TIDMAINC
RNS Number : 6830L
Applied Intellectual Capital Ltd
15 January 2009
APPLIED INTELLECTUAL CAPITAL LIMITED
("AIC" or "the company")
FINAL RESULTS FOR YEAR ENDED 31 JULY 2008
ANNUAL REPORT
Statement of the Chairman
David Thompson
After an eventful year, with a number of operational and technical successes,
Applied Intellectual Capital faces a challenging environment. Our results for
the fiscal year ended July 31, 2008 reflect revenues of $2.2 million and a net
loss of $26.5 million with cash balances of $6.0 million. We come away from
fiscal 2008, however, with confidence that our technologies can provide
important, and profitable, solutions to many pressing problems affecting society
such as clean air and clean water.
During the fiscal year, our accomplishments included a number of technical
advances, a secondary offering, and completion of a new state-of-the-art
laboratory and headquarters in Alameda, California. And as the year ended, we
adapted to changing market conditions by revamping our management structure,
instituting strict cost controls, and actively pursuing investors at both the
subsidiary and affiliated company and parent company levels.
We believe our business model continues to be relevant: to nurture
electrochemical technologies from concept to market-ready products and services,
and then spin out focused companies to commercialize those products and
services. This belief has been validated by successfully progressing
technologies from inception through to full scale prototype and beyond cost
effectively and rapidly. This is further underpinned by continuing discussions
with serious, accomplished potential development partners for AIC's technologies
and businesses.
In the past year, we have focused closely on four businesses. Of these, two are
nearing commercialization.
* EverClear Solutions, Inc. (in which we own a 54% economic interest) has
technology which can recover copper and other high-value minerals from mining
waste streams. EverClear is in the process of raising funds to support its
business plan which includes projects in Africa and North America; and
* Our BLAB unit is developing a thin-film battery with high power and low weight
which will be offered in three basic product configurations. The first of these
is a 48v electric bicycle battery, which is at the full-size prototype phase.
Negotiations are continuing with a Chinese group to build a commercial
production facility for this first product, focusing on the large and rapidly
growing Asian market for electric bicycles and scooters.
Our RedOx Biofuels subsidiary has demonstrated its processes to derive
fermentable sugars suitable for ethanol production from rice straw and other
waste materials. Discussions with potential development partners are continuing,
although Mitsubishi Corporation has discontinued its previously announced
interest.
Plurion Ltd., our majority-owned subsidiary developing high-capacity renewable
energy storage batteries, believes it has made progress in solving difficult
technical problems. However, we face a deadline to repay or renegotiate debt
that is owed to ITI Scotland, our former development partner in that business.
We have received indications of interest from potential investors in Plurion.
In addition, we have made some promising progress on technologies with uses in
metal-air batteries, solar photovoltaic arrays, and advanced biofuels, among
others.
Our newly occupied 31,000-square-foot building in Alameda provides a much more
productive and efficient working environment at a reasonable rent. The building
contains not only our office and laboratories but also a rapid-prototyping and
fabrication shop. This facility has enabled us to begin shipping our first
commercial quality water treatment systems to our licensee, Rohm and Haas. It
also is the headquarters of AIC Technica, the consulting business we recently
restarted, which is not only generating revenues but also providing key insights
into high value opportunities for our technologies.
We continue to reallocate resources among our various project opportunities
based on technical progress, market conditions, and cash availability.
Unfortunately, our secondary offering in July 2008 did not generate enough
capital for us to meet all our obligations or to carry the full breadth of
projects that we envisioned. However, we are anticipating increased market
interest in clean water and advanced battery projects in the next several years
and we are confident that we will be able to capitalize on this demand.
On December 30, 2008 the Company and Ambrian Partners Limited ("Ambrian")
entered into a fixed-term engagement wherein Ambrian will serve as the Company's
Nominated Advisor through the period ending March 3, 2009. If the Company is not
able to replace its Nominated Advisor by March 3, 2009, trading of its shares
will be suspended and if this is not rectified by April 3, 2009 the admission of
its shares to AIM will be cancelled.
We have a lot of work to do in the coming year. Our continuing negotiations with
ITI Scotland are key - our continuing viability as a company is dependent on our
ability to reach a satisfactory conclusion to those negotiations. In addition,
we are evaluating a number of strategic options to enhance shareholder value.
I should like to thank Sir Andrew Likierman for his leadership and wisdom during
his tenure as Chairman of the Board of Directors. I should also like to thank my
fellow board members and AIC's present and former management for all their
efforts during the past year; and, finally, my thanks to you, our investors and
owners, for your continued support.
DAVID THOMPSON
Non-Executive Chairman
INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF
APPLIED INTELLECTUAL CAPITAL LIMITED
We have audited the consolidated accounts (the 'accounts') of Applied
Intellectual Capital Limited for the year ended 31 July 2008 which comprise the
Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated
Cash Flow Statement, the Consolidated Statement of Changes in Shareholders'
Equity and the related notes 1 to 27. These accounts have been prepared under
the accounting policies set out therein.
This report is made solely to the company's members, as a body, in accordance
with Article 110 of the Companies (Jersey) Law 1991. 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 auditors' 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 auditors
The directors' responsibilities for preparing the Annual Report and the accounts
in accordance with applicable law and International Financial Reporting
Standards (IFRSs) as issued by the International Accounting Standards Board are
set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the accounts in accordance with relevant legal
and regulatory requirements and International Standards on Auditing (UK and
Ireland).
We report to you our opinion as to whether the accounts give a true and fair
view and are properly prepared in accordance with the Companies (Jersey) Law
1991. We also report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited accounts. This other information comprises only
the Statement of the Chairman. We consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies with the
accounts. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the accounts. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
accounts, and of whether the accounting policies are appropriate to the
company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
Opinion
In our opinion:
* the accounts give a true and fair view, in accordance with IFRSs as issued by
the International Accounting Standards Board, of the state of the group's
affairs as at 31 July 2008 and of its loss for the year then ended; and
* the accounts have been properly prepared in accordance with the Companies
(Jersey) Law 1991.
Emphasis of matter - Going concern
In forming our opinion on the financial statements, which is not qualified, we
have considered the adequacy of the disclosure made in note 1 to the financial
statements concerning the group's ability to continue as a going concern. The
group incurred a net loss of $26,515,911 during the year ended 31 July 2008
which along with the other matters explained in note 1 to the financial
statements, indicate the existence of a material uncertainty which may cast
significant doubt about the group's ability to continue as a going concern. The
financial statements do not include the adjustments that would result if the
group was unable to continue as a going concern.
Nexia Smith & Williamson 25 Moorgate
Chartered AccountantsLondon
Registered Auditors EC2R 6AY
+---------------------------------------------+--+----------------+--+---------------+
| APPLIED INTELLECTUAL CAPITAL LIMITED |
| CONSOLIDATED BALANCE SHEETS |
+------------------------------------------------------------------------------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| | | July 31, | | |
+---------------------------------------------+--+----------------+--+---------------+
| | | 2008 | | 2007 As |
| | | | | restated |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Assets | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Current assets: | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Cash and cash equivalents | | $ | | $ |
| | | 6,006,345 | | 22,804,315 |
+---------------------------------------------+--+----------------+--+---------------+
| Marketable securities (note 15) | | 800,000 | | 2,462,400 |
+---------------------------------------------+--+----------------+--+---------------+
| Accounts receivable (note 16) | | 22,367 | | - |
+---------------------------------------------+--+----------------+--+---------------+
| Accounts receivable, related party, net | | 589,738 | | 88,288 |
| (note 16) | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Prepaid expenses and other current assets | | 183,606 | | 188,674 |
| (note 16) | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Total current assets | | 7,602,056 | | 25,543,677 |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Non-current assets: | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Property, plant and equipment, net (note | | 4,595,632 | | 1,089,075 |
| 11) | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Notes receivable, related parties (note 16) | | 286,447 | | - |
+---------------------------------------------+--+----------------+--+---------------+
| Intellectual property, net (note 12) | | 142,231 | | 110,834 |
+---------------------------------------------+--+----------------+--+---------------+
| Investment in EverClear Solutions, Inc. | | 11,470,449 | | 12,549,726 |
| (note 14) | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Goodwill (note 12) | | 406,140 | | 406,140 |
+---------------------------------------------+--+----------------+--+---------------+
| Other assets | | 563,541 | | 589,930 |
+---------------------------------------------+--+----------------+--+---------------+
| Total non-current assets | | 17,464,440 | | 14,745,705 |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Total assets | | $ | | $ |
| | | 25,066,496 | | 40,289,382 |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Liabilities and Shareholders' Equity | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Current liabilities: (note 17) | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Accounts payable | | $ 616,837 | | $ 824,024 |
+---------------------------------------------+--+----------------+--+---------------+
| Accrued expenses: | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Trade | | 644,070 | | 112,294 |
+---------------------------------------------+--+----------------+--+---------------+
| Related party | | - | | 2,000,000 |
+---------------------------------------------+--+----------------+--+---------------+
| Deferred revenues | | 524,266 | | 662,032 |
+---------------------------------------------+--+----------------+--+---------------+
| Short term debt | | 7,565,600 | | - |
+---------------------------------------------+--+----------------+--+---------------+
| Accrued interest payable | | 523,151 | | - |
+---------------------------------------------+--+----------------+--+---------------+
| Total current liabilities | | 9,873,924 | | 3,598,350 |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Shareholders' equity: | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Stated capital account; no par; 100,000,000 | 41,594,675 | | 37,416,260 |
| shares authorized; 44,990,115 and 42,740,115 | | | |
| shares issued and outstanding, respectively | | | |
| (note 18) | | | |
+------------------------------------------------+----------------+--+---------------+
| Accumulated deficit | | (26,402,103) | | (725,228) |
+---------------------------------------------+--+----------------+--+---------------+
| Total shareholders' equity | | 15,192,572 | | 36,691,032 |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| Total liabilities and shareholders' equity | | $ | | $ |
| | | 25,066,496 | | 40,289,382 |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| | | | | |
+---------------------------------------------+--+----------------+--+---------------+
| The Consolidated Financial Statements were approved by the Board of directors |
| on January 8, 2009 |
+---------------------------------------------+--+----------------+--+---------------+
+---------------------------------------------+----------------+--+---------------+
| APPLIED INTELLECTUAL CAPITAL LIMITED |
| CONSOLIDATED INCOME STATEMENT |
+---------------------------------------------------------------------------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| | Year Ended July | |
| | 31, | |
+---------------------------------------------+-------------------+---------------+
| | 2008 | | 2007 As |
| | | | restated |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Revenues: (note 4) | | | |
+---------------------------------------------+----------------+--+---------------+
| Trade | $ 144,255 | | $ 155,509 |
+---------------------------------------------+----------------+--+---------------+
| Related parties (note 21) | 2,034,658 | | 1,726,232 |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Total revenues | 2,178,913 | | 1,881,741 |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Operating expenses: | | | |
+---------------------------------------------+----------------+--+---------------+
| Research and development | 9,860,253 | | 5,187,458 |
+---------------------------------------------+----------------+--+---------------+
| Administration costs (note 12) | 17,539,884 | | 3,049,314 |
+---------------------------------------------+----------------+--+---------------+
| Share of loss from associate (note 14) | 1,079,279 | | 142,634 |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Total operating expenses | 28,479,416 | | 8,379,406 |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Loss from operations (note 5) | (26,300,503) | | (6,497,665) |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Other income (expenses): | | | |
+---------------------------------------------+----------------+--+---------------+
| Profit on disposal of intangible asset | - | | 5,660,000 |
| (note 14) | | | |
+---------------------------------------------+----------------+--+---------------+
| Finance expense: | | | |
+---------------------------------------------+----------------+--+---------------+
| Interest expense (note 24) | (523,263) | | (25,868) |
+---------------------------------------------+----------------+--+---------------+
| Foreign currency exchange losses | (301,931) | | - |
+---------------------------------------------+----------------+--+---------------+
| Finance income: | | | |
+---------------------------------------------+----------------+--+---------------+
| Interest income | 621,520 | | 663,085 |
+---------------------------------------------+----------------+--+---------------+
| Foreign currency exchange gains | - | | 266,531 |
+---------------------------------------------+----------------+--+---------------+
| Other | (11,734) | | 9,980 |
+---------------------------------------------+----------------+--+---------------+
| Total other income (expenses) | (215,408) | | 6,573,728 |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Net profit (loss) | $ | | $ 76,063 |
| | (26,515,911) | | |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Loss per share - basic and diluted (note | $ (0.62) | | $ 0.00 |
| 10) | | | |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
| Weighted average shares outstanding - basic | 42,746,279 | | 31,964,251 |
| and diluted (note 10) | | | |
+---------------------------------------------+----------------+--+---------------+
| | | | |
+---------------------------------------------+----------------+--+---------------+
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| APPLIED INTELLECTUAL CAPITAL LIMITED |
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) |
| Year Ended July 31, 2008 and 2007 |
| |
+------------------------------------------------------------------------------------------------------+
| | Stated Capital | | | |
+------------------------+----------------------------------+--+--+------------------------------------+
| | Shares | | Amount | | | Accumulated | | Total |
| | | | | | | Deficit | | Shareholders |
| | | | | | | | | Equity |
| | | | | | | | | (Deficit) |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Balance at July 31, | 21,000,000 | | $ 523,494 | | | $ | | $ |
| 2006 | | | | | | (1,220,850) | | (697,356) |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Net profit for the | - | | - | | | 76,063 | | 76,063 |
| year | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Total recognized | - | | - | | | 76,063 | | 76,063 |
| profit for the period | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Issuance of common | 21,000,000 | | 39,088,035 | | | - | | 39,088,035 |
| shares (note 18) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Issuance costs (note | - | | (3,575,563) | | | - | | (3,575,563) |
| 18) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Exercise of common | 450,000 | | 840,294 | | | - | | 840,294 |
| stock warrants (note | | | | | | | | |
| 18) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Stock based | - | | - | | | 419,559 | | 419,559 |
| compensation (note 19) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Conversion of debt | 290,115 | | 540,000 | | | - | | 540,000 |
| into common stock | | | | | | | | |
| (note 18) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Balance at July 31, | 42,740,115 | | 37,416,260 | | | (725,228) | | 36,691,032 |
| 2007 | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Foreign exchange | - | | - | | | - | | - |
| reserve | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Net loss for the year | - | | - | | | (26,515,911) | | (26,515,911) |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Total recognized loss | - | | - | | | (26,515,911) | | (26,515,911) |
| for the period | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Issuance of common | 2,250,000 | | 5,069,570 | | | - | | 5,069,570 |
| shares (note 18) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Issuance costs (note | - | | (891,155) | | | - | | (891,155) |
| 18) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Stock based | - | | - | | | 839,036 | | 839,036 |
| compensation (note 19) | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| Balance at July 31, | 44,990,115 | | $41,594,675 | | | $ | | $ |
| 2008 | | | | | | (26,402,103) | | 15,192,572 |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
| | | | | | | | | |
+------------------------+---------------+--+---------------+--+--+----------------+--+----------------+
+--------------------------------------------+--+----------------+--+----------------+
| APPLIED INTELLECTUAL CAPITAL LIMITED |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
+------------------------------------------------------------------------------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| | | Year Ended July 31, |
+--------------------------------------------+--+------------------------------------+
| | | 2008 | | 2007 |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Operating Activities | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Net income (loss) | | $ | | $ 76,063 |
| | | (26,515,911) | | |
+--------------------------------------------+--+----------------+--+----------------+
| Adjustments to reconcile net income (loss) to net cash |
| provided by (used in) operating activities: |
| |
+------------------------------------------------------------------------------------+
| Depreciation and amortization (note 11 and | | 540,447 | | 156,645 |
| 12) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Stock based compensation (note 20) | | 839,036 | | 419,559 |
+--------------------------------------------+--+----------------+--+----------------+
| Adjustment for share of loss from | | 1,079,279 | | 142,634 |
| associate (note 14) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Goodwill impairment (note 12) | | 10,629,254 | | - |
+--------------------------------------------+--+----------------+--+----------------+
| Accrued expenses settled in common stock | | - | | 40,000 |
| (note 18) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Changes in operating assets and | | | | |
| liabilities: | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Accounts receivable, including related | | (523,821) | | (88,288) |
| party (note 16) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Prepaid expenses and other assets | | 102,425 | | (563,868) |
+--------------------------------------------+--+----------------+--+----------------+
| Accounts payable, accrued expenses and | 800,483 | | (30,307) |
| interest payable (note 17) | | | |
+-----------------------------------------------+----------------+--+----------------+
| Accrued expenses related party | | (2,000,000) | | 2,000,000 |
+--------------------------------------------+--+----------------+--+----------------+
| Deferred revenue | | (137,766) | | 61,523 |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Net cash provided by (used in) operating | | (15,186,574) | | 2,213,961 |
| activities | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Investing Activities | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Sale (purchase) of marketable securities | | 1,662,400 | | (2,462,400) |
| (note 15) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Proceeds from (payments of) notes and | (286,447) | | 319,374 |
| interest receivable, related parties | | | |
+-----------------------------------------------+----------------+--+----------------+
| Acquisition of Plurion Ltd, net of cash | | (3,224,046) | | - |
| acquired (note 25) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Investment in EverClear Solutions, Inc. | | - | | (12,692,360) |
| (note 14) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Purchase of remaining minority interest in | | - | | (750,000) |
| AIC Labs, Inc. | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Purchase of property, plant and equipment | | (3,868,339) | | (1,080,045) |
| (note 11) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Capital expenditures for intellectual | | (73,379) | | (90,342) |
| property (note 12) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Net cash used in investing activities | | (5,789,811) | | (16,755,773) |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Financing Activities | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Payments on line-of-credit, net | | - | | (75,000) |
+--------------------------------------------+--+----------------+--+----------------+
| Proceeds from long-term debt | | - | | 500,000 |
+--------------------------------------------+--+----------------+--+----------------+
| Payments on long-term debt | | - | | (130,113) |
+--------------------------------------------+--+----------------+--+----------------+
| Payments on notes payable, related parties | | - | | (69,500) |
+--------------------------------------------+--+----------------+--+----------------+
| Proceeds from stock issuance, net of issue | | 4,178,415 | | 36,352,766 |
| costs (note 18) | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Net cash provided by financing activities | | 4,178,415 | | 36,578,153 |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Net (decrease) increase in cash and cash | | (16,797,970) | | 22,036,341 |
| equivalents | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Cash and cash equivalents at beginning of | | 22,804,315 | | 767,974 |
| period | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
| Cash and cash equivalents at end of period | | $ | | $ |
| | | 6,006,345 | | 22,804,315 |
+--------------------------------------------+--+----------------+--+----------------+
| | | | | |
+--------------------------------------------+--+----------------+--+----------------+
1. Accounting Policies
Basis of Preparation
These consolidated financial statements present the results of Applied
Intellectual Capital Limited (the "Company") and its subsidiaries (the "Group")
and have been prepared in accordance with International Financial Reporting
Standards ("IFRS") (IFRSs and IFRIC interpretations) issued by the International
Accounting Standards Board ("IASB"). These are the Group's first IFRS financial
statements. The transition date for the Group from its previous GAAP, US GAAP,
to IFRS is August 1, 2006. There have been no adjustments required on conversion
from US GAAP to IFRS.
The Company was incorporated in the Isle of Jersey on January 15, 2008 to act as
a holding company for the Applied Intellectual Capital group of companies. The
Company acquired its interest in the Applied Intellectual Capital group of
companies through a merger agreement with Applied Intellectual Capital, a
company incorporated in the state of Nevada, USA. The merger was effected
through a share for share exchange such that the economic interest of
shareholders before and after the merger was approved on March 3, 2008 remained
unchanged.
Immediately prior to the merger, the Company did not conduct a business within
the meaning of IFRS 3 'Business Combinations'. Accordingly, the directors
consider that the merger falls outside of the scope of IFRS 3.
IFRS contains specific guidance to be followed where a transaction falls outside
the scope of IFRS. This guidance is included in paragraphs 10 to 12 of IAS 8
"Accounting policies, changes in accounting estimates and error". This requires,
inter alia, that where IFRS does not include guidance for a particular issue,
the directors should also consider the most recent pronouncements of other
standard setting bodies that use a similar conceptual framework to develop
accounting standards. In this regard, it is noted that the United States
Financial Accounting Standards Board (FASB) has issued an accounting standard
covering business combinations (FAS 141) that is similar in a number of respects
to IFRS 3. Further there is currently a major project being run jointly by the
IASB and FASB to converge IFRS and US GAAP.
In contrast to IFRS 3, FAS 141 does include, as an Appendix, limited accounting
guidance for transactions under common control which, as with IFRS 3, are
outside the scope of that accounting standard. The guidance contained in FAS 141
indicates that a form of accounting that is similar to pooling of interests
accounting, which was previously set out in Accounting Principles Board (APB)
Opinion 16, may be used when accounting for transactions under common control.
Having considered the requirements of IAS 8, and the guidance included within
FAS 141, it is considered appropriate to use a form of accounting which is
similar to pooling of interests when dealing with the transaction in which the
Company acquired its controlling interest in its subsidiaries.
In consequence, the consolidated financial statements of Applied Intellectual
Capital Limited and its subsidiary undertakings include the results of
operations for the period reported as though the acquisition of its controlling
interest through a transaction under common control had occurred at August 1,
2006. Similarly, the consolidated balance sheets and other financial information
have been presented as though the assets and liabilities of the combining
entities had been transferred at August 1, 2006.
The principal accounting policies adopted in the preparation of the financial
statements are set out below.
The Group's reporting currency is the US Dollar.
Going Concern
These accounts have been prepared on the basis of going concern as the Directors
consider that the Company will continue in business for the foreseeable
future. However, this is dependent on securing additional working capital as the
Company currently has insufficient funds to meet its financial commitments when
they fall due.
A note payable to ITI Scotland Ltd. ("ITI") for $7,565,600 principal and
$523,151 interest (see Note 17) is due on February 1, 2009. Interest for August
2008 through January 2009 of approximately $498,205 will also be due on February
1, 2009.
The Directors are addressing the note payable on several fronts including plans
to raise additional equity funding for Plurion Ltd with the understanding that
the financing will be partially applied to the repayment of the ITI note.
Negotiations are in process with ITI in regards to extending the note due date.
In addition, should the note be repaid by new financing or extended, the
Company's working capital balance at December 31, 2009 is forecast to be
negative. The Company had a net loss of $26,515,911 and net income of $76,063
for the years ended July 31, 2008 and 2007, respectively, and an accumulated
deficit of $26,402,103 at July 31, 2008. The Directors have been engaged in a
process, examining a number of options, to secure additional financing to enable
the Company to meet its financial obligations and working capital needs.
The Directors are working towards meeting the working capital shortfall by the
successful completion of one or more of the following initiatives. EverClear
Solutions, Inc. ("EverClear") is in the process of a private placement financing
of which a portion may be a sell down of the Company's investment in EverClear
(see note 14). This private placement is being managed by Nomura International
plc. The Company is exploring opportunities in licensing intellectual property
that has been in development. Negotiations, in a preliminary stage, are in
process for two separate projects.
Based on the success of such initiatives the Company will have sufficient
working capital to continue in business for the foreseeable future, but there
are no guarantees the Company will be successful with such initiatives.
In the event that the plans to secure future funding for the Company do not
succeed, the Company will not have sufficient funding to meet its working
capital requirements.
These matters indicate the existence of a material uncertainty which cast
significant doubt over the Company's ability to continue as a going concern with
its current portfolio of assets, and may not be able to realize its assets and
discharge its liabilities in the normal course of business. The financial
statements do not include the adjustments that would result if the Company was
unable to continue as a going concern.
Basis of Consolidation
Where the Company has the power, either directly or indirectly, to govern the
financial and operating policies of another entity or business so as to obtain
benefits from its activities, it is classified as a subsidiary. The consolidated
financial statements present the results of the Company and its subsidiaries as
if they formed a single entity. Inter-company transactions and balances between
group companies are therefore eliminated in full.
Business Combinations
The consolidated financial statements incorporate the results of business
combinations using the purchase method. In the consolidated balance sheet, the
acquirer's identifiable assets, liabilities and contingent liabilities are
initially recognized at their fair values at the acquisition date. The results
of acquired operations are included in the consolidated income statement from
the date on which control is obtained.
Business combinations that took place prior to the transition date have not been
restated.
Revenue Recognition
Revenue is recognized from the licensing or sale of its patents when persuasive
evidence of an arrangement exists, fees are fixed and determinable, and
collection of the resulting receivable is reasonably assured. Upfront fees are
recognized rateably over the estimated life of the agreement, and royalties as
a percentage of the customer's revenue are recognized as earned.
The Company recognizes revenue for engineering services contracts when
persuasive evidence of an arrangement exists, delivery of the product has
occurred, fees are fixed and determinable, and collection of the resulting
receivable is reasonably assured. Any expected losses on contracts are
recognized when identified.
The Company recognizes revenue from associates to the extent of costs incurred
by the Company for the benefit of the associate.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost comprises the fair values of assets given,
liabilities assumed and equity instruments issued, plus any direct costs of
acquisition.
Goodwill is capitalized as an intangible asset with any impairment in carrying
value being charged to the consolidated income statement. Where the fair value
of identifiable assets, liabilities and contingent liabilities exceed the fair
value of consideration paid, the excess is credited in full to the consolidated
income statement on the acquisition date.
At the date of transition to IFRS, the goodwill carrying amount under US GAAP
was tested for impairment and based on the conditions existing at the transition
date no impairment was identified under IFRS. Goodwill is tested annually for
impairment as described below.
Impairment of Non-Financial Assets
Impairment testing of goodwill is undertaken annually at the financial year end.
Other non-financial assets are subject to impairment tests whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its recoverable amount
(i.e. the higher of value in use and fair value less costs to sell), the asset
is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash-generating unit.
Goodwill is allocated on initial recognition to each of the Group's
cash-generating units that are expected to benefit from the synergies of the
combination giving rise to the goodwill.
Impairment charges are included as another operating expense in the consolidated
income statement, except to the extent they reverse gains previously recognized
in equity. Impairment losses recognized for goodwill are not subsequently
reversed.
Associated Undertakings
Where the Group has the power to participate in (but not control) the financial
and operating policy decisions of another entity, it is classified as an
associate. Associates are initially recognized in the consolidated balance sheet
at cost. The Group's share of post-acquisition profits and losses is recognized
in the consolidated income statement, except that losses in excess of the
Group's investment in the associate are not recognized unless there is an
obligation to make good on those losses.
Any premium paid for an associate above the fair value of the Group's share of
the identifiable assets, liabilities and contingent liabilities acquired is
capitalized and included in the carrying amount of the associate. The carrying
amount of investment in the associate is subject to impairment review in the
same way as goodwill arising on a business combination described above.
Foreign Currency
Transactions entered into by group entities in a currency other than the
functional currency are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the balance sheet date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are recognized
immediately in the consolidated income statement.
On consolidation, the results of overseas operations are translated into the US
Dollar at rates approximating to those ruling when the transactions took place.
All assets and liabilities of overseas operations, including goodwill arising on
the acquisition of those operations, are translated at the rate ruling at the
balance sheet date. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations at actual rate are
recognized directly in the income statement.
Financial Assets
The Group has two categories of financial assets: Loans or receivables and
available for sale.
The consolidated balance sheet only includes amounts classified as loans and
receivables with the exception of marketable securities which are classified as
available for sale. Loans and receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in an active
market. They arise principally through the provision of goods and services to
customers (e.g. accounts
receivables), but also incorporate other types of contractual monetary assets.
They are initially recognized at fair value plus transaction costs that are
directly attributable to
their acquisition or issue, and are subsequently carried at amortized cost using
the effective interest rate method, less provision for impairment.
Impairment provisions are recognized when there is objective evidence (such as
significant financial difficulties on the part of the counterparty or default or
significant delay in payment) that the Group will be unable to collect all of
the amounts due under the terms receivable, the amount of such a provision being
the difference between the net carrying amount and the present value of the
future expected cash flows associated with the impaired receivable. For accounts
receivables, which are reported net, such provisions are recorded in a separate
allowance account with the loss being recognized within administrative expenses
in the consolidated income statement. On confirmation that the trade receivable
will not be collectable, the gross carrying value of the asset is written off
against the associated provision.
The Group's loans and receivables comprise accounts receivable, prepaid expenses
and other current assets and cash and cash equivalents. Cash and cash
equivalents include cash in hand.
The consolidated balance sheet also includes marketable securities which are
classified as available for sale. They are carried at fair value with changes in
fair value recognized directly in a separate component of equity (available for
sale reserve). Where there is a significant or prolonged decline in the fair
value of an available for sale financial asset (which constitutes objective
evidence of impairment), the full amount of the impairment, including any amount
previously charged to equity, is recognized in the consolidated income
statement. Purchases and sales of available for sale financial assets are
recognized on settlement date with any change in fair value between trade date
and settlement date being recognized in the available for sale reserve. On sale,
the amount held in the available for sale reserve associated with that asset is
removed from equity and recognized in the consolidated income statement.
Financial Liabilities
The Group's financial liabilities comprise accounts payable, other short terms
monetary liabilities and bank borrowings which are initially recognized at fair
value and subsequently carried at amortized cost using the effective interest
method.
All borrowing costs are recognized in the income statement in the period in
which they are incurred.
The Group does not apply hedge accounting.
Share-based Payments
Where equity settled share options are awarded to employees, the fair value of
the options at the date of grant is charged to the consolidated income statement
over the vesting period. Non-market vesting conditions are taken into account by
adjusting the number of equity instruments expected to vest at each balance
sheet date so that, ultimately, the cumulative amount recognized over the
vesting period is based on the number of options that eventually vest. Market
vesting conditions are factored into the fair value of the options granted. As
long as all other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are satisfied. The
cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and after
the modification, is also charged to the consolidated income statement over the
remaining vesting period.
Where equity instruments are granted to persons other than employees, the
consolidated income statement is charged with the fair value of goods and
services received.
Leases
Operating lease payments are recognized in the consolidated income statement on
a straight-line basis over the lease term.
Pension Contributions
The Group operates a 401(k) profit sharing retirement plan. The Group is only
obligated to make fixed contributions to the fund. Accordingly, the Group
accounts for this arrangement as a defined contribution pension scheme and
contributions are charged to the consolidated income statement.
Externally Acquired Intangible Assets
Externally acquired intangible assets are initially recognized at cost and
subsequently amortized on a straight-line basis over their useful economic
lives. The amortization expense is included within the "Administrative costs"
line in the consolidated income statement.
Intangible assets relate principally to processing patent applications to
acquire patent rights. Patent rights are amortized over seven years.
Research and Development Expenditure
Development expenditure is capitalized if it can be demonstrated that:
� it is technically feasible to develop the product for it to be sold;
� adequate resources are available to complete the development;
� there is an intention to complete and sell the product;
� the Group is able to sell the product;
� sale of the product will generate future economic benefits; and
� expenditure on the project can be measured reliably.
Capitalized development costs are amortized over the periods the Group expects
to benefit from selling the products developed.
Development expenditure not satisfying the above criteria and expenditure on the
research phase of internal projects are recognized in the consolidated income
statement as incurred.
To date, no development expenditure has met the criteria for capitalization.
Deferred Taxation
Deferred tax assets and liabilities are recognized where the carrying amount of
an asset or liability in the balance sheet differs from its tax base, except for
differences arising on:
� the initial recognition of goodwill;
� the initial recognition of an asset or liability in a transaction which is not
a business combination and at the time
of the transaction affects neither
accounting or taxable profit; and
� investments in subsidiaries and jointly controlled entities where the Group is
able to control the timing of the
reversal of the difference and it is
probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is
probable that taxable profit will be available against which the difference can
be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the balance sheet date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the deferred
tax assets and liabilities relate to taxes levied by the same tax authority on
either:
� the same taxable group company; or
� different group entities which intend either to settle current tax assets and
liabilities on a net basis, or to realize
the assets and settle the
liabilities simultaneously, in each future period in which significant amounts
of deferred
tax assets or liabilities are expected to be settled or
recovered.
Property, Plant and Equipment
Items of property, plant and equipment are initially recognized at cost.
Depreciation is provided on all items of property, plant and equipment, except
land, to write off the carrying value of items over their expected useful
economic lives. It is applied at the following rates on a straight line basis:
Computers and equipment 3 to 5 years
Fixtures and fittings 5 years
Depreciation expense is included within "Administrative costs" in the
consolidated income statement.
2. Critical Accounting Judgements and Estimates
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are
discussed below.
Goodwill impairment: The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment. The recoverable amount is determined based
on value in use calculations. The use of this method requires the estimation of
future cash flows and the choice of a discount rate in order to calculate the
present value of the cash flows. Actual outcomes may vary.
Shared based payments: The Group operates an equity share-based remuneration
scheme for employees. Employee services received, and the corresponding increase
in equity, are measured by reference to the fair value of the equity instruments
at the date of grant, excluding the impact of any non-market vesting conditions.
The fair value of share options is estimated by using valuation models, such as
Black-Scholes and binominal lattice, on the date of grant based on certain
assumptions. Those assumptions are described in note 20 and include, among
others, the dividend growth rate, expected volatility, expected life of the
options and number of options expected to vest.
Useful lives of intangible assets and property, plant and equipment: Intangible
assets and property, plant and equipment are amortized or depreciated over their
useful lives. Useful lives are based on management's estimates of the period
that the assets will generate revenue, which are periodically reviewed for
continued appropriateness. Changes to estimates can result in significant
variations in the carrying value and amounts charged to the consolidated income
statement in specific periods.
3. Standards, Amendments To and Interpretations of Published Standards Not Yet
Effective
The followings standards, amendments and interpretations are not effective for
the year ended July 31, 2008. Unless otherwise stated, the Directors consider
that they either have no effect on the Group or are disclosure standards only:
EU endorsed
* IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on
or after January 1, 2009).
* Revised IFRS 3, Business Combinations and complementary Amendments to IAS 27:
Consolidated and separate financial statements (both effective for accounting
periods beginning on or after July 1, 2009).
* Amendment to IFRS 2, Share-based payments: vesting conditions and cancellations
(effective for accounting periods beginning on or after January 1, 2009).
* IFRS 8, Operating Segments (effective for accounting periods beginning on or
after January 1, 2009).
* IFRIC 12, Service Concession Arrangements (effective for accounting periods
beginning on or after January 1, 2008).
* IFRIC 13, Customer Loyalty Programmes (effective for accounting periods
beginning on or after July 1, 2008).
* IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective for accounting periods beginning
on or after January 1, 2008).
* IFRIC 15, Agreements for the Construction of Real Estate (effective for
accounting periods beginning on or after January 1, 2009).
* IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for
accounting periods beginning on or after October 1, 2008).
Awaiting EU endorsement
* Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation
(effective for accounting periods beginning on or after January 1, 2009). The
revised version of IAS 1 (revised 2007) replaces IAS 1 Presentation of Financial
Statements (revised in 2003) as amended in 2005 and key changes include: the
requirement to aggregate information in the financial statements on the basis of
shared characteristic; changes in the titles of some primary statements (non
mandatory); introducing the possibility of a single Statement of Comprehensive
income (combining the Income Statement and the Statement of Recognized Income
and Expense); Only the total of comprehensive income is to be shown in the
Statement of Changes in Equity. Management is currently assessing the impact of
the Amendment on the accounts.
* Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation
of Financial Statements - Puttable Financial Instruments and Obligations Arising
on Liquidation (effective for accounting periods beginning on or after January
1, 2009).
* Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary,
Jointly-Controlled Entity or Associate (effective for accounting periods
beginning on or after January 1, 2009).
* Revised IFRS 3, Business Combinations and complementary Amendments to IAS 27,
'Consolidated and separate financial statements (both effective for accounting
periods beginning on or after July 1, 2009). The revised IFRS 3 and amendments
to IAS 27 arise from a joint project with the Financial Accounting Standards
Board (FASB), the US standards setter, and result in IFRS being largely
converged with the related, recently issued, US requirements. There are certain
very significant changes to the requirements of IFRS, and options available, if
accounting for business combinations. Management will assess the impact of the
revised IFRS 3 and amendments to IAS 27 should the Company make any
acquisitions.
4. Revenue
+---------------------------------------------+------------+------------------+-+------------------+
| Revenue arises from: | | 2008 | | 2007 |
+---------------------------------------------+------------+------------------+-+------------------+
| | | | | |
+---------------------------------------------+------------+------------------+-+------------------+
| Research & development | $ | 2,045,820 | | $ |
| | | | | 1,726,232 |
+---------------------------------------------+------------+------------------+-+------------------+
| License royalty | | 133,093 | | 155,509 |
+---------------------------------------------+------------+------------------+-+------------------+
| | | | | |
+---------------------------------------------+------------+------------------+-+------------------+
| | $ | 2,178,913 | | $ |
| | | | | 1,881,741 |
+---------------------------------------------+------------+------------------+-+------------------+
The Group only operates in one business segment comprising its research and
development activities. Research & development revenue includes revenue from
associates. The Group's operations are principally based in the United States of
America.
5. Loss from Operations
+---------------------------------------------+--+-----------+-+----------+-----------+
| This is stated after charging: | | 2008 | | 2007 |
+---------------------------------------------+--+-----------+------------+-----------+
| | | | | |
+---------------------------------------------+--+-----------+------------+-----------+
| Staff costs (see note 6 ) | | $5,828,533 | | $ |
| | | | | 3,016,189 |
+---------------------------------------------+--+-------------+----------+-----------+
| Depreciation | | 498,465 | | 113,154 |
+---------------------------------------------+--+-------------+----------+-----------+
| Amortization | | 41,982 | | 43,496 |
+---------------------------------------------+--+-------------+----------+-----------+
| Foreign exchange differences | | 301,931 | | (266,531) |
+---------------------------------------------+--+-------------+----------+-----------+
| Operating lease rentals - property | | 516,023 | | 181,425 |
+---------------------------------------------+--+-------------+----------+-----------+
| | | $ | | $ |
| | | 7,186,934 | | 3,087,733 |
+---------------------------------------------+--+-----------+-+----------+-----------+
6. Staff Costs
+---------------------------------------------+--+-------------------+-+----------+---------------------+-+-+
| Staff costs (including directors) | | 2008 | | 2007 |
| include: | | | | |
+---------------------------------------------+--+-------------------+------------+-----------------------+
| | | | | |
+---------------------------------------------+--+-------------------+------------+-----------------------+
| Wages and salaries | | $4,570,214 | | $2,428,273 |
+---------------------------------------------+--+---------------------+----------+-------------------------+
| Share based payment expense | | 839,036 | | 419,559 |
+---------------------------------------------+--+---------------------+----------+-------------------------+
| Employer payroll taxes | | 331,655 | | 134,372 |
+---------------------------------------------+--+---------------------+----------+---------------------+
| Defined contribution pension cost | | 87,628 | | 33,985 |
+---------------------------------------------+--+---------------------+----------+---------------------+
| | | $5,828,533 | | $ 3,016,189 |
+---------------------------------------------+--+-------------------+-+----------+---------------------+-+-+
7. Remuneration of Directors and Key Management Personnel
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group. Key
management personnel include the directors of the Company, CEO, COO, CFO & CTO.
+---------------------------------------------+--+------------------+-+----------+-----------+-+
| | | 2008 | | 2007 |
+---------------------------------------------+--+------------------+------------+-------------+
| Wages and salaries | | $ 1,317,181 | | $ |
| Severance expense | | 406,667 | | 1,464,396 |
| | | | | - |
+---------------------------------------------+--+--------------------+----------+-----------+
| Share based payment expense | | 69,926 | | 209,778 |
+---------------------------------------------+--+--------------------+----------+-----------+
| Defined contribution pension cost | | 34,453 | | 33,689 |
+---------------------------------------------+--+--------------------+----------+-----------+
| | | $ | | $ |
| | | 1,828,227 | | 1,707,863 |
+---------------------------------------------+--+------------------+-+----------+-----------+-+
8. Finance Income and Expense
Interest income arises on assets held as loans and receivables. Interest expense
arises on liabilities held at amortized cost and measured using the effective
interest method.
9. Tax Expense
+-------------------------------------------+--------+----------+--------------+----------+--------+----------+-----------+
| | | 2008 | | | 2007 |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Current tax | | $ - | | | $ |
| | | | | | - |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Deferred taxation | | $ | | | $ - |
| | | - | | | |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Total income tax expense | | $ - | | | $ - |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| | | | | | |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| | | 2008 | | | 2007 |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Profit (loss) on ordinary activities before | | $ | | | $ |
| tax | | (26,515,911) | | | 76,063 |
+----------------------------------------------------+----------+--------------+----------+-------------------+-----------+
| | | | | | |
+----------------------------------------------------+----------+--------------+-------------------+----------+-----------+
| Tax charge (credit) at federal rate of 35% | | $ | | | $ |
| | | (9,280,569) | | | 26,622 |
+----------------------------------------------------+----------+--------------+-------------------+----------+-----------+
| Tax charge (credit) at state rate | | (1,516,710) | | | 4,351 |
| of 5.72% | | | | | |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Effects of: | | | | | |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Permanent differences | | 26,777 | | | 30,505 |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Net operating loss carryback | | 2,304,752 | | | - |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Unutilized losses carried forward | | 8,465,750 | | | (61,478) |
+-------------------------------------------+-------------------+--------------+----------+-------------------+-----------+
| Total income tax expense | | $ - | | | $ |
| | | | | | - |
+-------------------------------------------+--------+----------+--------------+----------+--------+----------+-----------+
The primary components of deferred income tax assets (liabilities) at July 31
were as follows:
+-------------------------------------------+-----+----------+-------------------+-----+----------+-----+-----+----------+------------+-----+
| | | 2008 | | 2007 |
+-------------------------------------------+------------------------------------+----------------------+----------------+------------+
| Deferred revenues | | $ 214,000 | | | $ 270,000 |
+-------------------------------------------+----------------+-------------------------+----------+----------------------+------------------+
| Research and development tax | | 321,000 | | | 625,000 |
| credits | | | | | |
+-------------------------------------------+----------------+-------------------------+----------+----------------------+------------------+
| Unrecognized stock option | | 516,000 | | | 172,000 |
| compensation | | | | | |
+-------------------------------------------+----------------+-------------------------+----------+----------------------+------------------+
| Equity method losses on investment | | (435,000) | | | 58,000 |
| | | | | | |
+-------------------------------------------+----------------+-------------------------+----------+----------------------+------------------+
| Net operating loss carryforwards | | 10,338,000 | | | 3,028,000 |
+-------------------------------------------+----------------+-------------------------+----------+----------------------+------------------+
| Cash to accrual basis | | 478,000 | | | 346,000 |
+-------------------------------------------------+----------+-------------------------+----------+----------------------+------------------+
| Amortization | | (294,000) | | | (57,000) |
+-------------------------------------------------+----------+-------------------------+----------------------+----------+------------------+
| Total deferred income tax asset, | | 11,138,000 | | | 4,442,000 |
| net | | | | | |
+-------------------------------------------+----------------+-------------------------+----------+----------------------+------------------+
| Less valuation allowance | | (11,138,000) | | | (4,442,000) |
+-------------------------------------------+----------------+-------------------------+----------+----------------------+------------------+
| Deferred income tax asset, net | | $ - | | | $ |
| | | | | | - |
+-------------------------------------------+-----+----------+-------------------+-----+----------+-----+-----+----------+------------+-----+
As of July 31, 2008, the Company had net operating loss carry forwards of
approximately $25,370,000 for federal income tax purposes, which if unused will
expire in years 2020 through 2028. As of July 31, 2008, the Company had research
and development tax credits of approximately $321,000 for federal income tax
purposes, which if unused will expire in years 2020 through 2028. Unused net
operating loss carry forwards and research and development tax credits may
provide future tax benefits, although there can be no assurance that either can
be recognized in the future. Accordingly, due to the fact that it is not
probable that these amounts will be utilized in the future, no deferred tax
asset has been recognized.
10. Earnings (Loss) Per Share
+---------------------------------------------+--+----------+-+-------+-+-------+-------+
| | | 2008 | | 2007 |
+---------------------------------------------+--+--------------------+-+---------------+
| Earnings (Loss) for the year | | $(26,515,911) | | $ 76,063 |
+---------------------------------------------+--+--------------------+-+---------------+
| Weighted average number of shares in issue | | 42,746,279 | | 31,964,251 |
+---------------------------------------------+--+--------------------+-+---------------+
| Earnings (loss) per share - basic | | $ | | $0 .00 |
| and diluted | | (0.62) | | |
+---------------------------------------------+--+----------+-+-------+-+-------+-------+
Certain share options have been excluded from the calculation above on the basis
that they are anti-dilutive.
11. Property, Plant and Equipment
+------------------------+------------+-----------+--+-----------+----------+-+-+--------+-+-+-+
| |
+------------------------+
| | | Computers | | Fixtures | | Total |
| | | & | | & | | |
| | | equipment | | fittings | | |
+------------------------+------------+-----------+--+-----------+--------------+--------+
| Cost | | | | | | |
+------------------------+------------+-----------+--+-----------+----------+--------------+
| At August 1, 2006 | | $ | | $ | | $ 454,517 |
| | | 431,433 | | 23,084 | | |
+------------------------+------------+-----------+--+-----------+----------+------------------+
| Additions | | 1,051,481 | | 28,564 | | 1,080,045 |
+------------------------+------------+-----------+--+-----------+----------+------------------+
| Disposals | | - | | | | - |
| | | | | - | | |
+------------------------+------------+-----------+--+-----------+----------+----------------+
| At July 31, 2007 | | 1,482,914 | | | | 1,534,562 |
| | | | | | | |
| | | | | 51,648 | | |
+------------------------+------------+-----------+--+-----------+------------+--------------+
| Additions | | 665,474 | | | | 4,005,022 |
| | | | | 3,339,548 | | |
+------------------------+------------+-----------+--+-----------+------------+--------------+
| Disposals | | - | | | | - |
| | | | | - | | |
+------------------------+------------+-----------+--+-----------+------------+--------------+
| At July 31, 2008 | | 2,148,388 | | | | 5,539,584 |
| | | | | | | |
| | | | | 3,391,196 | | |
+------------------------+------------+-----------+--+-----------+----------+-+-+--------+-+-+-+
+------------------------+------------+------+------+--+-----+------+--+------+--+------+------+
| Accumulated | | | | | | |
| depreciation | | | | | | |
+------------------------+-------------------+---------+-----+----------------+--+-------------+
| At August 1, 2006 | | 316,508 | | | | 332,333 |
| | | | | | | |
| | | | | 15,825 | | |
+------------------------+------------+-------------+--+------------+--+----------------+
| Additions | | 107,419 | | | | 113,154 |
| | | | | 5,735 | | |
+------------------------+------------+-------------+--+------------+--+----------------+
| Disposals | | - | | | | - |
| | | | | | | |
| | | | | - | | |
+------------------------+------------+-------------+--+------------+--+----------------+
| At July 31, 2007 | | 423,927 | | | | 445,487 |
| | | | | | | |
| | | | | 21,560 | | |
+------------------------+------------+-------------+--+------------+--+----------------+
| Additions | | 366,260 | | | | 498,465 |
| | | | | | | |
| | | | | 132,205 | | |
+------------------------+------------+-------------+--+------------+--+----------------+
| Disposals | | - | | | | - |
| | | | | | | |
| | | | | - | | |
+------------------------+------------+-------------+--+------------+--+----------------+
| At July 31, 2008 | | 790,187 | | | | 943,952 |
| | | | | | | |
| | | | | 153,765 | | |
+------------------------+------------+------+------+--+-----+------+--+------+--+------+------+
+------------------------+------------+--+--+---------+-+--+---------+--+--+--+--+-----+--+--+--+
| |
+------------------------+
| NBV | | | | | | |
+------------------------+------------------+---------+-+---------------------+--------+--------+
| At July 31, 2008 | | 1,358,201 | | | | 4,595,632 |
| | | | | | | |
| | | | | 3,237,431 | | |
+------------------------+------------+---------------+-+------------------+-----+-----------+
| At July 31, 2007 | | $ 1, | | | | $ 1,089,075 |
| | | 058,987 | | $ | | |
| | | | | 30,088 | | |
+------------------------+------------+--+--+---------+-+--+---------+--+--+--+--+-----+--+--+--+
12. Intangible Assets
+----------------------------------+------------+---------+----+----+----+----+----+----+----+---------+----+
| | Goodwill | | Patent | | Total |
| | | | rights | | |
+----------------------------------+----------------------+---------+---------+---------+--------------+
| Cost | | | | | |
+----------------------------------+----------------------+---------+---------+---------+--------------+
| At August 1, 2006 | | | $ | | $ |
| | $ | | 221,226 | | 221,226 |
| | - | | | | |
+-----------------------------------------------+--------------+---------+---------+---------+--------------+
| Additions | 406,140 | | 90,347 | | 496,487 |
+-----------------------------------------------+--------------+---------+---------+---------+--------------+
| At July 31, 2007 | 406,140 | | 311,573 | | 717,713 |
+-----------------------------------------------+--------------+---------+---------+---------+--------------+
| Additions (see below in note 12) | 10,629,254 | | 73,379 | | 10,702,633 |
+-----------------------------------------------+--------------+---------+---------+---------+--------------+
| Impairment charge |(10,629,254) | | - | | (10,629,254) |
+-----------------------------------------------+--------------+---------+---------+---------+--------------+
| At July 31, 2008 | 406,140 | | 384,952 | | 791,092 |
+-----------------------------------------------+--------------+---------+---------+---------+--------------+
| | | | | | |
+----------------------------------+------------+---------+----+----+----+----+----+----+----+---------+----+
+-----------------------------------+-----------+--+----------+--+----------+
| Accumulated amortization | | | | | |
+-----------------------------------+-----------+--+----------+--+----------+
| At August 1, 2006 | | | 157,243 | | 157,243 |
| | - | | | | |
+-----------------------------------+-----------+--+----------+--+----------+
| Additions | - | | 43,496 | | 43,496 |
+-----------------------------------+-----------+--+----------+--+----------+
| At July 31, 2007 | - | | 200,739 | | 200,739 |
+-----------------------------------+-----------+--+----------+--+----------+
| Additions | - | | 41,982 | | 41,982 |
+-----------------------------------+-----------+--+----------+--+----------+
| At July 31, 2008 | - | | 242,721 | | 242,721 |
+-----------------------------------+-----------+--+----------+--+----------+
| | | | | | |
+-----------------------------------+-----------+--+----------+--+----------+
| NBV | | | | | |
+-----------------------------------+-----------+--+----------+--+----------+
| At July 31, 2008 | 406,140 | | 142,231 | | 548,371 |
+-----------------------------------+-----------+--+----------+--+----------+
| At July 31, 2007 | $ 406,140 | | $ | | $ |
| | | | 110,834 | | 516,974 |
+-----------------------------------+-----------+--+----------+--+----------+
Patent rights have an average remaining useful economic life of 3 years.
For goodwill, an impairment test was conducted on transition to IFRS and at
July, 31 2008. In conducting the impairment test, recoverable amount is based on
value in use. The goodwill addition of $10,629,254 was associated with the
purchase of controlling interest in Plurion Ltd. in February 2008. The purchase
price was based on the belief that the company could raise additional capital to
fund the acquisition and continued development of Plurion's research. The
subsequent collapse of the world financial markets has made the raising of
capital unlikely in the foreseeable future.
Due to the inability to raise sufficient capital the impairment test on July 31,
2008 has resulted in an impairment of $10,629,254. There was no need for a
formal impairment test as there were forecast negative cash flows. The
impairment charge is included in the administrative costs on the Consolidated
Income Statement.
The goodwill arising in the year ended July 31, 2007 relates to the acquisition
of the minority interest in AIC Labs Inc.
13. Subsidiaries
The principal subsidiaries of the Company which have been included in these
consolidated financial statements are as follows:
Country of
Percentage interest
Name incorporation
2008 2007
AIC Nevada, Inc. United States
100% 100%
AIC Labs Inc. United States
100% 100%
AIC Technica Inc. United States
100% 100%
AIC Properties Ltd. British Virgin Islands
100% -
AIC Labs Europe Ltd. England
100% 100%
RedOx Biofuels Ltd. England
100% -
Plurion Systems Inc. United States
75% 75%
Plurion Ltd. Scotland
81% 65%
The Company owns AIC Nevada, Inc. directly and all other subsidiaries
indirectly.
The Company has not recorded any minority interest related to PSI's and
Plurion's operating results as PSI and Plurion have maintained a shareholders'
deficit since the Company acquired control.
14. Investments in Associates
Country of
Percentage interest
Name incorporation
2008 2007
EverClear Solutions, Inc. United States
48% 45%
Effective on February 28, 2007 the Company acquired 35% of the issued and
outstanding shares of EverClear Solutions, Inc. ("EverClear") in exchange for
$5,000,000 plus an assignment of technologies for use in mining and mining
related applications. On July 31, 2007 the Company acquired an additional 25% of
EverClear stock in exchange for $2,000,000, a Master Service Agreement and an
agreement to assist with the positioning of EverClear for a public offering of
its stock. The Company is required, in the event that a public offering of
EverClear stock is not effected on or before February 28, 2010, to contribute
back to EverClear a number of shares of EverClear stock such that following such
contribution, the Company would own 45% of the issued and outstanding stock of
EverClear. During the period prior to any public offering of EverClear stock,
the Company is treated for purposes of voting, dividend distribution,
liquidation and other shareholder rights as owning the equivalent of 45% of
EverClear's stock, and as a result the Company accounts for such investment
using the equity method of accounting. Due to a retirement in outstanding
EverClear stock the Company's stock ownership is 48% as of July 31, 2008. A
valuation of the technology transferred to EverClear as part of the investment
was determined to be $5,660,000 as of March 1, 2007. This was recorded as an
increase in the Company's investment in EverClear and as a recognized gain on
disposal as other income in the income statement in transferring the technology
rights.
Amounts relating to associates included in these consolidated financial
statements are as follows:
+---------------------------------------------+--+--------------+-+------------+
| | | 2008 | | 2007 |
+---------------------------------------------+--+--------------+-+------------+
| Total assets | | $ | | $ |
| | | 12,346,634 | | 12,638,014 |
+---------------------------------------------+--+--------------+-+------------+
| Total liabilities | | - | | 2,000,000 |
+---------------------------------------------+--+--------------+-+------------+
| Revenues | | 2,034,658 | | 1,726,232 |
| Other income - license rights | | - | | 5,660,000 |
+---------------------------------------------+--+--------------+-+------------+
| Profit/(loss) | | | | $ |
| | | $(1,079,279) | | (142,634) |
+---------------------------------------------+--+--------------+-+------------+
A summary of EverClear's audited financial information as of July 31, 2008 and
for the period from March 1, 2007 (date of investment) through July 31, 2007 is
as follows:
+---------------------------------------------+--+--------------+-+------------+
| | | 2008 | | 2007 |
+---------------------------------------------+--+--------------+-+------------+
| Total assets | | $ | | $ |
| | | 9,734,503 | | 10,844,236 |
+---------------------------------------------+--+--------------+-+------------+
| Total liabilities | | 1,187,094 | | 157,946 |
+---------------------------------------------+--+--------------+-+------------+
| Revenues | | 35,000 | | - |
| Expenses | | 2,247,722 | | 456,588 |
+---------------------------------------------+--+--------------+-+------------+
| Profit/(loss) | | $(2,212,722) | | $ |
| | | | | (456,588) |
+---------------------------------------------+--+--------------+-+------------+
15. Available for Sale Investments
+---------------------------------------------+--+-------------+-+-----------+
| | | 2008 | | 2007 |
+---------------------------------------------+--+-------------+-+-----------+
| At August 1 | | $ | | $ |
| | | 2,462,400 | | - |
+---------------------------------------------+--+-------------+-+-----------+
| Additions | | 800,000 | | 2,462,400 |
+---------------------------------------------+--+-------------+-+-----------+
| Disposals | | (2,462,400) | | - |
+---------------------------------------------+--+-------------+-+-----------+
| Net gains/(losses) transferred to equity | | - | | - |
+---------------------------------------------+--+-------------+-+-----------+
| At July 31 | | $ 800,000 | | $ |
| | | | | 2,462,400 |
+---------------------------------------------+--+-------------+-+-----------+
Available for sale investments are comprised of marketable securities. Available
for sale investments are denominated in the US Dollar.
16. Accounts Receivable and Other Receivables
+---------------------------------------------+--+-----------+-+----------+
| Current | | 2008 | | 2007 |
+---------------------------------------------+--+-----------+-+----------+
| Accounts receivable | | $ 22,367 | | $ |
| | | | | - |
+---------------------------------------------+--+-----------+-+----------+
| Accounts receivable, related party | | 589,738 | | 88,288 |
+---------------------------------------------+--+-----------+-+----------+
| | | 612,105 | | 88,288 |
+---------------------------------------------+--+-----------+-+----------+
| Prepayments | | 114,398 | | 110,328 |
+---------------------------------------------+--+-----------+-+----------+
| Other current assets | | 69,208 | | 78,346 |
+---------------------------------------------+--+-----------+-+----------+
| | | 183,606 | | 188,674 |
+---------------------------------------------+--+-----------+-+----------+
| Total included in current assets | | $ 795,711 | | $ |
| | | | | 276,962 |
+---------------------------------------------+--+-----------+-+----------+
+-----------------------------------------------+----------+----------+----------+-----------+
| Non-current | | | | |
+-----------------------------------------------+----------+----------+----------+-----------+
| | | 2008 | | 2007 |
+-----------------------------------------------+----------+----------+----------+-----------+
| Notes receivable - related party | | $ | | $ |
| | | 286,447 | | - |
+-----------------------------------------------+----------+----------+----------+-----------+
| Other non-current assets | | 563,541 | | 589,930 |
+-----------------------------------------------+----------+----------+----------+-----------+
| Total included in non-current assets | | $ | | $ 589,930 |
| | | 849,988 | | |
+-----------------------------------------------+----------+----------+----------+-----------+
Notes receivable related party relates to a loan to EverClear Solutions, Inc.
The note, dated July 31, 2008, is interest only until July 31, 2009 then monthly
payments amortized over 12 months. The note is unsecured and bears an annual
interest rate of 6%.
The aging of accounts receivable including related party that are past their due
date is as follows:
+----------------------------------------------+----------+-----------+--+----------+
| | | 2008 | | 2007 |
+----------------------------------------------+----------+-----------+--+----------+
| Not past due | | $ | | $ 88,288 |
| | | 712,963 | | |
+----------------------------------------------+----------+-----------+--+----------+
| Up to 2 months past due | | 51,666 | | - |
+----------------------------------------------+----------+-----------+--+----------+
| More than 2 months past due | | 44,055 | | - |
+----------------------------------------------+----------+-----------+--+----------+
| Reserve related parties | | (196,579) | | |
+----------------------------------------------+----------+-----------+--+----------+
| At July 31 | | $ | | $ 88,288 |
| | | 612,105 | | |
+----------------------------------------------+----------+-----------+--+----------+
A reserve of $196,579 was established offsetting amounts receivable due from
EverClear. EverClear's ability to pay the accounts receivable balance is
dependent on EverClear completing a private placement of equity. The reserve
recognizes the possibility that the placement is not completed.
All of the Group's financial assets are classified as loans and receivables with
the exception of $800,000 (2007: $2,462,400) amounts classified as available for
sale. All of the Group's financial liabilities are held at amortized cost using
the effective interest method. Accounts receivable constitute the only financial
assets that fall within the scope of IAS 39.
17. Accounts Payable and Other Payables
+------------------------------------------+----+-----------+-+-----------+
| Current | | 2008 | | 2007 |
+------------------------------------------+----+-----------+-+-----------+
| Accounts payable | | $ 616,837 | | $ |
| | | | | 824,024 |
+------------------------------------------+----+-----------+-+-----------+
| Accrued expenses - trade | | 644,070 | | 112,294 |
+------------------------------------------+----+-----------+-+-----------+
| Accrued expenses - related party | | - | | 2,000,000 |
+------------------------------------------+----+-----------+-+-----------+
| Deferred revenue | | 524,266 | | 662,032 |
+------------------------------------------+----+-----------+-+-----------+
| Short term debt | | 7,565,600 | | - |
+------------------------------------------+----+-----------+-+-----------+
| Accrued interest payable | | 523,151 | | - |
| | | | | |
+------------------------------------------+----+-----------+-+-----------+
| Total included in current liabilities | | $ | | $ |
| | | 9,873,924 | | 3,598,350 |
+------------------------------------------+----+-----------+-+-----------+
On February 1, 2008 the Company purchased ITI's note receivable from Plurion
Ltd. and associated rights to convert the note into 44% of Plurion Ltd's common
shares for $10,897,600. A note payable to ITI for $7,565,600 was issued as part
of the purchase price. The note bears 13.5% interest and is due February 1,
2009. The note is secured by certain intellectual property rights of Plurion
Ltd.
The maturity profile of the anticipated future cash flows including interest in
relation to the Group's financial liabilities on an undiscounted basis, which,
therefore, differs from both the carrying value and fair value, is as follows:
+----------------+------------------+----------------+-+-------------+-+-------------+
| | | Short | | Other | | Total |
| | | term debt | | liabilities | | |
| | | & | | | | |
| | | interest | | | | |
+----------------+------------------+----------------+-+-------------+-+-------------+
| Within one | | $ | | $ | | $ |
| year | | 8,586,956 | | 1,260,907 | | 9,847,8653 |
+----------------+------------------+----------------+-+-------------+-+-------------+
| Effect of | | (498,205) | | - | | (498,205) |
| financing | | | | | | |
| rates | | | | | | |
+----------------+------------------+----------------+-+-------------+-+-------------+
| At July 31, | | $ | | $ | | $ |
| 2008 | | 8,088,751 | | 1,260,907 | | 9,349,658 |
+----------------+------------------+----------------+-+-------------+-+-------------+
These liabilities represent the total of the Group's financial liabilities held
at amortized cost.
18. Share Capital
+--------------------------------------+--+-------+-------+-+-------+--+-------+-------+
| Authorized | | 2008 | | 2007 |
+--------------------------------------+----------+-----------------+--+---------------+
| Ordinary shares (no par) | | 100,000,000 | | 100,000,000 |
+--------------------------------------+----------+-----------------+--+---------------+
| | | | | |
+--------------------------------------+----------+-----------------+--+---------------+
| Issued and fully paid | | | | |
+--------------------------------------+----------+-----------------+--+---------------+
| At August, 1 | | 42,740,115 | | 21,000,000 |
+--------------------------------------+----------+-----------------+--+---------------+
| Issued | | 2,250,000 | | 21,740,115 |
+--------------------------------------+----------+-----------------+--+---------------+
| At July, 31 | | 44,990,115 | | 42,740,115 |
+--------------------------------------+----------+-----------------+--+---------------+
| | | | | |
+--------------------------------------+----------+-----------------+--+---------------+
| | | | | |
+--------------------------------------+--+-------+-------+-+-------+--+-------+-------+
On January 26, 2007, the Company issued 21,000,000 new shares of common stock at
GBP0.95 ($1.87) per share, net of approximately $3,576,000 in transaction costs,
as a result of the Company's IPO on the AIM raising approximately $35,512,000.
In connection with the admission to AIM the Company issued warrants for 840,000
shares of the Company's common stock to the Company broker and nominated advisor
for their services exercisable at GBP0.95 ($1.87) per share, fully vested and
exercisable at anytime during a five-year term commencing with the Company's
admission to AIM. Through July 31, 2008, 450,000 of such warrants had been
exercised. The Company also issued 290,115 shares of the Company's common stock
on consideration of the cancellation of $500,000 of long term debt and $40,000
in accrued expenses.
On July 31, 2008, the Company issued 2,135,417 new shares of common stock at
GBP1.20 ($2.25) per share, net of approximately $891,000 in transaction costs,
as a result of the Company's secondary offering on the AIM. An additional
114,583 shares were issued to the Company's broker in lieu of broker
commissions.
19. Employee Benefit Plan
Effective January 1, 2002 the Company adopted a 401(k) profit sharing retirement
plan (the "Plan"). All full-time, US based, employees who meet certain age and
length of service requirements are eligible to participate. The Plan vests 20% a
year after two years of completed service and the Company's matching requirement
is 3.00% of the participant's annual salary, as defined by the Plan. For the
years ended July 31, 2008 and 2007, the Company expensed approximately $74,000
and $51,000, respectfully, related to Plan administrative expenses and matching
contributions.
20. Share Based Payment
On November 21, 2006, the Company adopted an incentive stock option plan for
employees and other Company representatives. The Plan is administered by the
Company's Board of Directors which has the exclusive power to select individuals
to receive grants and to establish the terms of the options. The Plan provides
that options may be granted up to 4,229,000 shares of the Company's common
stock.
Options issued under this Plan are non-qualified. Options outstanding under this
plan can be reconciled as follows:
+-------------------------+----+-----+----+----+------+----+----+----+----+-----+----+--+-----------+----+
| |
+-------------------------+
| | Weighted | | Number | | Weighted | | Number |
| | average | | | | average | | |
| | exercise | | | | exercise | | |
| | price | | | | price | | |
+------------------------------+----------+-----------+---------+---------+----------+--+----------------+
| | 2007 | | 2007 | | 2008 | | 2008 |
+------------------------------+----------+-----------+---------+---------+----------+--+----------------+
| | $/share | | | | $/share | | |
+------------------------------+----------+-----------+---------+---------+----------+--+-----------+
| At August 1 | $ - | | - | | $ 1.87 | | 2,511,600 |
+-------------------------+----------+---------+-----------+---------+----------+-------+-----------+
| Granted | 1.87 | | 2,511,600 | | 4.73 | | 902,000 |
+-------------------------+----------+---------+-----------+---------+----------+-------+-----------+
| Exercised | - | | - | | - | | - |
+-------------------------+----------+---------+-----------+---------+----------+-------+-----------+
| Forfeited | - | | - | | 5.01 | | (166,750) |
+-------------------------+----------+---------+-----------+---------+----------+-------+-----------+
| Lapsed | - | | - | | - | | - |
+-------------------------+----------+---------+-----------+---------+----------+-------+-----------+
| At July 31 | $ 1.87 | | 2,511,600 | | $ 2.50 | | 3,246,850 |
+-------------------------+----+-----+----+----+------+----+----+----+----+-----+----+--+-----------+----+
The exercise price of options at July 31, 2008 ranged between $1.87 and $5.08
(2007: $1.87 and $1.87) and their weighted average contractual life was 10
years.
The weighted average fair value of options granted during the year was $4.73
(2007: $1.87).
Of the total options outstanding at the year end, 1,255,800 (2007: 627,900) were
vested and exercisable.
The Company used the Black-Scholes Merton Stock Option Pricing Model to
determine the fair value of option grants made during the year ended July 31,
2008 and July 31, 2007. The Company estimated the average holding period of
vested options to be immediate upon full vesting of three years. The expected
stock price volatility of between 87% and 92% (2007: 26.2%) was calculated by
using public company comparables. A discount rate of 3.5% to 4.7% (2007: 4.5%)
was used. No expected dividends were used. For the year ended July 31, 2008 and
July 31, 2007 stock-based compensation expense was $839,000 and $420,000
respectfully.
21. Related party transactions
Related party transactions can be summarized as follows:
+------------------------+-----+---+-+-+-+-+---------+-+--+----------+-+--+---+-+-+-+-+--+----------+-+-+----------+-+-+-+-+
| |
+------------------------------------+
| | | | | | | | | |
+----------------------------------+---+---+-----------+---------------+--+-------+---+------------------------------+
| July 31, 2007 | Sales | | Purchases | | Owed to related | | Owed by related party |
| | | | | | party | | |
+------------------------------+-------+---+-----------+--+---------------------+---+--------------------------------+
| EverClear Solutions, | $ | | $ | | $ | | $ 88,288 |
| Inc. | 681,127 | | - | | 2,000,000 | | |
+------------------------+-----------+---+----------------+---------------+-----------+--+-----------------------------+
| Plurion Ltd. | 1,045,105 | | - | | - | | - |
+------------------------+-----------+---+----------------+---------------+-----------+--+-----------------------------+
| Other | - | | - | | - | | - |
+------------------------+-----------+---+----------------+---------------+-----------+--+-----------------------------+
| At July 31 | $ | | $ | | $ | | $ 88,288 |
| | 1,726,232 | | - | | 2,000,000 | | |
+------------------------+-----------+---+----------------+---------------+-----------+--+-----------------------------+
| | | | | | | | | |
+----------------------------------------------------+-----------------+--+-----+---+-----------------+-+----------+-------+
| | | | | | | | | |
+----------------------------------+---+---+-----------+---------------+--+-------+---+------------------------------+
| July 31, 2008 | Sales | | Purchases | | | Owed to | | Owed by related |
| | | | | | | related | | party |
| | | | | | | party | | |
+------------------------+-------------+---+---------------------------+--+---+----------+----------+--------------------+
| EverClear Solutions, | $ | | $ | | | $ | | $ 876,185 |
| Inc. | 2,009,658 | | - | | | - | | |
+------------------------+-----------+---+----------------+----------+----+-----------+--+-----------------------------+
| Plurion Ltd. | 25,000 | | - | | | - | | - |
+------------------------+-----------+---+----------------+----------+----+-----------+--+-----------------------------+
| Other | - | | - | | | - | | - |
+------------------------+-----------+---+----------------+----------+----+-----------+--+-----------------------------+
| At July 31 | $ | | $ | | | $ | | $ 876,185 |
| | 2,034,658 | | - | | | - | | |
+------------------------+-----+---+-+-+-+-+---------+-+--+----------+-+--+---+-+-+-+-+--+----------+-+-+----------+-+-+-+-+
EverClear Solutions, Inc. is a related party by virtue of the Group's equity
interest in that company. Transactions between the Group and EverClear
Solutions, Inc. comprise research and development work performed by the Company
at EverClear Solutions' direction.
Plurion Ltd. was a related party by virtue of the Group's equity interest in
that company until February 1, 2008 when the Company purchased controlling
interest in Plurion Ltd. and subsequently began consolidating Plurion Ltd's
results into the Company.
22. Operating Lease Commitments
Operating leases relate to certain office equipment and the Company's corporate
office and development center in Alameda, CA. The Alameda lease started December
2007 with a term of ten years. The future values of minimum lease payments are
as follows:
+---------------------------------------------+--+-----------+-+-----------+
| | | 2008 | | 2007 |
+---------------------------------------------+--+-----------+-+-----------+
| Not later than one year | | $ 638,706 | | $ |
| | | | | 295,720 |
+---------------------------------------------+--+-----------+-+-----------+
| Later than one year and not later | | 2,395,773 | | 2,037,768 |
| than five years | | | | |
+---------------------------------------------+--+-----------+-+-----------+
| Later than five years | | 2,518,672 | | 6,121,908 |
+---------------------------------------------+--+-----------+-+-----------+
| At July 31 | | $ | | $ |
| | | 5,553,151 | | 8,455,396 |
+---------------------------------------------+--+-----------+-+-----------+
23. Contingent Liabilities
There are no contingent liabilities.
24. Financial and Other Risks
Interest rate risk
The Company has only one note payable that has a fixed interest rate of 13.5%
exposing the Group to fair value interest rate risk. At July 31, 2008 the fair
value of the Group's financial liabilities was not significantly different from
their carrying values.
Credit risk
The Group maintains deposits primarily in two financial institutions, which at
times may exceed amounts covered by insurance provided by the U.S. Federal
Deposit Insurance Corporation up to $100,000. At July 31, 2008 and 2007, the
Company had approximately $288,623 and $26 million, respectively, of uninsured
deposits. The Company has not experienced any losses with respect to uninsured
balances.
The Group has combined accounts receivable and note receivable balances as of
July 31, 2008 of $1,072,764 due from EverClear Solutions, Inc., a related party.
EverClear's ability to pay these obligations is dependent on EverClear
completing a planned funding effort by March 2009. The Group has established a
reserve of $196,579 against the EverClear accounts receivable balance as of July
31, 2008. The Group holds no collateral in support of these obligations.
Liquidity risk
The Company currently has insufficient working capital to meet its financial
commitments when they fall due. The nature of the working capital shortfall and
the actions the Directors are taking to address this issue are described in
detail in Note 1 under going concern.
Market price risk
The Group principally transacts in its functional currency and its financing
arrangements at fixed interest rates. The Note and interest payable to ITI is UK
pound denominated. The note principal balance is GBP3,860,000 and is carried on
the Group's financial statement at $7,565,600 using a conversion rate of $1.96
per GBP1. The accrued interest on this note is calculated monthly in pounds and
then the monthly interest is converted to dollars at the month end current
exchange rate.
Capital structure
The Group manages its borrowings and equity as capital. The Group's principal
objective is to ensure that the Group has sufficient capital to fund its
operations. In developing business plans, management considers the likely
capital requirements and how to fund these requirements. Additional capital is
funded by using the least costly source at the time of fund-raising. At July 31,
2008, the Group's capital can be summarized as follows:
+-------------------------------------------+--+------------+--+------------+
| | | | | |
+-------------------------------------------+--+------------+--+------------+
| | | 2008 | | 2007 |
+-------------------------------------------+--+------------+--+------------+
| Equity | | $ | | $ |
| | | 15,192,572 | | 36,691,032 |
+-------------------------------------------+--+------------+--+------------+
| Borrowings | | 7,565,600 | | - |
+-------------------------------------------+--+------------+--+------------+
| At July 31 | | $ | | $ |
| | | 22,758,172 | | 36,691,032 |
+-------------------------------------------+--+------------+--+------------+
The Group is not subject to any externally imposed capital requirements.
25. Business Combinations
On February 1, 2008 AIC Properties Ltd. (AICP) acquired a 44% interest in
Plurion Limited, a company whose activity is research and development in the
area of flow storage batteries. The 44% interest represents an option to convert
a loan note into capital and this purchase gave AICP effective control of
Plurion Ltd. AICP purchased the interest from ITI Scotland. Details of the fair
value of the identifiable assets and liabilities acquired and goodwill arising
is as follows:
Property, plant and equipment
$ 136,773
Cash
107,954
Prepaid expenses and other current assets
70,968
Payables
(47,259)
Fair value of net assets acquired
$ 268,436
Consideration paid:
Cash
3,332,000
Note Payable
7,565,600
Goodwill arising
10,629,164
Fair values for the majority of the identifiable assets and liabilities acquired
are not significantly different to their book values. Goodwill principally
relates to knowledge associated with Plurion staff and suitability of the
facility in Glenrothes, Scotland. The goodwill arising of $10,629,164 was
determined to be completely impaired as of July 31, 2008.
Since the acquisition date, Plurion Ltd has contributed $11,346,437 toward the
Group's consolidated loss. If the acquisition had occurred on August 1, 2007,
consolidated loss for the year would have been $27,031,908.
26. Restatement of July 31, 2007 Consolidated Financial Statements
The investment the Company made in EverClear at July 31, 2007 included a
technology transfer. The independent valuation of that technology, $5,660,000,
was completed subsequent to the release of the July 31, 2007 financial
statements. The determination of this valuation has resulted in the restatement
of the Company's audited consolidated financial statements for the year ended
July 31, 2007.
The following table presents the effect of the restatement made to the Company's
previously reported consolidated income statement for the year ended July 31,
2007 and its consolidated balance sheet at July 31, 2007:
For the year ended July 31, 2007
Previously
Reported Adjustments Restated
Income statement:
Other income (expense) $
913,728 $ 5,660,000 $ 6,573,728
Net income (loss)
(5,583,937) 5,660,000
76,063
Net income (loss) per share - basic and diluted (0.17)
0.17 0.00
As of July 31, 2007
Previously
Reported Adjustments Restated
Balance sheet:
Investment in EverClear Solutions Inc. $ 6,889,726 $
5,660,000 $ 12,549,726
Total Assets
34,629,382 5,660,000 40,289,382
Accumulated deficit
(6,385,228) 5,660,000 (725,228)
Total shareholders' equity 31,031,032
5,660,000 36,691,032
Total liabilities and shareholders' equity 34,629,382
5,660,000 40,289,382
27. Events after the Balance Sheet Date
On November 5, 2008 AIC and the other shareholders of EverClear Solutions Inc.
(EverClear) amended their Shareholder Agreement to provide for the redemption by
EverClear of 295,454 of EverClear shares held by AIC in consideration for the
release of 147,728 EverClear shares held by AIC from a condition which would
have required the return of such shares to EverClear's treasury without
consideration in the event that within three years of its investment EverClear
were not either admitted to trading on the AIM market of the London Stock
Exchange or had not made an initial public offering of its stock. The effect of
this amendment is to fix AIC's shareholdings in EverClear at 531,818 shares, or
54.1% of the issued and outstanding shares of EverClear. AIC has waived voting
privileges with respect to 147,728 shares for so long as it owns 50% or more of
the shares of EverClear. Accordingly, its voting shares represent 48% of total.
On December 3, 2008, the Company's Nominated Advisor to the AIM market of the
London Stock Exchange, Nabarro Wells & Co. Limited ("Nabarro Wells"), notified
the Company of its intention to cease to act on behalf of the Company as its
Nominated Adviser for the purposes of the AIM Rules for Companies, citing the
Company's inadequate working capital. Termination of Nabarro Wells' engagement
was to be effective as of March 3, 2009. Following the acquisition of Nabarro
Wells by Ambrian Partners Limited ("Ambrian") the Company agreed to engage
Ambrian for the remainder of Nabarro Wells' grace period, through March 3, 2009.
If the Company is not able to replace its Nominated Advisor by March 3, 2009,
trading of its shares will be suspended and if this is not rectified by April 3,
2009 the admission of its shares to AIM will be cancelled.
On December 19, 2008 the Company announced that it is evaluating the option of
cancelling its Admission to AIM.
Sir Andrew Likierman resigned as a Company Chairman of the Board and director on
December 18, 2008. Sir Andrew resigned in order to take on increased
responsibilities at the London Business School. David Thompson was appointed
Chairman of the Board on December 18, 2008. Mr. Thompson has served as a
Non-Executive Director of the Company since December 2006.
ANNUAL GENERAL MEETING
AIC expects to mail its full audited Annual Accounts to shareholders shortly
together with a Notice of Annual General Meeting. The full Annual Accounts will
be made available on the company's website at www.apicap.com once mailed.
For further information, please contact:
+--------------------------+----------------------------+----------------------------+
| Applied Intellectual | Robert Stoffregen | Tel. +1 510 239 0025 |
| Capital Limited: | | |
+--------------------------+----------------------------+----------------------------+
| | | |
+--------------------------+----------------------------+----------------------------+
| Ambrian Partners | Marc Cramsie | Tel. +44 (0)207 634 4705 |
| Limited: | | |
+--------------------------+----------------------------+----------------------------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
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