TIDMPSD
RNS Number : 4271N
PSource Structured Debt Limited
28 September 2012
28 September 2012
PSource Structured Debt Limited
Financial Results for the period ended 30 June 2012 and Notice
of AGM
PSource Structured Debt Limited (the 'Company' or 'PSD'), the
London Listed fund (in managed wind down) is pleased to announce
its results for the full year to 30 June 2012.
Copies of the Audited accounts will be available for download
from the Company's website www.psourcestructureddebt.com and will
be available for inspection from the National Storage Mechanism
www.hemscott.com/nsm.do.
For further information, please contact:
PSource Capital Limited+44 20 7925 3156
Soondra Appavoo
PSOURCE STRUCTURED DEBT LIMITED
Contents
Company Information 1
Directors 2-3
Financial Calendar 3
Investment Objective and Policy 3
Summary Information 3-6
Chairman's Statement 7-9
Directors' Report 10-18
Responsibility Statement 19
Independent Auditor's Report 20
Consolidated Statement of Financial Position 21
Consolidated Statement of Comprehensive Income 22
Consolidated Statement of Changes in Equity 23
Consolidated Statement of Cash Flows 24
Notes to the Financial Statements 25-48
Analysis of Significant Investments (unaudited) 49-53
Portfolio Analysis (unaudited) 54
Notice 55
Form of Proxy 56
PSOURCE STRUCTURED DEBT LIMITED
Company Information
Company Number: Financial adviser and stockbroker
47075 (Registered in Guernsey) to the Company:
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London, EC4M 7LT
Directors: Auditors to the Company:
William Scott, Independent Chairman KPMG Channel Islands Limited
Soondra Appavoo 20 New Street
Peter Niven, Independent Director St Peter Port
Tim Jenkinson, Independent Director Guernsey, GY1 4AN
Keith Dorrian, Independent Director
Company Secretary and Administrator: Solicitors to the Company:
Praxis Fund Services Limited Eversheds LLP
Sarnia House 1 Wood Street
Le Truchot London, EC2V 7WS
St Peter Port
Guernsey, GY1 4NA
Registered office of the Company: Guernsey Lawyers to the Company:
Sarnia House Mourant Ozannes
Le Truchot PO Box 186
St Peter Port 1 Le Marchant Street
Guernsey, GY1 4NA St Peter Port
Guernsey, GY1 4HP
Investment Manager: U.S. Counsel:
Laurus Capital Management, LLC Alston & Bird LLP
875 Third Avenue, 3(rd) Floor 90 Park Avenue
New York, NY 10022 New York, NY 10016-1387
USA USA
Manager: Bankers:
PSource Capital Guernsey Limited Investec Specialist Private Bank
Sarnia House Glategny Court,
Le Truchot Glategny Esplanade,
St Peter Port St Peter Port,
Guernsey, GY1 4NA Guernsey, GY1 3LP
Until 31 July 2012 Effective 21 February 2012
Investment Consultant Promoter Custodian:
& Manager: Wells Fargo Bank
PSource Capital Limited 45 Broadway,14th Floor
126 Jermyn Street New York, NY 10006
London, SW1Y 4UJ USA
Manager - effective 31 July 2012
Independent Valuation Consultant: Registrar:
MountainView IPS (formerly Clayton Capita Registrars (Guernsey) Limited
IPS Corporation) Mont Crevelt House
999 18(th) Street Bulwer Avenue
Suite 1001 St Sampson
Denver, Colorado 80202 Guernsey, GY2 4JN
USA
Clearing Broker: Executing Broker:
Albert Fried & Company, LLC GP Nurmenkari Inc.
45 Broadway, 24th Floor 6 East 39(th) Street
New York, NY 10006 New York, NY 10016
USA USA
Financial Public Relations:
Weber Shandwick Financial
Fox Court
14 Gray's Inn Road
London, WC1X 8WS
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Directors
The Directors are responsible for the determination of PSource
Structured Debt Limited's (the "Group" or "Company" or "PSD")
investment policy and have overall responsibility for the Group's
activities. The Directors have put in place procedures to ensure
that the Group meets current corporate governance requirements.
The Directors of the Company, all of whom are non-executive and
who, apart from Mr Appavoo, are entirely independent of the
Manager, the Investment Manager and the Investment Consultant,
are:
William Scott, Chairman
William Scott was from 2003 to 2004 Senior Vice President with
the Financial Risk Management Group, a leading specialist manager
of funds of hedge funds. From 1989 to 2002 he worked at Rea
Brothers (subsequently part of Close Brothers) as an investment
manager specialising in fixed income portfolios and latterly in
private banking where he was a director of Close Bank Guernsey
Limited. Prior to this he was an equity sector manager with a large
public sector pension fund. He holds a number of non-executive
directorships of listed companies including AcenciA Debt Strategies
Limited and a number of funds managed by the Financial Risk
Management group where he is Chairman of the Audit, Risk Management
and Control Committee. He is also a director of several other
investment management and property companies. He is a chartered
accountant with over 25 years' experience in the funds sector. He
is a resident of Guernsey.
Soondra Appavoo
Soondra Appavoo is managing director of PSource Capital Limited
and director of PSource Capital Guernsey Limited. He has 18 years
experience in the investment industry, including 4 years as
director and managing director of PSolve Alternative Investments,
the fund of hedge fund business of Punter Southall Group. He was
formerly a director at UBS Warburg investment banking and is a
chartered accountant. Mr Appavoo holds an MA in Natural Sciences
and MBA with Distinction, both from the University of Oxford. He is
the sole representative of the Manager on the Board.
Peter Niven
Peter Niven, is a consultant with Guernsey Finance, the
promotional agency for the island's finance industry
internationally. He has over 36 years experience in the financial
services market in both the UK, offshore and internationally having
worked in a number of senior positions in the Lloyds TSB Group
until his retirement in 2004. He is also a non executive director
of several Guernsey based financial services companies listed on
the main London Stock Exchange together with a captive insurance
protected cell company. Mr Niven is a Fellow of the Chartered
Institute of Bankers and a Chartered Director.
Tim Jenkinson
Tim Jenkinson is Professor of Finance and Director of the
Private Equity Institute at the Oxford Saïd Business School. He is
also Chairman of the economic consulting firm Oxera. He is an
expert on corporate finance, in particular initial public
offerings, private equity and the cost of capital, and has
consulted for a wide range of companies and regulatory bodies. He
has written widely on finance and economics and his work has been
published in books and leading international journals. He initially
studied economics as an undergraduate at Cambridge University,
before going as a Thouron Fellow to the University of Pennsylvania,
where he obtained a Masters in Economics. He then returned to the
UK and obtained a DPhil in Economics from Oxford.
Keith Dorrian
Keith Dorrian has over 30 years experience in the offshore
finance industry. Joining Manufacturers Hanover in 1973 he moved to
First National Bank of Chicago in 1984. In 1989 he joined ANZ Bank
(Guernsey) where as a director of the bank and fund management
company he was closely involved in the banking and fund management
services of the group. He took up the position of Manager Corporate
Clients in Bank of Bermuda Guernsey in 1999 and was appointed Head
of Global Fund Services and Managing Director of the bank's
Guernsey fund administration company in 2001 retiring on 31
December 2003. He is currently a director of a number of funds and
fund management companies and holds the Institute of Directors
Diploma in Company Direction. He is a resident of Guernsey.
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Financial Calendar
Annual Report and Accounts sent to shareholders by 30 September 2012.
Annual General Meeting to be held on 6 November 2012.
Interim Report and Accounts sent to shareholders by 28 February 2013.
Investment Objective and Policy effective from 16 May 2012
The Company will be managed with a view to realising the
existing investments within its Portfolio in an orderly and timely
manner (such realisations to be effected in such manner as the
Investment Manager may determine, acting in its discretion under
the control and supervision of the Board) and return the proceeds
of such realisations to shareholders at such times and from time to
time and in such manner as the Board may in its absolute discretion
determine.
The Company will not make any new investments, but may at the
Board's discretion invest in or advance additional funds to or
otherwise participate in the financial restructuring of companies
in which the Company has existing Investments at the Restatement
Date (11 April 2012) and to use its discretion to hold cash or
short-term money market instruments from time to time for such
purposes as the Board determines appropriate, including for the
payment of dividends, the meeting of expenses, and the funding of
share buybacks. Cash will be held in accounts with institutions
which are rated BBB (or above) by Standard & Poor's or an
equivalent rating by another reputable agency (or wholly owned
subsidiary of such institutions).
Investment Objective and Policy effective to 16 May 2012
The Group's original investment objective, as set our in the
prospectus, was to seek to provide a total return to shareholders
of 10-15 per cent per annum over a rolling 3-year period with
annual standard deviation of less than 5 per cent.
The Group's investment policy was to invest in a diversified
portfolio of asset backed loans and debt made predominantly to, and
equity warrants and similar instruments issued predominately by,
publicly traded small and micro-cap companies in the US. The exact
number of assets and strategies in which the Group invested may
have varied over time but the Directors expected that the Group
would have been invested at all times in a minimum of 30 underlying
companies, at time of investment.
Summary Information
There are 59,564,681 (30 June 2011: 59,564,681) Ordinary Shares
in issue and the NAV per Ordinary Share at 30 June 2012 was
US$0.7028 (30 June 2011: US$1.6562). The Company listed on 3 August
2007 with an initial NAV per Ordinary Share after launch costs of
97.75p. No dividends have been declared in respect of the year
ended 30 June 2012 (year ended 30 June 2011: zero pence per
Ordinary Share).
As at 30 June 2012, the portfolio which comprised 19 companies
(30 June 2011: 30), represented 99.83% of Net Asset Value (30 June
2011: 107.60%). The maximum position in any company was 68.63%,
excluding accrued interest, of the portfolio (30 June 2011:
76.47%).
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Summary Information, continued
Monthly total return performance, published NAV and dividends
declared since inception is set out below:
5 June
2007
to
30 June Financial
2008 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
---------- ----- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (p) 97.37 98.53 100.17 102.13 103.81 103.13 105.06 107.21 107.54 109.40 110.19 -
Returns
(%) -0.38 1.19 2.49 1.95 1.64 0.55 1.87 2.05 1.49 1.73 0.72 16.37
Dividend
(p) - - 0.8 - - 1.25 - - 1.25 - - 3.30
1 July
2008
to
30 June Financial
2009 Jul Aug Sep Oct Nov Dec Jan* Feb Mar Apr May Jun YTD
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (p) 110.48 113.17 113.20 110.78 105.49 105.88 - - - - - - -
NAV (c)* - - - - - - 162.22 153.71 158.24 160.08 166.10 168.85 -
Returns
(%) 1.41 2.43 0.03 -2.14 -4.78 0.37 4.99 -5.25 2.95 1.16 3.76 1.66 6.20
Dividend
(p) 1.25 - - - - - - - - - - - 1.25
1 July
2009
to
30 June Financial
2010 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (c) 171.16 170.94 170.09 172.59 179.84 188.30 199.31 199.10 202.62 198.52 193.41 189.22 -
Returns
(%) 1.37 -0.13 -0.50 1.47 4.20 4.70 5.85 -0.11 1.77 -2.02 -2.57 -2.17 12.06
Dividend
(c) - - - - - - - - - - - - -
* On 30 January 2009, a special resolution was passed to convert
the issued Sterling Shares into US Dollar Shares in accordance with
article 3.12 of the Company's articles of association at an
exchange rate of US$1.4593/GBP. With effect from this date the
performance of the Company is measured in US Dollars.
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Summary Information, continued
1 July
2010
to
30 June Financial
2011 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (c) 187.02 179.00 180.93 182.23 181.83 179.47 177.73 176.04 174.38 171.37 170.88 165.62 -
Returns
(%) -1.16 -4.29 1.08 0.72 -0.22 -1.30 -0.97 -0.95 -0.94 -1.73 -0.29 -3.08 -12.48
Dividend
(c) - - - - - - - - - - - -
1 July
2011
to
30 June Financial
2012 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun* YTD
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
NAV (c) 164.24 162.67 161.78 161.15 159.18 124.50 127.33 126.66 125.32 124.83 124.35 72.45 -
Returns
(%) -0.83 -0.96 -0.55 -0.39 -1.22 -21.79 2.27 -0.53 -1.06 -0.39 -0.38 -41.74 -56.26
Dividend
(c) - - - - - - - - - - - - -
1 July 2012
to
30 June Financial
2013 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD
------------ ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
NAV (c) 72.63 -
Returns
(%) 0.25 -
Dividend
(c) - -
-- Total net return since inception as at 30 June 2012 in
reporting currency -46.98%
-- Total net return since inception as at 30 June 2012 in
reporting currency (annualised) -12.11%
-- Annualised standard deviation (volatility) 22.60%
*see the notes to the financial statements for an explanation as
to the difference between the 30 June 2012 announced NAV compared
to the NAV disclosed in the financial statements.
PSOURCE STRUCTURED DEBT LIMITED
Company Information, continued
Summary Information, continued
Total Expense Ratio:
Year end 30 June 2012 Year end 30 June 2011
Expense Type: % of Average Net Assets % of Average Net Assets
------------------------ ------------------------
Net operating expenses* 4.14 3.76
Ongoing Charge Figure** 4.14 3.76
======================== ========================
*Net operating expenses are the costs of the Group excluding
capital gains and losses, and costs associated with investment
transactions.
**The Total Expense Ratio represents total operating expenses of
the Group, expressed as a percentage of average net assets during
the accounting year.
PSOURCE STRUCTURED DEBT LIMITED
Chairman's Statement
Year end 30 June 2012
Since our Interim Report for the half year to 31 December 2011
was published in February, a number of notable developments have
occurred. First among these was that shareholders voted
overwhelmingly in favour of proposals which put the Company into a
managed wind down. As part of these proposals, significant cost
savings were also put into place with the Investment Manager,
Manager, Board and other service providers all agreeing to reduce
their charges during the wind down period.
The second was that although our largest holding, Parabel
(formerly PetroAlgae), continued to make significant commercial
progress as further discussed below, in Note 17 to these financial
statements, and in the Analysis of Significant Investments on pages
49 to 52, the market in US IPOs for companies of its nature remains
extremely subdued. It is not at all clear to the Board when the IPO
market will revert to its historical levels of activity and in
particular whether that will be within an acceptable timeframe for
our wind-down. Although an IPO clearly remains our preferred
option, it may be that our exit will be through some form of merger
and acquisition activity or trade sale process rather than an IPO.
We have accordingly further reduced our carrying value to reflect
this changing reality. This reduction in value was incorporated in
our 30 June 2012 Net Asset Value released on 23 August 2012.
The third matter of significance to shareholders is that
progress on the realisation of other positions has been
disappointing to say the least. All of our material holdings are or
have been the subject of sales processes during the period. In the
first half of the year, shareholders will recall that our holding
in Sentinel Technologies was sold at a slight premium to carrying
value, realising US$5.6 million which allowed our bank borrowings
to be completely extinguished and leaving approximately US$1.1
million in positive cash balances. In the second half of the year,
no substantial sales were consummated. Several have proceeded to
late stages but have fallen through principally as a result of the
potential acquirer's difficulty in arranging third party finance on
acceptable terms.
This presents a challenge to the Board and the Manager on two
fronts: first to balance the optimisation of sales proceeds through
an orderly disposal process rather than a fire sale and second to
do this within an acceptable time frame given that, even after the
cost reductions put in place post the approval of the proposals at
the EGM referred to above, the PSD structure is still burning cash
at a rate in excess of US$100,000 per month.
The fourth material development follows from the third: the lack
of substantial disposals has meant that the free cash balances
available to PSD after the Sentinel disposal were substantially
eroded by the running expenses of the structure and expenses
associated with the reconstruction proposals circular. By mid
September this year, cash was down to very low levels and the Board
took the difficult but necessary decision to sell our warrant
holding in Biodelivery Sciences for US$709,000. On one level, this
is extremely frustrating as Biodelivery common shares on the OTC
market have been strong performers of late, taking our warrant
holding from being out-of the-money to having an intrinsic value on
exercise broadly equivalent to the level at which we sold. PSD has
therefore given up the time value premium in the warrant valuation
associated with the anticipation of additional future gains and
reduced holding costs as compared to the common stock but against
that we have secured the funding of PSD through to the spring of
2013.
Under our established accounting policies, the Biodelivery
holding was valued at US$1.23 million in the 30 June 2012 Net Asset
Value released on 23 August 2012.
As PSD is now in wind-down, the Board has considered whether the
"going concern" basis of accounting remains appropriate. We have
concluded that as we are actively seeking to dispose of all
holdings in an orderly manner, it would be more appropriate to
prepare these accounts on a break-up basis and to value the assets
accordingly. The total effect of this change of basis and including
an adjustment in respect of the post year end disposal of
Biodelivery is US$1.23 million or 2.17 US cents per PSD share. A
reconciliation of our previously published 30 June 2012 Net Asset
Value released on 23 August 2012 and that prepared on a break-up
basis in these financial statements is given in Note 18 on page
48.
Review of the portfolio
Our portfolio, post the Biodelivery disposal, broadly consists
of: Parabel, three holdings valued at US$10.9 million in aggregate,
three other significant holdings and 11 smaller positions, none of
which is individually material. These are more fully described in
the unaudited Analysis of Significant Investments set out on page
49.
PSOURCE STRUCTURED DEBT LIMITED
Chairman's Statement, continued
Year end 30 June 2012
Review of the portfolio, continued
As Parabel may be the subject of an IPO in the near future and
as we would be likely vendors in such a process, we are subject to
certain legal and regulatory restrictions in what we can say about
Parabel and its prospects which broadly limit us to what Parabel
has said in public. Parabel has made significant commercial
progress during the year. During the course of the 12 months period
of these financial statements, Parabel and its customers have built
test facilities in China, Indonesia, Chile, Ecuador and Suriname
and Parabel has received certain initial fee income, as set out in
its SEC filings. This represents a significant move forward in the
commercialisation of the company's technology.
Further detail on Parabel is set out on pages 49 to 52 and our
valuation methodology is described in Note 17.
With the exception of North Texas Steel which in essence is a
real estate asset in the form of a former fabrication yard and
which is wholly owned by PSD, our remaining investments, including
Parabel, are minority participations in private securities which
are owned jointly by PSD and other funds managed or advised by the
Investment Manager. Our ability to achieve successful exits at a
reasonable valuation will depend on the Investment Manager
achieving exits on the total position including both PSD's portion
and those of the other funds which are also generally in wind-down
or liquidation.
NAV Performance
The NAV has reduced by 57.6% during the year and was 70.28 US
cents per PSD share or 44.75p/share (US$41.9m in total) at the end
of the year. This is mainly as a consequence of the write down of
Parabel, discussed above. The Board is aware that this remains
significantly in excess of the Company's share price, which has
fallen from 31.25p to 12p during the year.
We also recognise that realising this reduced NAV remains
uncertain and is dependent on a number of factors including stock
market and M&A market conditions.
Cash flows and bank position
The portfolio has generated operating cash inflows of US$8.08m
(US$8.93m for the year ended 30 June 2011). The most significant
component of this was the Company's disposal of its holding in
Sentinel Technologies at a small premium to NAV in November
2011.
The Company had a small cash balance of approximately US$293,808
at 30 June 2012.
Following the extinguishing of the debt balance with Lloyds, the
Company moved its banking to Investec Specialist Private Bank. The
Company has no debt or overdraft facility.
Costs
As part of the restructuring, the Board has acted to reduce
costs. In particular:
-- The Manager and Investment Manager have agreed to write down
the performance fee creditor by 25% (US$1.4m). The remaining
creditor will be payable only if Parabel is sold or IPO'd on a
major exchange. If no such event occurs, the creditor may be
satisfied by a transfer of some or all of the Parabel holding.
-- The annual management fee percentage will reduce from 2% to
1.25% from 1 April 2013. From that date, there will be no notice
period under the management and investment management
agreements.
-- Reduced the aggregate Directors' fees payable in the year
ended 31 March 2013 by 37.4% to GBP67,000.
The aggregate impact of these changes (together with the
reduction in NAV) is to reduce the projected costs in 2012/13 to
US$1.25m from US$3.13m in 2011/12.
PSOURCE STRUCTURED DEBT LIMITED
Chairman's Statement, continued
Year end 30 June 2012
Winding up of the Company
The proposals passed by shareholders in May this year put the
Company into formal wind down. It also achieved significant cost
savings. However, the return of capital to shareholders remains
dependent upon exit processes.
The Board is committed to achieving the best value possible for
shareholders in as timely a manner as possible. This remains a
difficult task in challenging markets. The Board and Manager are
investigating options to put the Company into liquidation at an
appropriate point; the timing of this will depend on the ongoing
progress of the portfolio realisation process. We intend consult
major shareholders and report further on this process by 31 March
2013.
William Scott (Chairman)
Date: 27 September 2012
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report
Year ended 30 June 2012
The Directors of PSource Structured Debt Limited (the "Company")
present their audited annual report and consolidated financial
statements for the year ended 30 June 2012.
The Directors submit their Report together with the Group's
Consolidated Statement of Financial Position, the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows and the
accompanying related notes for the year ended 30 June 2012, which
have been prepared in accordance with International Financial
Reporting Standards, in accordance with any relevant enactment for
the time being in force, and are in agreement with the accounting
records, which have been kept in accordance with Section 238 of the
Companies (Guernsey) Law, 2008.
The Company
The Company is a closed-ended investment company, incorporated
and registered with limited liability in Guernsey on 5 June 2007 in
accordance with The Control of Borrowing (Bailiwick of Guernsey)
Ordinance, 1959 to 2003 as amended. The Company commenced business
on 3 August 2007 when the initial 30,000,000 Ordinary Shares of the
Company were admitted to the Official List of the London Stock
Exchange. The Company is a Guernsey Authorised Closed-ended
Investment Scheme and is subject to the Authorised Closed-ended
Investment Scheme Rules 2008.
The Group also includes PSD SPV 2, Inc ("SPV2" or "Subsidiary")
a wholly owned subsidiary of the Company. SPV2 was incorporated in
the State of Delaware on 2 April 2009 and commenced trading on 1
May 2009. SPV2 was established to hold certain US assets. For
reasons of tax efficiency, newly originated direct investments and
co-investments after that time were made through this
Subsidiary.
Any references to Company relate to PSource Structured Debt
Limited whereas references to the Group include PSource Structured
Debt Limited and SPV2.
The Winding Down and Going Concern
The Board recognised in September 2011 that a continuation of
the Company in its current form was not in the interests of
Shareholders and committed to put alternative proposals to
Shareholders by 31 March 2012 for the Winding Down, changes to the
Investment Objective and Policy, and amendments to the Investment
Management Agreement and the Management Agreement. At an
Extraordinary General Meeting held on 16 May 2012, shareholders
duly passed the resolution implementing these proposals.
During the Winding Down, the Company will continue actively to
seek the realisation of Investments. The timing and value of such
realisations will be subject to asset-specific factors and to
market conditions. Specifically the Company's ability to realise
maximum value for Shareholders will be dependent on a successful
exit of its investment in Parabel.
The potential timing and value realisable from Parabel and other
investments will be regularly monitored by the Board and
Shareholders will be informed of all material developments through
a Company announcement to a RNS.
Shareholders should expect that, under the terms of the Winding
Down, the Board will be committed to distributing as much of the
available cash as quickly as reasonably practicable, having regard
to cost efficiency and working capital requirements. However, in
order to minimise the administrative burden and costs, whilst
returns of cash are expected to be made regularly, this will not
necessarily be as soon as cash becomes available.
The Board currently envisages returning capital to Shareholders
by way of dividends, share buybacks or tender offers. Details of
any such proposals and any resolutions required to implement them
will be circulated by the Board as and when it considers, at its
sole discretion, that the Company has sufficient funds to return
capital to shareholders.
No Liquidator has been appointed and the Portfolio will continue
to be managed by the Investment Manager (under the control and
supervision of the Board).
In light of the above the Board has resolved to prepare the
financial statements on the basis that the Company is no longer a
going concern. The financial statements have been prepared on a
break up basis. The effect of this is explained in Note 2 to the
financial statements.
Results and Dividends
The results for the year are set out in the Consolidated
Statement of Comprehensive Income on page 22.
For the year ended 30 June 2012, no dividend has been declared
or paid (30 June 2011: Nil pence per Ordinary Share).
Measuring Performance
Details of the performance of the Company's net asset value can
be found in the Summary Information on pages 3-6.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Directors
The Directors, listed on page 1, are all non-executive Directors
and, with the exception of Mr Appavoo, independent. All the
Directors were appointed on registration of the Company, with the
exception of Mr Dorrian who was appointed on 30 July 2008. Mr
Niven, Mr Dorrian and Mr Appavoo were re-elected on 31 October
2011.
Manager
Under the terms of the Management Agreement dated 31 July 2007,
between the Company and PSource Capital Guernsey Limited (the
"Manager"), the Manager is responsible for providing the Company
with management services.
The Manager is a company domiciled and incorporated in Guernsey
with company registration number 46511. The Manager is a private
company limited by shares which was incorporated on 2 March 2007
and operates under The Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended. The Manager is regulated by the
Guernsey Financial Services Commission.
With the Board's approval, the Manager is acting as an advisor
to Parabel (formerly PetroAlgae) in its proposed IPO.
Effective from 16 May 2012, the annual management fee is paid at
the rate of 2 per cent per annum of NAV up to 31 March 2013 and
will thereafter drop to a rate of 1.25 per cent per annum of NAV.
The management fee will continue to be accrued daily and calculated
and paid monthly.
Investment Manager
Effective from 16 May 2012, the management of the Portfolio by
Laurus Capital Management, LLC (the "Investment Manager") was
changed so that the Investment Manager will (i) not make any new
investments (other than additional funds advanced to or other
participation in the financial restructuring of the Investments,
and cash and near cash equivalent securities) and (ii) will manage
the existing investments with a view to realising such investments
in an orderly and timely manner.
The Investment Manager is a New York based investment adviser
registered, as of January 2006, with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended.
The Investment Manager was founded on 1 December 2000, is
incorporated in the state of Delaware, USA, under registration
number 3323351 as a limited liability company. The co-founders and
fund managers of the Investment Manager are Eugene and David
Grin.
As at 30 June 2012, the Investment Manager held 500,000 (30 June
2011: 500,000) Ordinary Shares in the Company.
The Board was notified late in 2010 that the Investment Manager
would begin winding down its business. Having visited the
Investment Manager and assessed their situation following a
reduction in staff and assets under management, it is the belief of
the Board that their actions to date have not restricted the
ability of the Investment Manager to meet its obligations to the
Company in managing current portfolio investments.
The Investment Management Agreement may be terminated by either
party by giving to the other written notice to be effective on 31
March 2013, or at any time after 31 March 2013 notice in writing
will take immediate effect, or earlier by either party upon certain
breaches of the Investment Management Agreement or the insolvency
or receivership of either party or if the Investment Manager ceases
to be qualified to act as such.
Investment Consultant
The Manager has appointed PSource Capital Limited as Investment
Consultant under the Investment Consultancy Agreement dated 31 July
2007, between the Manager and PSource Capital Limited.
The Investment Consultant is a wholly-owned subsidiary of the
Manager and is an appointed representative of PSolve Investments
Limited which is authorised and regulated in the UK by the
Financial Services Authority.
The Investment Consultant was incorporated on 21 August 2006.
The role of the Investment Consultant is, among other things, to
oversee the management of the Group's investments and deal with
investor relations.
The Investment Consultant will carry out its duties in
accordance with the Investment Consultancy Agreement.
The Investment Consultancy Agreement may be terminated by either
party giving not less than twelve months' notice in writing, or
earlier by either party upon certain breaches of the Investment
Consultancy Agreement or the insolvency or receivership of
either.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Administrator
Praxis Fund Services Limited has been appointed as Administrator
to the Group under the Administration Agreement dated 31 July 2007.
The Administrator has been appointed to provide day to day
administration and secretarial services to the Group.
The Administration Agreement may be terminated by either party
on not less than six months written notice, or earlier upon certain
breaches of the Administration Agreement or the insolvency or
receivership of either party or if the Administrator ceases to be
qualified to act as such.
Loan Notes, Warrants and Options Custodian
On 8 March 2010, Wells Fargo Bank was appointed as Custodian to
the Group under the Custodian Agreement. Under this agreement the
Custodian has agreed to provide the Group with custody services
relating to loan notes, warrants and options.
The Custodian Agreement may be terminated by either party giving
not less that ninety (90) days' prior written notice to the other
party.
Equity Custodian & Broker
Effective from 26 November 2010, the Company migrated its
custody and clearing services for its short term trading assets
from Fidelity Prime Services to Albert Fried & Company,
LLC.
Effective 1 December 2010, the Company migrated its trading
services from Fidelity to GP Nurmenkari Inc.
Registrar
Capita Registrars (Guernsey) Limited has been appointed to act
as Registrar of the Company under the Registrar Agreement dated 31
July 2007. The Registrar has been appointed to provide electronic
registration and settlement services through CREST. The Registrar
Agreement may be terminated by either the Company or the Registrar
giving not less than three months' notice in writing or otherwise
in circumstances where the Company or the Registrar goes into
liquidation or where either party commits and fails to remedy a
material breach of the Registrar Agreement. The Registrar Agreement
will also terminate if the Registrar ceases to hold a required
licence, consent, permit or registration. The Registrar Agreement
contains an indemnity in favour of the Registrar against claims by
third parties except to the extent that the claim arises from the
fraud, negligence or willful default of the Registrar or a breach
by the Registrar of the Registrar Agreement or the Law.
Independent Valuation Consultant
MountainView IPS (formerly Clayton IPS Corporation)
("MountainView") has been appointed as Independent Valuation
Consultant under the Independent Valuation Consultant's Agreement
dated 31 July 2007 (the "Valuation Agreement") between the Company
and MountainView. MountainView has agreed to provide a quarterly
valuation of the assets of the Group. For this service MountainView
is entitled to a fee US$12,500 for each quarterly valuation.
The Valuation Agreement term is for a period of one year (the
"Term") and will then renew for successive one-month terms (each a
"Renewal Term").
The Valuation Agreement may be terminated after the first 180
days of the Term of the Valuation Agreement by either party on not
less than thirty days written notice, or with respect to a Renewal
Term, by either party giving written notice no less than ten days
prior to the end of the then-current Renewal Term. If either party
materially breaches the Valuation Agreement and such breach is
either incapable of cure or not cured within ten business days of
receiving written notice of such breach from the non-breaching
party, the non-breaching party may terminate the Valuation
Agreement.
Protective Notice
The Company served protective notice of termination to the
Administrator, Registrar and Broker during March 2012.
Corporate Governance
Compliance
Under The UK Listing Regime the Company is a premium listed
entity. The UK Listing Authority requires all overseas companies
with a premium listing (such as the Company), to comply with the
provisions of the UK Corporate Governance Code issued by the
Financial Reporting Council in June 2010 and applicable for
accounting periods beginning on or after 29 June 2010 (the "Code"),
or explain areas with which it has not complied.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Corporate Governance, continued
Compliance, continued
The Board places a high degree of importance on maintaining high
standards of corporate governance and has also considered the
principles and recommendations of the AIC Code of Corporate
Governance ("AIC Code") by reference to the AIC Corporate
Governance Guide for investment companies ("AIC Guide"). The AIC
Code, as explained in the AIC Guide, addresses all the principles
set out in the Code. The Board considers that reporting against the
principles and recommendations of the AIC Code, and by reference to
the AIC Guide (which incorporates the Code), will provide better
information to shareholders.
The Board has also noted the Code of Corporate Governance issued
by the Guernsey Financial Services Commission ("Guernsey Code")
which became effective on 1 January 2012. The Guernsey Code
provides a governance framework for GFSC licensed entities,
authorised and registered collective investment schemes and
replaces the GFSC's Guidance on Corporate Governance in the Finance
Sector. Companies reporting against the Code or the AICCode are
deemed to satisfy the provisions of the Guernsey Code.
As at 30 June 2012, the Company complied substantially with the
relevant provisions of the AIC Code and the Code (save with regard
to the following provisions listed below) and it is the intention
of the Board that the Company will comply with those provisions
throughout the year ending 30 June 2013:
-- The role of the chief executive: The Board considers that the
post of chief executive officer is not relevant for the Company as
this role has effectively been delegated by the Manager to the
Investment Consultant under the terms of the Investment Consultancy
Agreement.
-- The appointment of a Senior Independent Director: Given the
size and composition of the Board it is not felt necessary to
separate the roles of Chairman and Senior Independent Director. The
Board considers that all the independent Directors have different
qualities and areas of expertise on which they may lead where
issues arise and to whom concerns can be conveyed.
-- Executive directors' remuneration: As the Board has no
executive directors, it is not required to comply with the
principles of the Code in respect of executive directors'
remuneration and does not have a remuneration committee.
-- Internal audit function: The Company delegates to third
parties its day-to-day operations and has no employees. The Board
has determined that there is no requirement for the Company to have
its own internal audit function. The Directors consider annually
whether a function equivalent to an internal audit is needed and
will continue to monitor its systems of internal controls in order
to provide assurance that they operate as intended.
Chief Operating Decision Maker
The Board, as a whole, has been determined as constituting the
chief operating decision maker ("CODM") of the Group.
The Board is charged with setting the Group's investment
strategy in accordance with the Prospectus. Pursuant to the terms
set out in the Investment Management Agreement the Board have
delegated the day to day investment management of the Group to the
Investment Manager, however the Board retains the responsibility to
ensure that adequate resources of the Group are directed in
accordance with their decisions.
All investment recommendations made by the Investment Manager
are reviewed by the Board for compliance with the policies and
legal responsibilities of the Directors and the provisions of the
Prospectus. Only after such reviews have been satisfactorily
conducted will the Board approve the investment recommendations.
The Board therefore retains full responsibility for the allocation
decisions made on an ongoing basis. Pursuant to the terms of the
Investment Management Agreement, the Investment Manager was obliged
to comply with the investment strategy detailed in the Prospectus
and, since 16 May 2012, with the new realisation strategy as
resolved by the Company's shareholders. This strategy sets out
guidelines for proposed investments and the procedures that the
Investment Manager is required to follow in dealing with the
Group's assets. These guidelines and procedures are regularly
reviewed and can be altered by the Board if it considers it
appropriate to do so.
The Directors regularly monitor the corporate strategy, dividend
policy and corporate governance issues and meet at least once a
quarter to direct and monitor the business of the Company. This
includes a review of the performance and risk profile of the
Company and to monitor compliance with the Company's objectives and
legislative developments. Advisers to the Company provide the Board
with relevant and timely information within the Company's sphere of
activity to enable the Directors to make informed decisions.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Corporate Governance, continued
Board Committees
Audit Committee
An Audit Committee, comprising the Directors apart from Mr
Appavoo (who is a director of the Manager and a director of the
Investment Consultant, and therefore not considered to be
independent), has been formed to ensure that the Group maintains
the highest standards of integrity in financial reporting and
internal control. Mr Niven acts as chairman of the Committee. The
Committee, which meets at least twice a year, operates within
clearly defined terms of reference and provides a forum through
which the Group's auditors may report to the Board.
The objectivity of the auditors is reviewed by the Committee
which also reviews the terms under which the external auditors are
appointed to perform non-audit services. The Committee reviews the
scope and results of the audit, its cost effectiveness and the
independence and objectivity of the auditors, with particular
regard to non-audit fees. Such fees amounted to $33,604 (2011:
$nil) for the Company for the year ended 30 June 2012 and related
to a independent audit report on the valuation of Parabel in the
unaudited interim financial statements for period ended 31 December
2011. Notwithstanding such services the Committee considers KPMG
Channel Islands Limited to be independent of the Company and that
the provision of such non-audit services is not a threat to the
objectivity and independence of the conduct of the audit.
Management Engagement Committee
A Management Engagement Committee, comprising the Independent
Directors, has been formed to ensure that the terms of the
Management Agreement are competitive, fair and reasonable. The
Committee's duties also includes reviewing and making
recommendations on any proposed amendment or material breach of the
Management Agreement and reviewing the performance and suitability
of the Investment Manager in relation to the provision of
management services to the Group. Mr Scott acts as chairman of the
Committee. Please refer to the Investment Manager section of this
report for further details on the current suitability of the
Investment Manager in relation to the provision of management
services to the Group.
Nominations Committee
A Nominations Committee, comprising the Independent Directors,
has been formed to consider and make recommendations to the Board
on its composition and balance. Although the chairman of the Board
may be the chairman of the Committee, in the event that the
Committee considers the appointment of a successor to the chairman
of the Board, the Committee shall elect a chairman other than the
chairman of the Board. Mr Scott acts as chairman of the Committee.
The Committee shall meet at such times as it considers expedient to
carry out its duties and will operate within clearly defined terms
of reference.
Remuneration Committee
Because the Board consists entirely of non-executive directors
it is not considered necessary to have a Remuneration Committee and
the Board as a whole will fulfill the functions of a Remuneration
Committee.
On an annual basis the Chairman leads an evaluation of the Board
and its individual Directors, with the other independent Directors
evaluating the Chairman's performance. In addition, the Board as a
whole evaluates its own performance and that of its committees.
During the evaluation process the Board members confirmed that they
are able to devote such time as is necessary to discharge their
duties as Directors of the Company and indeed have sufficient
capacity to cope with any reasonable expectation of increased needs
should circumstances require it from time to time.
Independence of Directors
The Board consists of five members, all of whom are
non-executive. With the exception of Soondra Appavoo all other
Directors of the Company are independent of the Company's Manager,
PSource Capital Guernsey Limited. All Directors are independent of
the Investment Manager, Laurus Capital Management, LLC, and free of
any business or other relationship that could influence their
ability to exercise independent judgement. Mr Appavoo is a director
of the Investment Consultant, PSource Capital Limited and of the
Company's Manager. The Board also considers it an important
principle that a senior member of the Investment Consultant bears
personal responsibility as a Director of the Company. Mr Appavoo
does not take part in discussing any contractual arrangements
between the Board and the Manager or the Investment Consultant.
The Directors recognise the importance of succession planning
for Company boards and review the composition of the Board
annually. However the Board is of the view that length of service
will not necessarily compromise the independence or contribution of
Directors of an investment company where continuity and experience
can be a benefit to the Board. Furthermore, the Board agrees with
the view expressed in the AIC Code that long serving Directors
should not be prevented from forming part of an independent
majority or from acting as Chairman. Consequently no limit has been
imposed on the overall length of service.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Corporate Governance, continued
Independence of Directors, continued
The Directors are initially appointed by the Board, retire, and
seek reappointment at the next annual general meeting. Thereafter,
Directors retire by rotation, and seek reappointment at the annual
general meeting. As a non-independent Director Mr Appavoo stands
for re-election annually.
The Board has due regard for the benefits of greater diversity,
including gender, and understands that the wide array of
perspectives resulting from such diversity promotes innovation and
business success.
The Nomination Committee, will consider candidates based on
merit and against objective criteria, in the context of the skills
and experience the Board as a whole requires in order to be
effective.
The Nomination Committee undertakes annually a performance
evaluation which includes, but is not limited to, the balance of
skills, experience, expertise and the extent to which these are
represented on the Board. In completing the evaluation the
Directors will also consider the level of diversity representation
on the Board.
Any aspects identified during the evaluation as being
unsatisfactory will be discussed at Board level and, where changes
are required, measurable objectives will be agreed in order to
monitor progress towards the achievement of these objectives.
The Directors believe that the Board has a balance of skills and
experience which enable it to provide effective strategic
leadership and proper governance of the Company. Information about
the Directors, including their relevant experience, can be found on
page 2.
The Board has contractually delegated to external agencies, the
management of the investment portfolio, the custodial services and
the day to day accounting and company secretarial requirements.
Each of these contracts was only entered into after proper
consideration by the Board of the quality and services offered.
Meetings and Committees
The table below, details the attendance at Board and Committee
meeting during the year:
Management
Board Engagement
Committee
----------------- -------------------- ---------------- ------------ ------------
Management Ad hoc Nominations
Audit Committee Committee
----------------- ----------- ------- ---------------- ------------ ------------
William Scott 4 3 3 1 1
----------------- ----------- ------- ---------------- ------------ ------------
Keith Dorrian 4 5 3 1 1
----------------- ----------- ------- ---------------- ------------ ------------
Peter Niven 4 5 3 1 1
----------------- ----------- ------- ---------------- ------------ ------------
Soondra Appavoo 4 1 - - -
----------------- ----------- ------- ---------------- ------------ ------------
Tim Jenkinson 4 1 3 1 1
----------------- ----------- ------- ---------------- ------------ ------------
Directors' Interests
The interests of the Directors who held office during the year,
and their families, are set out below:
30 June 2012 30 June 2011
Ordinary Shares Ordinary Shares
---------------- --------------------------
William Scott (Chairman) 50,000 50,000
Peter Niven 30,000 30,000
Soondra Appavoo 20,000 20,000
Tim Jenkinson 50,000 50,000
Keith Dorrian - -
No Director, other than those listed above, and no connected
person of any Director has any interest, the existence of which is
known to, or could with reasonable diligence be ascertained by that
Director, whether or not held through another party, in the share
capital of the Company.
Internal Controls
The Directors are responsible for overseeing the effectiveness
of the internal financial control systems of the Group, which are
designed to ensure proper accounting records are maintained, that
the financial information on which the business decisions are made
and which is issued for publication is reliable, and that the
assets of the Group are safeguarded. Such a system of internal
financial controls can only provide reasonable and not absolute
assurance against misstatement or loss.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Corporate Governance, continued
Internal Controls, continued
The Board has reviewed the Group's internal control procedures.
These internal controls are implemented by the Group's seven main
service providers, Laurus Capital Management, LLC, PSource Capital
Limited, Praxis Fund Services Limited, Wells Fargo Bank, GP
Nurmenkari Inc., Albert Fried & Company, LLC and Investec
Specialist Private Bank. The Audit Committee contacts each service
provider on an annual basis to seek confirmation that each service
provider had effective controls in place to control the risks
associated with the services that they are contracted to provide to
the Group. The Board is satisfied with the internal controls of the
Group.
The Directors meet on a quarterly basis ("Management" meetings
per the Meetings and Committees table) and at other unscheduled
times ("Ad hoc" meetings per the Meetings and Committees table)
when necessary to assess Group operations and the setting and
monitoring of investment strategy and investment performance. At
such meetings, the Board receives from the Manager, Investment
Manager and Investment Consultant a full report on the Group's
holdings and performance and considers the terms of transactions
with entities managed, advised or otherwise affiliated with the
Investment Manager. The Board gives directions to the Investment
Manager as to the investment objectives and limitations, and
receives reports from the Manager in relation to the financial
position of the Group and the custody of its assets.
Social, ethical and environmental concerns have been considered
by the Board. Whilst the Board does not consider it appropriate to
put social, ethical and environmental policies in place within an
investment company investing in financial instruments, they do
confirm that the Group does not have any investments that are
illegal or immoral. Furthermore at the date of this report the
Group's largest investment exposure is to Parabel which provides
renewable technology and solutions to address the global demand for
new economical sources of feed, food and fuel, which could
potentially be extremely beneficial for the environment.
The Board has considered non-financial areas of risk such as
disaster recovery and investment management staffing levels and
considers adequate arrangements to be in place.
Anti-bribery and Corruption
The Board acknowledges that the Company's international
operations may give rise to possible claims of bribery and
corruption. In consideration of the recently enacted UK Bribery
Act, at the date of this report the Board had conducted an
assessment of the perceived risks to the Company arising from
bribery and corruption to identify aspects of business which may be
improved to mitigate such risks. The Board has adopted a zero
tolerance policy towards bribery and has reiterated its commitment
to carry out business fairly, honestly and openly.
Shareholder Views
The Board regularly monitors the shareholder profile of the
Company. All shareholders have the opportunity, and are encouraged,
to attend the Company AGM at which members of the Board are
available in person to meet shareholders and answer questions. In
addition, the Company's Investment Consultant and Financial Adviser
and Stockbroker maintain regular contact with major shareholders
and report regularly to the Board on shareholder views.
Substantial Shareholdings
As at 29 August 2012, the Company was aware of the following
interests in the issued share capital of the Company that exceeded
3% of the issued share capital.
Number of Ordinary Percentage of Total
Shareholder Shares Held* Ordinary Shares Issued
Held
------------------------------- ------------------- ------------------------
Midas (inc Milton) 10,700,000 17.96%
------------------------------- ------------------- ------------------------
Wirral BC 7,449,586 12.51%
------------------------------- ------------------- ------------------------
SVM Asset Management 6,959,668 11.68%
------------------------------- ------------------- ------------------------
Ironsides Partners 6,123,173 10.28%
------------------------------- ------------------- ------------------------
Premier Asset Management 4,611,150 7.74%
------------------------------- ------------------- ------------------------
Collins Stewart, stockbrokers
(ND) 3,911,825 6.57%
------------------------------- ------------------- ------------------------
Brooks Macdonald Asset
Management 2,698,142 4.53%
------------------------------- ------------------- ------------------------
Berry Asset Management 2,445,940 4.11%
------------------------------- ------------------- ------------------------
* Based on the Shareholder register as at 29 August 2012.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Directors Statement
The Directors make the following statement:
-- so far as the Directors are aware, there is no relevant audit
information of which the Group's auditors are unaware; and
-- that all steps have been taken by the Directors to make
themselves aware of any relevant audit information and to establish
that the Group's auditors are aware of that information.
Statement of Directors' Responsibilities
The Directors are required by the Company (Guernsey) Law, 2008,
to prepare the financial statements for each financial period which
give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that period and are in
accordance with applicable laws. In preparing these financial
statements the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the financial statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business. As explained in Note 1, the Directors do not
believe that it is appropriate to prepare these financial
statements on a going concern basis.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008 and the Company's principal documents. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Dividend Policy
At inception, it was the Group's intention to pay an annual
dividend (paid gross quarterly) of not less than 5 pence (or its
equivalent in US Dollars) in its first year growing by 0.5 pence
(or its equivalent in US Dollars) per annum in its second and third
years. Although this was achieved in respect of the first
accounting period of the Group, a breach of the Group's banking
facilities led to the suspension of dividends during the current
and prior years.
Status of Taxation
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above mentioned Ordinance entails
payment by the Company of an annual fee of GBP600. It should be
noted, however, that interest and dividend income accruing from the
Company's investments may be subject to withholding tax in the
country of origin. With effect from 1 January 2008 the standard
rate of income tax for most companies in Guernsey is zero per cent
Tax Exempt status continues to exist and the Company has been
granted this status for 2011.
The Company has not suffered any withholding tax in the year (30
June 2011: US$nil).
The Company has received confirmation from HMRC that the managed
winding down will not bring the Company within the definition of an
offshore fund for the purposes of United Kingdom taxation. The
Directors have therefore been advised that the commencing of the
winding down and the availability of any share buybacks or tender
offers that the Directors may decided to implement as part of the
winding down should not result in the Company being an offshore
fund for the purposes of United Kingdom taxation and the provisions
of the Offshore Funds Rules should therefore not apply.
PSD SPV 2, Inc is a Delaware corporation and subject to US
taxation. As such, PSD SPV 2, Inc will suffer taxes on realised
capital gains and income generated by assets which it holds, to the
extent that pre-tax earnings are not offset by expenses and
realised losses. Moreover, as generated by a business wholly-owned
by the Company, distributions of pre-tax earnings of PSD SPV 2, Inc
to the Company (e.g. any interest payments on intercompany loans)
will likely be subject to a withholding tax.
To the extent permissible, the Company will seek to minimise the
income tax and withholding tax suffered, although for accounting
purposes, no benefits have been assumed. A 35% income tax liability
is accrued against any income and capital gains accrued by PSD SPV
2, Inc, and a 30% withholding tax liability is accrued against any
interest accruals related to intercompany loans between PSD SPV 2,
Inc and the Company. An accrued liability of US$46 (30 June 2011:
US$16,308 accrued asset) associated with income tax rebates and
withholding tax rebates related to PSD SPV 2, Inc has been made as
at 30 June 2012.
PSOURCE STRUCTURED DEBT LIMITED
Directors' Report, continued
Year ended 30 June 2012
Auditors
The auditors of the Company, KPMG Channel Islands Limited, have
expressed their willingness to continue in office and a resolution
giving authority to re-appoint them will be proposed at the
forthcoming Annual General Meeting.
Director: William Scott
Director: Peter Niven
Date: 27 September 2012
On behalf of the Board of Directors
PSOURCE STRUCTURED DEBT LIMITED
Responsibility Statement
We confirm that to the best of our knowledge and in accordance
with DTR 4.1.12R of the Disclosure and Transparency Rules:
a) The financial statements have been properly prepared in
accordance with International Financial Reporting Standards
("IFRS") and give a true and fair view of the financial position
and profit and loss of the Group as at and for the year ended 30
June 2012.
b) The annual report, which includes information detailed in the
Chairman's Statement, Directors' Report and Notes to financial
statements, provides a fair review of the development and
performance of the Group during the year; and includes a
description of the principal risks and uncertainties faced as at
and for the year ended 30 June 2012.
Director: William Scott
Director: Peter Niven
Date: 27 September 2012
On behalf of the Board of Directors
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF PSOURCE
STRUCTURED DEBT LIMITED
We have audited the Group financial statements (the "financial
statements") of PSource Structured Debt Limited (the "Company") for
the year ended 30 June 2012 which comprise the Consolidated
Statement of Financial Position, the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Changes in
Equity, the Consolidated Statement of Cash Flows and the related
notes. As described in Note 2(a)(iv) they have not been prepared on
a going concern basis. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards as issued by the
IASB.
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page 17, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board's (APB's) Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Board of Directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the
Directors' Report to identify material inconsistencies with the
audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Opinion on financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 30 June 2012 and of its deficit for the year then ended;
-- are in accordance with International Financial Reporting Standards as issued by the IASB; and
-- comply with the Companies (Guernsey) Law, 2008.
Emphasis of matter
We draw attention to Note 2(a)(iv) to the financial statements
which describes the break up basis of accounting and the impact of
the Group's ongoing cash flow needs on the realisable value of
investments. Our opinion is not qualified in respect of this
matter.
We draw attention to note 17 to the financial statements which
describes the risks and uncertainties related to the valuation of
the Group's investment in Petrotech Holdings Inc/Parabel Inc. Our
opinion is not qualified in respect of this matter.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Under the Under the Listing Rules we are required to review the
part of the Corporate Governance Statement relating to the Group's
compliance with the nine provisions of the UK Code of Corporate
Governance as specified for our review. We have nothing to report
in respect of our review.
Mark R Thompson
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
27 September 2012
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Financial Position
As at 30 June 2012
Notes 30 June 2012 30 June 2011
--------------------------------- ----- ------------ ------------
US$ US$
Investments 7&14
Fair value through profit and
loss 30,422,024 83,809,708
Held for trading 723,605 1,210,737
Loans and receivables 10,642,455 21,126,349
------------ ------------
Total investments 41,788,084 106,146,794
------------ ------------
Current assets
Cash and cash equivalents 8 293,808 280,038
Unsettled investment sales - 392,930
Other receivables 9 4,275,920 2,423,435
------------ ------------
4,569,728 3,096,403
------------ ------------
Current liabilities
Bank overdraft 8&11 - (790,281)
Other payables 10 (4,497,849) (5,935,327)
Loan 11 - (3,867,480)
------------ ------------
(4,497,849) (10,593,088)
------------ ------------
Net current assets/(liabilities) 71,879 (7,496,685)
------------ ------------
Total net assets 41,859,963 98,650,109
============
Represented by Shareholders'
equity:
Share Premium 12 47,512,742 47,512,742
Distributable reserve 12 42,793,973 42,793,973
Reserves (48,446,752) 8,343,394
Total Shareholders' equity 41,859,963 98,650,109
============ ============
Net asset value per Ordinary 13 US$0.7028 US$1.6562
Share
============ ============
The financial statements on pages 21 to 48 were approved at a
meeting of the Board of Directors held on
27 September 2012 and signed on its behalf by:
Director: William Scott
Director: Peter Niven
The accompanying notes form an integral part of these financial
statements.
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2012
Notes 30 June 2012 30 June 2011
----------------------------------------- ----- -------------- -------------
US$ US$
Revenue
Loan interest income 2,099,409 1,737,505
Bank interest 388 2,197
Fee income 29,400 18,125
Other income 201,558 1,165
Bad debt provision (14,595) (255,022)
Net losses on investments at fair
value through profit or loss 14 (53,460,071) (1,476,621)
Net losses on investments at amortised
cost (3,686,834) (10,129,073)
Net foreign exchange gains 1,849 7,926
-------------- -------------
Net investment deficit (54,828,896) (10,093,798)
-------------- -------------
Expenses
Management fee 4 (1,629,585) (2,115,297)
Performance fee write back 4 1,395,296 -
Directors' fees and expenses 5 (159,480) (179,424)
Administration fees 4 (218,649) (236,120)
Custodian fees 4 (25,779) (33,163)
Registrar fees 4 (27,432) (22,705)
Auditor's remuneration (76,334) (111,674)
Loan arrangement fees (288,309) (178,233)
Legal and professional fees (613,494) (588,459)
Independent valuation consultancy
fee (112,993) (119,176)
US Taxation (22,629) 14,870
Other expenses (57,965) (74,129)
-------------- -------------
Operating expenses before finance
costs (1,837,353) (3,643,510)
-------------- -------------
Net deficit from operations before
finance costs (56,666,249) (13,737,308)
-------------- -------------
Finance costs
Bank interest 11 (20,201) (45,662)
Loan interest 11 (103,696) (275,045)
Deficit after finance costs for
the year (56,790,146) (14,058,015)
Total comprehensive deficit for
the year (56,790,146) (14,058,015)
============== =============
Basic & diluted deficit per Ordinary 6 US$(0.9534) US$(0.2360)
Share
============== =============
The results for the current and prior years are derived from
continuing operations.
The accompanying notes form an integral part of these financial
statements.
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Changes in Equity
For the year ended 30 June 2012
30 June 2012
Share Distributable
Premium Reserve Reserves Total
------------------------ ---------- ------------- -------------- --------------
US$ US$ US$ US$
Balance brought forward 47,512,742 42,793,973 8,343,394 98,650,109
Total comprehensive
deficit for the year - - (56,790,146) (56,790,146)
Balance carried forward 47,512,742 42,793,973 (48,446,752) 41,859,963
========== ============= ============== ==============
30 June 2011
Share Distributable
Premium Reserve Reserves Total
------------------------ ---------- ------------- -------------- --------------
US$ US$ US$ US$
Balance brought forward 47,512,742 42,793,973 22,401,409 112,708,124
Total comprehensive
deficit for the year - - (14,058,015) (14,058,015)
Balance carried forward 47,512,742 42,793,973 8,343,394 98,650,109
========== ============= ============== ==============
The accompanying notes form an integral part of these financial
statements.
PSOURCE STRUCTURED DEBT LIMITED
Consolidated Statement of Cash Flows
For the year ended 30 June 2012
Notes 30 June 2012 30 June 2011
------------------------------------------- ----- ------------- -------------
US$ US$
Cash flows from operating activities
Loan interest received 267,605 996,894
Fee income received 29,400 18,125
Other income received 201,558 1,165
Operating expenses paid (3,287,377) (3,986,986)
Amounts paid for purchase of investments - (560,647)
Sale proceeds received from disposal
of investments 785,235 6,521,657
Amounts received on loan investments
repayments 6,797,060 1,390,476
------------- -------------
Net cash from operating activities 4,793,481 4,380,684
------------- -------------
Cash flows used in financing activities
Bank interest received 98 2,197
Bank interest paid (20,201) (45,662)
Loan interest paid (103,696) (296,660)
Loan liability repayments (3,867,480) (3,616,524)
Net cash used in financing activities (3,991,279) (3,956,649)
------------- -------------
Net increase in cash and cash
equivalents 802,202 424,035
Cash and cash equivalents, start
of year (510,243) (942,204)
Effect of exchange rate changes
during the year 1,849 7,926
------------- -------------
Cash and cash equivalents, end
of year 8 293,808 (510,243)
============= =============
Cash and cash equivalents comprise
the following amounts:
Bank deposits 293,808 280,038
Bank overdrafts - (790,281)
------- ---------
293,808 (510,243)
======= =========
The accompanying notes form an integral part of these financial
statements.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements
For the year ended 30 June 2012
1. The Company:
The Company is a closed-ended investment company, incorporated
and registered with limited liability in Guernsey on 5 June 2007
and formed in accordance with The Control of Borrowing (Bailiwick
of Guernsey) Ordinance, 1959 to 2003 as amended. The Company
commenced business on 3 August 2007 when the initial 30,000,000
Ordinary Shares of the Company were admitted to the Official List
of the London Stock Exchange. The Company is a Guernsey Authorised
Closed-ended Investment Scheme and is subject to the Authorised
Closed-ended Investment Scheme Rules 2008.
The Group also includes PSD SPV 2, Inc ("SPV2" or "Subsidiary")
a wholly own subsidiary of the Company. SPV2 was incorporated in
the State of Delaware on 2 April 2009 and commenced trading on 1
May 2009. SPV2 was established to hold certain US assets. For
reasons of tax efficiency, newly originated direct investments and
co-investments after that time were made through this
Subsidiary.
The Group comprises PSource Structured Debt Limited and
SPV2.
2. Principal Accounting Policies:
(a) Basis of Preparation:
(i) General
The financial statements give a true and fair view, they have
been prepared in accordance with International Financial Reporting
Standards ("IFRS"), as issued by the IASB, and are in compliance
with the Companies (Guernsey) Law, 2008 and the Listing Rules of
the UK Listing Authority.
The financial statements of the Group have been prepared under
the historical cost convention modified by the revaluation of
investments and assets and liabilities at fair value through profit
or loss, in accordance with IFRS.
The Board recognised in September 2011 that a continuation of
the Company in its current form was not in the interests of
Shareholders and committed to put alternative proposals to
Shareholders by 31 March 2012 for the Winding Down, changes to the
Investment Objective and Policy, and amendments to the Investment
Management Agreement and the Management Agreement. At an
Extraordinary General Meeting held on 16 May 2012, shareholders
duly passed the resolution implementing these proposals.
In light of the above the Board has resolved to prepare the
financial statements on the basis that the Company is no longer a
going concern. The financial statements have been prepared on a
break up basis.
(ii) Functional and Presentation Currency
The Group's investors are mainly from the UK, however, the vast
majority of underlying investment portfolio is denominated in US
Dollars. For this reason Directors consider the presentation and
functional currency of the Company to be US Dollars. As at 30 June
2012, the performance of the Group is measured and reported to
investors in US Dollar. The financial information is presented in
US Dollars, which is the Company's functional and presentation
currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the
Consolidated Statement of Comprehensive Income. Translation
differences on the revaluation of non-functional currency financial
instruments are included in net unrealised gains and losses on
investments and are recognised in the Consolidated Statement of
Comprehensive Income.
Actual results could differ from such estimates.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
2. Principal Accounting Policies, continued:
(a) Basis of Preparation, continued:
(iii) Judgements and estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate was revised if the revision
affects only that period or in the period of the revision and
future periods if the revision affects both current and future
periods.
The most critical judgements, apart from those involving
estimates, that management has made in the process of applying the
accounting policies and that have the most significant effect on
the amounts recognised in the consolidated financial statements are
the functional currency of the Group (see note 2(a)(ii)) and the
fair value of investments designated to be at fair value through
profit or loss (see note 2(d)(iii)).
(iv) Break up basis of accounting
The Board of Directors have prepared the financial statements on
the basis that the Company is no longer a going concern for reasons
outlined in Note 2(a)(i) above. The financial statements have been
prepared on a break up basis.
The preparation of financial statements on a break up basis
still requires that the normal recognition, measurement and
disclosure requirements of IFRS apply as if the Company was a going
concern. However, additional consideration has been given by the
Directors as to the recognition and measurement of certain assets
and liabilities under the break up basis as detailed below.
Investments at fair value through profit and loss:
The investment portfolio has been included in these financial
statements at fair value, in accordance with IFRS as issued by the
IASB. However in accordance with paragraph 9 of IAS10, the
Directors have also considered post year end information in valuing
the portfolio. The Board has concluded the following after due
considerations:
-- The current cash flow requirements of the Company have made
it necessary to rapidly realise some of the Portfolio assets held
by the Company as at the year end. The Company has negotiated the
sale of some of the Portfolio warrants, however, the agreed sales
proceeds are below their fair value at as 30 June 2012. The
Directors have written down the value of these warrants from fair
value to their realisable value in the financial statements.
-- Further information has come to light since the 30 June 2012
Published NAV was announced which leads the Directors to believe
that the recovery of certain loans held are further impaired. The
Directors have conducted a further impairment review and have made
further impairments to these loans in the financial statements
following this review.
-- Due to the illiquid nature of certain Portfolio investments
and the insignificant size of the holdings, the Directors do not
expect to realise proceeds for many of the smaller positions held
in the Portfolio. The Directors have written down the value of
these investments to nil in these financial statements.
-- The Directors' opinion as at the date of issuing these
financial statements is that the remainder of the investments will
be held until they can be realised at their fair value. However,
the uncertainty over timing and the ongoing cash flow needs of the
Company may create significant doubt over this judgement and if the
Company were forced to sell any further investments under
distressed conditions then the realisable value may be
significantly lower than fair value.
Please refer to note 18 for details of these post year end write
downs to investments.
Events after the reporting period:
The Directors have considered whether any provision is required
for future losses. On the assumption that the investment portfolio
is realised in an orderly and timely manner in line with the
resolution described in Note 2(a)(i) above, the Directors do not
consider any additional provision for future losses is
required.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
2. Principal Accounting Policies, continued:
(iv) Break up basis of accounting
Other assets and liabilities:
The Directors have considered the costs of the orderly wind down
and subsequent liquidation under the break up basis of accounting
and included in legal and professional fees is a provision of
US$100,000 to cover the costs of realisation. The Directors
consider that the carrying amount of other assets and liabilities
approximate to their fair value and no adjustment is required to
their carrying value under the break up basis of accounting.
(v) IFRS
New standards and interpretations adopted
The Group has adopted the following new and amended standards
and interpretations, which are applicable to the Group's
operations, for the accounting period commencing 1 July 2011:
-- Improvements to IFRSs 2010 - various standards (effective 1
January 2011)
-- Amendments to IFRS 7 Financial Instruments: Disclosures -
amendments enhancing disclosures about transfer of financial assets
(effective 1 July 2011)
-- IAS 24 - Related Party Disclosures (Revised 2009) (effective
1 January 2011)
-- IFRIC 19 Extinguishing Financial Liabilities with Equity -
addresses the accounting by an entity when the terms of a financial
liability are renegotiated and result in the entity issuing equity
instruments to a creditor to extinguish all or part of the
financial liability (effective 1 July 2010)
Significant new standards and interpretations not yet
adopted
At the date of approval of these Unaudited Condensed Financial
Statements, the following standards and interpretations, which have
not been applied in these Financial Statements, were in issue but
not yet effective:
-- IFRS 9,"Financial Instruments - Classification and
Measurement" (effective for periods commencing on or after 1
January 2015);
-- IFRS 10, "Consolidated Financial Statements" (effective for
periods commencing on or after 1 January 2013);
-- IFRS 11, "Joint arrangements" (effective for periods
commencing on or after 1 January 2013);
-- IFRS 12, "Disclosure of Interest in Other Entities"
(effective for periods commencing on or after 1 January 2013);
-- IFRS 13, "Fair Value Measurement" (effective for periods
commencing on or after 1 January 2013);
None of these will have an effect on the financial statements of
the Company, with the exception of IFRS 9 "Financial Instruments -
Classification and Measurement" which is not expected to affect the
financial position of the Company but may require additional
disclosure in future financial statements.
(b) Basis of Consolidation:
The financial statements of the Group incorporate the financial
statements of the Company and its wholly owned subsidiary made up
to 30 June 2012. There are no minority interests in the income or
assets of the subsidiaries. Control is achieved where the Company
has the power to govern the financial and operating policies of the
subsidiaries so as to benefit the Company. The accounting policies
of the Subsidiary are consistent with those adopted by the Group.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
(c) Income
Bank interest, loan interest income and other income are
included in these financial statements on an accruals basis, using
the effective interest method.
Where interest income falls past due it is assessed for
impairment and where impairment is identified a 0-100% provision is
made, on a case by case basis after the recoverability of each
interest receipt has been assessed.
Subordination fee income is included in these consolidated
financial statements on an accruals basis and is recognised in the
Consolidated Statement of Comprehensive Income.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
2. Principal Accounting Policies, continued:
(d) Investments:
The Group's investments comprise loans, fees receivables,
royalties, equities, warrants (for listed equities) and options
(for listed equities).
(i) Classification
Equity investments have been designated as fair value through
profit or loss in accordance with IAS 39 (Revised) "Financial
Instruments: Recognition and Measurement".
Warrants and penny warrants investments meet the definition of
"Derivatives" under IAS 39 and have been designated as held for
trading in accordance with IAS 39 (Revised) "Financial Instruments:
Recognition and Measurement". They are accounted for as fair value
through profit or loss.
Investments in loans, royalties and fees receivable have been
classified as loans and receivables in accordance with IAS 39
(Revised) "Financial Instruments: Recognition and Measurement".
(ii) Measurement
Equities, warrants and penny warrants are initially recognised
at fair value. Transaction costs are expensed in the Consolidated
Statement of Comprehensive Income. Subsequent to initial
recognition, equity, warrants and penny warrants are measured at
fair value. Realised gains and losses on disposal of investments,
where the disposal proceeds are higher/lower than the book cost of
the investment are presented in the Consolidated Statement of
Comprehensive Income in the period in which they arise. Unrealised
gains and losses arising on the fair value of investments are
presented in the Consolidated Statement of Comprehensive Income in
the period in which they arise. Dividend income, if any, from
equity investments is recognised in the Consolidated Statement of
Comprehensive Income within dividend income when the Group's right
to receive payments is established.
Loans and royalties are initially recognised at fair value,
which at the point of acquisition is equal to cost, less any
directly attributable transaction cost. Subsequent to initial
recognition, loans are measured at amortised cost using the
effective interest rate method. Royalties are measured at the
discounted value of future cash flows. Fee receivables are measured
at fair value.
Loans are carried at amortised cost and reviewed for impairment
in accordance with IAS 39 (see note 2(e)).
(iii) Fair Value Estimation
Quoted equity investments at fair value through profit or loss
are valued at the bid price on the relevant stock exchange.
Unquoted investments at fair value through profit and loss are
valued in accordance with the International Private Equity and
Venture Capital valuation guidelines or any other valuation model
and techniques which can provide a reasonable estimate of fair
value of the investment involved.
Warrants and penny warrants are valued based on the listed price
of the equity for which the warrants and penny warrants relates and
then adjusted using the Black Scholes method. The Directors
consider it prudent to apply certain discounts (7% against the
value of penny warrants and 30% against the value of standard
warrants) when valuing warrants and penny warrants for the purposes
of calculating the Company's issued monthly NAV and for these
consolidated financial statements due to their illiquid nature and
the fact that there is no active market to trade these warrants and
penny warrants.
The valuation methods/techniques used in valuing financial
instruments involve critical judgements to be made and therefore
the actual value of financial instruments could differ
significantly from the value disclosed in these financial
statements.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
2. Principal Accounting Policies, continued:
(d) Investments, continued:
(iv) Recognition/derecognition
All regular way purchases and sales of investments are
recognised on trade date - the date on which the Company commits to
purchase or sell the investment. Investments are derecognised when
the rights to receive cash flows from the investments have expired
or the Company has transferred substantially all risks and rewards
of ownership.
(e) Impairment of financial assets:
Financial assets are assessed at each reporting date to
determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that
asset.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the original effective interest rate.
Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets
are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognised in the Consolidated
Statement of Comprehensive Income.
An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognised. The reversal is recognised in the Consolidated
Statement of Comprehensive Income.
(f) Expenses:
Expenses are accounted for on an accruals basis.
(g) Cash and Cash Equivalents:
Cash and cash equivalents are defined as cash in hand, demand
deposits and highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in
value. For the purposes of the Consolidated Statement of Cash Flows
cash and cash equivalents consist of cash in hand, deposits in bank
and overdrafts.
(h) Other Receivables and Other Payables:
Other receivables are stated at amortised cost less any
provision for doubtful debts. Other payables are stated at
amortised cost.
(i) Segment Reporting:
The Board has considered the requirements of IFRS8. The Board,
as a whole, has been determined as constituting the chief operating
decision maker ("CODM") of the Group.
The Board is charged with setting the Group's investment
strategy in accordance with the Prospectus. They have delegated the
day to day Investment Management of the Group to the Investment
Manager, under the terms set out in the Investment Management
Agreement, but the Board retains the responsibility to ensure that
adequate resources of the Group are directed in accordance with
their decisions. All investment recommendations made by the
Investment Manager are reviewed by the Board for compliance with
the policies and legal responsibilities of the Directors and the
provisions of the Prospectus. Only after such reviews have been
satisfactorily conducted will the Board approve the investment
recommendations. The Board therefore retains full responsibility
for the allocation decisions made on an ongoing basis. Pursuant to
the terms of the Investment Management Agreement the Investment
Manager was obliged to comply with the investment strategy detailed
in the Prospectus and, since 16 May 2012, with the new realisation
strategy as resolved by the Company's shareholders. This strategy
sets out guidelines for proposed investments and the procedures
that the Investment Manager is required to follow in dealing with
the Group's assets. These guidelines and procedures are regularly
reviewed and can be altered by the Board if it considers it
appropriate to do so.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
2. Principal Accounting Policies, continued:
(i) Segment Reporting, continued:
The key measure of performance used by the Board in its capacity
of CODM, is to assess the Group's performance and to allocate
resources based on the total return of each individual investment
within the Group's portfolio, as opposed to geographic regions. As
a result, the Board is of the view that the Group is engaged in a
single segment of business, being investment in a diversified
portfolio of asset backed loans and debt made predominantly to, and
equity warrants and similar instruments issued predominately by,
publicly traded small and micro-cap companies in the US and Canada.
Therefore, no reconciliation is required between the measure of
gains or losses used by the Board and that contained in these
consolidated financial statements.
Information on realised gains and losses derived from sales of
investments are disclosed in Note 7 to the financial
statements.
The Group has no assets classified as non-current assets. An
analysis of the significant investments held by the Group is given
on page 49, in addition to the industry and geographic location
analysis of the investments which are given on page 54.
The Company has a diversified shareholder population and no
individual investor is known to own more than 17.96% (per the share
register as at 29 August 2012) of the issued capital of the
Company.
3. Taxation:
The Income Tax Authority of Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above mentioned Ordinance entails
payment by the Company of an annual fee of GBP600. It should be
noted, however, that interest and dividend income accruing from the
Company's investments may be subject to withholding tax in the
country of origin. With effect from 1 January 2008 the standard
rate of income tax for most companies in Guernsey is zero per cent
Tax Exempt status continues to exist and the Company was granted
this status for 2012. The Company has not suffered any withholding
tax in the year.
The Company has received confirmation from HMRC that the managed
winding down will not bring the Company within the definition of an
offshore fund for the purposes of United Kingdom taxation. The
Directors have therefore been advised that the commencing of the
winding down and the availability of any share buybacks or tender
offers that the Directors may decided to implement as part of the
winding down should not result in the Company being an offshore
fund for the purposes of United Kingdom taxation and the provisions
of the Offshore Funds Rules should therefore not apply.
PSD SPV 2, Inc is a Delaware corporation and subject to US
taxation. As such, PSD SPV 2, Inc will suffer taxes on realised
capital gains and income generated by assets which it holds, to the
extent that pre-tax earnings are not offset by expenses and
realised losses. Moreover, as generated by a business wholly-owned
by the Company, distributions of pre-tax earnings of PSD SPV 2, Inc
to the Company (e.g. any interest payments on intercompany loans)
will likely be subject to a withholding tax.
To the extent permissible, the Company will seek to minimise the
income tax and withholding tax suffered, although for accounting
purposes, no benefits have been assumed. A 35% income tax liability
is accrued against any income and capital gains accrued by PSD SPV
2, Inc, and a 30% withholding tax liability is accrued against any
interest accruals related to intercompany loans between PSD SPV 2,
Inc and the Company. An accrued liability of US$46 (30 June 2011:
US$16,308 asset) associated with income tax and withholding tax
related to PSD SPV 2, Inc has been made as at 30 June 2012.
4. Material Agreements & Related Parties:
The Company is responsible for the continuing fees of the
Manager, the Investment Manager, the Administrator, the Registrar,
the Custodian and the Independent Valuation Consultant in
accordance with the Management, Investment Management,
Administration, Registrar, Custodian and Independent Valuation
Consultant's Agreements.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
4. Material Agreements & Related Parties, continued:
Management Agreement
Pursuant to the provisions of the Management Agreement, the
Manager is entitled to receive a management fee during the year at
2.0% per annum of the net asset value ("NAV") of the Company. This
fee is paid monthly in arrears. As at 30 June 2012, the management
fee creditor was US$70,877 (30 June 2011: US$162,453).
With effective from 16 May 2012, the Management Agreement was
amended so that the annual management fee would be paid at the rate
of 2 per cent per annum of NAV up to 31 March 2013 and will
thereafter drop to a rate of 1.25 per cent per annum of NAV. The
management fee will continue to be accrued daily and calculated and
paid monthly.
In addition, the Manager is entitled to a Performance Fee in
respect of any Performance Fee Period in which the Performance
Trigger has been achieved. If the Performance Trigger is achieved,
the Performance Fee shall equal 20 per cent of the amount by which
the Total Return NAV per Ordinary Share exceeds the NAV per
Ordinary Share at the end of the previous Performance Fee Period,
multiplied by the time-weighted average number of Ordinary Shares
in issue during the relevant Performance Fee Period. If there has
not been any previous Performance Fee Period the Performance Fee
shall equal 20 per cent of the amount if any by which the Total
Return NAV per Ordinary Share exceeds the NAV per Ordinary Share
(calculated net of all initial expenses payable by the Company) on
the Effective Date (date of Admission of the Company), multiplied
by the time-weighted average number of Ordinary Shares in issue
during the relevant Performance Fee Period. As at 30 June 2012, the
Performance Fee creditor was US$4,185,888 (30 June 2011:
US$5,581,184). In January 2009, the Manager agreed to defer payment
of the Performance Fee owed by the Group until such time as the
Group has resumed dividend payments.
With effective from 16 May 2012, the Company waived the
condition that any performance fee payments would be deferred until
such date as the Company has resumed payment of dividends to
Shareholders.
During the current year, the Manager (and in turn the Investment
Manager) also has agreed to waive 25 per cent (being US$ 1,395,296)
of its entitlement to the deferred Performance Fee. This amount has
been written back in the Consolidated Statement of Comprehensive
Income during the current year. The Manager (and in turn the
Investment Manager) has further agreed that it will only be
entitled to receive the remaining 75 per cent (being US$ 4,185,888)
of its entitlement to the deferred Performance Fee if following
such waiver:
-- Parabel Inc ("Parabel"), formerly Petro Algae Inc, is the
subject of an IPO whereby its shares are listed on either NASDAQ or
the NYSE or another stock exchange approved by the Company, and the
proceeds of such IPO are distributed to the Company by PetroTech;
or
-- more than 50 per cent of the shares of common stock in
Parabel, attributable to the Company by virtue of its investment in
PetroTech, are sold by private sale and the proceeds of such sale
net of the proportion of expenses of PetroTech in respect of such
sale attributable to the Company which were sold are distributed to
the Company by PetroTech.
For details of changes to potential future performance fees
please refer to the EGM Circular dated 16 May 2012.
Administration Agreement
Pursuant to the provisions of the Administration Agreement,
Praxis Fund Services Limited is entitled to receive an
administration fee at an annualised rate of 0.16% up to GBP150
million, 0.12% for the following GBP100 million and 0.10%
thereafter, subject to a monthly minimum of GBP4,500. With regard
to company secretarial services, the Administrator is compensated
on a time cost basis. As at 30 June 2012, the administration fee
creditor was US$12,166 (30 June 2011: US$23,421).
Registrar Agreement
Pursuant to the provisions of the Registrar Agreement, Capita
Registrars (Guernsey) Limited is entitled to a maintenance fee of
GBP2.00 per shareholder (subject to an annual minimum maintenance
fee of GBP5,000) together with various per deal fees per
shareholder transactions. As at 30 June 2012, the registrar fee
creditor was US$5,942 (30 June 2011: US$4,302).
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
4. Material Agreements & Related Parties, continued:
Custodian Agreement
During the year, Wells Fargo Bank were entitled to receive
US$807 (30 June 2011: US$18,843) in respect of custodian fees.
Effective from 26 November 2010, the Company migrated its
custody and clearing services for its short term trading assets
from Fidelity Prime Services to Albert Fried & Company, LLC.
Albert Fried & Company, LLC is entitled to receive various
activity based fees for its services to the Company. During the
current year Albert Fried & Company, LLC were entitled to
receive US$14,211 (30 June 2011: US$6,004) in respect of such
services.
Effective 1 December 2010, the Company migrated its trading
services from Fidelity to GP Nurmenkari Inc.. GP Nurmenkari Inc. is
entitled to receive various activity based fees for its services to
the Company. During the current year GP Nurmenkari Inc. were
entitled to receive US$10,761 (30 June 2011: US$1,878) in respect
of such services.
In addition to the above agreements, during the prior year the
Group paid US$6,064 to Fidelity Prime Services for custodial
services provided in respect of the Group's short term trading
assets.
As at 30 June 2012, the custodian fees creditor was US$nil (30
June 2011: US$nil).
Independent Valuation Consultant
Pursuant to the provisions of the Independent Valuation
Consultant's Agreement between the Company and MountainView IPS
(formerly Clayton IPS Corporation) ("MountainView"), MountainView
had agreed to provide a monthly and quarterly valuations of the
assets of the Company. For these services MountainView was entitled
to a fee of US$10,000 for each monthly valuation up to 30 April
2012. With effect from 1 May 2012, MountainView provide only a
quarterly valuation of the assets of the Company for a fee of
US$12,500 per quarter valuations. As at 30 June 2012, the
independent valuation consultancy fee creditor was US$12,500 (30
June 2011: US$9,507).
Related Party Transactions
During prior years the Company had undertaken investment
transactions with Laurus Master Fund Ltd, Calliope Capital
Corporation, Erato Corp, Promethean Industries, Inc and Valens
Offshore SPV I Ltd, being other affiliates of the Investment
Manager, under the terms of the Master Agreements.
There were no purchase or sales transactions with related
parties during the current or immediately prior years.
Directors' and Other Related Parties' Interests
As at 30 June 2012, the interests of the Directors and their
families who held office during the year are set out below:
30 June 2012 30 June 2011
Ordinary Shares Ordinary Shares
---------------- ----------------
William Scott (Chairman) 50,000 50,000
Peter Niven 30,000 30,000
Soondra Appavoo 20,000 20,000
Tim Jenkinson 50,000 50,000
Keith Dorrian - -
There were no changes in the interests of the Directors prior to
the date of this report.
No Director, other than those listed above, and no connected
person of any Director has any interest, the existence of which is
known to, or could with reasonable diligence be ascertained by that
Director, whether or not held through another party, in the share
capital of the Company.
As at 30 June 2012, the Investment Manager held 500,000 (30 June
2011: 500,000) Ordinary Shares in the Company.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
5. Directors' Fees:
Each of the Directors has entered into an agreement with the
Company providing for them to act as a non-executive director of
the Company. Their annual fees, excluding all reasonable expenses
incurred in the course of their duties which were reimbursed by the
Company were as follows for the year:
30 June 2012* 30 June 2011
Annual Fee Annual Fee
-------------- -------------
GBP GBP
William Scott (Chairman) 27,500 30,000
Soondra Appavoo - -
Peter Niven (Audit Committee chairman) 24,500 27,000
Tim Jenkinson 22,500 25,000
Keith Dorrian 22,500 25,000
*All Directors annual fees were reduced by GBP10,000 per annum
per Director with effect from 1 April 2012.
Mr Appavoo has waived his Director's fees for the year. As at 30
June 2012, the Directors' fees creditor was US$nil (30 June 2011:
US$42,139).
6. Basic & diluted deficit per Ordinary Share:
Basic deficit per Ordinary Share is based on the net deficit for
the year of US$56,790,146 (30 June 2011: US$14,058,015) and on a
weighted average of 59,564,681 (30 June 2011: 59,564,681) Ordinary
Shares in issue.
Diluted deficit per Ordinary Share is the same as basic deficit
per Ordinary Share since there are no dilutive potential Ordinary
Shares arising from financial instruments.
7. Investments:
30 June 2012 30 June 2011
------------- -------------
Fair Value Through Profit or Loss Investments: US$ US$
Investments listed on recognised investment
exchanges 1,744,422 2,285,132
Unlisted investments 28,677,602 81,524,576
-------------
30,422,024 83,809,708
============= =============
30 June 2012 30 June 2011
------------- -------------
Held for Trading Investments: US$ US$
Unlisted investments 723,605 1,210,737
============= =============
30 June 2012 30 June 2011
------------- -------------
Loans and Receivables at amortised cost: US$ US$
Loans 10,642,455 21,126,349
============= =============
30 June 2012 30 June 2011
------------- -------------
Total Investments: US$ US$
Investments listed on recognised investment
exchanges 1,744,422 2,285,132
Unlisted investments 29,401,207 82,735,313
Loans 10,642,455 21,126,349
41,788,084 106,146,794
============= =============
8. Cash and Cash Equivalents: 30 June 2012 30 June 2011
------------- -------------
US$ US$
Bank deposits 293,808 280,038
Bank overdrafts (see note 11) - (790,281)
------------- -------------
293,808 (510,243)
============= =============
9. Other Receivables: 30 June 2012 30 June 2011
------------- -------------
US$ US$
Loan interest & fee receivables 4,239,484 2,384,950
Prepayments 36,436 22,177
US Tax receivable - 16,308
4,275,920 2,423,435
============= =============
The Directors consider that the carrying amount of other
receivables approximates fair value.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
10. Other Payables: 30 June 2012 30 June 2011
------------- -------------
US$ US$
Management fee payable 70,877 162,453
Performance fee payable 4,185,888 5,581,184
Administration fee payable 12,166 23,421
Audit fee payable 78,535 86,606
Legal & professional fees payable 100,000 -
US Tax payable 46 -
Other payables 50,337 81,663
------------- -------------
4,497,849 5,935,327
============= =============
The Directors consider that the carrying amount of other
payables approximates fair value.
11. Loan and Overdraft:
During the period the Company had bank facilities with Bank of
Scotland plc ("Bank of Scotland"), in accordance with the facility
agreement dated 30 November 2007 and supplemental restatement
facility agreement (utilisation date 1 September 2011). The
facilities comprised a US$3.7million term note and a US$1.5million
committed overdraft.
As at 30 June 2012, the Company had fully repaid the loan
facility with Bank of Scotland (30 June 2011: US$3,867,480). The
outstanding overdraft facility as at 30 June 2012 was US$nil (30
June 2011: US$790,281).
On 21 February 2012, the Company migrated its banking provider
to Investec Specialist Private Bank. The above credit facility was
secured against the Company's investment portfolio.
12. Share Capital and Distributable Reserve: 30 June 2012
&
30 June 2011
-------------
Authorised Share Capital US$
Unlimited Ordinary and Qualifying C Shares of no -
par value
=============
30 June 2012 30 June 2011
------------ ------------
Allotted, issued and fully paid US$ US$
59,564,681 (30 June 2011: 59,564,681)
Ordinary Shares of no par value each - -
============ ============
30 June 2012 30 June 2011
------------ ------------
No. No.
Brought forward & carried forward 59,564,681 59,564,681
============ ============
Share premium US$ US$
Brought forward & carried forward 47,512,742 47,512,742
============ ============
Distributable reserve US$ US$
Brought forward & carried forward 42,793,973 42,793,973
============ ============
The Ordinary Shareholders shall have the following rights:
(i) Dividends
During the period Shareholders (other than the Company itself
where it holds its own Shares as treasury Shares) are entitled to
receive, and participate in, any dividends or other distributions
out of the profit of the Company available for dividend and
resolved to be distributed in respect of any accounting period or
other income or right to participate therein.
(ii) Winding up
On a winding up, Shareholders (other than the Company itself
where it holds its own Shares as treasury Shares) shall be entitled
to the surplus assets remaining after payment of all the creditors
of the Company.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
12. Share Capital and Distributable Reserve, continued:
(iii) Voting
Shareholders (other than the Company itself where it holds its
own Shares as treasury Shares) shall have the right to receive
notice of and to attend and vote at general meetings of the Company
and each Shareholder being present in person or by proxy or by a
duly authorised representative (if a corporation) at a meeting
shall upon a show of hands have one vote and upon a poll each such
holder present in person or by proxy or by a duly authorised
representative (if a corporation) shall have one vote in respect of
every Ordinary Share held by him.
On 27 July 2007, an ordinary resolution was passed at an
extraordinary general meeting of the Shareholders approving the
cancellation of the entire amount which will stand to the credit of
the share premium account immediately after the Placing,
conditionally upon the issue of the Shares and the payment in full
thereof and with respect to any further issue of Shares. The
cancellation was confirmed by the Royal Court on 25 January 2008
that thesurplus thereby created formed a distributable reserve.
Capital Management
Under its Articles of Incorporation, the Company has the ability
to borrow up to 30% of net assets in order to implement any hedging
and buyback strategies and to meet ongoing expenses.
13. Net Asset Value per Ordinary Share:
The net asset value per Ordinary Share is based on the net
assets attributable to Ordinary shareholders of US$41,859,963 (30
June 2011: US$98,650,109) and on the year end Ordinary Shares in
issue of 59,564,681 (30 June 2011: 59,564,681).
14. Financial Instruments:
(a) Categories of financial instruments:
30 June 2012 30 June 2011
Percentage Percentage
of net assets of net assets
Fair Value attributable Fair Value attributable
/ Amortised to Ordinary / Amortised to Ordinary
Cost Shareholders Cost Shareholders
---------------------------------------- -------------- --------------- -------------- ---------------
Assets US$ % US$ %
Financial assets at fair
value through profit or
loss:
Listed equity securities 1,744,422 4.17 2,285,132 2.32
Unlisted equity securities 28,677,602 68.51 81,524,576 82.64
Warrants 709,521 1.70 1,021,683 1.03
Penny warrants 14,084 0.03 189,054 0.19
-------------- ---------------
31,145,629 74.41 85,020,445 86.18
-------------- --------------- -------------- ---------------
Cash and cash equivalents 293,808 0.70 280,038 0.28
-------------- --------------- -------------- ---------------
Loans and receivables*:
Loans 10,642,455 25.42 21,126,349 21.42
Unsettled investment sales - 0.00 392,930 0.40
Other receivables 4,275,920 10.22 2,423,435 2.46
46,357,812 110.75 109,243,197 110.74
============== =============== ============== ===============
Liabilities
Cash and cash equivalents
(bank overdrafts) - 0.00 (790,281) (0.80)
Loan - 0.00 (3,867,480) (3.92)
Other payables (4,497,849) (10.75) (5,935,327) (6.02)
-------------- --------------- -------------- ---------------
(4,497,849) (10.75) (10,593,088) (10.74)
============== =============== ============== ===============
*The Directors deem that the carrying value of loans and
receivables at amortised cost, written down where appropriate for
known impairments, is not considered to be materially different
from fair value.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
14. Financial Instruments, continued:
(b) Net gains and losses on financial assets at fair value through profit or loss:
30 June 2012 30 June 2011
------------------------------------------- ------------- -------------
US$ US$
Financial assets at fair value
through profit or loss:
Listed equity securities 236,756 (1,924,825)
Unlisted equity securities (53,209,694) 1,232,026
Warrants and penny warrants (487,133) (783,822)
------------- -------------
(53,460,071) (1,476,621)
============= =============
(c) Derivatives:
The following tables detail the Group's aggregate investments in
derivative contracts, by maturity, outstanding as at 30 June
2012.
Penny Warrants
30 June 2012 30 June 2012 30 June 2011
Maturity Nominal Fair Value Fair Value
----------------------- ------------- ------------- -------------
No. US$ US$
3-5 years 1,952,238 - 7,417
5-10 years - - 70,097
>20 years 1,376,703 14,084 111,540
------------- -------------
Total 14,084 189,054
============= =============
A penny warrant is a derivative financial instrument with
similar economic characteristics to the underlying equity
instrument which gives the right, but not the obligation to buy a
specific amount of a given stock, at a specified price (strike
price) during a specified period (American option) or on a specific
date (European option). The fair value of the penny warrants are
included in options classified as financial assets at fair value
through profit or loss disclosed in note (a) above. All the penny
warrants the Group owns have an exercise price of US$0.01 or less
(quasi equities) and are valued at a 7% discount to net intrinsic
value (see note 2(d) (iii)).
Warrants
30 June 2012 30 June 2012 30 June 2011
Maturity Nominal Fair Value Fair Value
------------------------ ------------- ------------- -------------
No. US$ US$
< 1 year 651,579 - 363,540
1-3 years 6,996,924 709,245 514,362
3-5 years 1,663,154 - 31,590
5-10 years 8,014,094 276 20,714
10-15 years 758,333 - 91,477
------------- -------------
Total 709,521 1,021,683
============= =============
A warrant is a derivative financial instrument which gives the
right, but not the obligation to buy a specific amount of a given
stock, at a specified price (strike price) during a specified
period (American option) or on a specific date (European option).
The fair value of warrants is included in warrants classified as
financial assets at fair value through profit or loss disclosed in
note (a) above. The warrants are valued at a 30% discount to Black
Scholes value (see note 2(d) (iii)).
Forward foreign currency swaps
As at 30 June 2012 and 30 June 2011, the Group had no
outstanding forward foreign currency swaps.
In accordance with the Group's scheme particulars the Group may
invest in forward foreign exchange contracts for the purpose of
efficient portfolio management.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management:
Strategy in Using Financial Instruments:
The Group's investment objective is to seek to provide a total
return of 10-15 per cent per annum over a rolling 3-year period
with annual standard deviation of less than 5 per cent, primarily
through investing in a diversified portfolio of asset backed loans
made predominantly to publicly traded small and micro-cap companies
and equity warrants issued predominantly by publicly traded small
and micro-cap companies.
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, fair value, interest
rate risk, cash flow interest rate risk and price risk), credit
risk and liquidity risk. The Group's overall risk management
program focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Group's
financial performance. These policies include the use of certain
financial derivative instruments. The risk management policies
employed by the Group to manage these risks are discussed
below.
Market Price Risk:
Market price risk results mainly from the uncertainty about
future prices of financial instruments held. It represents the
potential loss the Group may suffer through holding market
positions in the face of price movements and changes in interest
rates or foreign exchange rates, with the maximum risk resulting
from financial instruments being determined by the fair value of
the financial instruments. The Group's investment portfolio is
monitored by the Investment Manager, Investment Consultant and the
Directors in pursuance of the investment objectives.
All investments present a risk of loss of capital. The
profitability of a significant portion of the Group's investment
program depends to a great extent upon correctly assessing the
future course of movements in interest rates, currencies and other
investments. There can be no assurance that the Investment Manager
will be able to predict accurately these price movements. The
Investment Manager moderates this risk through a careful selection
of securities and other financial instruments within specified
limits. The maximum risk resulting from financial instruments is
determined by the fair value of the financial instruments. The
Group's portfolio and investment strategy is reviewed continuously
by the Investment Manager, Investment Consultant and on a quarterly
basis by the Board and the Manager.
By their nature, the Group's equity investments at fair value
through profit and loss, and, warrants and penny warrants
investments held for trading are directly exposed to market price
risk. The Group's investments in loans and receivables are not
directly subject to market price risk in the same way as equities
and derivatives. By their nature there is no upside in the value of
loans and receivables. However market conditions may dictate that
loan investments need to be impaired. The Group's exposure to this
risk is dealt with under credit risk.
The following details the Group's sensitivity to a 5% increase
and decrease in market prices of equities, with 5% being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management's assessment of
the possible changes in market prices.
As at 30 June 2012, the Group's market risk is affected by four
main components: changes in actual market prices, credit risk,
interest rate and foreign currency movements. Credit risk, interest
rate and foreign currency movements are covered below. A 5%
increase in the value of equity investments, with all other
variables held constant, would bring about 3.63% or US$1,521,100
(30 June 2011: 4.25% or US$4,190,485) increase in net assets
attributable to equity shareholders. If the value of equity
investments had been 5% lower, with all other variables held
constant, net assets attributable to equity shareholders would have
fallen by 3.63% or US$1,521,100 (30 June 2011: 4.25% or
US$4,190,485). Warrants and penny warrants by their nature may be
more sensitive to changes in the value of the underlying equity
instrument dependent upon a number of factors including time to
expire and whether or not they are in the money. A 5% increase in
the value of underlying equity prices for derivatives held, with
all other variables held constant, would bring about a 0.00% or
US$789 (30 June 2011: 0.14% or US$133,712) increase in net assets
attributable to equity shareholders. A 5% decrease in the value of
underlying equity prices for derivatives held, with all other
variables held constant, would bring about a 0.00% or US$791 (30
June 2011: 0.13% or US$125,154) decrease in net assets attributable
to equity shareholders.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Credit Risk:
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group, resulting in financial loss to the Group.
To the extent the Group invests in derivative instruments,
certain types of options or other customised financial instruments
or non-UK securities, the Group takes the risk of non-performance
by the other party to the contract. This risk may include credit
risk of the counterparty and the risk of settlement default. This
risk may differ materially from those entailed in UK
exchange-traded transactions which generally are supported by
guarantees of clearing organisations, daily marking-to-market and
settlement, and segregation and minimum capital requirements
applicable to intermediaries. Transactions entered directly between
two counterparties generally do not benefit from such protections
and expose the parties to the risk of counterparty default. In
addition, there are risks involved in dealing with the custodians
or brokers who settle trades particularly with respect to non-UK
investments.
At the reporting date financial assets exposed to credit risk
include loan instruments, receivables and derivatives. It is the
opinion of the Board of Directors that the maximum exposure to
credit risk that the Group faces is equal to the carrying value of
these financial instruments held by the Group.
The loan and receivable instruments are private loans and
receivables with the underlying counterparties and as such do not
have associated agency credit ratings. To mitigate the credit risk
on these loan and receivable instruments the Directors consider
impairment on an ongoing basis also taking into consideration the
results of any reviews performed by MountainView. MountainView is
employed to review a sample the of loan and receivable instruments
on a monthly basis and report to the Board of Directors/Investment
Manager any issues with regards to the valuation of the loan and
receivable instruments in accordance with the Independent Valuation
Consultant's Agreement. Any impairment on the loan and receivable
instruments is written off to the Consolidated Statement of
Comprehensive Income. As at 30 June 2012, impairment charges
totaling US$2,891,177 (30 June 2011: US$13,357,267) had been
written off to the Consolidated Statement of Comprehensive Income
since the Group commenced trading (see note 2(e)).
The credit risk on cash transactions and transactions involving
derivative financial instruments is mitigated by transacting with
counterparties that are regulated entities subject to prudential
supervision, or with high credit-ratings assigned by international
credit-rating agencies.
In accordance with the investment restrictions as described in
its Placing Document, the Group may not invest more than 10% of its
total assets in any one underlying company (calculated at the time
of any relevant investment being made).
As at 30 June 2012, the following amounts on debt instruments
were past due:
30 June 2012 30 June 2011
------------- -------------
US$ US$
Principal default 6,531,068 4,912,865
Interest default 389,956 61,811
The Group has entered into certain agreements with affiliates of
the Investment Manager in which the Group and the affiliates have
investments in the same loan instruments. The Group has agreed to
alter the allocation of cash principal and interest repayments in
the event of a restructuring or liquidation of the entity in which
the Group and affiliate(s) are invested. The agreements provide for
the Group to receive upfront consideration from the affiliate(s) in
exchange for reallocating the cash liquidation proceeds received by
the Investment Manager in respect of the loan securities first to
the affiliate(s) and secondly to the Group. This reallocation
applies only to regular principal and interest, and not to any
contingent amounts including default interest and fees.
The Group has mitigated the credit risk of these certain
agreements by only entering into agreements related to loan
instruments in which the collateral and/or operating strength of
the invested companies was sufficiently in excess of the loan
amounts outstanding such that doing so did not materially alter the
credit risk of the loan instruments held by the Group. This
determination of whether the loan instruments were sufficiently
collateralised was made by Clayton IPS Corporation at the time of
the agreements, and Clayton IPS Corporation continues to evaluate
the loan instruments in the context of these agreements.
As at 30 June 2012, of the total loans held by the Group of
US$10,642,455 (30 June 2011: US$21,126,349), US$3,646,631 (30 June
2011: US$9,270,719) were subordinated.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Liquidity Risk:
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
The Group invests in loan notes and warrants that are not liquid
and there may not be any secondary market for these instruments.
Even though the warrants are generally convertible into securities
listed on the national securities exchanges, quoted on NASDAQ or
traded in the over-the counter markets or other markets (eg pink
sheets), the instruments themselves are not liquid. In addition,
the Group's assets (including the loan notes) may, at any given
time, include securities and other financial instruments or
obligations which are very thinly traded or for which no market
exists or which are restricted as to their transferability under
applicable securities laws. The sale of any such investments may be
possible only at substantial discounts. Further, such investments
may be extremely difficult to value with any degree of
certainty.
The Group may also invest in private placements and other
similar issues of securities (including investments in privately
held companies). This may involve a high degree of business and
financial risk that can result in substantial losses. In addition,
there is no existing market for the purchase and sale of such
investments and the Group may not be able to readily sell such
investments. Such investments may be subject to greater economic,
business and market risks than the marketable securities of more
well-established companies.
While the Investment Manager will attempt to spread the Group's
assets among a number of investments in accordance with the
investment policies adopted by the Group, at times the Group may
hold a relatively small number of investments each representing a
relatively large portion of the Group's net assets. Losses incurred
in such investments could have a materially adverse effect on the
Group's overall financial condition. Whilst the Group's portfolio
is diversified in terms of the companies in which it invests, the
investment portfolio of the Group may be subject to more rapid
change in value than would be the case if the Group were required
to maintain a wide diversification among types of securities,
countries and industry groups.
In particular the Group is exposed to its large holdings in
Petrotech Holdings/Parabel Inc (formerly PetroAlgae) which
constitutes 68.63%, excluding accrued interest, (30 June 2011:
76.47%) of the investment portfolio as at 30 June 2012.
At any given time, the Group may have significant investment in
smaller and medium sized companies of a less seasoned nature whose
securities are traded in the over-the-counter market. These
"secondary" securities often involve significantly greater risks
than the securities of larger, better known companies. Such
securities may not be liquid and there may be only a limited market
for such securities.
The Group's portfolio and investment strategy is reviewed
continuously by the Investment Manager and on a quarterly basis by
the Board. In addition, the Directors will seek to review capital
requirements on an annual basis.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Liquidity Risk, continued:
The following table details the maturity profile of the Group's
financial instruments:
Maturity Analysis
As at 30 June 2012 less than 1-3 years 3-5 years 5-10 years > 10 years No fixed Total
1 year maturity
--------------------------- ------------ ---------- ---------- ----------- ----------- ----------- ------------
Assets US$ US$ US$ US$ US$ US$ US$
Financial assets at
fair value
through profit or
loss:
Listed equity
securities - - - - - 1,744,422 1,744,422
Unlisted equity
securities - - - - - 28,677,602 28,677,602
Warrants - 709,245 - 276 - - 709,521
Penny warrants - - - - 14,084 - 14,084
- 709,245 - 276 14,084 30,422,024 31,145,629
------------ ---------- ---------- ----------- ----------- ----------- ------------
Cash and cash
equivalents 293,808 - - - - - 293,808
Loans and
receivables:
Loans 3,650,997 779,214 - - - 6,212,244 10,642,455
Other receivables 4,275,920 - - - - - 4,275,920
8,220,725 1,488,459 - 276 14,084 36,634,268 46,357,812
============ ========== ========== =========== =========== =========== ============
Liabilities
Other payables (4,497,849) - - - - - (4,497,849)
(4,497,849) - - - - - (4,497,849)
============ ========== ========== =========== =========== =========== ============
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Liquidity Risk, continued:
The following table details the maturity profile of the Group's
financial instruments:
Maturity Analysis
As at 30 June 2011 less than 1-3 years 3-5 years 5-10 years > 10 years No fixed Total
1 year maturity
------------------------- ------------- ---------- ---------- ----------- ----------- ----------- -------------
Assets US$ US$ US$ US$ US$ US$ US$
Financial assets
at fair value
through profit or
loss:
Listed equity
securities - - - - - 2,285,132 2,285,132
Unlisted equity
securities - - - - - 81,524,576 81,524,576
Warrants 363,540 514,362 31,590 20,714 91,477 - 1,021,683
Penny warrants - - 7,417 70,097 111,540 - 189,054
363,540 514,362 39,007 90,811 203,017 83,809,708 85,020,445
------------- ---------- ---------- ----------- ----------- ----------- -------------
Cash and cash
equivalents 280,038 - - - - - 280,038
Loans and
receivables:
Loans 11,100,719 5,114,482 312,750 - - 4,598,398 21,126,349
Unsettled
investment
sales 392,930 - - - - - 392,930
Other
receivables 2,423,435 - - - - - 2,423,435
14,560,662 5,628,844 351,757 90,811 203,017 88,408,106 109,243,197
============= ========== ========== =========== =========== =========== =============
Liabilities
Cash and cash
equivalents
(Bank
overdraft) (790,281) - - - - - (790,281)
Loans and
receivables:
Loans (3,867,480) - - - - - (3,867,480)
Other payables (5,935,327) - - - - - (5,935,327)
(10,593,088) - - - - - (10,593,088)
============= ========== ========== =========== =========== =========== =============
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Interest Rate Risk:
The Group is exposed to risks associated with the effects of
fluctuations in the prevailing levels of market interest rates on
its financial instruments and future cash flows.
The Group is exposed to interest rate risk as it invests in loan
instruments bearing interest at both fixed and floating interest
rates. Other financial assets and liabilities exposed to interest
rate risk include borrowings and cash and cash equivalents which
are invested at short term rates. The Investment Manager manages
the Group's exposure to interest rate risk daily in accordance with
the Group's investment objectives and policies, as disclosed on
page 3. The Group's overall exposure to interest rate risk is
monitored regularly by the Board of Directors.
The table below summarises the Group's exposure to interest rate
risk:
30 June 2012 30 June 2011
Weighted average Weighted average
effective effective
interest rate Total interest rate Total
---------------------------------- ----------------- ------------ ----------------- -------------
Assets % US$ % US$
Fixed rate equity
(preference share
holdings) 9.00 7,198,510 9.00 7,198,510
Fixed interest rate
unlisted loan instruments 7.85 4,868,228 6.14 8,135,236
Floating interest
rate unlisted loan
instruments 6.28 5,774,227 5.30 12,991,113
Floating interest
rate cash and cash
equivalents 0.23 293,808 0.23 280,038
Non-interest bearing - 28,223,039 - 80,638,300
------------ -------------
Total assets 46,357,812 109,243,197
============ =============
Liabilities
Floating interest
rate cash and cash
equivalents - - 5.41 (790,281)
Floating interest
rate loan - - 6.19 (3,867,480)
Non-interest bearing - (4,497,849) - (5,935,327)
------------ -------------
Total liabilities (4,497,849) (10,593,088)
============ =============
The analysis below has been determined based on the Group's
exposure to interest rates for interest bearing assets and
liabilities (included in the interest rate exposure table above) at
the reporting date.
The Group's interest bearing assets are comprised of a fixed
rate equity preference share instrument, fixed and floating rate
loan instruments and floating rate cash and cash equivalents. The
floating rate assets are generally indexed on US Prime. As at 30
June 2012, 100% (30 June 2011: 59%) of the floating rate loans have
an interest rate floor, with an average floor of 7.21% (30 June
2011: 7.48%). In contrast, the interest rate of these loans in
absence of the floor provisions would have been 2.02% (30 June
2011: 2.28%) lower. Therefore, the majority of the interest income
generated by the Group is not sensitive to normal changes in
interest rates. An immediate 200 basis point drop in US Prime would
cause the yield on the interest bearing assets to fall by 0.16
basis points or US$678 (30 June 2011: 0.10 basis points or US$644).
Conversely, an immediate 200 basis point increase in US Prime would
cause the yield on the interest bearing assets to increase by 1.4
basis points or US$5,876 (30 June 2011: 0.60 basis points or
US$5,601).
During the prior year, the Group's interest bearing liabilities
were comprised of floating rate cash and cash equivalents and
floating rate loans. The floating rate loans are comprised of loans
that are indexed on US LIBOR with a margin of 600 basis points, and
reset either monthly or quarterly. The change in yield on these
liabilities therefore changes directly with changes in US LIBOR.
The 3 month US LIBOR as at 30 June 2011: 0.19% an immediate drop to
zero in the US LIBOR on the interest bearing liabilities would have
caused net assets attributable to equity holders as at 30 June 2011
to increase by US$8,643 or 0.01% on an annualised basis due to the
reduction in interest payable on floating rate interest bearing
liabilities.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Interest Rate Risk, continued:
Conversely, as at 30 June 2011 an immediate 200 basis point
increase in US LIBOR would cause net assets attributable to equity
holders to decrease by US$93,155 or 0.09% on an annualised basis
due to the increase in interest payable on floating rate interest
bearing liabilities. As at 30 June 2012, the Group had no interest
bearing liabilities.
As a result of low interest rates generally causing the floating
rate loan asset yields to be based upon their floor rates, marginal
increases of interest rates up to approximately 3 percent would
only marginally increase income on interest bearing assets.
Foreign Currency Risk:
Foreign currency risk is the risk that the fair value of future
cash flows of a foreign currency financial instrument will
fluctuate because of changes in foreign exchange rates.
As at 30 June 2012, the Group's assets are invested
predominately in securities and other investments that are
denominated in the same currency as the reporting currency.
Accordingly the Groupis at low risk to fluctuations in foreign
exchange rate. However, should this change the Group has the
ability to manage any significant exposure to foreign currencies
through forward foreign exchange contracts to hedge its exposure
back to US Dollar. As at 30 June 2012, there was no open currency
hedging (30 June 2011: none).
Currency Exposure:
As at 30 June 2012, the majority of the net assets of the Group
are denominated in US Dollars. The carrying amounts of these assets
and liabilities are as follows:
Assets Liabilities Net
30 June 2012 30 June 2012 30 June 2012
------------ ------------ ------------
US$ US$ US$
British Pound 11,140 (224,979) (213,839)
Canadian Dollar - - -
Euro 8 - 8
US Dollars 46,346,664 (4,272,870) 42,073,794
46,357,812 (4,497,849) 41,859,963
============ ============ ============
Assets Liabilities Net
30 June 2011 30 June 2011 30 June 2011
------------ ------------ ------------
US$ US$ US$
British Pound 23,032 (208,928) (185,896)
Canadian Dollar 41,624 (1) 41,623
Euro 9 - 9
US Dollars 109,178,532 (10,384,159) 98,794,373
109,243,197 (10,593,088) 98,650,109
============ ============ ============
The Group has no significant currency risk. The Group has the
ability to implement a policy of currency hedging.
As at 30 June 2012, the Group's sensitivity to foreign currency
risk is low due to the majority of the net assets of the Company
are denominated in US Dollars.
Concentration Risk
The Investment Manager originally spread the Group's assets
among a number of investments at the time of investment in
accordance with the original investment policies adopted by the
Group.
The current balance of the Group's portfolio has partly resulted
from the requirement to monetise liquid assets to enable the Group
to repay bank debt. Please refer to the Analysis of Significant
Investments and Portfolio Analysis that follows the Notes to the
Financial Statements.
In particular the Group is exposed to its large holdings in
Petrotech Holdings/Parabel Inc which constitutes 68.63%, excluding
accrued interest, (30 June 2011: 76.47%) of the investment
portfolio as at 30 June 2012.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Classification of Fair Value Measurements
This requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2); and
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, the measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes "observable" requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table analyses within the fair value hierarchy the
Company's financial assets (by class) measured at fair value as at
30 June 2012:
Fair Value as at 30 June 2012
Level Level 2 Level 3 Total
1
------- ---------- ----------- -----------
US$ US$ US$ US$
Financial assets at fair
value through profit or
loss:
Equity securities - 1,744,422 28,677,602 30,422,024
Warrants - - 709,521 709,521
Penny warrants - - 14,084 14,084
------- ---------- ----------- -----------
- 1,744,422 29,401,207 31,145,629
======================================== ========== =========== ===========
Fair Value as at 30 June 2011
Level Level 2 Level 3 Total
1
---------- -------- ----------- -----------
US$ US$ US$ US$
Financial assets at fair
value through profit or
loss:
Equity securities 2,253,964 31,168 81,524,576 83,809,708
Warrants - - 1,021,683 1,021,683
Penny warrants - - 189,054 189,054
---------- -------- ----------- -----------
2,253,964 31,168 82,735,313 85,020,445
========== ======== =========== ===========
Investments whose values are based on quoted market prices in
active markets, and therefore classified within level 1, include
active listed equities. No adjustments are made to the quoted price
for these instruments. For the prior year the level 1 amount above
related to a single investment. Whilst this investment remains
listed there is not sufficient trading in its equity to class the
market as "active", therefore this investment has been transferred
to level 2 during the current year.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
15. Financial Risk Management, continued:
Classification of Fair Value Measurements, continued
Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified within level 2. As level 2
investments may include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include unquoted equity instruments which the Company
values in accordance with the International Private Equity and
Venture Capital valuation guidelines or any other valuation model
and techniques which can provide a reasonable estimate of fair
value of the investment involved. The Company considers liquidity,
credit and other market risk factors. Warrants and penny warrants
are classified as level 3 investments due to a lack of observable
inputs.
The tables below provide a reconciliation from brought forward
to carried forward balances of financial instruments categorised
under level 3 during the year:
30 June 2012
Assets at Fair Value based on Equity securities Warrants Total
Level 3: and Penny
warrants
------------------ ------------- ---------------
US$ US$ US$
Fair value brought forward 81,524,576 1,210,737 82,735,313
Exercise of warrants - (60,401) (60,401)
Movement in net unrealised losses
on fair value through profit or
loss investments (52,657,457) 23,706,866 (28,950,591)
Realised losses on disposals (189,517) (24,133,597) (24,323,114)
------------------ ------------- ---------------
Fair value carried forward 28,677,602 723,605 29,401,207
================== ============= ===============
Total (losses)/gains for the year
relating to assets still held at
the year end (52,597,949) 44,665 52,553,284
================== ============= ===============
30 June 2011
Assets at Fair Value based on Equity securities Warrants Total
Level 3: and Penny
warrants
------------------ ------------ --------------
US$ US$ US$
Fair value brought forward 87,521,003 2,834,377 90,355,380
Purchases 171,835 - 171,835
Sales (2,461,630) (351,781) (2,813,411)
Exercise of warrants - (488,038) (488,038)
Equity converted to loans (3,157,331) - (3,157,331)
Movement in net unrealised (losses)/gains
on fair value through profit or
loss investments (549,301) 1,991,751 1,442,450
Realised losses on disposals - (2,775,572) (2,775,572)
------------------ ------------ --------------
Fair value carried forward 81,524,576 1,210,737 82,735,313
================== ============ ==============
Total gains and (losses)/gains
for the year relating to assets
still held at the year end (2,280,158) 49,505 (2,230,653)
================== ============ ==============
16. Dividends:
At inception, it was the Group's intention to pay an annual
dividend (paid gross quarterly) of not less than 5 pence per
Ordinary Share (or its equivalent in US Dollars) in its first year
growing by 0.5 pence per Ordinary Share (or its equivalent in US
Dollars) per annum in its second and third years. Although this was
achieved in respect of the first accounting period of the Group, a
breach of the Group's banking facilities led to the suspension of
dividends during the current and prior years.
All dividends in prior periods were paid from the Group's
reserves.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
17. Significant Investment Holding:
Parabel Inc./PetroTech Holdings Inc.
The Group has a significant holding in Parabel Inc (formerly
PetroAlgae), a food, feed and fuel development stage company based
in Florida, through its holding in PetroTech Holdings Inc. The
holding structure and some of the commercial progress of PetroAlgae
is discussed below.
Holding structure
The Group has a significant holding in PetroTech Holdings Inc, a
Delaware corporation. PetroTech Holdings Inc is a privately held
holding company whose principal asset at 30 June 2012 was
100,000,000 shares (30 June 2011: 100,000,000 shares) of the common
stock of Parabel, Inc ("Parabel"). PetroTech Holdings Inc is owned
jointly by the Group, Laurus Master Fund and Valens (which are
funds managed by the Investment Manager). Through its holding in
PetroTech Holdings, the Group has an effective interest in
approximately 7% of the common shares in Parabel at the valuation
price.
Parabel is registered with the SEC and quoted on OTC Link
(PABL.US), following a reverse merger into a quoted shell in
December 2008. OTC Link is an electronic quotation system that
displays quotes from broker dealers for many over-the-counter
securities.
In February 2010, Parabel announced its intention to migrate to
a higher exchange. On 11 August 2010, Parabel filed an S-1
registration statement for a proposed IPO with Goldman Sachs, UBS
and Citi as the lead underwriters. On 1 December 2011, the company
filed a significantly amended S-1 with the same lead underwriters.
The Company changed its name from PetroAlgae Inc to Parabel on 9
February 2012, reflecting its increased focus on food
solutions.
Valuation
The Group owns 8.24% (30 June 2011: 8.24%) of the common stock
and US$7.2 million (30 June 2011: US$7.2 million) in preferred
stock in PetroTech Holdings Inc. The preferred stock is held at par
plus accrued interest. The common stock is valued based on an
assessment of the realisable value of Parabel Inc.
The PSD Board has undertaken a review of the valuation of
Parable Inc as at 30 June 2012. It has set the valuation at
US$31,755,566 (including accrued income) (30 June 2011:
US83,098,599, 31 December 2011: US$62,969,485) based on a value per
share of US$4.24 (US$11.56 at 30 June 2011; US$8.70 at 31 December
2011).
In coming to this assessment of value, the Board, with advice
from the Independent Valuation Agent and the Investment Consultant
have taken the following factors into account:
-- Public trading of stocks on OTC Link
-- Valuation of comparable companies
-- Model based valuations
The shares of Parabel Inc are traded on OTC Link. The trading is
irregular and volumes traded are very limited. The Directors note
the public trading but do not principally rely upon it for
valuation purposes. The Volume Weighted Average Price of the shares
traded in the period ended 30 June 2012 was as follows (source:
Bloomberg):
1 month - US$2.73/share
6 month - US$3.73/share
12 month - US$5.72/share
There are no directly comparable companies to Parabel. However,
the Directors note that several IPO's have occurred in the United
States of companies in similar markets to Parabel, and at a similar
stage in development. The Board also note the poor IPO market at
present, however.
The Directors have looked at model based discounted cash flow
valuations. The models used have been based on the latest Parabel
management forecasts. Recognising that the IPO market remains
depressed, the Directors have taken a valuation approach more
consistent with an M&A approach and have not applied a mid term
growth rate (as set out in the Parabel valuation note in the
December 2011 interims).
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
17. Significant Investment Holding, continued:
Valuation, continued
Any such valuation is sensitive to valuation inputs. In
particular changes in assumptions of license fees, royalty rates,
implementation rates and discount rates have a significant impact
on valuation. The sensitivity of the model to changing these main
assumptions is show in the table below:
Impact of key sensitivities on value of
Parabel Inc holding
Implied value
Sensitivity per share PSD holding value
range US$ US$
Base case
assumption Low High Low High Low High
------------------- ------------ ------ ------ ------- ------- ------------- -------------
Discount rate 20% 22% 18% 3.36 5.42 25,606,380 39,970,261
Investor discount
to management
forecasts 50% 60% 40% 3.26 5.23 24,871,588 38,639,545
Risks
Parabel is a development stage company with a limited operating
history. Parabel faces many risks in implementing its business
plans. The risks faced by Parabel include, but are not limited to,
the following:
-- It is materially a pre-revenue company and in the absence of
outside funding faces ongoing funding risk.
-- It may be unable to acquire and retain licensees. In
addition, during the next year or so, Parabel will be dependent
upon a limited number of customers.
-- It has entered into several contracts and MOUs with
prospective customer licensees, MOUs are not binding agreements and
they might not result in any enforceable contracts or generate any
revenue.
-- Initial contracts will be conditioned on the demonstration
facilities deployed by licensees meeting certain levels of
productivity, and the failure to meet those levels may lead to the
termination of these contracts.
-- The market may not accept the end-products produced by
Parabel's technology.
-- The revenue and returns licensees will realise from Parabel's
technology are highly dependent on the market price of the biocrude
and protein end-products produced using Parabel's technology, and
those prices will be considerably lower if Parabel fails to receive
certain regulatory or industry approvals or if those markets are
unavailable for other reasons.
-- The end-products produced by Parabel's technology are subject
to industry and regulatory testing.
-- Its long-term success depends on future royalties paid by
customer licensees, and Parabel faces the risks inherent in a
royalty-based business model.
-- If a competitor were to achieve a technological breakthrough,
Parabel's operations and business could be negatively impacted.
-- It has filed patent applications. However, these may not be
granted which may negatively affect revenues.
-- It may not be able to manage its growth. In particular, the
company may not be able to recruit sufficient, qualified staff.
-- It does business in developing economies with less developed
legal frameworks. This may affect the enforceability of contracts
and intellectual property.
-- PSD is dependent on the proposed IPO or other transaction to
realise the value of its shares. There is no guarantee that such a
transaction will occur. In particular, the equity and general
investment markets have been poor in 2012. Continued poor market
conditions may significantly delay any exit process and/or result
in a lower realisable value for the Group.
Prospects
The Directors continue to monitor Parabel with a view to its
commercial progress and the liquidity in the stock. In particular,
the Directors will look to any significant capital markets or
private transactions that Parabel may undertake in the future as an
important indicator of value. Longer term, the Group continues to
examine, together with its Investment Manager and Investment
Consultant, the best options for realising its significant holding
in Parabel Inc.
PSOURCE STRUCTURED DEBT LIMITED
Notes to the Financial Statements, continued
For the year ended 30 June 2012
18. Reconciliation of Published NAV to Financial Statements
NAV
30 June 2012
------------------------------
US$ per Ordinary
US$ Share
Published NAV 43,156,976 0.7245
Adjustment under break up basis accounting:
Provision for realisation costs (100,000) (0.0017)
Write down of fair value through profit
or loss investment (26,909) (0.0004)
Write down of held for trading investment (624,474) (0.0105)
Write down of loans and receivables investments (545,630) (0.0091)
----------- -----------------
Financial Statements NAV 41,859,963 0.7028
=========== =================
Please refer to note 2a(iv) for an explanation as to why the
above adjustments have been included in these financial
statements.
19. Post Year End Events:
As already announced, on 31 July 2012 there was a novation of
the Management Agreement from PSource Capital Guernsey Limited
(hitherto the Manager) to PSource Capital Limited (the Investment
Consultant). As a consequence of this novation, PSource Capital
Limited will now act as Manager and Investment Consultant to the
Company. Laurus Capital Management LLC will continue to act as
Investment Manager. The novation will have no material impact on
the operations of the Company in the opinion of the Directors.
During the post year end period the Board agreed to sell the
Company's warrant holding in Biodelivery Sciences for
US$709,000.
There are no other significant post year end events that require
disclosure in these consolidated financial statements.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited)
As at 30 June 2012
The ten largest holdings of the Group, by underlying investment
company as at 30 June 2012 are set out below:
Percentage
Book Fair of
Name of investment Cost Value NAV
---------------------------------------- ---------- ---------- ----------
US$ US$ %
Petrotech Holdings Corp 7,198,509 28,677,569 68.51
Biovest International 8,464,918 5,267,668 12.58
Creative Vistas 3,646,615 3,646,631 8.71
Mascon Global Consulting Inc 3,069,867 1,973,263 4.71
Biodelivery Sciences Intl 686,000 709,245 1.69
North Texas Steel 944,209 606,434 1.45
Accentia Biopharmaceuticals 437,569 562,249 1.34
Presilient, LLC 837,529 251,279 0.60
GPSI Holdings, LLC 1,256,062 91,294 0.22
Prolink Holdings - 1,275 0.00
9 other underlying investment companies 4,924,047 1,177 0.00
---------- ---------- ----------
31,465,325 41,788,084 99.83
========== ========== ==========
Parabel
Technology and Commercial Progress
Parabel provides renewable technology and solutions to address
the global demand for new economical sources of feed, food and
fuel.
Parabel's objective is to be the leading global provider of
technology and processes for the commercial production of
micro-crop biomass. Parabel has developed proprietary technology,
which it believes will allow customer licensees to grow aquatic
micro-crops at accelerated rates for conversion into products for
both agriculture and energy markets. It seeks to license this
renewable technology to meet the significant and growing demand in
these markets in both emerging and developed economies.
Furthermore, it expects that its solution will deliver strong and
consistent economic returns to its customer licensees as a
consequence of continuous, predictable, year-round operations
without the need for government subsidies.
Parabel's strategy is to license and provide management support
for micro-crop production facilities in equatorial regions around
the world. Its solution is scalable and flexible, which will allow
customer licensees to expand in order to meet market demand. The
company intends to generate revenue from licensing fees and
royalties primarily from customer licensees. Its licensing approach
is designed to minimize its capital expenditures, because customer
licensees will be expected to invest in the development and
construction of the production facilities.
The company's proprietary technology uses indigenous micro-crops
that are not genetically modified and demonstrate an optimal growth
profile for a particular geography and environment. These
micro-crops will then be grown, harvested and processed in a manner
that will optimize the production of micro-crop biomass, which
licensees can use to produce three products:
-- Lemna Protein Concentrate, or LPC: LPC is a free-flowing
powder containing a minimum 65% crude protein. Parabel expects that
its customer licensees will manufacture LPC for use in both animal
and, potentially, human markets. Based on internal and third-party
testing, Parabel believes that LPC is similar in quality to fish
meal and represents a potentially viable protein source for feed
formulations in multiple industries, including aquaculture and
swine. Parabel believes that LPC can also be used as an alternative
to kelp meal in fertilizer applications.
-- Lemna Meal, or LM: LM is a carbohydrate-rich free-flowing
powder containing a minimum 15% crude protein. Parabel expects that
licensees will manufacture LM for use in animal feed markets. Based
on internal and third-party testing, Parabel believes that LM is
similar in quality to alfalfa meal and represents a potentially
viable feed ingredient for formulations in multiple industries,
including dairy and swine. Parabel also believes that LM could be
used in fertilizer and animal bedding applications.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited), continued
As at 30 June 2012
Parabel, continued
Technology and Commercial Progress, continued
-- Biocrude: With a small change in process parameters (but not
equipment),Parabel's processing system can produce Biocrude rather
than LM. Biocrude is a renewable energy feedstock that, through the
use of a variety of third-party conversion systems currently under
development, could potentially be converted into renewable
fuels.
Parabel's proposition to customers is based on licensees
building large farm units in suitable locations (typically in warm
climates with sufficient rainfall). Parabel anticipates these units
being from 600 hectares to 4,800 hectares in size.
Customer Licensees
Parabel is currently negotiating agreements with prospective
customer licensees, including, among others, state-owned
enterprises and multinational food companies. Parabel expects that
the successful execution of early projects will help validate its
technology and ultimately enhance its ability to enter into
commercial-scale agreements with other customer licensees.
During the course of the 12 months period of these financial
statements, Parabel and its customers have built test facilities in
China, Indonesia, Chile, Ecuador and Suriname and Parabel has
received certain initial fee income, as set out in its SEC
filings.. This represents a significant move forward in
commercialisation of the company's technology. The various
customers are discussed below.
Key Milestones and commercial contracts
In 2006, Parabel began the research and development of its
growth and harvesting technologies. Its efforts focused on
experimentation and testing, developing processes and equipment,
and building the infrastructure and databases necessary to support
its technology.
During 2007 and 2008, Parabel developed its proprietary growth
algorithms-the complex mathematical formulas it uses to determine
the correct harvesting density and sunlight exposure of the
biomass.
In 2009, it completed its fully operational demonstration
facility and established its business development team. This
facility consists of a large bioreactor (approximately one hectare)
and three smaller bioreactors that display Parabel's technology and
processes.
In November 2009, the Indonesian Ministry of Agriculture
approved Parabel's LPC product as an approved raw material for use
in animal feed.
In May 2011, Parabel entered into an agreement for the
construction of a pilot-scale bioreactor in the Republic of
Suriname. The construction of this bioreactor was completed in
October 2011 and testing is ongoing.
In October 2011, Parabel entered into a license agreement with
AIQ, a customer licensee in South America, with initial
construction of a pilot-scale bioreactor having begun in September
2011. The AIQ Agreement provides for the construction of a
pilot-scale bioreactor in the Republic of Chile and a framework for
the subsequent build-out of a commercial-scale facility in South
America, subject to the parties' agreement that the pilot-scale
bioreactor has been operated successfully.
The AIQ Agreement provides for three separate phases: the
Preliminary Phase, Phase I and Phase II. In the Preliminary Phase,
AIQ will construct and operate a pilot-scale bioreactor of 0.75
hectares to test and demonstrate the growth and harvesting aspects
of Parabel's technology. Parabel will grant AIQ a license to
construct and operate the pilot-scale bioreactor in the Preliminary
Phase in consideration for a limited license fee from AIQ.
If the parties agree that the Preliminary Phase has been
operated successfully, Parabel and AIQ will proceed to Phase I,
during which the first commercial-scale unit increment of 150
hectares, including growth, harvesting and processing modules, will
be constructed. Parabel has agreed to construct the 150 hectare
commercial growth unit on a turnkey basis, in return for payments
from AIQ, billed on a progress basis, not to exceed a prescribed
limit. After completion of Phase I, the parties will proceed to
Phase II. In Phase II, AIQ will continue to expand the project in
150 hectare unit increments, including growth, harvesting and
processing modules, until the facility forms a unit of up to 5,000
hectares.
In November 2011, CECEP, a Chinese state renewables business,
began construction of a pilot-scale bioreactor. In May 2012 -
Parabel, Inc. and its operating company PA LLC finalized a restated
Master Framework Agreement with CECEP for the implementation of its
technology in China as well as around the world, to include the
eventual joint completion of ten 5,000 hectare commercial-scale
units.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited), continued
As at 30 June 2012
Parabel, continued
Customer Licensees, continued
In June 2012, Parabel, Inc. finalised a Master License Agreement
with Lemna Asia SDN BHD for the implementation of a
commercial-scale license unit in Malaysia. The agreement provides a
framework for the construction and operation of a commercial-scale
license unit of approximately 5,000 hectares, which may consist of
modules in different locations in Malaysia.
In August 2012, Parabel, Inc. finalized a Master License
Agreement with FertiGreen, a subsidiary of Probac S.A. for the
implementation of a commercial-scale license unit in Ecuador.
Probac SA is an animal feed corporation operating in Latin America.
The agreement provides a framework for the construction and
operation of a commercial-scale license unit of approximately 5,000
hectares. The first phase will consist of 300 hectares.
Industry and Test Results
The food, feed and fuel markets are global and significant in
size and the demand in these markets is expected to grow rapidly.
Parabel believes that its products will meet a portion of that
growing demand. It also believe that Parabel's technology will
deliver high production yields, particularly in equatorial regions,
in which it expect the demand for Parabel's feed and food
substitutes will be strong, and will enable Parabel's customer
licensees to address the needs of the following markets.
Animal Feed
Fish Meal: Fish meal, most of which is produced by the
commercial fishing of wild schools of small fish, is a critical
ingredient in the diets of nursery animals and aquaculture stocks.
The fish meal supply is currently limited due to the effects of
overfishing, while the demand for fish meal as a source of protein
in animal diets continues to rise sharply. Global fish meal demand
for aquafeed is expected to reach approximately 7 million metric
tonnes in 2012 and to rise every year thereafter to approximately
16 million metric tonnes in 2020, a rate which is expected to
significantly outpace supply. As a consequence, there is a large
and growing need for an alternative protein to address this supply
and demand imbalance.
Based on research conducted by the University of Idaho, Parabel
believes that LPC is strongly positioned as a fish meal alternative
due to its nutritive qualities. Parabel expects that Parabel's
ability to locate production near source of demand will provide
Parabel's customer licensees with several commercial advantages,
including the potential to reduce freight and duty import expenses,
along with the ability to offer continuous production and
just-in-time inventory management. Based on these factors, the
company expects the market price of LPC to be comparable to fish
meal.
Alfalfa Meal: Alfalfa meal is a premium forage ingredient, used
to meet nutrition and growth requirements in numerous animal diets.
The supply of alfalfa is limited due to the concentration of
production in specific areas, such as the United States and Europe.
Meanwhile, demand is continuing to rise, particularly in Asia. For
dairy and swine alone, the global demand for alfalfa meal will be
approximately 254 million metric tonnes in 2012, rising every year
thereafter to approximately 262 million metric tonnes in 2020.
Trials conducted by the University of Minnesota demonstrated
that LM is a high quality alternative for alfalfa meal in diets for
dairy cattle. Third-party testing is continuing with other animals
that are customarily fed alfalfa, such as swine and horses. Based
on LM's nutritional similarity with alfalfa meal, Parabel expects
that its market price will be comparable.
Fertilizer
Kelp and other high nitrogen biomass can be used as organic
fertilizers. However, the production of kelp is costly due to the
limited areas in which it grows in the wild, as well as
environmental regulations that limit the scale of its harvesting.
Parabel believes that LPC can be a lower-cost, potentially
higher-value alternative to kelp. Parabel also believes that LM
could be used as a nitrogen source in organic fertilizers. Parabel
believes that LPC will be competitive in the specialty turf
fertilizer market given its favorable chemical composition and the
opportunity it presents to reduce potential environmental pollution
as compared to other alternatives.
Fortification of Basic Human Food Products
Parabel is developing its technology to address the rising
demand for human food, a market of particular relevance in the
equatorial regions in which it believes Parabel's technology will
be well-suited to grow. It believes that LPC can eventually serve
the global market for fortification of basic food ingredients for
malnourished populations, particularly in developing and emerging
countries. Given the rapidly growing populations in regions such as
South Asia, Africa and South America, the company believes that
there is a clear need for an alternative supply of high quality and
economical protein to supplement and enhance basic foods, such as
breads, tortillas, noodles and crackers.
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited), continued
As at 30 June 2012
Parabel, continued
Industry and Test Results, continued
Specialty Markets for Prepared Foods
In the long term, Parabel believes it can develop a higher
protein content product from lemna using alternative separation
techniques. This would allow Parabel's customer licensees to access
specialty markets for prepared foods for human consumption, such as
baked goods, meats and frozen foods. Third-party research is
continuing to validate Parabel's results and enhance Parabel's
understanding of these properties. While this process change would
increase the capital expenditure and operating costs associated
with Parabel's technology, the company anticipates that the
increased value of the end product produced would in many cases
justify the additional expenses.
Renewable Fuels
Parabel expects that third-party technology will lead to the
conversion of Biocrude into drop-in fuels. If the technology is
successfully developed in this manner, the company anticipates that
Parabel's customer licensees will have the ability to create
products that address the significant and continuing global demand
for renewable fuel.
Parabel's Solution and Customer Licensee Approach
Parabel believes that its solution will result in the commercial
scale production of renewable products specifically for the feed,
food and fuel industries. Parabel's technology platform primarily
consists of Parabel's components: micro-crop selection and testing,
growth and harvesting techniques, processing technology, and
control systems. Parabel's technology includes the selection of
indigenous micro-crops that demonstrate an optimal profile for a
particular geography and environment, which Parabel believes will
allow Parabel's customer licensees to grow, harvest and process
these micro-crops efficiently and profitably. It has developed a
scalable and flexible model based on micro-crop growth units of 150
hectare increments. This model is designed to be attractive to a
wide range of entities, including agricultural customers with an
interest in the sustainable production of feed products, larger
operators of renewable fuel production facilities and financial
investment groups.
The estimated capital expenditure for a 150 hectare facility as
an entry point is $12 million (excluding the cost of land and
improvements)-a model that Parabel believes involves manageable
costs, risks and build-out times, while also enabling Parabel's
customer licensees to evaluate the commercial potential of the
technology on a larger scale. Due to economies of scale, Parabel
believes that a 600 hectare unit would deliver an attractive
internal rate of return on Parabel's customer licensees'
investment. Ultimately, the company expects that Parabel's customer
licensees will expand their facilities in 150 hectare increments at
similar costs in order to complete facilities of up to 5,000
hectares. Depending on economies of scale, Parabel expects that the
capital expenditure for a 5,000 hectare facility will be
approximately $375 million (excluding the cost of land and
improvements). The company believes that a license unit of this
size will enable Parabel's customer licensees to deliver
significant volumes of product to market, thereby maximizing
internal rates of return on their investments.
Management
Parabel has strengthened its management team in the last 18
months. In particular, the company has appointed (or promoted) the
following experienced key team members:
-- CEO - Tony Tiarks appointed June 2011 as CEO and appointed as
Chairman of the company on 9 February 2012
-- CFO - Syed Naqvi appointed May 2012
-- COO - Peter Sherlock appointed July 2011
PSOURCE STRUCTURED DEBT LIMITED
Analysis of Significant Investments (unaudited), continued
As at 30 June 2012
Biovest
Biovest International, Inc., a US biotechnology company,
develops therapeutic anti-cancer vaccine for the treatment of
low-grade Follicular Lymphoma in the United States. It develops
BiovaxID, a Phase III clinical trial product, which is an
injectable patient-specific vaccine to treat the follicular form of
non-Hodgkin's lymphoma. Biovest is traded on the OTC market in the
USA.
PSD's holding is in the form of debt and common stock. The debt
is held in syndication with funds affiliated with the Investment
Manager. The Investment Manager is working with the Company to
achieve a refinancing of this debt. The common stock (equity) is
tradeable, but PSD (and affiliates) are subject to selling volume
limits.
Creative Vistas
Creative Vistas, Inc. is a Canadian provider of security-related
technologies and systems. It also provides retail and commercial
broadband services through its affiliate Cancable Inc.
PSD's holding is debt syndicated with funds affiliated with the
Investment Manager. This debt is secured against the Cancable Inc
cable servicing business, which is currently being sold.
Mascon
Mascon Global Limited is a global (principally US and Indian)
provider of technology services in the form of information
technology. The Company has three service offerings: identity
management services (IDM), infrastructure management services (IMS)
and product engineering services (PES).
PSD's holding is in the form of debt, which is held in syndicate
with funds affiliated to the Investment Manager. The Investment
Manager is working with the Company to achieve a refinancing of
this debt.
PSOURCE STRUCTURED DEBT LIMITED
Portfolio Analysis (unaudited)
As at 30 June 2012
An analysis of the portfolio by industry at 30 June 2012 is set
out below:
Fair Value
Loans Through Investments
& Profit & Held for No. of
Loss
Industry Total Receivables Investments Trading companies
------------------- ----------- ------------ ------------ -------------- ----------
US$ US$ US$ US$ No.
Biotech 6,539,162 4,087,667 1,742,250 709,245 4
Business Services - - - - 1
Computers 252,180 251,250 930 - 2
Consulting 1,973,263 1,973,263 - - 1
Energy - - - - 1
Industrial 606,710 592,350 - 14,360 2
IT - - - - 1
Clean Tech 28,677,569 - 28,677,569 - 1
Security 3,646,631 3,646,631 - - 1
Technology 92,569 91,294 1,275 - 4
Transport - - - - 1
41,788,084 10,642,455 30,422,024 723,605 19
=========== ============ ============ ============== ==========
An analysis of the portfolio by geography at 30 June 2012 is set
out below:
Fair Value
Loans Through Investments
US State & Profit & Held for No. of
Loss
or Country Total Receivables Investments Trading companies
---------------- ----------- ------------ ------------ -------------- ----------
US$ US$ US$ US$ No.
Arizona 92,569 91,294 1,275 - 1
California - - - - 2
Canada 3,646,631 3,646,631 - - 2
Colorado 252,176 251,250 926 - 1
Florida 34,507,486 4,087,667 30,419,819 - 3
Illinois 1,973,539 1,973,263 - 276 2
Israel - - - - 1
Minnesota - - - - 1
North Carolina 709,245 - - 709,245 1
New Hampshire - - - - 1
New Jersey - - - - 1
New York - - - - 1
Other 4 - 4 - -
Texas 606,434 592,350 - 14,084 2
41,788,084 10,642,455 30,422,024 723,605 19
=========== ============ ============ ============== ==========
NOTICE
PSOURCE STRUCTURED DEBT LIMITED (the "Company")
(An investment company incorporated in Guernsey with
registration number 47075)
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that an Annual General Meeting (the
"Annual General Meeting") of PSource Structured Debt Limited will
be held at Sarnia House, Le Truchot, St Peter Port, Guernsey, on
Tuesday, 6 November 2012 at 10.00am for the purpose of considering
and, if thought fit, passing the following resolutions:
Resolutions
Ordinary Business
1. That the Financial Statements of the Company for the year
ended 30 June 2012 with the Report of the Directors and Auditors
thereon be received and adopted.
2. That the re-appointment of KPMG Channel Islands Limited, 20
New Street, St. Peter Port, Guernsey as Auditors of the Company to
hold office until the conclusion of the next annual general meeting
be and is hereby approved.
3. That the Directors be authorised to fix the remuneration of
the Auditors for their next period of office.
4. That Mr Soondra Appavoo be re-elected as a Director.
5. That Mr Tim Jenkinson be re-elected as a Director.
6. That Mr William Scott be re-elected as a Director.
Special Business
7. That the Company be and is hereby authorised in accordance
with section 5 of the Companies (Guernsey) Law, 2008 to make market
purchases of ordinary shares in the Company provided that:
(a) the maximum number of Ordinary Shares authorised to be
purchased is up to 14.99% of the issued Ordinary Shares;
(b) the minimum price payable by the Company for each Ordinary
Share is 1p (or its equivalent in US Dollars);
(c) and the maximum price for each Ordinary Share shall be the
higher of (a) 105 percent of the average of the middle market
quotation for an Ordinary Share as derived from the Daily Official
List of the London Stock Exchange for the five business days
immediately preceding the day on which that share is purchased; and
(b) the higher of the price of the last independent trade in the
shares and the highest then current independent bid for the shares
on the London Stock Exchange;
(d) such authority shall expire on the earlier of 15 months from
the date of this resolution or the conclusion of the next annual
general meeting of the Company unless such authority is renewed,
varied or revoked prior to such time;
(e) the Company may make a contract to purchase Ordinary Shares
under the authority hereby conferred prior to the expiry of such
authority which will or may be executed wholly or partly after the
expiration of such authority and may make a purchase of ordinary
Shares pursuant to any such contract; and
(f) any Ordinary Shares bought back may be held in treasury in
accordance with Guernsey law or be subsequently cancelled by the
Company and the timing of any purchases in accordance with the
above authority will be decided by the board of directors of the
Company. The terms of this authority to make market purchases of
Ordinary Shares shall supersede any previous resolution authorising
the purchase of Ordinary Shares in the Company.
By order of the Board
Registered Office:
Praxis Fund Services Limited Sarnia House, Le Truchot, St
Secretary Peter Port, Guernsey
GY1 4NA
Notes:
1. If you wish to appoint as your proxy someone other than the
Chairman of the meeting, cross out the words "the Chairman of the
meeting" and write on the dotted line the full name and address of
your proxy. The changes should be initialed.
2. In the absence of instructions, the person appointed proxy
may vote or abstain from voting as he or she thinks fit on the
specified resolutions and, unless instructed otherwise, the person
appointed proxy may also vote or abstain from voting as he or she
thinks fit on any other business (including amendments to
resolutions) which may properly come before the meeting.
3. This form must be signed and dated by the shareholder or
his/her attorney duly authorised in writing. If the shareholder is
a company, it may execute under its common seal or by the signature
of a duly authorised officer or attorney. In the case of joint
holdings, any one holder may sign this form. The vote of the senior
joint holder who tenders a vote, whether in person or by proxy,
will be accepted to the exclusion of the votes of the other joint
holder and for this purpose seniority will be determined by the
order in which the names stand in the register of members in
respect of the joint holding.
4. To appoint more than one proxy you may photocopy this form.
Please indicate the proxy holder's name and the number of shares in
relation to which they are authorised to act as your proxy (which,
in aggregate, should not exceed the number of shares held by you).
Please also indicate if the proxy instruction is one of multiple
instructions being given. All forms must be signed and should be
returned together in the same envelope.
5. To be valid, this form must be completed and lodged with the
Company's Registrar, Capita Registrars, PXS, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, or at the Registered Office, together
with the power of attorney or other authority (if any) under which
it is signed or a copy of such authority certified notarially, not
less than 48 hours before the time fixed for holding the
meeting.
FORM OF PROXY
PSOURCE STRUCTURED DEBT LIMITED (the "Company")
Form of Proxy for use by holder of Ordinary Shares at the Annual
General Meeting of the Company to be held at Sarnia House, Le
Truchot, St Peter Port, Guernsey, convened for Tuesday, 6 November
2012 at 10.00am
I/We_________________________________________________________________________________________
of__________________________________________________________________________________________
hereby appoint the Chairman of the meeting or the Company
Secretary, such appointment being determined at the Company
Secretary's discretion (See Note 1 below), or
_____________________________________________________________________________________________
_____________________________________________________________________________________________
(name and address of proxy in block capitals)
as my/our proxy to attend, and on a poll, vote for me/us and on
my/our behalf at the Annual General Meeting of the Company to be
held on Tuesday, 6 November 2012 at 10.00am
I/We wish my/our proxy to vote as indicated below in respect of
the resolutions to be proposed at the meeting. Please indicate
which way you wish your proxy to vote by ticking the appropriate
box alongside each resolution. (See Note 2 below).
RESOLUTIONS
FOR AGAINST WITHHELD
--- ------------------------------------------------ ---- -------- ---------
1. Ordinary Resolution - Approval of the Financial
Statements
--- ------------------------------------------------ ---- -------- ---------
2. Ordinary Resolution - Re-appointment of
the Auditors
--- ------------------------------------------------ ---- -------- ---------
3. Ordinary Resolution - Directors to fix
remuneration of Auditors
--- ------------------------------------------------ ---- -------- ---------
4. Ordinary Resolution - Re-election of Mr
Soondra Appavoo as a Director
--- ------------------------------------------------ ---- -------- ---------
5. Ordinary Resolution - Re-election of Mr
Tim Jenkinson as a Director
--- ------------------------------------------------ ---- -------- ---------
6. Ordinary Resolution - Re-election of Mr
William Scott as a Director
--- ------------------------------------------------ ---- -------- ---------
7. Ordinary Resolution - To authorise the
Company to purchase its own shares
--- ------------------------------------------------ ---- -------- ---------
Signature ...................................................(see Note 3 below) Date .....................2012
Notes:
1. If you wish to appoint as your proxy someone other than the
Chairman of the meeting, cross out the words "the Chairman of the
meeting" and write on the dotted line the full name and address of
your proxy. The changes should be initialed.
2. In the absence of instructions, the person appointed proxy
may vote or abstain from voting as he or she thinks fit on the
specified resolutions and, unless instructed otherwise, the person
appointed proxy may also vote or abstain from voting as he or she
thinks fit on any other business (including amendments to
resolutions) which may properly come before the meeting.
3. This form must be signed and dated by the shareholder or
his/her attorney duly authorised in writing. If the shareholder is
a company, it may execute under its common seal or by the signature
of a duly authorised officer or attorney. In the case of joint
holdings, any one holder may sign this form. The vote of the senior
joint holder who tenders a vote, whether in person or by proxy,
will be accepted to the exclusion of the votes of the other joint
holder and for this purpose seniority will be determined by the
order in which the names stand in the register of members in
respect of the joint holding.
4. To appoint more than one proxy you may photocopy this form.
Please indicate the proxy holder's name and the number of shares in
relation to which they are authorised to act as your proxy (which,
in aggregate, should not exceed the number of shares held by you).
Please also indicate if the proxy instruction is one of multiple
instructions being given. All forms must be signed and should be
returned together in the same envelope.
5. To be valid, this form must be completed and lodged with the
Company's Registrar, Capita Registrars, PXS, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, or at the Registered Office, together
with the power of attorney or other authority (if any) under which
it is signed or a copy of such authority certified notarially, not
less than 48 hours before the time fixed for holding the
meeting.
6. The 'vote withheld' option is provided to enable you to
abstain on any particular Resolution. However, it should be noted
that a 'vote withheld' is not a vote in law and will not be counted
in the calculation of the proportion of the votes 'for' and
'against' a resolution.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LPMPTMBMTMBT
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