on behalf of an investee .
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-
group transactions, are eliminated . Unrealised gains arising from transactions with equity-accounted
investees are eliminated against the investment to the extent of the Group’s interest in the investee .
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there
is no evidence of impairment .
Acquisitions and disposals of non-controlling interests
Non-controlling interests (‘‘NCI’’) are measured at their proportionate share of the acquiree’s identifiable
net assets at the acquisition date . Changes in the Group’s interest in a subsidiary that do not result in
a loss of control are accounted for as equity transactions .
Acquisitions and disposals of non-controlling interests that do not result in a change of control are
accounted for as transactions with owners in their capacity as owners and therefore no goodwill is
recognised as a result of such transactions . The adjustments to non-controlling interests are based on
a proportionate amount of the net assets of the subsidiary . Any difference between the price paid or
received and the amount by which non-controlling interests are adjusted is recognised directly in equity
and attributed to the owners of the parent .
Functional and Presentation Currency
This consolidated financial statements are presented in US dollars, which is the functional currency of
most of the entities in the Group .
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of Group
entities at the foreign exchange rate ruling at the date of the transaction . Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are retranslated to the functional currency
at the foreign exchange rate ruling at that date . Foreign exchange differences arising on translation
are recognised in the income statement . Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated using the exchange rate at the date of the
transaction . Non-monetary assets and liabilities denominated in foreign currencies that are stated at
fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the
fair value was determined .
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
consolidation, are translated to the Group’s presentational currency U .S . dollar at foreign exchange
rates ruling at the balance sheet date . The revenues and expenses of foreign operations are translated
at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the
dates of the transactions . Exchange differences arising from this translation of foreign operations are
reported as an item of other comprehensive income and accumulated in the translation reserve or non-
controlling interest, as the case may be . When a foreign operation is disposed of, such that control,
joint control or significant influence (as the case may be) is lost, the entire accumulated amount in the
Page 103 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Translation reserve, net of amounts previously attributed to non-controlling interests, is reclassified to
profit or loss as part of the gain or loss on disposal . When the Group disposes of only part of its interest
in a subsidiary that includes a foreign operation while still retaining control, the relevant proportion of
the accumulated amount is reattributed to non-controlling interests . When the Group disposes of only
part of its investment in an associate or joint venture that includes a foreign operation while still retaining
significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to
profit or loss .
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with original maturities of three months
or less .
Inventories
Inventories are measured at the lower of cost and net realisable value . The cost of inventories is based
on the specific identification or weighted-average method . The cost of inventories includes expenditure
incurred in acquiring the inventories, production or conversion costs and other costs incurred in
bringing them to their existing location and condition . In the case of manufactured inventories and work
in progress, cost includes an appropriate share of production overheads based on normal operating
capacity .
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses .
Financial Instruments
Financial Assets
The Group initially recognises loans and receivables and deposits on the date that they are originated .
All other financial assets are recognised initially on the trade date at which the Group becomes a party
to the contractual provisions of the instrument .
The Group derecognises a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in
a transaction in which substantially all the risks and rewards of ownership of the financial asset are
transferred .
Financial assets and liabilities are offset and the net amount presented in the Consolidated Statement
of Financial Position when, and only when, the Group has a legal right to offset the amounts and
intends either to settle on a net basis or to realise the asset and settle the liability simultaneously .
The Group classifies its financial assets into the following categories: cash and cash equivalents,
trade and other receivables, security and other deposits, other investments . Such financial assets are
recognised at fair value .
Other investments comprise fixed income debt securities, including government agency and corporate
bonds, are stated at amortised cost less impairment . It is the Group policy to hold these investments
till maximum maturity of three years .
Page 104 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) Financial Liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they
are originated . All other financial liabilities are recognised initially on the trade date at which the Group
becomes a party to the contractual provisions of the instrument .
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled
or expire .
The Group classifies non-derivative financial liabilities into the following categories: trade and other
payables and loans . Such financial liabilities are recognised initially at fair value plus any directly
attributable transaction costs . Subsequent to initial recognition these financial liabilities are measured
at amortised cost using the effective interest method .
Warrants are accounted for as equity instruments and recorded at fair value .
Share Capital
Ordinary shares are classified as equity . The Group considers its capital to comprise share capital,
share premium, merger reserve, other reserve, translation reserve, and accumulated deficit .
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated
impairment losses . Cost includes expenditure that is directly attributable to the acquisition of the
asset . Assets under construction represent machinery and equipment to be used in operations, R&D
activities, or to be leased to customers once completed .
When parts of an item of property and equipment have different useful lives, they are accounted for as
separate items (major components) of property and equipment . Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets:
Computers and electronics
Furniture and fixtures
Machinery and equipment
Under construction
Leasehold improvements
3 years
5 years
5 -20 years
Not depreciated until transferred into use
Shorter of the lease term or estimated useful life of the asset
Depreciation methods, useful lives and residual values are reviewed at least annually and adjusted if
appropriate .
Intangible Assets
Licences and Purchased In Process Research & Development
Licences represent licences provided by universities and scientists in exchange for an equity ownership
in the entities . Purchased in process research & development (‘‘IPR&D’’) represents time and expertise
already invested by the scientist and provided in exchange for an equity interest in the entity . Licences
and purchased IPR&D are valued based on the amount of cash contributed by Allied Minds, at inception
of the subsidiary, and the proportionate amount of equity ascribed to Allied Minds . The licences and
IPR&D are capitalised only when they meet the criteria for capitalisation, namely separately identifiable
and measurable and it is probable that economic benefit will flow to the entity .
Page 105 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Capitalised Development Costs
Research and development costs include charges from universities based on sponsored research
agreements (SRAs) that the subsidiaries of Allied Minds enter into with universities . Under these
agreements, the universities perform research on the technology that is being licenced to the
subsidiaries . Research and development costs also include charges from independent research and
development contractors, contract research organisations (CROs), and other research institutions .
Expenditure on research activities is recognised in profit or loss as incurred . Development expenditure
is capitalised only if the expenditure can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, the Group intends to and has sufficient
resources to complete development and to use or sell the asset, and if the Group can measure reliably
the expenditure attributable to the intangible asset during its development . The point at which technical
feasibility is determined to have been reached is when regulatory approval has been received, where
applicable . Management determines that commercial viability has been reached when a clear market
and pricing point have been identified, which may coincide with achieving recurring sales . Development
activities involve a plan or design for the production of new or substantially improved products or
processes . The expenditure considered for capitalisation includes the cost of materials, direct
labour and an appropriate proportion of overhead costs . Otherwise, the development expenditure is
recognised in profit or loss as incurred . Subsequent to initial recognition, development expenditure is
measured at cost less accumulated amortisation and any accumulated impairment losses .
Software
Software intangible assets that are acquired by the Group and have finite useful lives are measured at
cost less accumulated amortisation and any accumulated impairment losses .
Finite-lived intangible assets are amortised on a straight-line basis over their estimated useful lives,
from the date that they are available for use . Intangible assets which are not yet available for use (and
therefore not amortised) are tested for impairment at least annually .
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives
of intangible assets unless such lives are indefinite . Intangible assets with an indefinite useful life and
goodwill are systematically tested for impairment at each balance sheet date . Other intangible assets
are amortised from the date they are available for use . Amortisation methods, useful lives and residual
values are reviewed at least annually and adjusted if appropriate .
The estimated useful lives of the Group’s intangible assets are as follows:
Licences
Purchased IPR&D
Development cost
Software
Over the remaining life of the underlying patents
Over the remaining life of the underlying patents, once commercial
viability has been achieved
Over the remaining life of the underlying technology
2 years
Page 106 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) Taxation
Tax on the profit or loss for the year comprises current and deferred tax . Tax is recognised in the
income statement except to the extent that it relates to items recognised directly in equity, in which
case it is recognised in equity .
Current Income Tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using
tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in
respect of previous years .
Deferred Income Tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes . Deferred tax
assets are recognised for unused tax losses, unused tax credits and deductible temporary differences
to the extent that it is probable that future taxable profits will be available against which they can be
used . Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised .
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences
when they reverse, using tax rates enacted or substantively enacted at the reporting date .
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable
entity, or on different tax entities where the Group intends to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be realised simultaneously .
Deferred taxes are recognised in profit or loss except to the extent that it relates to items recognised
directly in equity or in other comprehensive income .
Impairment
Impairment of Non-Financial Assets
Non-financial assets consist of property and equipment and intangible assets, including licences,
purchased IPR&D, capitalised development cost, with finite lives and such intangible assets which are
not yet available for use .
The Group reviews the carrying amounts of its property and equipment and finite-lived intangibles at
each reporting date to determine whether there is any indication of impairment . If any such indication
exists, then the asset’s recoverable amount is estimated . Intangible assets which are not yet available
for use are tested annually for impairment .
For impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets or
cash-generating units (‘‘CGUs’’) .
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs
to sell . Value in use is based on the estimated future cash flows, discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset or CGU .
Page 107 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) An impairment loss is recognised in profit and loss if the carrying amount of an asset or CGU exceeds
its recoverable amount . Impairment losses are allocated to reduce the carrying amounts of assets in a
CGU on a pro rata basis .
Impairment of Financial Assets
Financial assets not classified as at fair value through profit or loss are assessed at each reporting date
to determine whether there is objective evidence of impairment .
Objective evidence that financial assets are impaired includes:
• default or delinquency by a debtor;
•
•
•
•
restructuring of an amount due to the Group on terms that the Group would not consider otherwise;
indications that a debtor or issuer will enter bankruptcy;
adverse changes in the payment status of borrowers or issuers;
the disappearance of an active market for a security; or
• observable data indicating that there is measurable decrease in expected cash flows from a group
of financial assets .
Financial Assets Measured at Amortised Cost
The Group considers evidence of impairment for these assets at both an individual asset and a
collective level . All individually significant assets are individually assessed for impairment . Those found
not to be impaired are then collectively assessed for any impairment that has been incurred but not yet
individually identified . Assets that are not individually significant are collectively assessed for impairment .
Collective assessment is carried out by grouping together assets with similar risk characteristics .
In assessing collective impairment, the Group uses historical information on the timing of recoveries
and the amount of loss incurred, and makes an adjustment if current economic and credit conditions
are such that the actual losses are likely to be greater or lesser than suggested by historical trends .
An impairment loss is calculated as the difference between an asset’s carrying amount and the present
value of the estimated future cash flows discounted at the asset’s original effective interest rate . Losses
are recognised in profit or loss and reflected in an allowance account . When the Group considers that
there are no realistic prospects of recovery of the asset, the relevant amounts are written off . If the
amount of impairment loss subsequently decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised, then the previously recognised impairment loss
is reversed through profit or loss .
Share-based Payments
Share-based payment arrangements in which the Group receives goods or services as consideration
for its own equity instruments are accounted for as equity-settled share-based payment transactions,
regardless of how the equity instruments are obtained by the Group .
The grant date fair value of share-based payment awards granted to employees is recognised as
an employee expense, with a corresponding increase in equity, over the period that the employees
become unconditionally entitled to the awards . The fair value of the options granted is measured using
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) an option valuation model, taking into account the terms and conditions upon which the options were
granted . The amount recognised as an expense is adjusted to reflect the actual number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the
amount ultimately recognised as an expense is based on the number of awards that do meet the related
service and non-market performance conditions at the vesting date . For share-based payment awards
with non-vesting conditions, the grant date fair value of the share-based payment is measured to
reflect such conditions and there is no true-up for differences between expected and actual outcomes .
Employee Benefits
Short-term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided . A liability is recognised for the amount expected to be paid if the Group
has a present legal or constructive obligation to pay this amount as a result of past service provided by
the employee, and the obligation can be estimated reliably .
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and has no legal or constructive obligation to pay further amounts .
Obligations for contributions to defined contribution plans are recognised as an employee benefit
expense in the periods during which related services are rendered by employees . Prepaid contributions
are recognised as an asset to the extent that a cash refund or a reduction in future payments is
available .
Phantom Plan
The Phantom Plan is a cash settled bonus plan . Expense is accrued when it is determined that it is
probable that a payment will be made and when the amount can be reasonably estimated .
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive
obligation as a result of a past event, that can be reliably measured and it is probable that an outflow
of economic benefits will be required to settle the obligation . Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects risks specific to the liability .
Revenue Recognition
Sale of Goods
Revenue is recognised when the significant risks and rewards of ownership have been transferred to
the customer, recovery of the consideration is probable, the associated costs and possible return of
goods can be estimated reliably, there is no continuing management involvement with the goods and
the amount of revenue can be measured reliably .
The transfer of significant risks and rewards of ownership usually occurs when products are shipped
and the customer takes ownership and assumes risk of loss .
Rendering of Services
The Group recognises revenue from rendering of services at the time services are provided to the
customer and the Group has no additional performance obligation to the customer .
Page 109 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Government Grants
Grants received are recognised as revenue when the related work is performed and the qualifying
research and development costs are incurred .
Finance Income and Finance Costs
Finance income mainly comprises interest income on funds invested and foreign exchange gains .
Finance costs mainly comprise loan interest expense and foreign exchange losses . Interest income
and interest payable are recognised as they accrue in profit or loss, using the effective interest method .
Fair Value Measurements
A number of the Group’s accounting policies and disclosures require the measurement of fair values,
for both financial and non-financial assets and liabilities .
When measuring the fair value of an asset or a liability, the Group uses market observable data as far
as possible . Fair values are categorised into different levels in a fair value hierarchy based on the inputs
used in the valuation techniques as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities .
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i .e . as prices) or indirectly (i .e . derived from prices) .
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs) .
If the inputs used to measure the fair value of an asset or a liability might be categorised in different
levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same
level of the fair value hierarchy as the lowest level input that is significant to the entire measurement .
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting
period during which the change has occurred .
The carrying amount of cash and cash equivalents, accounts receivable, deposits, accounts payable,
accrued expenses and other current liabilities in the Group’s Consolidated Statements of Financial
Position approximates their fair value because of the short maturities of these instruments .
Operating Leases
Payments made under operating leases are recognised in profit or loss on a straight-line basis over
the term of the lease . Lease incentives received are recognised as an integral part of the total lease
expense, over the term of the lease .
Operating Segments
Allied Minds determines and presents operating segments based on the information that internally is
provided to the executive management team, the body which is considered to be Allied Minds’ Chief
Operating Decision Maker (‘‘CODM’’) .
An operating segment is a component of Allied Minds that engages in business activities from which
it may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Allied Minds’ other components . The operating segment’s operating results are reviewed
regularly by the CODM to make decisions about resources to be allocated to the segment, to assess
its performance, and for which discrete financial information is available .
Page 110 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) (2) New Standards and Interpretations not yet Adopted
A number of new standards, interpretations and amendments to existing standards are effective for
annual periods beginning after 1 January 2015, and have not therefore been applied in preparing
this consolidated financial information . Management has yet to complete an analysis of these new
standards, interpretations and amendments to existing standards on the results of its operations,
financial position, and disclosures . The Group intends to adopt these standards on their respective
effective dates .
The following are amended or new standards and interpretations that may impact the Group . Their
adoption is not expected to have a material effect on the financial statements unless otherwise indicated:
IFRS 9, ‘Financial instruments’ (effective 1 January 2018)
IFRS 15, ‘Revenue from contracts with customers’ (effective 1 January 2017)
Amendment to IFRS 11,’Joint arrangements on acquisition of an interest in a joint operation’, (effective
1 January 2016)
Amendment to IAS 16 ,’Property, plant and equipment’ and IAS 38,’Intangible assets’, on depreciation
and amortisation (effective 1 January 2016)
Amendment to IFRS 9, ‘Financial instruments’, on general hedge accounting (effective date 1 Jan
2018)
Amendments to IAS 27, ‘Separate financial statements’ on equity accounting (effective 1 January
2016)
Amendments to IFRS 10, ‘Consolidated financial statements’ and IAS 28,’Investments in associates
and joint ventures’ on sale or contribution of assets (effective 1 January 2016)
Amendments to IFRS 10, ‘Consolidated financial statements’ and IAS 28,’Investments in associates
and joint ventures’ on applying the consolidation exemption (effective 1 January 2016)
Annual improvements (2014) effective 1 January 2016
Amendments to IAS 1,’Presentation of financial statements’ disclosure initiative (effective 1 January
2016)
(3) Revenue
Revenue recorded in the statement of comprehensive loss consists of the following:
For the year ended 31 December:
Product revenue
Service revenue
Grant revenue
Total revenue in consolidated statement of loss
2014
$’000
7,396
230
89
7,715
2013
$’000
2,396
387
153
2,936
Page 111 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Deferred revenue recorded in the statement of financial position consists of the following:
As of 31 December:
Customer deposits
Other deferred revenue, current
Deferred revenue, current
Deferred revenue, non-current
Total deferred revenue in statement of financial position
(4) Operating Segments
2014
$’000
526
421
947
197
1,144
2013
$’000
2,253
389
2,642
188
2,830
Basis for Segmentation
For management purposes, the Group’s principal operations are currently organised in two reportable
segments:
(i)
Early stage companies – subsidiary businesses that are in the early stage of their lifecycle
characterised by incubation, research and development activities; and
(ii) Commercial stage companies – subsidiary businesses that have substantially completed their
research and development activities and that have developed one or more products that are
actively marketed .
Due to their size and nature Spin Transfer Technologies, Inc . (or ‘‘STT’’, an early stage company) and
RF Biocidics, Inc . (or ‘‘RFB’’, a commercial stage company) are not aggregated and presented as two
additional separate reportable segments . The Group’s principal operations are therefore presented as
four reportable segments being early stage company – STT, early stage companies – other, commercial
stage company – RFB, and commercial stage companies – other .
The Group’s CODM reviews internal management reports on these segments at least quarterly in order
to make decisions about resources to be allocated to the segment and to assess its performance .
Other operations include the management function of the head office at the parent level of Allied Minds .
Page 112 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) Information about Reportable Segments
The following provides detailed information of the Group’s reportable segments as of and for the years
ended 31 December 2014 and 2013, respectively:
As of and for the year ended 31 December:
2014
$’000
Early stage
Commercial
Other
STT
Other
RFB
Other
operations Consolidated
Statement of Comprehensive Loss
Revenue
Cost of revenue
Selling, general and administrative expenses
Research and development expenses
Finance income/(cost), net
Loss for the year
Other comprehensive income/loss
–
–
(5,722)
(7,350)
(268)
444
–
(7,347)
(13,692)
–
(13,340)
(20,595)
–
–
Total comprehensive loss
(13,340)
(20,595)
Total comprehensive loss attributable to:
Equity holders of the parent
Non-controlling interests
Statement of Financial Position
Non-current assets
Current assets
Total Assets
Non-current liabilities
Current liabilities
Total Liabilities
Net Assets
(7,057)
(6,283)
14,354
68,750
83,104
(33)
(3,420)
(3,453)
(17,275)
(3,320)
3,852
16,051
19,903
(281)
(2,755)
(3,036)
79,651
16,867
6,457
(4,898)
(5,854)
(184)
3
(4,476)
(34)
(4,510)
(2,542)
(1,968)
2,912
8,523
11,435
–
(2,888)
(2,888)
8,547
814
(518)
–
–
(3,888)
(15,221)
(969)
(51)
–
538
7,715
(5,416)
(38,032)
(22,195)
222
(4,612)
(14,683)
(57,706)
–
(125)
(159)
(4,612)
(14,808)
(57,865)
(3,954)
(658)
829
2,093
2,922
(344)
(686)
(1,030)
(14,808)
–
(45,636)
(12,229)
22,092
153,574
175,666
(59)
(2,750)
(2,809)
44,039
248,991
293,030
(717)
(12,499)
(13,216)
1,892
172,857
279,814
Page 113 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
As of and for the year ended 31 December:
2013
$’000
Early stage
Commercial
Other
STT
Other
RFB
Other
operations Consolidated
Statement of Comprehensive Loss
Revenue
Cost of revenue
Selling, general and administrative expenses
Research and development expenses
Finance income/(cost), net
Loss for the year
Other comprehensive income
–
–
(4,201)
(4,471)
(224)
(8,896)
–
476
–
(5,876)
(9,349)
–
(14,749)
–
Total comprehensive loss
(8,896)
(14,749)
Total comprehensive loss attributable to:
Equity holders of the parent
Non-controlling interests
Statement of Financial Position
Non-current assets
Current assets
Total Assets
Non-current liabilities
Current liabilities
Total Liabilities
Net Assets
(4,783)
(4,113)
11,967
15,106
27,073
(2,241)
(2,337)
(4,578)
22,495
(13,592)
(1,157)
3,977
3,677
7,654
(310)
(1,422)
(1,732)
5,922
1,429
(1,476)
(4,566)
(86)
(158)
(4,857)
27
(4,830)
(2,838)
(1,992)
6,132
2,333
8,465
(18)
(2,839)
(2,857)
5,608
1,031
(866)
(4,767)
(1,783)
(68)
(6,453)
–
–
–
(8,062)
–
310
2,936
(2,342)
(27,472)
(15,689)
(140)
(7,752)
(42,707)
8
35
(6,453)
(7,744)
(42,672)
(5,509)
(944)
794
1,871
2,665
(562)
(821)
(1,383)
1,282
(7,744)
–
157
85,791
85,948
(79)
(1,317)
(1,396)
(34,466)
(8,206)
23,027
108,778
131,805
(3,210)
(8,736)
(11,946)
84,552
119,859
The proportion of net assets shown above that is attributable to non-controlling interest is disclosed
further in notes 11 and 17 .
Geographic Information
Whilst the Group includes RF Biocidics (UK) Limited, which is a UK company, the revenues and net
operating losses of that subsidiary are not considered material to the Group, and therefore the Group
revenues and net operating losses for the years ended 31 December 2014 and 2013 are considered
to be entirely derived from its operations within the United States and accordingly no additional
geographical discloses are provided .
Page 114 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
(5) Operating Expenses
The average number of persons employed by the Group (including Directors) during the year, analysed
by category, was as follows:
For the year ending 31 December:
2014
2013
Selling, general and administrative
Research and development
Total
The aggregate payroll costs of these persons were as follows:
For the year ending 31 December:
Selling, general and administrative
Research and development
Total
Total operating expenses were as follows:
For the year ending 31 December:
Salaries and wages
Payroll taxes
Healthcare benefits
Other payroll cost
Share-based payments
Contributions to defined contribution plans
Total
Cost of revenue
Other SG&A expenses
Other R&D expenses
Total Operating expenses
Auditor’s remuneration
Audit of these financial statements
Audit of the financial statements of subsidiaries
Audit-related assurance services
Other assurance services
Taxation compliance services
58
50
108
2014
$’000
19,751
9,865
29,616
2014
$’000
17,128
1,496
1,473
580
8,939
–
29,616
5,416
18,281
12,330
65,643
2014
$’000
261
20
89
1,848
36
2,254
65
33
98
2013
$’000
14,870
5,033
19,903
2013
$’000
12,714
845
931
438
4,975
–
19,903
2,342
12,602
10,656
45,503
2013
$’000
440
–
–
–
–
440
Page 115 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) In 2014, auditor’s remuneration included $1,796,000 of other assurance services provided in relation
to the Group’s listing on the London Stock Exchange, which were offset against equity .
See note 6 for further disclosures related to share-based payments and note 23 for management’s
remuneration disclosures .
(6) Share-Based Payments
U.S. Stock Option/Stock Issuance Plan
The U .S . Stock Option/Stock Issuance Plan (the “U .S . Stock Plan”) was originally adopted by Allied
Minds, Inc in 2008 . The U .S . Stock Plan provides for the grant of share option awards, restricted share
awards, and other awards to acquire common stock of Allied Minds, Inc (now Allied Minds, LLC) . All
stock options granted to employees under this plan are equity settled, for a ten-year term Pursuant to
the reorganisation discussed above, Allied Minds plc adopted and assumed the rights and obligations
of Allied Minds, Inc . under this plan except that the obligation to issue Common Stock is replaced with
an obligation to issue ordinary shares to satisfy awards granted under the U .S . Stock Plan .
Measurement of Fair Values
The fair value of the stock option grants awarded in 2014 and 2013 under the Allied Minds 2008 Plan
was estimated as of the date of grant using a Black-Scholes-Merton option valuation model that uses
the following weighted average assumptions, respectively:
Expected option life (in years)
Expected stock price volatility
Risk-free interest rate
Expected dividend yield
Grant date option fair value
Share price at grant date
Exercise price
2014
5.51
37.40%
1.85%
—
$ 0.93
$ 2.49
$ 2.49
2013
5 .60
48 .85%
1 .89%
—
$ 1 .21
$ 2 .60
$ 2 .60
Grant date option fair value, share price at grant date, and exercise price disclosed above take into
account the reorganisation described above in note 1 . Expected volatility has been based on an
evaluation of the historical volatility of the share price of publicly traded companies comparable to Allied
Minds, particularly over the historical period commensurate with the expected term . The expected term
of the instruments has been based on historical experience and general option holder behaviour .
Page 116 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) Reconciliation of Outstanding Share Options
A summary of stock option activity in the U .S . Stock Plan is presented in the following table, taking into
account the reorganisation described above in note 1:
Outstanding as of 1 January
Granted during the year
Exercised during the year
Forfeited during the year
Number of
options
2014
17,505,268
1,708,652
(8,817,424)
—
Outstanding as of 31 December
10,396,496
Exercisable as of 31 December
Intrinsic value of Exercisable
10,396,496
$ 37.5 million
Weighted
average
exercise
price
2014
$ 1.61
$ 2.49
$ 1.28
—
$ 2.09
$ 2.09
Number of
options
2013
15,607,768
3,415,500
(71,632)
(1,446,368)
17,505,268
13,502,368
$ 13 .5 million
Weighted
average
exercise
price
2013
$ 1 .41
$ 2 .60
$ 0 .77
$ 1 .80
$ 1 .61
$ 1 .48
The options outstanding as of 31 December 2014 and 31 December 2013 had an exercise price in the
range of $0 .68 to $2 .60 .
As of 19 June 2014, the maximum number of options reserved under the plan were issued and
outstanding and as a result of the reorganisation discussed in note 16, all issued and outstanding
options vested on 19 June 2014 and some options were exercised, resulting in the accelerated share-
based payment charge of additional $2 .4 million for the period . The Company does not intend to make
any further grants under the U .S . Stock Plan .
Restricted share awards are outstanding over 118,800 ordinary shares, which were granted under the
U .S . Stock Plan to the non-executive Directors . These ordinary shares vest in three equal tranches on
each of the first three anniversaries of Admission provided that the non-executive Director in question
is still providing services to the Group on the relevant vesting date .
UK Long Term Incentive Plan
On 19 June 2014, Allied Minds plc established the UK Long Term Incentive Plan (“LTIP”) . Under the
LTIP, awards over Ordinary Shares may be made to employees, officers and Directors, and other
individuals providing services to the Company and its subsidiaries . Awards may be granted in the
form of share options, share appreciation rights, restricted or unrestricted share awards, performance
share awards, restricted share units, phantom-share awards and other share-based awards . Awards
have been made under the LTIP upon the Company’s admission to the LSE in respect of a total of
4,618,842 Ordinary Shares . It is intended that awards will normally vest only after a minimum period of
three years from the date of grant . Vesting will normally be subject to the achievement of performance
conditions and continued services of the participant . In respect of the initial awards, which have been
made conditionally on Admission, vesting is dependent upon performance metrics as follows:
• 60% of each award will be subject to performance conditions based on the Company’s total
shareholder return (“TSR”) performance in respect of the period from Admission until 31 December
2016; and
Page 117 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) • 40% of each award will be subject to performance conditions based on a basket of shareholder
value metrics (“SVM”), including but not limited to: (i) the increase in quality of pipeline intellectual
property reviewed; (ii) the increase in quality of the partnership pipeline; and (iii) subsidiary level
performance (assessed by reference to such matters as external funding raised, corporate
collaborations, product co-development and proof of principal commercial pilots and revenues)
Performance will be assessed on these measures on a scorecard basis over a three year period .
In respect of the initial awards, at the end of the three year period, performance against the relevant
measures will be calculated to determine the number of Ordinary Shares which have satisfied the
vesting criteria and 50% of the award will then vest at that time . The remaining 50% will vest in two
equal tranches in years 4 and 5 subject to the relevant participant still being employed within (or being
a director of a company within) the Group at the relevant vesting date (or being an earlier good leaver
as described further in the LTIP) .
A summary of stock option activity under the UK LTIP for the year ended 31 December 2014 and 2013,
respectively, is shown below:
For the year ended 31 December:
Number of shares granted
at maximum (000)
Weighted average fair value (£p)
Fair value measurment basis
2014
TSR
SVM
2013
TSR
2,771
114
1,848
190
Monte Carlo Market Value
–
–
n/a
SVM
–
–
n/a
The share grants that vest upon the occurrence of a market condition (i .e . the TSR performance) and
service condition were adjusted to current market price at the date of the grant to reflect the effect of
the market condition on the non-vested shares’ value The Company used a Monte Carlo simulation
analysis utilising a Geometric Brownian Motion process with 50,000 simulations to value those shares
The model takes into account share price volatilities, risk-free rate and other covariance of comparable
UK public companies and other market data to predict distribution of relative share performance This
is applied to the reward criteria to arrive at expected value of the TSR awards .
The share grants that vests only upon the occurrence of a performance condition (i .e . the SVM grants)
and service condition were valued at the fair value of the shares on the date of the grants .
Accounting charge does not necessarily represent the intended value of share-based payments made
to recipients, which are determined by the Remuneration Committee according to established criteria .
The share-based payment charge for the fiscal year ended 31 December 2014 related to the UK LTIP
was $1,255,000 (2013: nil) .
Other Plans
Spin Transfer Technologies
Stock compensation expense was approximately $1,435,000 and $1,315,000 and for the year ended
31 December 2014 and 2013, respectively . Deferred stock compensation expense under these grants
was approximately $1,623,000 and $1,853,000 as of 31 December 2014 and 2013, respectively .
Page 118 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) The fair value of the stock option grants awarded in 2014 and 2013 under the 2011 and 2012 Plans
was estimated as of the date of grant using a Black-Scholes- Merton option valuation model that uses
the following weighted average assumptions:
Expected option life (in years)
Expected stock price volatility
Risk-free interest rate
Expected dividend yield
Grant date option fair value
Share price at grant date
Exercise price
2014
5.99
44.45
1.91
—
$ 3.47
$ 7.77
$ 7.77
2013
6 .10
51 .33%
1 .74%
—
$ 3 .76
$ 7 .50
$ 7 .50
Expected volatility has been based on an evaluation of the historical volatility of the share price of
publicly traded companies comparable to STT, particularly over the historical period commensurate
with the expected term . The expected term of the instruments has been based on historical experience
and general option holder behavior .
A summary of stock option activity in the STT plans is presented in the following table:
Outstanding as of 1 January
Granted during the year
Exercised during the year
Forfeited during the year
Number of
options
2014
1,044,260
447,680
—
(51,546)
Outstanding as of 31 December
1,440,394
Exercisable as of 31 December
529,972
Intrinsic value of Exercisable
$ 4.1 million
Weighted
average
exercise
price
2014
$ 7.00
$ 7.77
—
$ 5.40
$ 7.29
$ 7.64
Number of
options
2013
808,109
281,924
—
(45,773)
1,044,260
257,574
$ 2 .3 million
Weighted
average
exercise
price
2013
$ 6 .77
$ 7 .50
—
$ 6 .09
$ 7 .00
$ 6 .50
The options outstanding as of 31 December 2014 had an exercise price in the range of $5 .40 to $7 .77
(2013: $5 .40 to $7 .50) and a weighted-average contractual life of approximately 9 .3 years (2013:
9 .6 years) .
Plans Under Other Subsidiaries
The stock compensation expense under other subsidiaries of the Company, which adopted stock
option incentive plans in 2014 and prior was $2,047,000 and $1,137,000 for the year ended 31
December 2014 and 2013, respectively . Deferred stock compensation expense under these grants
was approximately $2,496,000 and $1,221,000 as of 31 December 2014 and 2013, respectively .
Page 119 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Allied Minds Phantom Plan
In 2007, Allied Minds established a cash settled bonus plan for Allied Minds employees, also known as
its Phantom Plan . In 2012, the board of directors adopted the Amended and Restated 2007 Phantom
Plan . Under the terms of the Amended and Restated Plan, upon a liquidity event Allied Minds will
allocate 10% of the value (after deduction of the amount invested by Allied Minds and accrued interest
at a rate not exceeding 5% per annum) of the invested capital owned by Allied Minds of each operating
company to the plan account . Upon a liquidity event, plan participants holding units will receive their
proportionate share of the plan account . The allocated shares at all times remain the sole and exclusive
property of Allied Minds and holders of units have no rights or interests in Allied Minds . No amount has
been paid out to employees under the Phantom Stock Plan through 31 December 2014 .
Allied Minds has not accrued any expense relating to the Phantom Plan as of 31 December 2014 or
2013 . Management will record an expense relating to this plan when it is probable that a subsidiary will
be sold and the amount of the payout is reasonably estimable .
Share-based Payment Expense
The Group recorded share-based payment expense related to stock options of approximately
$8,939,000 and $4,975,000 for the years ended 31 December 2014 and 2013, respectively . There
was no income tax benefit recognised for share- based payment arrangements for the years ended 31
December 2014 and 2013, respectively, due to operating losses . Shared-based payment expenses
are included in selling, general and administrative expenses and research and development expenses
in the Consolidated Statement of Comprehensive Income .
(7) Finance Cost, Net
The following table shows the breakdown of finance income and cost:
For the year ended 31 December:
Interest income on:
– Bank deposits
Foreign exchange gain
Finance income
Interest expense on:
– Financial liabilities at amortised cost
Foreign exchange loss
Finance cost
Finance income/(cost), net
2014
$’000
2013
$’000
545
—
545
(320)
(3)
(323)
222
324
51
375
(306)
(209)
(515)
(140)
Page 120 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) (8) Loss Per Share
The calculation of basic and diluted loss per share as of 31 December 2014 was based on the loss
attributable to ordinary shareholders of $45 .4 million (2013: $34 .5 million) and a weighted average
number of ordinary shares outstanding of 186,389,605 (2013: 142,949,814), calculated as follows:
Loss attributable to ordinary shareholders
Loss for the year attributed to the
owners of the Company
Loss for the year attributed to the
ordinary shareholders
2014
$’000
2013
$’000
Basic
Diluted
Basic
Diluted
(45,478)
(45,478)
(34,501)
(34,501)
(45,478)
(45,478)
(34,501)
(34,501)
Weighted average number of ordinary shares
2014
2013
Basic
Diluted
Basic
Diluted
Issued ordinary shares on 1 January
Effect of share capital issued
Effect of share options exercised
157,463,790
28,786,582
139,233
157,463,790
28,786,582
139,233
122,923,416
19,973,677
52,722
122,923,416
19,973,677
52,722
Weighted average ordinary shares
186,389,605
186,389,605
142,949,815
142,949,815
Loss per share
2014
$
2013
$
Basic
Diluted
Basic
Diluted
Loss per share
(0.24)
(0.24)
(0 .24)
(0 .24)
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
(9) Property and Equipment
Property and equipment, net, consists of the following at:
Cost
in $’000
Machinery
Furniture
Leasehold
Computers
and
and
Improve-
and
Under
Equipment
Fixtures
ments
Electronics
Construction
Total
Balance as of 31 December 2012
Additions, net of transfers
Disposals
Balance as of 31 December 2013
Additions, net of transfers
Disposals
Balance as of 31 December 2014
2,055
10,267
(13)
12,309
2,115
(62)
14,362
222
71
(13)
280
171
(48)
403
725
1,097
—
1,822
254
(540)
1,536
257
118
(8)
367
234
—
601
6,405
(1,026)
(107)
5,272
(1,717)
(24)
3,531
9,664
10,527
(141)
20,050
1,057
(674)
20,433
Accumulated Depreciation
Machinery
Furniture
Leasehold
Computers
and Impairment loss
in $’000
and
and
Improve-
and
Under
Equipment
Fixtures
ments
Electronics
Construction
Total
Balance as of 31 December 2012
Depreciation
Impairment loss
Disposals
Balance as of 31 December 2013
Depreciation
Impairment loss
Disposals
Balance as of 31 December 2014
(692)
(892)
—
60
(1,524)
(1,709)
(9)
62
(3,180)
(86)
(54)
—
6
(134)
(58)
(5)
48
(149)
(160)
(322)
—
—
(482)
(426)
(402)
540
(770)
(116)
(84)
(5)
8
(197)
(119)
(0)
—
(316)
186
—
—
102
288
—
—
24
312
(868)
(1,352)
(5)
176
(2,049)
(2,312)
(416)
674
(4,103)
Property and equipment, net
and
and
Improve-
and
Under
in $’000
Equipment
Fixtures
ments
Electronics
Construction
Total
Machinery
Furniture
Leasehold
Computers
Balance as of 31 December 2013
Balance as of 31 December 2014
10,785
11,182
146
254
1,340
766
170
285
5,560
3,843
18,001
16,330
Impairment of property and equipment is included in selling, general and administrative expenses in the
consolidated statement of comprehensive income .
As of 31 December 2013, properties with a carrying amount of $11 .6 million were subject to a
registered debenture that formed security for a bank loan with net carrying amount of $3 .0 million as of
31 December 2013 and total aggregate advanced amount of $4 .0 million . The loan was repaid in 2014
and those debentures were removed (see note 18) .
Property and equipment under constructions represents assets that are in the process of being built
and not placed in service as of the reporting date . During the year, certain of those assets with carrying
amount of $1 .2 million were moved to inventory with the intent to be sold and others with carrying
amount of $0 .5 million were moved to the machinery and equipment category .
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
(10) Intangible Assets
Information regarding the cost and accumulated amortisation of intangible assets is as follows:
Cost
in $’000
Licences
Purchased
IPR&D
Development
Software
cost
Total
Balance as of 31 December 2012
Additions – Acquired separately
Additions – Internally developed
Disposals
Balance as of 31 December 2013
Additions – Acquired separately
Additions – Internally developed
Disposals
4,884
84
—
(425)
4,543
192
—
(350)
Balance as of 31 December 2014
4,385
2,139
—
—
(590)
1,549
—
—
(781)
768
14
65
—
—
79
178
—
—
257
42
—
83
—
125
—
178
—
303
7,079
149
83
(1,015)
6,296
370
178
(1,131)
5,713
Accumulated amortisation and
Impairment loss
in $’000
Balance as of December 31, 2012
Amortisation
Impairment loss
Disposals
Balance as of December 31, 2013
Amortisation
Impairment loss
Disposals
Licences
Purchased
IPR&D
Development
Software
cost
Total
(1,316)
(485)
(325)
424
(1,702)
(469)
(282)
350
(34)
(23)
(559)
559
(57)
(22)
(781)
781
79
(5)
(21)
—
—
(26)
(72)
—
—
(98)
(4)
(3)
—
—
(7)
(17)
—
—
(24)
Balance as of December 31, 2014
(2,103)
Intangible assests, net
in $’000
Balance as of 31 December 2013
Balance as of 31 December 2014
Licences
2,841
2,282
Purchased
IPR&D
Software
1,492
689
53
159
Development
cost
118
279
(1,359)
(532)
(884)
982
(1,793)
(580)
(1,063)
1,131
(2,304)
Total
4,504
3,409
Amortisation expense is included in selling, general and administrative expenses in the consolidated
statement of comprehensive loss . Amortisation expense, recorded using the straight-line method, was
approximately $580,000 and $532,000 for the years ended 31 December 2014 and 2013, respectively .
Impairment of intangible assets of $1,063,000 and $884,000 for the years ended 31 December 2014 and
2013, respectively, is mainly attributed to the abandonment of the rights to certain intellectual property
per the licensing agreement with a partner university and to the closing of subsidiary companies, which
resulted in the associated intangible assets being impaired to zero . Impairment expense is included in
selling, general and administrative expenses in the consolidated statement of comprehensive income .
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
At each reporting period, management considers qualitative and quantitative factors that define the
future prospects of the respective investment and assesses whether it supports the value of the
underlying intangible .
(11) Investment in Subsidiaries and Associates
Group Subsidiaries
Allied Minds has 25 active operating subsidiaries as of 31 December 2014 . As of and for the two years
ended 31 December 2014 the capitalisation of all subsidiary companies in the Group portfolio is in the
form of ordinary shares only, except for Spin Transfer Technologies where Series A preferred shares
were issued in the October 2014 round to both the parent company and third parties, see further
discussion below .
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) The following outlines the formation of each subsidiary and evolution of Allied Minds’ equity ownership
interest over the two year period ended 31 December 2014:
Inception
Date
Location
Ownership percentage at
31 December
2014
2013
Active subsidiaries
Early stage companies
Allied-Bristol Life Sciences, LLC
ABLS I, LLC
ABLS II, LLC
Allied Minds Federal Innovations, Inc .
Federated Wireless, Inc .
Foreland Technologies, Inc .
Biotectix, LLC
Cephalogics, LLC
LuxCath, LLC
Optio Labs, Inc .
Percipient Networks, LLC
Precision Biopsy, LLC
ProGDerm, Inc .
SciFluor Life Sciences, LLC
Seamless Devices, Inc .
SiEnergy Systems, LLC
Spin Transfer Technologies, Inc .
Tinnitus Treatment Solutions, LLC
Whitewood Encryption Systems, Inc .
Commercial stage companies
CryoXtract Instruments, LLC
RF Biocidics, Inc .
RF Biocidics (UK) Ltd
SoundCure, Inc .
Closed subsidiaries
Allied Minds Devices, LLC
Broadcast Routing Fountains, LLC
Boston, MA
31/07/14
Boston, MA
24/09/14
Boston, MA
24/09/14
Boston, MA
09/03/12
Arlington, VA
08/08/12
Boston, MA
23/01/13
16/01/07
Ann Arbor, MI
29/11/06 Cambridge, MA
Boston, MA
29/05/12
28/02/12
Baltimore, MD
29/01/14 Wakefield, MA
Denver, CO
17/06/08
19/09/08
Boston, MA
14/12/10 Cambridge, MA
14/10/14
San Jose, CA
21/09/07 Cambridge, MA
Fremont, CA
03/12/07
San Jose, CA
26/02/13
Boston, MA
21/07/14
Woburn, MA
23/05/08
12/06/08
Vacaville, CA
10/09/10 United Kingdom
San Jose, CA
04/06/09
25/07/11
28/06/12
Boston, MA
Boston, MA
Number of active subsidiaries as 31 December:
80.00%
80.00%
80.00%
100.00%
90.88%
100.00%
64.35%
95.00%
98.00%
79.86%
100.00%
80.35%
90.38%
79.00%
80.00%
100.00%
48.40%
100.00%
100.00%
93.24%
67.14%
100.00%
84.62%
100.00%
100.00%
25
—
—
—
100 .00%
90 .00%
100 .00%
64 .35%
95 .00%
98 .00%
85 .00%
—
80 .35%
90 .38%
79 .00%
—
100 .00%
56 .13%
100 .00%
—
93 .24%
67 .14%
100 .00%
84 .62%
100 .00%
100 .00%
19
In October 2014, Spin Transfer Technologies (“STT”) completed a Series A financing round as a result
of which the Allied Minds’ ownership percentage in STT decreased from 56 .13% to 48 .40%, see
note 17 for further detail . Whilst Allied Minds owns less than 50 .00% of the voting share capital after
the transaction and as of 31 December 2014, the company remains the largest single shareholder
at 48 .40% of the voting share capital, and retains control over the majority of the voting rights on the
board of directors of STT . Under the terms of the STT organisational documents, the board of directors
effectively controls the policies and management of STT, and in all instances, the board acts by majority
vote . In addition, all material shareholder voting provisions of the STT organisational documents require
a simple majority for approval, giving the Company substantial influence over the outcome of all actions
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
which require a shareholder vote . As a result, following the transaction, Allied Minds continues to
exercise effective control over STT and as such will continue to be fully consolidated within the group’s
financial statements .
The following tables summarise the financial information related to the Group’s subsidiaries with
material non-controlling interests, aggregated for interests in similar entities, and before intra-group
eliminations .
As of and for the year ended 31 December:
Statement of Comprehensive Loss
Revenue
Loss for the year
Other comprehensive loss
Total comprehensive loss
Comprehensive loss attributed to NCI
Statement of Financial Position
Non-current assets
Current assets
Total Assets
Non-current liabilities
Current liabilities
Total Liabilities
Net Assets
Carrying amount of NCI
Statement of Cash Flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
2014
$’000
Other
355
(16,711)
–
(16,711)
(3,320)
3,381
14,733
18,114
(280)
(2,261)
(2,541)
15,573
(2,752)
(16,764)
(714)
29,524
12,046
Early stage
STT
–
(13,340)
–
(13,340)
(6,283)
14,354
68,750
83,104
(33)
(3,420)
(3,453)
79,651
41,101
(8,948)
(3,932)
66,443
53,563
Commercial
RFB
6,457
(4,476)
(34)
(4,510)
(1,968)
2,912
8,523
11,435
–
(2,888)
(2,888)
8,547
(4,064)
(9,539)
1,983
8,557
1,001
Other
785
(4,621)
–
(4,621)
(658)
829
2,049
2,878
(344)
(685)
(1,029)
1,849
(2,374)
(5,888)
(328)
6,444
228
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
Statement of Comprehensive Loss
Revenue
Loss for the year
Other comprehensive income
Total comprehensive loss
Comprehensive loss attributed to NCI
Statement of Financial Position
Non-current assets
Current assets
Total Assets
Non-current liabilities
Current liabilities
Total Liabilities
Net Assets
Carrying amount of NCI
Statement of Cash Flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
2013
$’000
Early stage
Commercial
STT
Other
RFB
Other
–
(8,896)
–
(8,896)
(4,113)
11,967
15,106
27,073
(2,241)
(2,337)
(4,578)
22,495
9,860
(6,455)
(8,074)
19,235
4,706
476
(14,063)
–
(14,063)
(1,110)
2,492
3,024
5,516
(310)
(1,247)
(1,557)
3,959
(3,258)
(11,006)
334
12,367
1,695
1,429
(4,857)
27
(4,830)
(1,992)
6,132
2,333
8,465
(18)
(2,839)
(2,857)
5,608
(2,270)
(5,399)
(1,951)
7,522
172
1,025
(6,451)
–
(6,451)
(944)
663
1,994
2,657
(562)
(817)
(1,379)
1,278
(1,726)
(8,835)
(252)
9,350
263
Portfolio Valuation
At the close of each annual financial period, the Directors formally approve the value of all subsidiary
businesses in the Group, which is used to derive the ‘‘Group Subsidiary Ownership Adjusted Value’’ .
The Group Subsidiary Ownership Adjusted Value (‘‘GSOAV’’) was $488 .0 million (2013: $367 .3m) as
at 31 December 2014, as set out in the table below . This Group Subsidiary Ownership Adjusted Value
is a sum-of-the-parts (‘‘SOTP’’) valuation of all the subsidiaries that make up the Group . The increase
in the Group Subsidiary Ownership Adjusted Value during the year principally reflects the increase in
value at Spin Transfer Technologies and SciFluor Life Sciences supported by their valuations at recent
fund raising transactions .
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
The methodology for Group’s subsidiary company valuations, extracts of which are set out below, is
based on the American Institute of Certified Public Accountants’ Valuation of Privately-Held-Company
Equity Securities Issued as Compensation (‘‘AICPA Guidelines’’) . The AICPA Guidelines do not
represent, but are consistent with valuation principles adopted under, International Financial Reporting
Standards .
As of 31 December 2014, the Group’s estimated Group Subsidiary Ownership Adjusted Value was
distributed across the Group’s operating segments as follows:
2014
2013
Operating Segment
$m % of GSOAV
$m % of GSOAV
Early stage
Commercial stage
Total Group Subsidiary
Valuation
389.1
98.9
79.7%
20.3%
488.0
100.0%
273 .7
93 .6
367 .3
74 .5%
25 .5%
100 .0%
Ownership adjusted value represents Allied Minds’ interest in the equity value of each subsidiary:
= (Business Enterprise Value – Long Term Debt + Cash) x Allied Minds percentage ownership plus the
value of debt provided by Allied Minds plc to each subsidiary business . Allied Minds commits post-
seed funding to its subsidiaries in the form of loans .
The Group Subsidiary Ownership Adjusted Value includes cash balances held by Allied Minds
subsidiaries at 31 December 2014 amounting to $86 .1 million, on an ownership-adjusted basis (2013:
$18 .9m, of which $15 .1m in STT), including those subsidiaries valued based on recent financing
rounds, of which $68 .6 million was held by STT . As at 31 December 2014, the Group reported total
consolidated cash and other investments balances of $261 .5 million including cash, cash equivalents
and investments (2013: $104 .6m), the balance being cash and investments of $175 .4 million (2013:
$85 .7m) held at the parent level and available for investment in the Group .
The Group Subsidiary Ownership Adjusted Value has been calculated on the basis of Allied Minds’
percentage ownership as at 31 December 2014 . Where subsidiaries have raised financing from external
parties since 31 December 2014, the ownership adjusted value in the table above has been updated
to reflect the current percentage ownership and the valuation implied by that external investment on a
post new money basis . SciFluor completed a funding round of $30 million in April 2015, see note 25
on page 146 for further detail .
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
Early stage
Company
2014
2013
$m
% of
Total
% of
GSOAV
$m
% of
Total
% of
GSOAV
Cephalogics, LLC
Optio Labs, LLC
Precision Biopsy, LLC
ProGDerm, Inc .
SciFluor Life Sciences, LLC
SiEnergy Systems, LLC
Spin Transfer Technologies, Inc .
Other companies
22.3
32.8
16.2
16.7
91.4
15.3
121.0
73.4
5.7%
8.4%
4.2%
4.3%
23.5%
3.9%
31.1%
18.9%
4.6%
6.7%
3.3%
3.4%
18.7%
3.1%
24.8%
15.1%
22 .5
33 .0
15 .9
15 .6
30 .8
22 .7
76 .9
56 .3
8 .2%
12 .0%
5 .8%
5 .7%
11 .3%
8 .3%
28 .1%
20 .6%
Total Early stage
389.1 100.0%
79.7%
273 .7
100 .0%
6 .1%
9 .0%
4 .3%
4 .2%
8 .4%
6 .2%
21 .0%
15 .3%
74 .5%
Commercial stage
Company
CryoXtract Instruments, LLC
SoundCure, Inc .
RF Biocidics, Inc .
2014
% of
Total
% of
GSOAV
18.0%
11.6%
70.4%
3.6%
2.3%
14.3%
$m
17.8
11.5
69.6
Total Commercial stage
98.9 100.0%
20.3%
2013
% of
Total
% of
GSOAV
17 .6%
15 .3%
67 .1%
100 .0%
4 .5%
3 .9%
17 .1%
25 .5%
$m
16 .5
14 .3
62 .8
93 .6
The Group Subsidiary Ownership Adjusted Value above excludes cash balances held by at the parent
level . At 31 December 2014, the date at which the Group Subsidiary Ownership Adjusted Value has
been presented, the Group’s consolidated cash and other investments balance was $261 .5 million
(2013: $104 .6m) of which cash balance held at the parent level was $175 .4 million (2013: $85 .7m) .
Valuation Methodology
Each subsidiary company is regularly evaluated based on a range of inputs, including: company
performance and progress towards development milestones; market and competitor analyses based
on information from databases and public material; and interviews with scientists and physicians .
The Group Subsidiary Ownership Adjusted Value represents the sum-of-the-parts (‘‘SOTP’’) of,
principally, net present value (‘‘NPV’’) or risk-adjusted net present value (‘‘rNPV’’) from discounted
cash flow (‘‘DCF’’) valuations; valuations based on recent third party investment at the subsidiary
level . DCF valuation is used for the majority of Allied Minds subsidiaries . If a transaction occurred close
to valuation date, then that will generally form the basis for the valuation . In limited instances other
techniques such as based on asset values are utilised .
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
Set out below are the two principal methodologies applied to value each Group company to derive the
Group Subsidiary Ownership Adjusted Value as at 31 December 2014:
Discounted cash flow
Precision Biopsy, LLC
ProGDerm, Inc . dba Novare
RF Biocidics, Inc .
Biotectix, LLC
BridgeSat, Inc
Cephalogics, LLC
CryoXtract Instruments, LLC Seamless Devices, Inc .
Federated Wireless, Inc .
SiEnergy Systems, LLC
Foreland Technologies, LLC SoundCure, Inc .
LuxCath, LLC
Percipient Networks, LLC
Whitewood Encryption Systems, Inc .
Third party funding
transaction
Allied Bristol Life Sciences, LLC
Optio Labs, Inc .
SciFluor Life Sciences, LLC
Spin Transfer Technologies, Inc .
As per cent of GSOAV:
44 .9% (2013: 86 .3%)
51 .9% (2013: 9 .0%)
As at 31 December 2013, only Optio Labs, Inc . was valued based on a third party funding transaction .
In addition to the two principal valuation methodologies, the Directors have valued using alternative
valuation methodologies Allied Minds Federal Innovations, Inc . (“AMFI”), representing 3 .2% of the
group Subsidiary Ownership Adjusted Value (2013: 4 .7%, including Broadcast Routing Fountains) .
AMFI was valued using an asset-based methodology that reflects the intellectual property to which it
has access as at 31 December 2014 and 2013 .
Net Present Valuation (‘‘NPV’’) method
NPV is a standard technique used in valuation and can be defined as the difference between the
present value of the future cash flows from an investment and the amount of investment . Present value
of the estimated cash flows is computed by discounting them at the required rate of return which
includes an adjustment for risk .
The following are important factors when determining fair value based on NPV:
• Estimated income generally consists of sales, co-development revenues, one-time payments and
royalty payments on sales depending on the company, its business model and industry . These are
estimated based on a variety of factors including, inter alia: total addressable market; competitive
factors; barriers to competition; pricing; typical standards for contract value; royalty rates; and
likelihood of development of a product that is commercially viable .
• Costs and capital expenditures are estimated for each phase of development based on the
companies’ information or according to industry standards . Costs are typically forecasted for
cost of goods, SG&A (selling, general and administrative), research and development as well as a
variety of other expenses . These are typically developed ‘‘from the ground up’’ for earlier years and
for later years depicted as a factor or percentage of sales .
• The terminal or exit value represents the aggregate value of an entity at the end of the discrete
forecast period . Terminal value may be estimated using the terminal multiple method, which
inherently assumes that the business will be valued at the end of the projection period based on
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
reference valuations . Under this methodology, the terminal value is typically calculated by applying
one of two commonly accepted methodologies:
— Multiple base terminal value: Use of an appropriate multiple to the relevant financial metric
forecasted for the last projected year taking into consideration the ongoing growth potential
of the business in the terminal year . Exit values included in the analysis are typically projected
as a multiple of EBIT, EBITDA or Sales based on the final year results for the forecast period .
Where available, a set of guideline public companies that are similar to the company to be
used for comparative purposes and the multiple is derived from this set;
— Gordon growth model based terminal value: Use of a formula that calculates the present value
of cash flow in the terminal year growing into infinity at an ascribed terminal growth rate . The
terminal growth rate is derived by estimating the long-term annual growth potential of the
business at the terminal year .
•
rNPV is a technique typically used when valuing pharmaceutical or biological companies and has
been used in estimating the value of ProGDerm . When using rNPV, it is the same process as
developing an NPV analysis though costs and revenues are probability adjusted downward based
on the phase of development .
• Selection of discount rates is based on part utilising American Institute of Certified Public
Accountants (AICPA) practice standards varying by stage of development of the subsidiary as
well as other risk factors and typically range from 20-45% When utilising rNPV, discount rates are
typically lower reflecting the probability adjustment of the cash flows already made .
• Significant events occurring after the date of valuation according to the previous paragraph have
been taken into account in the valuation to the extent that such events would have affected the
value on the closing date .
• Where available NPV results are compared against peer companies and to valuations for similar
companies .
Due to the early stage nature of the Group’s subsidiary companies, projections are particularly sensitive
to certain key assumptions namely:
• Discount rate and in particular risk premium;
• The ability to predict the cost and timing of achieving technical and commercial viability;
• Projected revenue and operating costs in the post-product development phase of each company;
and
• The size and share of addressable market for intellectual property, products and services developed .
Whilst the Board considers the methodologies and assumptions adopted in valuation are supportable,
reasonable and robust, because of the inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had a ready market for the investment
existed and the differences could be significant .
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Associates
Location
Registered
number
Ownership percentage
31 December
2014
2013
Stalam S .p .A .
Vicenza, Italy
2083930244
28.5%
Stalam S .p .A .
Carrying amount for equity accounted investees
2014
$’000
1,560
1,560
—
2013
$’000
—
—
In December 2013, RF Biocidics (“RFB”) entered into a manufacturing agreement with the strategic
partner Stalam S .p .A . (“Stalam”) in Italy, which made Stalam an exclusive manufacturer of the Apex
product line series, as well as any new generation RF Systems that incorporates both Stalam and
RFB technologies which the parties develop jointly as part of the agreement . Following this transaction
in March 2014, RF Biocidics acquired ordinary shares representing 28 .5% of the capital of that
manufacturer in exchange for 1 .1 million Euro ($1 .5 million) .
The Group’s interest in Stalam is presented in the below table as of 31 December:
Carrying amount of interest in associates
Share of:
Profit from continuing operations
Total comprehensive income
(12) Other Investments
As of 31 December:
Fixed income securities
Government agencies
Corporate bonds
Other investments, current
Fixed income securities
Corporate bonds
Other investments, long-term
Other investments
2014
$’000
2013
$’000
39
39
—
—
2014
$’000
2013
$’000
2,745
12,486
15,231
22,176
22,176
37,407
—
—
—
—
—
—
Other investments represent investments in fixed income securities issued by government agencies
and US and non-US corporations . As of 31 December 2014, the investments had a credit rating of
BBB to A, maturities of up to 3 years and original coupon rate from 0 .875% to 5 .750% .
Page 132 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
(13) Cash and Cash Equivalents
As of 31 December:
Bank balances
Restricted cash
Cash and cash equivalents
2014
$’000
224,206
(131)
224,075
2013
$’000
104,682
(131)
104,551
Restricted cash represents cash reserved as collateral against a letter of credit with a bank issued for
the benefit of a landlord in lieu of a security deposit to an office space lease for one of the Group’s
subsidiaries . The amount is classified as other financial assets, non-current in the statement of financial
position .
(14) Inventories
As of 31 December:
Finished units
Work in progress
Raw materials
Total inventories
(15) Trade and Other Receivables
As of 31 December:
Trade receivables
Prepayments and other current assets
Total trade and other receivables
(16) Equity
2014
$’000
1,725
1,033
160
2,919
2014
$’000
1,608
4,697
6,305
2013
$’000
722
114
209
1,045
2013
$’000
2,385
485
2,870
On 19 June 2014 Allied Minds plc acquired the entire issued share capital of Allied Minds, Inc . (now
Allied Minds, LLC) at a rate of twenty two £0 .01 Ordinary Shares in Allied Minds plc for every $0 .01 of
common stock in Allied Minds Inc . This has been accounted as a common control transaction and the
comparative historical financials have been presented as if the transaction had already taken place . It
has therefore been deemed that the share capital was issued in line with movements in share capital as
shown prior to the transaction taking place . In addition the merger reserve records amounts previously
recorded as share premium net of differences arising between share capital on the restructured basis
and the former basis .
On 25 June 2014 the Company’s entire issued ordinary share capital of 209,499,425 ordinary shares
of one pence each were admitted to the premium listing segment of the Official List of the UK Listing
Authority and to trading on the LSE’s Main Market for listed securities The IPO was for 61,695,208
shares at 190 pence per ordinary share, of which 44,254,411 were new ordinary shares issued by the
Company and 17,440,797 were sold by selling shareholders .
This resulted in approximately $131 .8 million of net proceeds from the IPO (net of issue cost of $11 .0
million) reflected in the share premium balance as of 30 June 2014 The IPO also included an over-
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) allotment option equivalent to 15% of the total number of new ordinary shares, or 6,638,161 . The over-
allotment period expired on 19 July 2014 and the stabilisation manager exercised in part their over-
allotment option As a result, the Company issued 3,791,154 Shares at the offer price of 190 pence per
share achieving further gross proceeds for the Company of £7 .2 million, or approximately $12 .3 million
The total number of shares and voting rights in the Company after issuing the over-allotment shares
was 213,290,579 . Additionally, various option holders in the U .S . Stock Plan exercised their options,
resulting in additional share premium of $10 .5 million .
In November 2014, an existing shareholder exercised options to purchase 1,155,000 shares of the
Company under the U .S . Stock Plan, resulting in additional share premium of $780,000 .
Movements below explain the movements in share capital taking into account the reorganisation
described above in note 1 . Each movement in share capital reflects the number of shares and nominal
value of the shares as if the reorganisation had been in place at that date and the shares were those
of Allied Minds plc .
As of 31 December:
Equity
Share capital, £0 .01 par value, issued and fully paid
214,445,579 and 157,463,790, respectively
Share premium
Merger reserve
Other reserve
Translation reserve
Accumulated deficit
Equity attributable to owners of the Company
Non-controlling interests
Total equity
2014
$’000
2013
$’000
3,411
2,445
153,442
185,544
28,753
(61)
(123,186)
247,903
31,911
279,814
—
185,544
19,814
98
(90,648)
117,253
2,606
119,859
Holders of Ordinary Shares are entitled to vote, on all matters submitted to shareholders for a vote .
Each Ordinary Share is entitled to one vote . Each ordinary share is entitled to receive dividends when
and if declared by the Company’s board of directors . The Company has not declared any dividends
in the past .
On 31 May 2013, Allied Minds issued 34,468,742 Ordinary Shares (originally 1,566,761 shares in
Allied Minds, Inc . (now Allied Minds, LLC), prior to the reorganisation), of which 14,926,362 shares
(originally 678,471 shares in Allied Minds, Inc . (now Allied Minds, LLC), prior to the reorganisation) were
issued to its existing shareholders and 19,542,380 shares (originally 888,290 shares in Allied Minds,
Inc . (now Allied Minds, LLC), prior to the reorganisation) to new shareholders for total net proceeds of
approximately $99 .1 million . The investors provided the full amount of the capital contribution to Allied
Minds in June 2013 to fulfill their obligation under the subscription agreement .
Other reserves comprise the cumulative credit to reserves corresponding to IFRS 2 share-based
payment charges charged through the income statement .
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) Translation reserve comprises all foreign exchange differences arising from the translation of the
financial statements of foreign operations .
(17) Acquisition of Non-Controlling Interest (“NCI”)
For the two years ended 31 December 2014, the Group recognised the following changes in ownership
in subsidiaries:
2014
• Federated Wireless closed an internal round of financing of $5 million equity investment from
Allied Minds . As a result of the transaction, after covering the anti-dilutive protection of certain
shareholders, Allied Minds’ interest in Federated Wireless increased from 90 .0% to 90 .9%;
• Optio Labs closed a round of financing of $10 million in March 2014 with existing and new
shareholders of the Group, of which Allied Minds subscribed to contribute $7 .7 million by January
2015 should no other investors opt to participate by July 2014 . New and existing shareholders of
the Group exercised that option in the amount of $150 thousand and Allied Minds completed its
obligation for the balance in January 2015;
• Allied-Bristol Life Sciences, LLC (“ABLS”) was formed in July 2014 as a partnership between Allied
Minds and Bristol-Myers Squibb Company (“BMY”) to identify and foster research and pre-clinical
development of biopharmaceutical innovations . Allied Minds and BMY have jointly funded ABLS
with $10 .0 million of initial capital, of which $8 .0 million were contributed by Allied Minds . ABLS
will form and fund new companies to conduct feasibility studies and where appropriate, full-phase
discovery programs;
• Spin Transfer Technologies completed a $70 million round of Series A financing in October 2014 .
Of the $70 .0 million raised in this financing, Allied Minds contributed approximately $20 .0 million
for the purchase of 1,686,340 preferred shares, and other existing shareholders of the Group
contributed with the remainder of the round .
2013
• ProGDerm closed an internal round of financing of $1 .5 million equity investment from Allied Minds,
part of which fulfilled the maximum funding threshold for the anti-dilution protection of the existing
non-controlling interest shareholder . As a result of the transaction, after covering the anti-dilute
protection of those shareholders, Allied Minds’ interest in ProGDerm increase from 90 .00% to
90 .38%
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) The following summarises the changes in the non-controlling ownership interest in subsidiaries by
reportable segment:
Early Stage
Commercial
Consolidated
Non-controling interest as of
31 December 2012
New funds into non-controlling interest
Share of comprehensive loss
Effect of change in Company’s
ownership interest
Deconsolidation of subsidiaries
Non-controling interest as of
31 December 2013
New funds into non-controlling interest
Share of comprehensive loss
Effect of change in Company’s
ownership interest
Non-controling interest as of
31 December 2014
STT
$’000
Other
$’000
RFB
$’000
Other
$’000
12,280
—
(4,113)
1,693
—
9,860
49,981
(6,283)
(1,355)
52
(1,157)
329
(1,127)
(3,258)
4,492
(3,320)
(457)
—
(1,992)
179
—
(2,270)
—
(1,968)
(793)
—
(944)
11
—
(1,726)
—
(657)
$’000
9,675
52
(8,206)
2,212
(1,127)
2,606
54,473
(12,228)
(12,457)
(666)
174
9
(12,940)
41,101
(2,752)
(4,064)
(2,374)
31,911
(18) Loans
As of 31 December:
Non-current liabilities – Loans:
Secured bank loan
Unsecured loan
Current liabilities – Loans:
Secured bank loan
Unsecured loan
Total loans
2014
$’000
—
338
338
—
213
213
551
2013
$’000
2,195
549
2,744
854
202
1,056
3,800
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
The terms and conditions of outstanding loans are as follows:
2014
$’000
2013
$’000
As of 31 December:
Currency
interest rate
maturity
value
amount
value
amount
Nominal
Year of
Face
Carrying
Face
Carrying
Secured bank loan USD
Unsecured loan USD
USD Prime + 1 .25% 2013-17
6 .5% 2013-17
USD
Total interest bearing liabilities
—
551
551
—
551
551
3,049
751
3,800
3,049
751
3,800
CryoXtract Instruments, LLC Promissory Note
In May 2012, CryoXtract Instruments, LLC signed a promissory note with a state financing authority
in the amount of $800,000 to provide working capital for materials and fund salaries . The note fully
matures in May 2017 and bears interest of 6 .5% Payment of interest only is due in the first 18 months .
As of 31 December 2013, CryoXtract had drawn the full balance of the note, of which $210,000 and
$21,000 was repaid during 2014 and 2013, respectively, and $213,000, net of discount, is included
in current liabilities . Interest expense paid on the note was $42,000 and $60,000 for the years ended
31 December 2014 and 2013, respectively .
As part of the consideration for the loan, CryoXtract had issued to the lender a warrant entitling the
lender to purchase an aggregate of 65,310 membership units in the subsidiary’s ordinary shares,
representing 0 .01% of the total membership units . The fair value of the warrant issued of $35,000 is
amortised over the life of the loan as a discount against the note balance .
Spin Transfer Technologies, Inc. Loan and Security Agreement
In October 2012, Spin Transfer Technologies, Inc . (Spin Transfer) signed a loan and security agreement
with a bank to finance eligible equipment purchases made on or after 1 June 2012 of up to $4,000,000 .
After repayment, no additional advances may be re-borrowed . The loan was originally set up to fully
mature in July 2017 and bear interest of 1 .25% above the Prime Rate . The loan was collateralised
by the financed equipment and Spin Transfer was required to maintain at all times a liquidity ratio of
unrestricted cash maintained with the bank to the aggregate amount of all outstanding obligations with
the bank of at least 2 .0 to 1 .0 . As of 31 December 2013, Spin Transfer had drawn the full balance of
the loan, of which $806,700 was repaid in 2013 and the remainder of the full balances was repaid in
2014 . Interest paid was $275,000 and $170,000 for the years ended 31 December 2014 and 2013,
respectively .
As part of the consideration for the loan, Spin Transfer had issued to the lender a warrant entitling the
lender to purchase an aggregate of 37,500 shares in the subsidiary’s ordinary shares, representing
0 .2% of the total number of the outstanding shares . The fair value of the warrant issued of $175,000
was amortised as a discount against the note balance over the life of the loan .
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
(19) Trade and Other Payables
As of 31 December:
Trade payables
Accrued expenses
Trade and other payables, current
Other non-current payables
Total trade and other payables
(20) Leases
2014
$’000
4,769
6,570
11,339
182
11,521
2013
$’000
1,394
3,644
5,038
278
5,316
Office and laboratory space is rented under non-cancellable operating leases . These lease agreements
contain various clauses for renewal at the Group’s option and, in certain cases, escalation clauses
typically linked to rates of inflation .
Minimum rental commitments under non-cancellable leases were payable as follows:
For the year ended 31 December:
Less than one year
Between one and five years
More than five years
Total minimum lease payments
2014
$’000
1,772
2,066
38
3,876
2013
$’000
1,691
3,201
—
4,892
Total rent expense under these leases was approximately $2,478,000 and $2,223,000 in 2014 and
2013, respectively . Rent expenses are included in selling, general and administrative expenses and
research and development expenses in the consolidated statements of comprehensive loss .
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) (21) Financial Instrument – Fair Values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy:
2014
$’000
Carrying amount
Fair value
Other
Loans and
financial
As of 31 December:
receivables
liabilities
Level 1
Level 2
Level 3
Total
Financial assets
Cash and cash equivalents
Fixed income securities
Trade and other receivables
Security and other deposits
Total financial assets
Financial liabilities
Secured bank loan
Unsecured loan
Trade and other payables
Deferred revenue
Total financial liabilities
224,075
37,407
6,305
879
268,666
—
—
—
—
—
— 224,075
34,882
6,305
2,761
—
—
879
— 224,075
37,643
—
6,305
—
879
—
2,761 266,141
— 268,902
—
—
—
—
—
—
551
11,521
1,144
13,216
—
—
—
—
—
—
581
11,521
1,144
13,246
—
—
—
—
—
—
581
11,521
1,144
13,246
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued)
2013
$’000
Carrying amount
Fair value
Other
Loans and
financial
As of 31 December:
receivables
liabilities
Level 1
Level 2
Level 3
Total
Financial assets
Cash and cash equivalents
Trade and other receivables
Security and other deposits
Total financial assets
Financial liabilities
Secured bank loan
Unsecured loan
Trade and other payables
Deferred revenue
Total financial liabilities
104,551
2,870
796
108,217
—
—
—
—
—
—
—
—
—
3,048
751
5,316
2,830
11,945
— 104,551
2,870
—
796
—
— 108,217
—
—
—
—
—
3,048
789
5,316
2,830
11,983
— 104,551
2,870
—
796
—
— 108,217
—
—
—
—
—
3,048
789
5,316
2,830
11,983
The fair value of financial instruments that are not traded is determined by using valuation techniques
that maximise the use of observable market data where it is available and rely as little as possible on
entity specific estimates . If all significant inputs required to fair value an instrument are observable, the
instrument is included in Level 2 .
The Group has determined that the carrying amounts for cash and cash equivalents, trade and other
receivables and payables, security and other deposits, and customer deposits are a reasonable
approximation of their fair values and are included in Level 2 .
The secured bank loan was at a floating interest rate of 1 .25% above Prime rate, which was adjustable
immediately when Prime rate changes . As such, the Group has determined that the fair value of the
secured bank loan equals the carrying amount at 31 December 2013 and is classified as Level 2 . The
loan was repaid in 2014 .
(22) Capital and Financial Risk Management
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business . Management monitors the level of
capital deployed and available for deployment in subsidiary projects . The board of directors seeks to
maintain a balance between the higher returns that might be possible with higher levels of deployed
capital and the advantages and security afforded by a sound capital position .
The Group’s executive management and board of directors have overall responsibility for establishment
and oversight of the Group’s risk management framework . The Group is exposed to certain risks
through its normal course of operations . The Group’s main objective in using financial instruments is to
promote the commercialisation of intellectual property through the raising and investing of funds for this
purpose . The Group’s policies in calculating the nature, amount and timing of funding are determined
by planned future investment activity . Due to the nature of activities and with the aim to maintain the
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
investors’ funds secure and protected, the Group’s policy is to hold any excess funds in highly liquid
and readily available financial instruments and reduce the exposure to other financial risks .
The Group has exposure to the following risks arising from financial instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations . Financial instruments that potentially subject the Group to
concentrations of credit risk consist principally of cash and cash equivalents and trade and other
receivables .
The Group held following balances:
As of 31 December:
Cash and cash equivalent
Trade and other receivables
2014
$’000
224,075
6,305
230,380
2013
$’000
104,551
2,871
107,422
The Group maintains money market funds and certificates of deposits with financial institutions, which
the Group believes are of high credit quality . Risk control assesses the credit quality of the customer,
taking into account its financial position, past experience and other factors . Individual risk limits are set
based on ratings in accordance with limits set by the board . The utilisation of credit limits is regularly
monitored . The credit quality of financial assets that are neither past due nor impaired can be assessed
by reference to credit ratings (if available) or to historical information about counterparty default rates .
Group policy is to maintain its funds in highly liquid deposit accounts with reputable financial institutions .
The aging of trade receivables that were not impaired was as follows:
As of 31 December:
Neither past due nor impaired
Past due 30-90 days
Past due over 90 days
2014
$’000
784
276
548
1,608
2013
$’000
2,042
—
343
2,385
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) The Group has no significant concentration of credit risk . The Group assesses the credit quality of
customers, taking into account their current financial position . An analysis of the credit quality of trade
receivables that are neither past due nor impaired is as follows:
As of 31 December:
Customers with less than three years of trading history with the Group
2014
$’000
1,608
1,608
2013
$’000
2,385
2,385
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated
with its financial liabilities that are settled by delivering cash or another financial asset . The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to
meet its liabilities when they are due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation .
The Group seeks to manage liquidity risk, ensuring that sufficient liquidity is available to meet foreseeable
requirements .
The following are the remaining contractual maturities of financial liabilities at the reporting date . The
amounts are gross and undiscounted, and include estimated interest payments and exclude the impact
of netting agreements . The current portion of the carrying amount of lease obligations is included in
trade and other payables .
As of 31 December 2014:
$’000
Trade and other payables
Other non-current liabilities
Secured bank loans
Unsecured bank loans
Carrying
amount
11,339
182
—
551
Contractual cash flows
Less than
Total
1 year 2-5 years
More than
5 years
11,339
182
—
622
11,339
83
—
252
—
97
—
370
467
—
2
—
—
2
12,072
12,143
11,674
As of 31 December 2013:
$’000
Carrying
amount
Trade and other payables
Other non-current liabilities
Secured bank loans
Unsecured bank loans
5,038
278
3,049
751
9,116
Contractual cash flows
Less than
1 year
2-5 years
More than
5 years
5,038
96
1,017
252
6,403
—
182
2,440
621
3,243
—
—
—
—
—
Total
5,038
278
3,457
873
9,646
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier,
or at significantly different amounts .
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) Market Risk
Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates
and equity prices – will affect the Group’s income or the value of its holdings of financial instruments .
The objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return . The Group maintains the exposure to market risk
from such financial instruments to insignificant levels . The Group exposure to changes in interest rates
is determined to be insignificant .
Capital Risk Management
The Group is funded by equity finance and long term borrowings . Total capital is calculated as ‘total
equity’ as shown in the consolidated statement of financial position .
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a
going concern in order to provide returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of capital . In order to maintain or adjust the
capital structure, the Group may issue new shares or borrow new debt . The Group has some external
debt and no material externally imposed capital requirements . The Group’s share capital is set out in
note 16 .
(23) Related Parties
Key Management Personnel Compensation
Key management personnel compensation received comprised the following:
For the year ended 31 December:
Short-term employee benefits
Share-based payments
Total
2014
$’000
2,863
7,430
10,293
2013
$’000
1,252
3,119
4,371
Short-term employee benefits of the Group’s key management personnel include salaries and bonuses,
health care and other non-cash benefits .
Share-based payments include the value of awards granted under the U .S Stock Plan and the LTIP
during the year . Approximately $5 million of the value of share-base payment in 2014 represents the
value of restricted stock units granted under the LTIP established in June 2014 . Share-based payments
under the LTIP are subject to vesting terms over future periods . Share-based payments granted under
the U .S . Stock Plan fully vested upon the reorganisation described in note 16 . See further details of the
two plans in note 6 .
Bonuses to key management for the year of $1,500,000 were outstanding at 31 December 2014
(2013: $636,000) and were paid in January of 2015 .
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Key Management Personnel Transactions
Key management personnel transactions comprised the following:
For the year ended 31 December:
Non-executive Directors’ fees
Non-executive Directors’ share-based payments
Total
2014
$’000
199
295
494
2013
$’000
50
—
50
Fees to non-executive Directors of $67,500 were outstanding at 31 December 2014 (2013: $12,500)
and were paid in shortly after the year end .
Executive management and Directors of the Company control 12 .7% of the voting shares of the
Company as of 31 December 2014 (2013: 18 .1%) .
The Group has not engaged in any other transactions with key management personnel or other related
parties .
Other related party transactions
Consolidated Statement of Comprehensive Loss
For the year ended 31 December:
Purchase of goods
Equity accounted investee
Consolidated Statement of Financial Position
As of 31 December:
Purchase of goods outstanding balance
Equity accounted investee
2014
$’000
2013
$’000
1,879
—
2014
$’000
2013
$’000
33
—
(24) Taxation
Amounts recognised in profit or loss
No current income tax expense was recorded for UK or US jurisdictions for the years ended
31 December 2014 and 2013 due to accumulated losses .
For the year ended 31 December:
Net loss
Income taxes
Net loss before taxes
2014
$’000
57,706
—
57,706
2013
$’000
42,707
—
42,707
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued)
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the US, therefore the reconciliation of the effective tax
rate has been prepared using the US statutory tax rate . A reconciliation of the US statutory rate to the
effective tax rate is as follows:
Weighted average statutory rate
Effect of state tax rate in US
Credits
Share-based payment remeasurement
Other
Current year losses for which no deferred tax asset is recognised
2014
%
35.0
5.4
2.8
26.6
(8.2)
(61.6)
—
2013
%
35 .0
5 .3
2 .6
(7 .9)
(2 .9)
(32 .1)
—
Factors that may affect future tax expense
The Group is primarily subject to taxation in the US and UK . Additionally, the Group is exposed to state
taxation in various jurisdictions throughout the US . Changes in corporate tax rates can change both the
current tax expense (benefit) as well as the deferred tax expense (benefit) . The main UK corporate tax
rates enacted for the taxation financial years (1 April to 31 March the following calendar year) 2014 and
2013 are 21% and 23%, respectively . The maximum corporate tax rate in the US for the corresponding
periods is 35%
Unrecognised Deferred Tax Assets
Deferred tax assets have not been recognised in respect of the following items, because it is not
probable that future taxable profit will be available against which the Group can use the benefits
therefrom:
2014
$’000
59,586
1,952
3,820
17,829
83,187
(974)
(974)
82,213
2013
$’000
32,170
2,017
2,616
11,616
48,419
(824)
(824)
47,595
As of 31 December:
Operating tax losses (1)
Capital losses (2)
Research credits (1)
Temporary differences (3)
Deferred tax assets
Other temporary differences (3)
Deferred tax liabilities
Deferred tax assets, net, not recongised
(1) expire starting in 2024
(2) expire starting in 2015
(3) generally will expire 20 years subsequent to the time the deduction is taken
Page 145 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Deferred tax is measured at the rates that are expected to apply in the period when the temporary
differences are expected to reverse, based on tax rates and laws that have been enacted or substantially
enacted by the statement of financial position date . The reduction in the main rate of UK corporation
tax to 20% (from 23%) was substantially enacted on 2 July 2013 and will apply from 1 April 2015 .
However, the UK corporation tax rate initially reduced from 23% to 21% from 1 April 2014 . The change
in the UK corporate tax rate did not materially impact the calculation of the deferred tax assets as these
assets are generally exposed to tax in US jurisdiction .
There were no movements in deferred tax recognised in income or equity in 2014 or 2013 as the
deferred tax asset was not recognised in any of those years .
(25) Subsequent Events
The Company has evaluated subsequent events through 28 April 2015, which is the date the
consolidated financial information is available to be issued .
BridgeSat, Inc.
BridgeSat, Inc . was formed in February 2015 as a wholly owned subsidiary of Foreland Technologies,
Inc . BridgeSat is developing an optical connectivity system that aims to increase the speed, security
and efficiency of data transmissions from Low Earth Orbit (LEO) satellites at a reduced cost compared
with traditional radio frequency solutions .
SiEnergy Systems, LLC
In March 2015, SiEnergy was awarded a convertible grant of $300,000 from the Massachusetts
Clean Energy Centre (“MassCEC”) under their AmplifyMass program . The full amount of the grant
was received in March 2015 . Funds shall be used solely for the cost of working capital and business
activities incurred by SiEnergy related to the ARPA-E award received during 2014 . The grant has an
automatic conversion provision whereby it automatically converts into securities of SiEnergy upon a
consumption of a qualified financing as defined by the grant agreement . Optional conversion may
occur at the option of MassCEC (i) immediately prior to, but contingent upon, a Major Transaction as
defined by the grant, (ii) any time on or after the fifth anniversary of the grant, or (iii) upon or during the
occurrence of an event of default as defined by the agreement . Based on the timing of the conversion,
the conversion ratio at which the grant converts into SiEnergy securities equals 75% to 100% of the
conversion price .
Optio Labs, Inc.
In April 2015, Optio Labs, Inc . acquired substantially all of the assets of Oculis Labs, Inc ., the developer
and owner of the PrivateEye and Chameleon device screen security software for a total consideration
of $500,000, of which $380,000 was due at closing (net of $27,500 advanced by Optio Labs) and
$120,000 due one year from the date of closing (net of $65,000 advanced by Optio Labs) plus a royalty
consideration equal to 10% of net sales of the PrivateEye and Chameleon products for a period of three
years following the date of closing, provided, the deferred cash payment and the royalty consideration
are subject to offset against indemnification claims by Optio Labs against Oculis Labs .
SciFluor Life Sciences, LLC
In April 2015, SciFlour successfully raised $30 million in Series A preferred stock financing, of which
Allied Minds participated with $4 .8 million for 501,857 shares of the preferred stock and the remainder
was provided by existing shareholders of the Group .
Page 146 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Notes to the Consolidated Financial Statements (continued) Dissolved Subsidiaries
Allied Minds Devices, LLC and Broadcast Routing Fountains, LLC, wholly-owned subsidiaries of the
Group, were dissolved subsequent to year end in April 2015 .
The impact of this was assessed in the Group financials as of 31 December 2014 and unrecoverable
amounts were written off .
Page 147 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial StatementsNotes to the Consolidated Financial Statements (continued) Company Balance Sheet
As of 31 December
Non-current assets
Investment in subsidiary
Total non-current assets
Current assets
Cash at bank and in hand
Trade and other receivables
Loan to subsidiary
Total current assets
Total assets
Equity
Share capital
Share premium
Merger reserve
Other reserve
Translation reserve
Accumulated deficit
Total equity
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
Registered number: 8998697
Note
2
3
4
5
5
5
5
5
2014
$ ‘000
199,429
199,429
1,639
33
131,500
133,172
332,601
3,411
153,442
185,544
1,286
(10,209)
(1,036)
332,438
163
163
163
332,601
The company presents its financial statements from the date of incorporation on 15 April 2014 to
31 December 2014 .The financial statements on pages 148 to 151 were approved by the Board of Directors
and authorised for issue on 28 April 2015 and signed on its behalf by:
Christopher Silva
Chief Executive Officer
Page 148 of 152
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ANNUAL REPORT AND ACCOUNTS 2014
Notes to the
Financial Statements
(1) Accounting Policies
Basis of Preparation and Measurement
The financial statements of the parent company have been prepared under the historical cost convention,
in accordance with the Companies Act 2006 and applicable United Kingdom accounting standards . A
summary of the more important accounting policies which have been applied consistently throughout
the year are set out below .
Functional and Presentation Currency
The functional currency of the parent company is British Pounds . The financial statements of the parent
company are presented in US dollars .
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of the parent
company at the foreign exchange rate ruling at the date of the transaction . Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are retranslated to the functional currency
at the foreign exchange rate ruling at that date . Foreign exchange differences arising on translation are
recognised in the income statement . Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate at the date of the transaction .
Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are
retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was
determined .
On translation of the Company financial statements from functional currency to presentational currency
the assets and liabilities are translated at the closing exchange rates . Profit and loss accounts are
translated at the average rates of exchange during the year . Gains and losses arising on these translations
are taken to reserves .
Investments
Investments are stated at historic cost less any provision for impairment in value and are held for long-term
investment purposes . Provisions are based upon an assessment of events or changes in circumstances
that indicate that an impairment has occurred such as the performance and/or prospects (including
the financial prospects) of the investee company being significantly below the expectations on which
the investment was based, a significant adverse change in the markets in which the investee company
operates or a deterioration in general market conditions .
Intercompany Loans
All intercompany loans are initially recognised at fair value and subsequently measured at amortised
cost . Where intercompany loans are intended for use on a continuing basis in the Company’s activities
and there is no intention of their settlement in the foreseeable future, they are presented as current
assets .
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with original maturities of three months
or less .
Page 149 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial Statements Notes to the
Financial Statements (continued)
Impairment
If there is an indication that an asset might be impaired, the Company will perform an impairment review .
An asset is impaired if the recoverable amount, being the higher of net realisable value and value in use,
is less than its carrying amount . Value in use is measured based on future discounted cash flows (“DCF”)
attributable to the asset . In such cases, the carrying value of the asset is reduced to recoverable amount
with a corresponding charge recognised in the profit and loss account .
Financial Instruments
Currently the Company does not enter into derivative financial instruments . Financial assets and financial
liabilities are recognised and cease to be recognised on the basis of when the related titles pass to or
from the Company .
Share-based Payments
Share-based payment arrangements in which the Company receives goods or services as consideration
for its own equity instruments are accounted for as equity-settled share-based payment transactions,
regardless of how the equity instruments are obtained by the Company .
The grant date fair value of share-based payment awards granted to employees is recognised as an
employee expense, with a corresponding increase in equity, over the period that the employees become
unconditionally entitled to the awards . The fair value of the options granted is measured using an option
valuation model, taking into account the terms and conditions upon which the options were granted .
The amount recognised as an expense is adjusted to reflect the actual number of awards for which
the related service and non-market vesting conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards that do meet the related service
and non-market performance conditions at the vesting date . For share-based payment awards with
non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such
conditions and there is no true-up for differences between expected and actual outcomes .
(2) Investment in subsidiary
Balance at 15 April
Additions
Impairment
Disposals
Effect from currency translation
Balance at 31 December
2014
$’000
—
218,085
—
—
(18,656)
199,429
Investment in subsidiary represents the Company’s investment in Allied Minds, LLC as a result of the
reverse acquisition described above in note 16 on page 133, immediately prior to the Company’s the
initial public offering on the London Stock Exchange in June of 2014 . Allied Minds LLC operates in the
U .S . as a U .S .-focused science and technology development and commercialisation company . For a
summary of the Company’s indirect subsidiaries see note 11 .
Page 150 of 152
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ANNUAL REPORT AND ACCOUNTS 2014
Notes to the
Financial Statements (continued)
(3) Cash and cash equivalents
As of 31 December:
Bank balances
Cash and cash equivalents
(4) Loan to subsidiary
Balance at 15 April
Additions
Impairment
Disposals
Effect from currency translation
Balance at 31 December
2014
$’000
1,639
1,639
2014
$’000
—
142,531
—
—
(11,031)
131,500
The Company has loaned its excess cash to its operating subsidiary Allied Minds LLC to be further
deployed in support of the continuing operations of the Group . The note bears an interest of 1 .25% and
is repayable upon demand . However, there is no intention of its settlement in the foreseeable future .
(5) Share capital and reserves
Share capital
Shares
Amount
$’000
Share
premium
$’000
Merger
reserve
$’000
Balance at 15 April 2014
Issuance of ordinary shares
Exercise of stock options
Equity-settled share based payments
Loss for the year
Foreign currency translation
—
205,628,155
8,817,424
—
—
—
—
3,263
148
—
—
—
—
—
142,244
185,544
11,198
—
—
—
—
—
—
—
Other
reserve
reserve
$’000
—
—
—
1,346
—
(60)
Translation
reserve
$’000
Accumulated
deficit
$’000
—
62
(74)
—
—
—
—
—
—
(1,036)
Total
equity
$’000
—
331,113
11,272
1,346
(1,036)
(10,197)
—
(10,257)
Balance at 31 December 2014
214,445,579
3,411
153,442
185,544
1,286
(10,209)
(1,036)
332,438
Allied Minds plc was incorporated with the Companies House under the Companies Act 2006 as a
public company on 15 April 2014 . Full detail of the share capital and reserves activity for the year can
be found in note 16 on page 133 to the consolidated financial statements .
(6) Profit and loss account
As permitted by Section 408 of the Companies Act 2006, the Company’s profit and loss account has
not been included in these financial statements . The Company’s loss for the year was $1,036,000 .
(7) Directors’ remuneration, employee information and share-based payments
The remuneration of the Directors of the Company is disclosed in note 23 on page 143 . Full details for
their remuneration can be found in the Directors’ Remuneration Report on pages 63 to 87 . Full detail
of the share-based payment charge and related disclosures can be found in note 6 on page 116 to the
consolidated financial statements .
The Company had no employees during 2014 .
Page 151 of 152
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ANNUAL REPORT AND ACCOUNTS 2014Financial Statements
Directors, Secretary and Advisers to Allied Minds
Directors, Secretary and Advisers to Allied Minds
Company Registration Number
08998697
Registered Office
40 Duke’s Place
London EC3A 7NH
Website
www.alliedminds.com
Board of Directors
Mark Pritchard
(Executive Chairman)
Chris Silva
(Chief Executive Officer)
Peter Dolan
(Senior Independent Non-Executive Director)
Jeffrey Rohr
(Independent Non-Executive Director)
Rick Davis
(Independent Non-Executive Director)
Company Secretary
Michael Turner
Brokers
Jefferies International Limited
68 Upper Thames Street
London EC4V 3BJ
United Kingdom
TEL: +44 207 029 8000
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
United Kingdom
TEL: +44 207 260 1000
Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham Kent BR3 4TU
United Kingdom
TEL UK: 0871 664 0300
TEL Overseas: +44 208 639 3399
Solicitors
DLA Piper UK LLP
3 Noble Street
London EC2V 7EE
United Kingdom
TEL: +44 870 011 1111
Independent Auditor
KPMG LLP
15 Canada Square
London E14 5GL
United Kingdom
TEL: +44 207 311 1000
Media and Public Relations
FTI Consulting, Inc.
200 Aldersgate
Aldersgate Street
London EC1A 4HD
United Kingdom
TEL: +44 203 727 1000
Page 152 of 152
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ANNUAL REPORT AND ACCOUNTS 2014 M
A
N
A
G
E
B
U
I
L
D
F
O
R
M
F
U
N
D
A
L
L
I
E
D
M
N
D
S
I
A
N
N
U
A
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R
E
P
O
R
T
A
N
D
A
C
C
O
U
N
T
S
2
0
1
4
Annual Report and Accounts
For the year ended 31 December 2014
T R A N S F O R M I N G U . S . I N V E N T I O N I N T O I N N O V A T I O N
T R A N S F O R M I N G U . S . I N V E N T I O N I N T O I N N O V A T I O N
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