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PSource Struct Debt (PSD)

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Friday 28 September, 2012

PSource Struct Debt

Annual Financial Report and Notice of AGM

RNS Number : 4271N
PSource Structured Debt Limited
28 September 2012
 



28 September 2012

 

PSource Structured Debt Limited

 

Financial Results for the period ended 30 June 2012 and Notice of AGM

 

 

PSource Structured Debt Limited (the 'Company' or 'PSD'), the London Listed fund (in managed wind down) is pleased to announce its results for the full year to 30 June 2012.

 

 

Copies of the Audited accounts will be available for download from the Company's website www.psourcestructureddebt.com and will be available for inspection from the National Storage Mechanism www.hemscott.com/nsm.do.

 

 

For further information, please contact:

 

PSource Capital Limited+44 20 7925 3156

Soondra Appavoo

 

 



PSOURCE STRUCTURED DEBT LIMITED

 

Contents

 

 

 

Company Information                                                                                                               1

 

Directors                                                                                                                             2-3

 

Financial Calendar                                                                                                                  3

 

Investment Objective and Policy                                                                                               3

 

Summary Information                                                                                                            3-6

 

Chairman's Statement                                                                                                          7-9

 

Directors' Report                                                                                                               10-18

 

Responsibility Statement                                                                                                       19

 

Independent Auditor's Report                                                                                                  20

 

Consolidated Statement of Financial Position                                                                          21

 

Consolidated Statement of Comprehensive Income                                                                   22

 

Consolidated Statement of Changes in Equity                                                                          23

 

Consolidated Statement of Cash Flows                                                                                   24

 

Notes to the Financial Statements                                                                                     25-48

 

Analysis of Significant Investments (unaudited)                                                                    49-53

 

Portfolio Analysis (unaudited)                                                                                                 54

 

Notice                                                                                                                                  55

 

Form of Proxy                                                                                                                       56

 

 

 


PSOURCE STRUCTURED DEBT LIMITED

Company Information

 

Company Number:

47075 (Registered in Guernsey)

Financial adviser and stockbroker to the Company:

Numis Securities Limited

The London Stock Exchange Building

10 Paternoster Square

London, EC4M 7LT

 

Directors:

William Scott, Independent Chairman

Soondra Appavoo

Peter Niven, Independent Director

Tim Jenkinson, Independent Director

Keith Dorrian, Independent Director

 

Auditors to the Company:

KPMG Channel Islands Limited

20 New Street

St Peter Port

Guernsey, GY1 4AN

Company Secretary and Administrator:

Praxis Fund Services Limited

Sarnia House

Le Truchot

St Peter Port

Guernsey, GY1 4NA

Solicitors to the Company:

Eversheds LLP

1 Wood Street

London,  EC2V 7WS

Registered office of the Company:

Sarnia House

Le Truchot

St Peter Port

Guernsey, GY1 4NA

Guernsey Lawyers to the Company:

Mourant Ozannes

PO Box 186

1 Le Marchant Street

St Peter Port

Guernsey, GY1 4HP

 

Investment Manager:

Laurus Capital Management, LLC

875 Third Avenue, 3rd Floor

New York, NY 10022

USA

 

U.S. Counsel:

Alston & Bird LLP

90 Park Avenue

New York, NY 10016-1387

USA

Manager:

PSource Capital Guernsey Limited

Sarnia House

Le Truchot

St Peter Port

Guernsey, GY1 4NA

Until 31 July 2012

Bankers:

Investec Specialist Private Bank

Glategny Court,

Glategny Esplanade,

St Peter Port,

Guernsey, GY1 3LP

Effective 21 February 2012

Investment Consultant Promoter & Manager:

PSource Capital Limited

126 Jermyn Street

London, SW1Y 4UJ

Manager - effective 31 July 2012

Custodian:

Wells Fargo Bank                 

45 Broadway,14th Floor        

New York, NY 10006             

USA                                       

Independent Valuation Consultant:

MountainView IPS (formerly Clayton IPS Corporation)

999 18th Street

Suite 1001

Denver, Colorado 80202

USA

Registrar:

Capita Registrars (Guernsey) Limited

Mont Crevelt House

Bulwer Avenue

St Sampson

Guernsey, GY2 4JN

Clearing Broker:

Albert Fried & Company, LLC

45 Broadway, 24th Floor   

New York, NY 10006

USA

 

 

Executing Broker:

GP Nurmenkari Inc.

6 East 39th Street

New York, NY 10016

USA

 

Financial Public Relations:

Weber Shandwick Financial

Fox Court

14 Gray's Inn Road

London, WC1X 8WS


 



PSOURCE STRUCTURED DEBT LIMITED

Company Information, continued

 

Directors

The Directors are responsible for the determination of PSource Structured Debt Limited's (the "Group" or "Company" or "PSD") investment policy and have overall responsibility for the Group's activities. The Directors have put in place procedures to ensure that the Group meets current corporate governance requirements.

 

The Directors of the Company, all of whom are non-executive and who, apart from Mr Appavoo, are entirely independent of the Manager, the Investment Manager and the Investment Consultant, are:

 

William Scott, Chairman

William Scott was from 2003 to 2004 Senior Vice President with the Financial Risk Management Group, a leading specialist manager of funds of hedge funds. From 1989 to 2002 he worked at Rea Brothers (subsequently part of Close Brothers) as an investment manager specialising in fixed income portfolios and latterly in private banking where he was a director of Close Bank Guernsey Limited. Prior to this he was an equity sector manager with a large public sector pension fund. He holds a number of non-executive directorships of listed companies including AcenciA Debt Strategies Limited and a number of funds managed by the Financial Risk Management group where he is Chairman of the Audit, Risk Management and Control Committee. He is also a director of several other investment management and property companies. He is a chartered accountant with over 25 years' experience in the funds sector. He is a resident of Guernsey.

 

Soondra Appavoo

Soondra Appavoo is managing director of PSource Capital Limited and director of PSource Capital Guernsey Limited. He has 18 years experience in the investment industry, including 4 years as director and managing director of PSolve Alternative Investments, the fund of hedge fund business of Punter Southall Group. He was formerly a director at UBS Warburg investment banking and is a chartered accountant. Mr Appavoo holds an MA in Natural Sciences and MBA with Distinction, both from the University of Oxford. He is the sole representative of the Manager on the Board.

 

Peter Niven

Peter Niven, is a consultant with Guernsey Finance, the promotional agency for the island's finance industry internationally. He has over 36 years experience in the financial services market in both the UK, offshore and internationally having worked in a number of senior positions in the Lloyds TSB Group until his retirement in 2004. He is also a non executive director of several Guernsey based financial services companies listed on the main London Stock Exchange together with a captive insurance protected cell company. Mr Niven is a Fellow of the Chartered Institute of Bankers and a Chartered Director.

 

Tim Jenkinson

Tim Jenkinson is Professor of Finance and Director of the Private Equity Institute at the Oxford Saïd Business School. He is also Chairman of the economic consulting firm Oxera. He is an expert on corporate finance, in particular initial public offerings, private equity and the cost of capital, and has consulted for a wide range of companies and regulatory bodies. He has written widely on finance and economics and his work has been published in books and leading international journals. He initially studied economics as an undergraduate at Cambridge University, before going as a Thouron Fellow to the University of Pennsylvania, where he obtained a Masters in Economics. He then returned to the UK and obtained a DPhil in Economics from Oxford.

 

Keith Dorrian

Keith Dorrian has over 30 years experience in the offshore finance industry. Joining Manufacturers Hanover in 1973 he moved to First National Bank of Chicago in 1984. In 1989 he joined ANZ Bank (Guernsey) where as a director of the bank and fund management company he was closely involved in the banking and fund management services of the group. He took up the position of Manager Corporate Clients in Bank of Bermuda Guernsey in 1999 and was appointed Head of Global Fund Services and Managing Director of the bank's Guernsey fund administration company in 2001 retiring on 31 December 2003. He is currently a director of a number of funds and fund management companies and holds the Institute of Directors Diploma in Company Direction. He is a resident of Guernsey.

 



PSOURCE STRUCTURED DEBT LIMITED

Company Information, continued

 

Financial Calendar

 

Annual Report and Accounts sent to shareholders                        by 30 September 2012.

 

Annual General Meeting to be held                                              on 6 November 2012.

 

Interim Report and Accounts sent to shareholders by 28               February 2013.

 

Investment Objective and Policy effective from 16 May 2012

The Company will be managed with a view to realising the existing investments within its Portfolio in an orderly and timely manner (such realisations to be effected in such manner as the Investment Manager may determine, acting in its discretion under the control and supervision of the Board) and return the proceeds of such realisations to shareholders at such times and from time to time and in such manner as the Board may in its absolute discretion determine.

 

The Company will not make any new investments, but may at the Board's discretion invest in or advance additional funds to or otherwise participate in the financial restructuring of companies in which the Company has existing Investments at the Restatement Date (11 April 2012) and to use its discretion to hold cash or short-term money market instruments from time to time for such purposes as the Board determines appropriate, including for the payment of dividends, the meeting of expenses, and the funding of share buybacks. Cash will be held in accounts with institutions which are rated BBB (or above) by Standard & Poor's or an equivalent rating by another reputable agency (or wholly owned subsidiary of such institutions).

 

Investment Objective and Policy effective to 16 May 2012

The Group's original investment objective, as set our in the prospectus, was to seek to provide a total return to shareholders of 10-15 per cent per annum over a rolling 3-year period with annual standard deviation of less than 5 per cent.

 

The Group's investment policy was to invest in a diversified portfolio of asset backed loans and debt made predominantly to, and equity warrants and similar instruments issued predominately by, publicly traded small and micro-cap companies in the US. The exact number of assets and strategies in which the Group invested may have varied over time but the Directors expected that the Group would have been invested at all times in a minimum of 30 underlying companies, at time of investment.

 

Summary Information

There are 59,564,681 (30 June 2011: 59,564,681) Ordinary Shares in issue and the NAV per Ordinary Share at 30 June 2012 was US$0.7028 (30 June 2011: US$1.6562). The Company listed on 3 August 2007 with an initial NAV per Ordinary Share after launch costs of 97.75p. No dividends have been declared in respect of the year ended 30 June 2012 (year ended 30 June 2011: zero pence per Ordinary Share).

 

As at 30 June 2012, the portfolio which comprised 19 companies (30 June 2011: 30), represented 99.83% of Net Asset Value (30 June 2011: 107.60%). The maximum position in any company was 68.63%, excluding accrued interest, of the portfolio (30 June 2011: 76.47%).

 


PSOURCE STRUCTURED DEBT LIMITED

Company Information, continued

 

Summary Information, continued

 

Monthly total return performance, published NAV and dividends declared since inception is set out below:

 

5 June 2007

to

30 June 2008

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Financial

YTD

NAV (p)


97.37

98.53

100.17

102.13

103.81

103.13

105.06

107.21

107.54

109.40

110.19

-

Returns (%)


-0.38

1.19

2.49

1.95

1.64

0.55

1.87

2.05

1.49

1.73

0.72

16.37

Dividend (p)


-

-

0.8

-

-

1.25

-

-

1.25

-

-

3.30

 

1 July 2008

to

30 June 2009

Jul

Aug

Sep

Oct

Nov

Dec

Jan*

Feb

Mar

Apr

May

Jun

Financial

YTD

NAV (p)

110.48

113.17

113.20

110.78

105.49

105.88

-

-

-

-

-

-

-

NAV (¢)*

-

-

-

-

-

-

162.22

153.71

158.24

160.08

166.10

168.85

-

Returns (%)

1.41

2.43

0.03

-2.14

-4.78

0.37

4.99

-5.25

2.95

1.16

3.76

1.66

6.20

Dividend (p)

1.25

-

-

-

-

-

-

-

-

-

-

-

1.25

 

1 July 2009

to

30 June 2010

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Financial

YTD

NAV (¢)

171.16

170.94

170.09

172.59

179.84

188.30

199.31

199.10

202.62

198.52

193.41

189.22

-

Returns (%)

1.37

-0.13

-0.50

1.47

4.20

4.70

5.85

-0.11

1.77

-2.02

-2.57

-2.17

12.06

Dividend (¢)

-

-

-

-

-

-

-

-

-

-

-

-

-

 

* On 30 January 2009, a special resolution was passed to convert  the issued Sterling Shares into US Dollar Shares in accordance with article 3.12 of the Company's articles of association at an exchange rate of US$1.4593/£. With effect from this date the performance of the Company is measured in US Dollars.

 



PSOURCE STRUCTURED DEBT LIMITED

Company Information, continued

 

Summary Information, continued

 

1 July 2010

to

30 June 2011

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Financial

YTD

NAV (¢)

187.02

179.00

180.93

182.23

181.83

179.47

177.73

176.04

174.38

171.37

170.88

165.62

-

Returns (%)

-1.16

-4.29

1.08

0.72

-0.22

-1.30

-0.97

-0.95

-0.94

-1.73

-0.29

-3.08

-12.48

Dividend (¢)

-

-

-

-

-

-

-

-

-

-

-


-

 

 

1 July 2011

to

30 June 2012

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun*

Financial

YTD

NAV (¢)

164.24

162.67

161.78

161.15

159.18

124.50

127.33

126.66

125.32

124.83

124.35

72.45

-

Returns (%)

-0.83

-0.96

-0.55

-0.39

-1.22

-21.79

2.27

-0.53

-1.06

-0.39

-0.38

-41.74

-56.26

Dividend (¢)

-

-

-

-

-

-

-

-

-

-

-

-

-

 

1 July 2012

to

30 June 2013

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Financial

YTD

NAV (¢)

72.63












-

Returns (%)

0.25












-

Dividend (¢)

-












-

 

 

§ Total net return since inception as at 30 June 2012 in reporting currency -46.98%

§ Total net return since inception as at 30 June 2012 in reporting currency (annualised) -12.11%

§ Annualised standard deviation (volatility) 22.60%

 

*see the notes to the financial statements for an explanation as to the difference between the 30 June 2012 announced NAV compared to the NAV disclosed in the financial statements.



PSOURCE STRUCTURED DEBT LIMITED

Company Information, continued

 

Summary Information, continued

 

Total Expense Ratio:

 


Year end 30 June 2012

Year end 30 June 2011

Expense Type:

% of Average Net Assets

% of Average Net Assets

  Net operating expenses*

4.14

3.76

  Ongoing Charge Figure**

4.14

3.76

 

*Net operating expenses are the costs of the Group excluding capital gains and losses, and costs associated with investment transactions.

**The Total Expense Ratio represents total operating expenses of the Group, expressed as a percentage of average net assets during the accounting year.

 


PSOURCE STRUCTURED DEBT LIMITED

Chairman's Statement

Year end 30 June 2012

 

Since our Interim Report for the half year to 31 December 2011 was published in February, a number of notable developments have occurred.  First among these was that shareholders voted overwhelmingly in favour of proposals which put the Company into a managed wind down. As part of these proposals, significant cost savings were also put into place with the Investment Manager, Manager, Board and other service providers all agreeing to reduce their charges during the wind down period. 

 

The second was that although our largest holding, Parabel (formerly PetroAlgae), continued to make significant commercial progress as further discussed below, in Note 17 to these financial statements, and in the Analysis of Significant Investments on pages 49 to 52, the market in US IPOs for companies of its nature remains extremely subdued.  It is not at all clear to the Board when the IPO market will revert to its historical levels of activity and in particular whether that will be within an acceptable timeframe for our wind-down.  Although an IPO clearly remains our preferred option, it may be that our exit will be through some form of merger and acquisition activity or trade sale process rather than an IPO.   We have accordingly further reduced our carrying value to reflect this changing reality.  This reduction in value was incorporated in our 30 June 2012 Net Asset Value released on 23 August 2012. 

 

The third matter of significance to shareholders is that progress on the realisation of other positions has been disappointing to say the least.  All of our material holdings are or have been the subject of sales processes during the period.  In the first half of the year, shareholders will recall that our holding in Sentinel Technologies was sold at a slight premium to carrying value, realising US$5.6 million which allowed our bank borrowings to be completely extinguished and leaving approximately US$1.1 million in positive cash balances.   In the second half of the year, no substantial sales were consummated.  Several have proceeded to late stages but have fallen through principally as a result of the potential acquirer's difficulty in arranging third party finance on acceptable terms.

 

This presents a challenge to the Board and the Manager on two fronts: first to balance the optimisation of sales proceeds through an orderly disposal process rather than a fire sale and second to do this within an acceptable time frame given that, even after the cost reductions put in place post the approval of the proposals at the EGM referred to above, the PSD structure is still burning cash at a rate in excess of US$100,000 per month.

 

The fourth material development follows from the third: the lack of substantial disposals has meant that the free cash balances available to PSD after the Sentinel disposal were substantially eroded by the running expenses of the structure and expenses associated with the reconstruction proposals circular.  By mid September this year, cash was down to very low levels and the Board took the difficult but necessary decision to sell our warrant holding in Biodelivery Sciences for US$709,000.  On one level, this is extremely frustrating as Biodelivery common shares on the OTC market have been strong performers of late, taking our warrant holding from being out-of the-money to having an intrinsic value on exercise broadly equivalent to the level at which we sold.  PSD has therefore given up the time value premium in the warrant valuation associated with the anticipation of additional future gains and reduced holding costs as compared to the common stock but against that we have secured the funding of PSD through to the spring of 2013. 

 

Under our established accounting policies, the Biodelivery holding was valued at US$1.23 million in the 30 June 2012 Net Asset Value released on 23 August 2012.  

 

As PSD is now in wind-down, the Board has considered whether the "going concern" basis of accounting remains appropriate.  We have concluded that as we are actively seeking to dispose of all holdings in an orderly manner, it would be more appropriate to prepare these accounts on a break-up basis and to value the assets accordingly.  The total effect of this change of basis and including an adjustment in respect of the post year end disposal of Biodelivery is US$1.23 million or 2.17 US cents per PSD share.  A reconciliation of our previously published 30 June 2012 Net Asset Value released on 23 August 2012 and that prepared on a break-up basis in these financial statements is given in Note 18 on page 48.

 

Review of the portfolio

Our portfolio, post the Biodelivery disposal, broadly consists of: Parabel, three holdings valued at US$10.9 million in aggregate, three other significant holdings and 11 smaller positions, none of which is individually material.  These are more fully described in the unaudited Analysis of Significant Investments set out on page 49.



PSOURCE STRUCTURED DEBT LIMITED

Chairman's Statement, continued

Year end 30 June 2012

 

Review of the portfolio, continued

As Parabel may be the subject of an IPO in the near future and as we would be likely vendors in such a process, we are subject to certain legal and regulatory restrictions in what we can say about Parabel and its prospects which broadly limit us to what Parabel has said in public.  Parabel has made significant commercial progress during the year.  During the course of the 12 months period of these financial statements, Parabel and its customers have built test facilities in China, Indonesia, Chile, Ecuador and Suriname and Parabel has received certain initial fee income, as set out in its SEC filings. This represents a significant move forward in the commercialisation of the company's technology.

 

Further detail on Parabel is set out on pages 49 to 52 and our valuation methodology is described in Note 17.

 

With the exception of North Texas Steel which in essence is a real estate asset in the form of a former fabrication yard and which is wholly owned by PSD, our remaining investments, including Parabel, are minority participations in private securities which are owned jointly by PSD and other funds managed or advised by the Investment Manager.  Our ability to achieve successful exits at a reasonable valuation will depend on the Investment Manager achieving exits on the total position including both PSD's portion and those of the other funds which are also generally in wind-down or liquidation.

 

NAV Performance

The NAV has reduced by 57.6% during the year and was 70.28 US cents per PSD share or 44.75p/share (US$41.9m in total) at the end of the year. This is mainly as a consequence of the write down of Parabel, discussed above. The Board is aware that this remains significantly in excess of the Company's share price, which has fallen from 31.25p to 12p during the year.

 

We also recognise that realising this reduced NAV remains uncertain and is dependent on a number of factors including stock market and M&A market conditions.

 

Cash flows and bank position

The portfolio has generated operating cash inflows of US$8.08m (US$8.93m for the year ended 30 June 2011). The most significant component of this was the Company's disposal of its holding in Sentinel Technologies at a small premium to NAV in November 2011.

 

The Company had a small cash balance of approximately US$293,808 at 30 June 2012.

 

Following the extinguishing of the debt balance with Lloyds, the Company moved its banking to Investec Specialist Private Bank. The Company has no debt or overdraft facility.

 

Costs

As part of the restructuring, the Board has acted to reduce costs. In particular:

 

§ The Manager and Investment Manager have agreed to write down the performance fee creditor by 25% (US$1.4m). The remaining creditor will be payable only if Parabel is sold or IPO'd on a major exchange.  If no such event occurs, the creditor may be satisfied by a transfer of some or all of the Parabel holding.

§ The annual management fee percentage will reduce from 2% to 1.25% from 1 April 2013. From that date, there will be no notice period under the management and investment management agreements.

§ Reduced the aggregate Directors' fees payable in the year ended 31 March 2013 by 37.4% to £67,000.

The aggregate impact of these changes (together with the reduction in NAV) is to reduce the projected costs in 2012/13 to US$1.25m from US$3.13m in 2011/12.

 



PSOURCE STRUCTURED DEBT LIMITED

Chairman's Statement, continued

Year end 30 June 2012

 

Winding up of the Company

The proposals passed by shareholders in May this year put the Company into formal wind down. It also achieved significant cost savings. However, the return of capital to shareholders remains dependent upon exit processes.

 

The Board is committed to achieving the best value possible for shareholders in as timely a manner as possible. This remains a difficult task in challenging markets. The Board and Manager are investigating options to put the Company into liquidation at an appropriate point; the timing of this will depend on the ongoing progress of the portfolio realisation process. We intend consult major shareholders and report further on this process by 31 March 2013.

 

 

 

 

 

William Scott (Chairman)

Date: 27 September 2012



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report

Year ended 30 June 2012

 

The Directors of PSource Structured Debt Limited (the "Company") present their audited annual report and consolidated financial statements for the year ended 30 June 2012.

 

The Directors submit their Report together with the Group's Consolidated Statement of Financial Position, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the accompanying related notes for the year ended 30 June 2012, which have been prepared in accordance with International Financial Reporting Standards, in accordance with any relevant enactment for the time being in force, and are in agreement with the accounting records, which have been kept in accordance with Section 238 of the Companies (Guernsey) Law, 2008.

 

The Company

The Company is a closed-ended investment company, incorporated and registered with limited liability in Guernsey on 5 June 2007 in accordance with The Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959 to 2003 as amended. The Company commenced business on 3 August 2007 when the initial 30,000,000 Ordinary Shares of the Company were admitted to the Official List of the London Stock Exchange. The Company is a Guernsey Authorised Closed-ended Investment Scheme and is subject to the Authorised Closed-ended Investment Scheme Rules 2008.

 

The Group also includes PSD SPV 2, Inc ("SPV2" or "Subsidiary") a wholly owned subsidiary of the Company. SPV2 was incorporated in the State of Delaware on 2 April 2009 and commenced trading on 1 May 2009. SPV2 was established to hold certain US assets. For reasons of tax efficiency, newly originated direct investments and co-investments after that time were made through this Subsidiary.

 

Any references to Company relate to PSource Structured Debt Limited whereas references to the Group include PSource Structured Debt Limited and SPV2.

 

The Winding Down and Going Concern

The Board recognised in September 2011 that a continuation of the Company in its current form was not in the interests of Shareholders and committed to put alternative proposals to Shareholders by 31 March 2012 for the Winding Down, changes to the Investment Objective and Policy, and amendments to the Investment Management Agreement and the Management Agreement. At an Extraordinary General Meeting held on 16 May 2012, shareholders duly passed the resolution implementing these proposals.

 

During the Winding Down, the Company will continue actively to seek the realisation of Investments. The timing and value of such realisations will be subject to asset-specific factors and to market conditions. Specifically the Company's ability to realise maximum value for Shareholders will be dependent on a successful exit of its investment in Parabel.

 

The potential timing and value realisable from Parabel and other investments will be regularly monitored by the Board and Shareholders will be informed of all material developments through a Company announcement to a RNS.

 

Shareholders should expect that, under the terms of the Winding Down, the Board will be committed to distributing as much of the available cash as quickly as reasonably practicable, having regard to cost efficiency and working capital requirements. However, in order to minimise the administrative burden and costs, whilst returns of cash are expected to be made regularly, this will not necessarily be as soon as cash becomes available.

 

The Board currently envisages returning capital to Shareholders by way of dividends, share buybacks or tender offers. Details of any such proposals and any resolutions required to implement them will be circulated by the Board as and when it considers, at its sole discretion, that the Company has sufficient funds to return capital to shareholders.

 

No Liquidator has been appointed and the Portfolio will continue to be managed by the Investment Manager (under the control and supervision of the Board).

 

In light of the above the Board has resolved to prepare the financial statements on the basis that the Company is no longer a going concern.  The financial statements have been prepared on a break up basis. The effect of this is explained in Note 2 to the financial statements.

 

Results and Dividends

The results for the year are set out in the Consolidated Statement of Comprehensive Income on page 22.

 

For the year ended 30 June 2012, no dividend has been declared or paid (30 June 2011: Nil pence per Ordinary Share).

 

Measuring Performance

Details of the performance of the Company's net asset value can be found in the Summary Information on pages 3-6.



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Directors

The Directors, listed on page 1, are all non-executive Directors and, with the exception of Mr Appavoo, independent. All the Directors were appointed on registration of the Company, with the exception of Mr Dorrian who was appointed on 30 July 2008. Mr Niven, Mr Dorrian and Mr Appavoo were re-elected on 31 October 2011.

 

Manager

Under the terms of the Management Agreement dated 31 July 2007, between the Company and PSource Capital Guernsey Limited (the "Manager"), the Manager is responsible for providing the Company with management services. 

 

The Manager is a company domiciled and incorporated in Guernsey with company registration number 46511. The Manager is a private company limited by shares which was incorporated on 2 March 2007 and operates under The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended.  The Manager is regulated by the Guernsey Financial Services Commission.

 

With the Board's approval, the Manager is acting as an advisor to Parabel (formerly PetroAlgae) in its proposed IPO.

 

Effective from 16 May 2012, the annual management fee is paid at the rate of 2 per cent per annum of NAV up to 31 March 2013 and will thereafter drop to a rate of 1.25 per cent per annum of NAV. The management fee will continue to be accrued daily and calculated and paid monthly.

 

Investment Manager

Effective from 16 May 2012, the management of the Portfolio by Laurus Capital Management, LLC (the "Investment Manager") was changed so that the Investment Manager will (i) not make any new investments (other than additional funds advanced to or other participation in the financial restructuring of the Investments, and cash and near cash equivalent securities) and (ii) will manage the existing investments with a view to realising such investments in an orderly and timely manner.

 

The Investment Manager is a New York based investment adviser registered, as of January 2006, with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended.  The Investment Manager was founded on 1 December 2000, is incorporated in the state of Delaware, USA, under registration number 3323351 as a limited liability company.  The co-founders and fund managers of the Investment Manager are Eugene and David Grin.

 

As at 30 June 2012, the Investment Manager held 500,000 (30 June 2011: 500,000) Ordinary Shares in the Company.

 

The Board was notified late in 2010 that the Investment Manager would begin winding down its business. Having visited the Investment Manager and assessed their situation following a reduction in staff and assets under management, it is the belief of the Board that their actions to date have not restricted the ability of the Investment Manager to meet its obligations to the Company in managing current portfolio investments.

 

The Investment Management Agreement may be terminated by either party by giving to the other written notice to be effective on 31 March 2013, or at any time after 31 March 2013 notice in writing will take immediate effect, or earlier by either party upon certain breaches of the Investment Management Agreement or the insolvency or receivership of either party or if the Investment Manager ceases to be qualified to act as such.

 

Investment Consultant

The Manager has appointed PSource Capital Limited as Investment Consultant under the Investment Consultancy Agreement dated 31 July 2007, between the Manager and PSource Capital Limited.

 

The Investment Consultant is a wholly-owned subsidiary of the Manager and is an appointed representative of PSolve Investments Limited which is authorised and regulated in the UK by the Financial Services Authority. 

 

The Investment Consultant was incorporated on 21 August 2006.  The role of the Investment Consultant is, among other things, to oversee the management of the Group's investments and deal with investor relations.

 

The Investment Consultant will carry out its duties in accordance with the Investment Consultancy Agreement.

 

The Investment Consultancy Agreement may be terminated by either party giving not less than twelve months' notice in writing, or earlier by either party upon certain breaches of the Investment Consultancy Agreement or the insolvency or receivership of either.



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Administrator

Praxis Fund Services Limited has been appointed as Administrator to the Group under the Administration Agreement dated 31 July 2007. The Administrator has been appointed to provide day to day administration and secretarial services to the Group.

 

The Administration Agreement may be terminated by either party on not less than six months written notice, or earlier upon certain breaches of the Administration Agreement or the insolvency or receivership of either party or if the Administrator ceases to be qualified to act as such.

 

Loan Notes, Warrants and Options Custodian

On 8 March 2010, Wells Fargo Bank was appointed as Custodian to the Group under the Custodian Agreement. Under this agreement the Custodian has agreed to provide the Group with custody services relating to loan notes, warrants and options.

 

The Custodian Agreement may be terminated by either party giving not less that ninety (90) days' prior written notice to the other party.

 

Equity Custodian & Broker

Effective from 26 November 2010, the Company migrated its custody and clearing services for its short term trading assets from Fidelity Prime Services to Albert Fried & Company, LLC.

 

Effective 1 December 2010, the Company migrated its trading services from Fidelity to GP Nurmenkari Inc.

 

Registrar

Capita Registrars (Guernsey) Limited has been appointed to act as Registrar of the Company under the Registrar Agreement dated 31 July 2007.  The Registrar has been appointed to provide electronic registration and settlement services through CREST.  The Registrar Agreement may be terminated by either the Company or the Registrar giving not less than three months' notice in writing or otherwise in circumstances where the Company or the Registrar goes into liquidation or where either party commits and fails to remedy a material breach of the Registrar Agreement.  The Registrar Agreement will also terminate if the Registrar ceases to hold a required licence, consent, permit or registration.  The Registrar Agreement contains an indemnity in favour of the Registrar against claims by third parties except to the extent that the claim arises from the fraud, negligence or willful default of the Registrar or a breach by the Registrar of the Registrar Agreement or the Law.

 

Independent Valuation Consultant

MountainView IPS (formerly Clayton IPS Corporation) ("MountainView") has been appointed as Independent Valuation Consultant under the Independent Valuation Consultant's Agreement dated 31 July 2007 (the "Valuation Agreement") between the Company and MountainView. MountainView has agreed to provide a quarterly valuation of the assets of the Group. For this service MountainView is entitled to a fee US$12,500 for each quarterly valuation.

 

The Valuation Agreement term is for a period of one year (the "Term") and will then renew for successive one-month terms (each a "Renewal Term").

 

The Valuation Agreement may be terminated after the first 180 days of the Term of the Valuation Agreement by either party on not less than thirty days written notice, or with respect to a Renewal Term, by either party giving written notice no less than ten days prior to the end of the then-current Renewal Term. If either party materially breaches the Valuation Agreement and such breach is either incapable of cure or not cured within ten business days of receiving written notice of such breach from the non-breaching party, the non-breaching party may terminate the Valuation Agreement.

 

Protective Notice

The Company served protective notice of termination to the Administrator, Registrar and Broker during March 2012.

 

Corporate Governance

 

Compliance

Under The UK Listing Regime the Company is a premium listed entity. The UK Listing Authority requires all overseas companies with a premium listing (such as the Company), to comply with the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010 and applicable for accounting periods beginning on or after 29 June 2010 (the "Code"), or explain areas with which it has not complied.



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Corporate Governance, continued

 

Compliance, continued

The Board places a high degree of importance on maintaining high standards of corporate governance and has also considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for investment companies ("AIC Guide"). The AIC Code, as explained in the AIC Guide, addresses all the principles set out in the Code. The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the Code), will provide better information to shareholders.

 

The Board has also noted the Code of Corporate Governance issued by the Guernsey Financial Services Commission ("Guernsey Code") which became effective on 1 January 2012. The Guernsey Code provides a governance framework for GFSC licensed entities, authorised and registered collective investment schemes and replaces the GFSC's Guidance on Corporate Governance in the Finance Sector. Companies reporting against the Code or the AICCode are deemed to satisfy the provisions of the Guernsey Code.

 

As at 30 June 2012, the Company complied substantially with the relevant provisions of the AIC Code and the Code (save with regard to the following provisions listed below) and it is the intention of the Board that the Company will comply with those provisions throughout the year ending 30 June 2013:

 

§ The role of the chief executive: The Board considers that the post of chief executive officer is not relevant for the Company as this role has effectively been delegated by the Manager to the Investment Consultant under the terms of the Investment Consultancy Agreement.

§ The appointment of a Senior Independent Director: Given the size and composition of the Board it is not felt necessary to separate the roles of Chairman and Senior Independent Director.  The Board considers that all the independent Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns can be conveyed.

§ Executive directors' remuneration: As the Board has no executive directors, it is not required to comply with the principles of the Code in respect of executive directors' remuneration and does not have a remuneration committee.

§ Internal audit function: The Company delegates to third parties its day-to-day operations and has no employees.  The Board has determined that there is no requirement for the Company to have its own internal audit function.  The Directors consider annually whether a function equivalent to an internal audit is needed and will continue to monitor its systems of internal controls in order to provide assurance that they operate as intended.

 

Chief Operating Decision Maker

The Board, as a whole, has been determined as constituting the chief operating decision maker ("CODM") of the Group.

 

The Board is charged with setting the Group's investment strategy in accordance with the Prospectus. Pursuant to the terms set out in the Investment Management Agreement the Board have delegated the day to day investment management of the Group to the Investment Manager, however the Board retains the responsibility to ensure that adequate resources of the Group are directed in accordance with their decisions.

 

All investment recommendations made by the Investment Manager are reviewed by the Board for compliance with the policies and legal responsibilities of the Directors and the provisions of the Prospectus. Only after such reviews have been satisfactorily conducted will the Board approve the investment recommendations. The Board therefore retains full responsibility for the allocation decisions made on an ongoing basis.  Pursuant to the terms of the Investment Management Agreement, the Investment Manager was obliged to comply with the investment strategy detailed in the Prospectus and, since 16 May 2012, with the new realisation strategy as resolved by the Company's shareholders. This strategy sets out guidelines for proposed investments and the procedures that the Investment Manager is required to follow in dealing with the Group's assets. These guidelines and procedures are regularly reviewed and can be altered by the Board if it considers it appropriate to do so.

 

The Directors regularly monitor the corporate strategy, dividend policy and corporate governance issues and meet at least once a quarter to direct and monitor the business of the Company. This includes a review of the performance and risk profile of the Company and to monitor compliance with the Company's objectives and legislative developments. Advisers to the Company provide the Board with relevant and timely information within the Company's sphere of activity to enable the Directors to make informed decisions.



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Corporate Governance, continued

 

Board Committees

 

Audit Committee

An Audit Committee, comprising the Directors apart from Mr Appavoo (who is a director of the Manager and a director of the Investment Consultant, and therefore not considered to be independent), has been formed to ensure that the Group maintains the highest standards of integrity in financial reporting and internal control. Mr Niven acts as chairman of the Committee. The Committee, which meets at least twice a year, operates within clearly defined terms of reference and provides a forum through which the Group's auditors may report to the Board.

 

The objectivity of the auditors is reviewed by the Committee which also reviews the terms under which the external auditors are appointed to perform non-audit services. The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditors, with particular regard to non-audit fees. Such fees amounted to $33,604 (2011: $nil) for the Company for the year ended 30 June 2012 and related to a independent audit report on the valuation of Parabel in the unaudited interim financial statements for period ended 31 December 2011.  Notwithstanding such services the Committee considers KPMG Channel Islands Limited to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit.

 

Management Engagement Committee

A Management Engagement Committee, comprising the Independent Directors, has been formed to ensure that the terms of the Management Agreement are competitive, fair and reasonable. The Committee's duties also includes reviewing and making recommendations on any proposed amendment or material breach of the Management Agreement and reviewing the performance and suitability of the Investment Manager in relation to the provision of management services to the Group. Mr Scott acts as chairman of the Committee. Please refer to the Investment Manager section of this report for further details on the current suitability of the Investment Manager in relation to the provision of management services to the Group.

 

Nominations Committee

A Nominations Committee, comprising the Independent Directors, has been formed to consider and make recommendations to the Board on its composition and balance. Although the chairman of the Board may be the chairman of the Committee, in the event that the Committee considers the appointment of a successor to the chairman of the Board, the Committee shall elect a chairman other than the chairman of the Board. Mr Scott acts as chairman of the Committee. The Committee shall meet at such times as it considers expedient to carry out its duties and will operate within clearly defined terms of reference.

 

Remuneration Committee

Because the Board consists entirely of non-executive directors it is not considered necessary to have a Remuneration Committee and the Board as a whole will fulfill the functions of a Remuneration Committee.

 

On an annual basis the Chairman leads an evaluation of the Board and its individual Directors, with the other independent Directors evaluating the Chairman's performance. In addition, the Board as a whole evaluates its own performance and that of its committees. During the evaluation process the Board members confirmed that they are able to devote such time as is necessary to discharge their duties as Directors of the Company and indeed have sufficient capacity to cope with any reasonable expectation of increased needs should circumstances require it from time to time.

 

Independence of Directors

The Board consists of five members, all of whom are non-executive. With the exception of Soondra Appavoo all other Directors of the Company are independent of the Company's Manager, PSource Capital Guernsey Limited. All Directors are independent of the Investment Manager, Laurus Capital Management, LLC, and free of any business or other relationship that could influence their ability to exercise independent judgement. Mr Appavoo is a director of the Investment Consultant, PSource Capital Limited and of the Company's Manager. The Board also considers it an important principle that a senior member of the Investment Consultant bears personal responsibility as a Director of the Company. Mr Appavoo does not take part in discussing any contractual arrangements between the Board and the Manager or the Investment Consultant.

 

The Directors recognise the importance of succession planning for Company boards and review the composition of the Board annually. However the Board is of the view that length of service will not necessarily compromise the independence or contribution of Directors of an investment company where continuity and experience can be a benefit to the Board. Furthermore, the Board agrees with the view expressed in the AIC Code that long serving Directors should not be prevented from forming part of an independent majority or from acting as Chairman. Consequently no limit has been imposed on the overall length of service.



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Corporate Governance, continued

 

Independence of Directors, continued

The Directors are initially appointed by the Board, retire, and seek reappointment at the next annual general meeting. Thereafter, Directors retire by rotation, and seek reappointment at the annual general meeting. As a non-independent Director Mr Appavoo stands for re-election annually.

 

The Board has due regard for the benefits of greater diversity, including gender, and understands that the wide array of perspectives resulting from such diversity promotes innovation and business success.

 

The Nomination Committee, will consider candidates based on merit and against objective criteria, in the context of the skills and experience the Board as a whole requires in order to be effective. 

 

The Nomination Committee undertakes annually a performance evaluation which includes, but is not limited to, the balance of skills, experience, expertise and the extent to which these are represented on the Board. In completing the evaluation the Directors will also consider the level of diversity representation on the Board.

 

Any aspects identified during the evaluation as being unsatisfactory will be discussed at Board level and, where changes are required, measurable objectives will be agreed in order to monitor progress towards the achievement of these objectives.

 

The Directors believe that the Board has a balance of skills and experience which enable it to provide effective strategic leadership and proper governance of the Company. Information about the Directors, including their relevant experience, can be found on page 2.

 

The Board has contractually delegated to external agencies, the management of the investment portfolio, the custodial services and the day to day accounting and company secretarial requirements. Each of these contracts was only entered into after proper consideration by the Board of the quality and services offered.

 

Meetings and Committees

The table below, details the attendance at Board and Committee meeting during the year:

 


 

Board

 

Audit Committee

Management Engagement Committee

 

Nominations Committee


Management

Ad hoc

William Scott

4

3

3

1

1

Keith Dorrian

4

5

3

1

1

Peter Niven

4

5

3

1

1

Soondra Appavoo

4

1

-

-

-

Tim Jenkinson

4

1

3

1

1

 

Directors' Interests

The interests of the Directors who held office during the year, and their families, are set out below:

 


30 June 2012


30 June 2011


Ordinary Shares


Ordinary Shares

William Scott (Chairman)

50,000


50,000

Peter Niven

30,000


30,000

Soondra Appavoo

20,000


20,000

Tim Jenkinson

50,000


50,000

Keith Dorrian

       -


                         -

 

No Director, other than those listed above, and no connected person of any Director has any interest, the existence of which is known to, or could with reasonable diligence be ascertained by that Director, whether or not held through another party, in the share capital of the Company.

 

Internal Controls

The Directors are responsible for overseeing the effectiveness of the internal financial control systems of the Group, which are designed to ensure proper accounting records are maintained, that the financial information on which the business decisions are made and which is issued for publication is reliable, and that the assets of the Group are safeguarded. Such a system of internal financial controls can only provide reasonable and not absolute assurance against misstatement or loss.



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Corporate Governance, continued

 

Internal Controls, continued

The Board has reviewed the Group's internal control procedures. These internal controls are implemented by the Group's seven main service providers, Laurus Capital Management, LLC, PSource Capital Limited, Praxis Fund Services Limited, Wells Fargo Bank, GP Nurmenkari Inc., Albert Fried & Company, LLC and Investec Specialist Private Bank. The Audit Committee contacts each service provider on an annual basis to seek confirmation that each service provider had effective controls in place to control the risks associated with the services that they are contracted to provide to the Group. The Board is satisfied with the internal controls of the Group.

 

The Directors meet on a quarterly basis ("Management" meetings per the Meetings and Committees table) and at other unscheduled times ("Ad hoc" meetings per the Meetings and Committees table) when necessary to assess Group operations and the setting and monitoring of investment strategy and investment performance. At such meetings, the Board receives from the Manager, Investment Manager and Investment Consultant a full report on the Group's holdings and performance and considers the terms of transactions with entities managed, advised or otherwise affiliated with the Investment Manager. The Board gives directions to the Investment Manager as to the investment objectives and limitations, and receives reports from the Manager in relation to the financial position of the Group and the custody of its assets.

 

Social, ethical and environmental concerns have been considered by the Board. Whilst the Board does not consider it appropriate to put social, ethical and environmental policies in place within an investment company investing in financial instruments, they do confirm that the Group does not have any investments that are illegal or immoral. Furthermore at the date of this report the Group's largest investment exposure is to Parabel which provides renewable technology and solutions to address the global demand for new economical sources of feed, food and fuel, which could potentially be extremely beneficial for the environment.

 

The Board has considered non-financial areas of risk such as disaster recovery and investment management staffing levels and considers adequate arrangements to be in place.

 

Anti-bribery and Corruption

The Board acknowledges that the Company's international operations may give rise to possible claims of bribery and corruption. In consideration of the recently enacted UK Bribery Act, at the date of this report the Board had conducted an assessment of the perceived risks to the Company arising from bribery and corruption to identify aspects of business which may be improved to mitigate such risks. The Board has adopted a zero tolerance policy towards bribery and has reiterated its commitment to carry out business fairly, honestly and openly.

 

Shareholder Views

The Board regularly monitors the shareholder profile of the Company. All shareholders have the opportunity, and are encouraged, to attend the Company AGM at which members of the Board are available in person to meet shareholders and answer questions. In addition, the Company's Investment Consultant and Financial Adviser and Stockbroker maintain regular contact with major shareholders and report regularly to the Board on shareholder views.

 

Substantial Shareholdings

As at 29 August 2012, the Company was aware of the following interests in the issued share capital of the Company that exceeded 3% of the issued share capital.

 

 

Shareholder

Number of Ordinary Shares Held*

Percentage of Total Ordinary Shares Issued Held

Midas (inc Milton)

10,700,000

17.96%

Wirral BC

7,449,586

12.51%

SVM Asset Management

6,959,668

11.68%

Ironsides Partners

6,123,173

10.28%

Premier Asset Management

4,611,150

7.74%

Collins Stewart, stockbrokers (ND)

3,911,825

6.57%

Brooks Macdonald Asset Management

2,698,142

4.53%

Berry Asset Management

2,445,940

4.11%

 

* Based on the Shareholder register as at 29 August 2012.

 



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Directors Statement

The Directors make the following statement:

 

·      so far as the Directors are aware, there is no relevant audit information of which the Group's auditors are unaware; and

·      that all steps have been taken by the Directors to make themselves aware of any relevant audit information and to establish that the Group's auditors are aware of that information.

 

Statement of Directors' Responsibilities

The Directors are required by the Company (Guernsey) Law, 2008, to prepare the financial statements for each financial period which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period and are in accordance with applicable laws.  In preparing these financial statements the Directors are required to:

 

·      select suitable accounting policies and then apply them consistently;

·      make judgements that are reasonable and prudent;

·      state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business. As explained in Note 1, the Directors do not believe that it is appropriate to prepare these financial statements on a going concern basis.

 

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008 and the Company's principal documents.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Dividend Policy

At inception, it was the Group's intention to pay an annual dividend (paid gross quarterly) of not less than 5 pence (or its equivalent in US Dollars) in its first year growing by 0.5 pence (or its equivalent in US Dollars) per annum in its second and third years. Although this was achieved in respect of the first accounting period of the Group, a breach of the Group's banking facilities led to the suspension of dividends during the current and prior years.

 

Status of Taxation

The Income Tax Authority of Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax.  Exemption under the above mentioned Ordinance entails payment by the Company of an annual fee of £600.  It should be noted, however, that interest and dividend income accruing from the Company's investments may be subject to withholding tax in the country of origin. With effect from 1 January 2008 the standard rate of income tax for most companies in Guernsey is zero per cent Tax Exempt status continues to exist and the Company has been granted this status for 2011.

 

The Company has not suffered any withholding tax in the year (30 June 2011: US$nil).

 

The Company has received confirmation from HMRC that the managed winding down will not bring the Company within the definition of an offshore fund for the purposes of United Kingdom taxation. The Directors have therefore been advised that the commencing of the winding down and the availability of any share buybacks or tender offers that the Directors may decided to implement as part of the winding down should not result in the Company being an offshore fund for the purposes of United Kingdom taxation and the provisions of the Offshore Funds Rules should therefore not apply.

 

PSD SPV 2, Inc is a Delaware corporation and subject to US taxation. As such, PSD SPV 2, Inc will suffer taxes on realised capital gains and income generated by assets which it holds, to the extent that pre-tax earnings are not offset by expenses and realised losses. Moreover, as generated by a business wholly-owned by the Company, distributions of pre-tax earnings of PSD SPV 2, Inc to the Company (e.g. any interest payments on intercompany loans) will likely be subject to a withholding tax.

 

To the extent permissible, the Company will seek to minimise the income tax and withholding tax suffered, although for accounting purposes, no benefits have been assumed. A 35% income tax liability is accrued against any income and capital gains accrued by PSD SPV 2, Inc, and a 30% withholding tax liability is accrued against any interest accruals related to intercompany loans between PSD SPV 2, Inc and the Company. An accrued liability of US$46 (30 June 2011: US$16,308 accrued asset) associated with income tax rebates and withholding tax rebates related to PSD SPV 2, Inc has been made as at 30 June 2012.



PSOURCE STRUCTURED DEBT LIMITED

Directors' Report, continued

Year ended 30 June 2012

 

Auditors

The auditors of the Company, KPMG Channel Islands Limited, have expressed their willingness to continue in office and a resolution giving authority to re-appoint them will be proposed at the forthcoming Annual General Meeting.

 

 

Director:                                                               William Scott

 

 

 

Director:                                                               Peter Niven

 

 

Date: 27 September 2012

On behalf of the Board of Directors

 

 



PSOURCE STRUCTURED DEBT LIMITED

Responsibility Statement

 

We confirm that to the best of our knowledge and in accordance with DTR 4.1.12R of the Disclosure and Transparency Rules:

 

a)   The financial statements have been properly prepared in accordance with International Financial Reporting Standards ("IFRS") and give a true and fair view of the financial position and profit and loss of the Group as at and for the year ended 30 June 2012.

 

b)   The annual report, which includes information detailed in the Chairman's Statement, Directors' Report and Notes to financial statements, provides a fair review of the development and performance of the Group during the year; and includes a description of the principal risks and uncertainties faced as at and for the year ended 30 June 2012.

 

 

 

 

Director:                                                               William Scott

 

 

 

Director:                                                               Peter Niven

 

 

Date: 27 September 2012

On behalf of the Board of Directors

 

 



INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF PSOURCE STRUCTURED DEBT LIMITED

 

We have audited the Group financial statements (the "financial statements") of PSource Structured Debt Limited (the "Company") for the year ended 30 June 2012 which comprise the Consolidated Statement of Financial Position, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes. As described in Note 2(a)(iv) they have not been prepared on a going concern basis. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as issued by the IASB.

 

This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008.  Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. 

 

Respective responsibilities of Directors and auditor

As explained more fully in the Statement of Directors' Responsibilities set out on page 17, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board of Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors' Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

 

Opinion on financial statements

In our opinion the financial statements:

 

·      give a true and fair view of the state of the Group's affairs as at 30 June 2012 and of its deficit for the year then ended;

·    are in accordance with International Financial Reporting Standards as issued by the IASB; and

·      comply with the Companies (Guernsey) Law, 2008.

 

Emphasis of matter

We draw attention to Note 2(a)(iv) to the financial statements which describes the break up basis of accounting and the impact of the Group's ongoing cash flow needs on the realisable value of investments. Our opinion is not qualified in respect of this matter.

 

We draw attention to note 17 to the financial statements which describes the risks and uncertainties related to the valuation of the Group's investment in Petrotech Holdings Inc/Parabel Inc. Our opinion is not qualified in respect of this matter.

 

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

·      the Company has not kept proper accounting records; or

·      the financial statements are not in agreement with the accounting records; or

·      we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.

 

Under the Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Group's compliance with the nine provisions of the UK Code of Corporate Governance as specified for our review. We have nothing to report in respect of our review.

 

Mark R Thompson

for and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors

27 September 2012



PSOURCE STRUCTURED DEBT LIMITED

Consolidated Statement of Financial Position

As at 30 June 2012

 


Notes

30 June 2012


30 June 2011



US$







Investments

7&14




Fair value through profit and loss


30,422,024


83,809,708

Held for trading


723,605


1,210,737

Loans and receivables


10,642,455


21,126,349

Total investments


41,788,084


106,146,794






Current assets





Cash and cash equivalents

8

293,808


280,038

Unsettled investment sales


-


392,930

Other receivables

9

4,275,920


2,423,435



4,569,728


3,096,403






Current liabilities





Bank overdraft

8&11

-


(790,281)

Other payables

10

(4,497,849)


(5,935,327)

Loan

11

-


(3,867,480)



(4,497,849)


(10,593,088)






Net current assets/(liabilities)


71,879


(7,496,685)






Total net assets


41,859,963


98,650,109






Represented by Shareholders' equity:





Share Premium

12

47,512,742


47,512,742

Distributable reserve

12

42,793,973


42,793,973

Reserves


(48,446,752)


8,343,394






Total Shareholders' equity


41,859,963


98,650,109






Net asset value per Ordinary Share

13

US$0.7028


US$1.6562

 

 

The financial statements on pages 21 to 48 were approved at a meeting of the Board of Directors held on     

27 September 2012 and signed on its behalf by:

 

 

 

Director:                                                               William Scott

 

 

 

Director:                                                               Peter Niven

 

 

 

 

 

 

 

 

The accompanying notes form an integral part of these financial statements.



PSOURCE STRUCTURED DEBT LIMITED

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2012

 


Notes

30 June 2012


30 June 2011




US$

Revenue





Loan interest income


2,099,409


1,737,505

Bank interest


388


2,197

Fee income


29,400


18,125

Other income


201,558


1,165

Bad debt provision


(14,595)


(255,022)

Net losses on investments at fair value through profit or loss

14

 

(53,460,071)


 

(1,476,621)

Net losses on investments at amortised cost


(3,686,834)


(10,129,073)

Net foreign exchange gains


1,849


7,926






Net investment deficit


(54,828,896)


(10,093,798)






Expenses





Management fee

4

(1,629,585)


(2,115,297)

Performance fee write back

4

1,395,296


-

Directors' fees and expenses

5

(159,480)


(179,424)

Administration fees

4

(218,649)


(236,120)

Custodian fees

4

(25,779)


(33,163)

Registrar fees

4

(27,432)


(22,705)

Auditor's remuneration


(76,334)


(111,674)

Loan arrangement fees


(288,309)


(178,233)

Legal and professional fees


(613,494)


(588,459)

Independent valuation consultancy fee


(112,993)


(119,176)

US Taxation


(22,629)


14,870

Other expenses


(57,965)


(74,129)






Operating expenses before finance costs


(1,837,353)


(3,643,510)






Net deficit from operations before finance costs


(56,666,249)


(13,737,308)






Finance costs





Bank interest

11

(20,201)


(45,662)

Loan interest

11

(103,696)


(275,045)






Deficit after finance costs for the year


(56,790,146)


(14,058,015)











Total comprehensive deficit for the year


(56,790,146)


(14,058,015)






Basic & diluted deficit per Ordinary Share

6

US$(0.9534)


US$(0.2360)






 

 

 

 

 

The results for the current and prior years are derived from continuing operations.

 

The accompanying notes form an integral part of these financial statements.


PSOURCE STRUCTURED DEBT LIMITED

Consolidated Statement of Changes in Equity

For the year ended 30 June 2012

 



30 June 2012

 


 

 

Share

Premium

Distributable Reserve

Reserves

Total



US$

US$

US$

US$







Balance brought forward


47,512,742

42,793,973

8,343,394

98,650,109







Total comprehensive deficit for         the year

 

 

 

-

 

-

 

(56,790,146)

 

(56,790,146)













Balance carried forward


47,512,742

42,793,973

(48,446,752)

41,859,963









 

 



30 June 2011

 



Share

Premium

Distributable Reserve

Reserves

Total



US$

US$

US$

US$







Balance brought forward


47,512,742

42,793,973

22,401,409

112,708,124







Total comprehensive deficit for         the year


 

-

 

-

 

(14,058,015)

 

(14,058,015)













Balance carried forward


47,512,742

42,793,973

8,343,394

98,650,109

 

 

 

The accompanying notes form an integral part of these financial statements.

 

 


PSOURCE STRUCTURED DEBT LIMITED

Consolidated Statement of Cash Flows

For the year ended 30 June 2012

 


Notes

 

30 June 2012

 


30 June 2011

 









Cash flows from operating activities





Loan interest received


267,605


996,894

Fee income received


29,400


18,125

Other income received


201,558


1,165

Operating expenses paid


(3,287,377)


(3,986,986)

Amounts paid for purchase of investments


-


(560,647)

Sale proceeds received from disposal of                  investments


 

785,235


 

6,521,657

Amounts received on loan investments                    repayments


 

6,797,060


 

1,390,476

 

Net cash from operating activities


 

4,793,481


 

4,380,684











Cash flows used in financing activities





Bank interest received


98


2,197

Bank interest paid


(20,201)


(45,662)

Loan interest paid


(103,696)


(296,660)

Loan liability repayments


(3,867,480)


(3,616,524)

 

Net cash used in financing activities


 

(3,991,279)


 

(3,956,649)






Net increase in cash and cash equivalents


802,202


424,035






Cash and cash equivalents, start of year


(510,243)


(942,204)






Effect of exchange rate changes during the year


1,849


7,926

 

Cash and cash equivalents, end of year

8

 

293,808


 

(510,243)

 

 

Cash and cash equivalents comprise the following amounts:





Bank deposits


293,808


280,038

Bank overdrafts


-


(790,281)



293,808


(510,243)

 

 

 

 

 

 

 

 

The accompanying notes form an integral part of these financial statements.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements

For the year ended 30 June 2012









1.   The Company:

The Company is a closed-ended investment company, incorporated and registered with limited liability in Guernsey on 5 June 2007 and formed in accordance with The Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959 to 2003 as amended. The Company commenced business on 3 August 2007 when the initial 30,000,000 Ordinary Shares of the Company were admitted to the Official List of the London Stock Exchange. The Company is a Guernsey Authorised Closed-ended Investment Scheme and is subject to the Authorised Closed-ended Investment Scheme Rules 2008.

 

The Group also includes PSD SPV 2, Inc ("SPV2" or "Subsidiary") a wholly own subsidiary of the Company. SPV2 was incorporated in the State of Delaware on 2 April 2009 and commenced trading on 1 May 2009. SPV2 was established to hold certain US assets. For reasons of tax efficiency, newly originated direct investments and co-investments after that time were made through this Subsidiary.

 

The Group comprises PSource Structured Debt Limited and SPV2.

 

2.   Principal Accounting Policies:

 

(a)  Basis of Preparation:

 

(i) General

The financial statements give a true and fair view, they have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB, and are in compliance with the Companies (Guernsey) Law, 2008 and the Listing Rules of the UK Listing Authority.

 

The financial statements of the Group have been prepared under the historical cost convention modified by the revaluation of investments and assets and liabilities at fair value through profit or loss, in accordance with IFRS.

 

The Board recognised in September 2011 that a continuation of the Company in its current form was not in the interests of Shareholders and committed to put alternative proposals to Shareholders by 31 March 2012 for the Winding Down, changes to the Investment Objective and Policy, and amendments to the Investment Management Agreement and the Management Agreement. At an Extraordinary General Meeting held on 16 May 2012, shareholders duly passed the resolution implementing these proposals.

 

In light of the above the Board has resolved to prepare the financial statements on the basis that the Company is no longer a going concern.  The financial statements have been prepared on a break up basis.

 

(ii) Functional and Presentation Currency

The Group's investors are mainly from the UK, however, the vast majority of underlying investment portfolio is denominated in US Dollars. For this reason Directors consider the presentation and functional currency of the Company to be US Dollars. As at 30 June 2012, the performance of the Group is measured and reported to investors in US Dollar. The financial information is presented in US Dollars, which is the Company's functional and presentation currency.

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income. Translation differences on the revaluation of non-functional currency financial instruments are included in net unrealised gains and losses on investments and are recognised in the Consolidated Statement of Comprehensive Income.

 

Actual results could differ from such estimates.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









2.                         Principal Accounting Policies, continued:

 

(a)  Basis of Preparation, continued:

 

(iii) Judgements and estimates

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.

 

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate was revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

The most critical judgements, apart from those involving estimates, that management has made in the process of applying the accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements are the functional currency of the Group (see note 2(a)(ii)) and the fair value of investments designated to be at fair value through profit or loss (see note 2(d)(iii)).

 

(iv) Break up basis of accounting

The Board of Directors have prepared the financial statements on the basis that the Company is no longer a going concern for reasons outlined in Note 2(a)(i) above.  The financial statements have been prepared on a break up basis.

 

The preparation of financial statements on a break up basis still requires that the normal recognition, measurement and disclosure requirements of IFRS apply as if the Company was a going concern. However, additional consideration has been given by the Directors as to the recognition and measurement of certain assets and liabilities under the break up basis as detailed below.

 

Investments at fair value through profit and loss:

The investment portfolio has been included in these financial statements at fair value, in accordance with IFRS as issued by the IASB. However in accordance with paragraph 9 of IAS10, the Directors have also considered post year end information in valuing the portfolio. The Board has concluded the following after due considerations:

 

§ The current cash flow requirements of the Company have made it necessary to rapidly realise some of the Portfolio assets held by the Company as at the year end. The Company has negotiated the sale of some of the Portfolio warrants, however, the agreed sales proceeds are below their fair value at as 30 June 2012. The Directors have written down the value of these warrants from fair value to their realisable value in the financial statements.

§ Further information has come to light since the 30 June 2012 Published NAV was announced which leads the Directors to believe that the recovery of certain loans held are further impaired. The Directors have conducted a further impairment review and have made further impairments to these loans in the financial statements following this review.

§ Due to the illiquid nature of certain Portfolio investments and the insignificant size of the holdings, the Directors do not expect to realise proceeds for many of the smaller positions held in the Portfolio. The Directors have written down the value of these investments to nil in these financial statements.

§ The Directors' opinion as at the date of issuing these financial statements is that the remainder of the investments will be held until they can be realised at their fair value.  However, the uncertainty over timing and the ongoing cash flow needs of the Company may create significant doubt over this judgement and if the Company were forced to sell any further investments under distressed conditions then the realisable value may be significantly lower than fair value.

 

Please refer to note 18 for details of these post year end write downs to investments.

 

Events after the reporting period:

The Directors have considered whether any provision is required for future losses.  On the assumption that the investment portfolio is realised in an orderly and timely manner in line with the resolution described in Note 2(a)(i) above, the Directors do not consider any additional provision for future losses is required.

 



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









2.   Principal Accounting Policies, continued:

 

(iv) Break up basis of accounting

 

Other assets and liabilities:

The Directors have considered the costs of the orderly wind down and subsequent liquidation under the break up basis of accounting and included in legal and professional fees is a provision of US$100,000 to cover the costs of realisation. The Directors consider that the carrying amount of other assets and liabilities approximate to their fair value and no adjustment is required to their carrying value under the break up basis of accounting.

 

(v) IFRS

New standards and interpretations adopted

The Group has adopted the following new and amended standards and interpretations, which are applicable to the Group's operations, for the accounting period commencing 1 July 2011:

 

§ Improvements to IFRSs 2010 - various standards (effective 1 January 2011)

§ Amendments to IFRS 7 Financial Instruments: Disclosures - amendments enhancing disclosures about transfer of financial assets (effective 1 July 2011)

§ IAS 24 - Related Party Disclosures (Revised 2009) (effective 1 January 2011)

§ IFRIC 19 Extinguishing Financial Liabilities with Equity - addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor to extinguish all or part of the financial liability (effective 1 July 2010)

 

Significant new standards and interpretations not yet adopted

At the date of approval of these Unaudited Condensed Financial Statements, the following standards and interpretations, which have not been applied in these Financial Statements, were in issue but not yet effective:

 

§ IFRS 9,"Financial Instruments - Classification and Measurement" (effective for periods commencing on or after 1 January 2015);

§ IFRS 10, "Consolidated Financial Statements" (effective for periods commencing on or after 1 January 2013);

§ IFRS 11, "Joint arrangements" (effective for periods commencing on or after 1 January 2013);

§ IFRS 12, "Disclosure of Interest in Other Entities" (effective for periods commencing on or after 1 January 2013);

§ IFRS 13, "Fair Value Measurement" (effective for periods commencing on or after 1 January 2013);

 

None of these will have an effect on the financial statements of the Company, with the exception of IFRS 9 "Financial Instruments - Classification and Measurement" which is not expected to affect the financial position of the Company but may require additional disclosure in future financial statements.

 

(b)  Basis of Consolidation:

The financial statements of the Group incorporate the financial statements of the Company and its wholly owned subsidiary made up to 30 June 2012. There are no minority interests in the income or assets of the subsidiaries. Control is achieved where the Company has the power to govern the financial and operating policies of the subsidiaries so as to benefit the Company. The accounting policies of the Subsidiary are consistent with those adopted by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 

(c)                Income

Bank interest, loan interest income and other income are included in these financial statements on an accruals basis, using the effective interest method.

 

Where interest income falls past due it is assessed for impairment and where impairment is identified a 0-100% provision is made, on a case by case basis after the recoverability of each interest receipt has been assessed.

 

Subordination fee income is included in these consolidated financial statements on an accruals basis and is recognised in the Consolidated Statement of Comprehensive Income.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









2.   Principal Accounting Policies, continued:

 

(d)    Investments:

The Group's investments comprise loans, fees receivables, royalties, equities, warrants (for listed equities) and options (for listed equities).

 

(i) Classification

Equity investments have been designated as fair value through profit or loss in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement".

 

Warrants and penny warrants investments meet the definition of "Derivatives" under IAS 39 and have been designated as held for trading in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement". They are accounted for as fair value through profit or loss.

 

Investments in loans, royalties and fees receivable have been classified as loans and receivables in accordance with IAS 39 (Revised) "Financial Instruments: Recognition and Measurement".

 

(ii) Measurement

Equities, warrants and penny warrants are initially recognised at fair value. Transaction costs are expensed in the Consolidated Statement of Comprehensive Income. Subsequent to initial recognition, equity, warrants and penny warrants are measured at fair value. Realised gains and losses on disposal of investments, where the disposal proceeds are higher/lower than the book cost of the investment are presented in the Consolidated Statement of Comprehensive Income in the period in which they arise. Unrealised gains and losses arising on the fair value of investments are presented in the Consolidated Statement of Comprehensive Income in the period in which they arise. Dividend income, if any, from equity investments is recognised in the Consolidated Statement of Comprehensive Income within dividend income when the Group's right to receive payments is established.

 

Loans and royalties are initially recognised at fair value, which at the point of acquisition is equal to cost, less any directly attributable transaction cost. Subsequent to initial recognition, loans are measured at amortised cost using the effective interest rate method. Royalties are measured at the discounted value of future cash flows. Fee receivables are measured at fair value.

 

Loans are carried at amortised cost and reviewed for impairment in accordance with IAS 39 (see note 2(e)).

 

(iii) Fair Value Estimation

Quoted equity investments at fair value through profit or loss are valued at the bid price on the relevant stock exchange.

 

Unquoted investments at fair value through profit and loss are valued in accordance with the International Private Equity and Venture Capital valuation guidelines or any other valuation model and techniques which can provide a reasonable estimate of fair value of the investment involved.

 

Warrants and penny warrants are valued based on the listed price of the equity for which the warrants and penny warrants relates and then adjusted using the Black Scholes method. The Directors consider it prudent to apply certain discounts (7% against the value of penny warrants and 30% against the value of standard warrants) when valuing warrants and penny warrants for the purposes of calculating the Company's issued monthly NAV and for these consolidated financial statements due to their illiquid nature and the fact that there is no active market to trade these warrants and penny warrants.

 

The valuation methods/techniques used in valuing financial instruments involve critical judgements to be made and therefore the actual value of financial instruments could differ significantly from the value disclosed in these financial statements.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









2.   Principal Accounting Policies, continued:

 

(d)    Investments, continued:

 

(iv) Recognition/derecognition

All regular way purchases and sales of investments are recognised on trade date - the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

 

(e)    Impairment of financial assets:

Financial assets are assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

 

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

 

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

 

All impairment losses are recognised in the Consolidated Statement of Comprehensive Income.

 

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal is recognised in the Consolidated Statement of Comprehensive Income.

 

(f)      Expenses:

Expenses are accounted for on an accruals basis.

 

(g)    Cash and Cash Equivalents:

Cash and cash equivalents are defined as cash in hand, demand deposits and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.  For the purposes of the Consolidated Statement of Cash Flows cash and cash equivalents consist of cash in hand, deposits in bank and overdrafts.

 

(h) Other Receivables and Other Payables:

Other receivables are stated at amortised cost less any provision for doubtful debts. Other payables are stated at amortised cost.

 

(i)  Segment Reporting:

The Board has considered the requirements of IFRS8. The Board, as a whole, has been determined as constituting the chief operating decision maker ("CODM") of the Group.

 

The Board is charged with setting the Group's investment strategy in accordance with the Prospectus. They have delegated the day to day Investment Management of the Group to the Investment Manager, under the terms set out in the Investment Management Agreement, but the Board retains the responsibility to ensure that adequate resources of the Group are directed in accordance with their decisions. All investment recommendations made by the Investment Manager are reviewed by the Board for compliance with the policies and legal responsibilities of the Directors and the provisions of the Prospectus. Only after such reviews have been satisfactorily conducted will the Board approve the investment recommendations. The Board therefore retains full responsibility for the allocation decisions made on an ongoing basis.  Pursuant to the terms of the Investment Management Agreement the Investment Manager was obliged to comply with the investment strategy detailed in the Prospectus and, since 16 May 2012, with the new realisation strategy as resolved by the Company's shareholders. This strategy sets out guidelines for proposed investments and the procedures that the Investment Manager is required to follow in dealing with the Group's assets. These guidelines and procedures are regularly reviewed and can be altered by the Board if it considers it appropriate to do so.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









2.   Principal Accounting Policies, continued:

 

(i)  Segment Reporting, continued:

The key measure of performance used by the Board in its capacity of CODM, is to assess the Group's performance and to allocate resources based on the total return of each individual investment within the Group's portfolio, as opposed to geographic regions. As a result, the Board is of the view that the Group is engaged in a single segment of business, being investment in a diversified portfolio of asset backed loans and debt made predominantly to, and equity warrants and similar instruments issued predominately by, publicly traded small and micro-cap companies in the US and Canada. Therefore, no reconciliation is required between the measure of gains or losses used by the Board and that contained in these consolidated financial statements.

 

Information on realised gains and losses derived from sales of investments are disclosed in Note 7 to the financial statements.

 

The Group has no assets classified as non-current assets. An analysis of the significant investments held by the Group is given on page 49, in addition to the industry and geographic location analysis of the investments which are given on page 54.

 

The Company has a diversified shareholder population and no individual investor is known to own more than 17.96% (per the share register as at 29 August 2012) of the issued capital of the Company.

 

3.   Taxation:

The Income Tax Authority of Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax.  Exemption under the above mentioned Ordinance entails payment by the Company of an annual fee of £600.  It should be noted, however, that interest and dividend income accruing from the Company's investments may be subject to withholding tax in the country of origin. With effect from 1 January 2008 the standard rate of income tax for most companies in Guernsey is zero per cent Tax Exempt status continues to exist and the Company was granted this status for 2012. The Company has not suffered any withholding tax in the year.

 

The Company has received confirmation from HMRC that the managed winding down will not bring the Company within the definition of an offshore fund for the purposes of United Kingdom taxation. The Directors have therefore been advised that the commencing of the winding down and the availability of any share buybacks or tender offers that the Directors may decided to implement as part of the winding down should not result in the Company being an offshore fund for the purposes of United Kingdom taxation and the provisions of the Offshore Funds Rules should therefore not apply.

 

PSD SPV 2, Inc is a Delaware corporation and subject to US taxation. As such, PSD SPV 2, Inc will suffer taxes on realised capital gains and income generated by assets which it holds, to the extent that pre-tax earnings are not offset by expenses and realised losses. Moreover, as generated by a business wholly-owned by the Company, distributions of pre-tax earnings of PSD SPV 2, Inc to the Company (e.g. any interest payments on intercompany loans) will likely be subject to a withholding tax.

 

To the extent permissible, the Company will seek to minimise the income tax and withholding tax suffered, although for accounting purposes, no benefits have been assumed. A 35% income tax liability is accrued against any income and capital gains accrued by PSD SPV 2, Inc, and a 30% withholding tax liability is accrued against any interest accruals related to intercompany loans between PSD SPV 2, Inc and the Company. An accrued liability of US$46 (30 June 2011: US$16,308 asset) associated with income tax and withholding tax related to PSD SPV 2, Inc has been made as at 30 June 2012.

 

4.   Material Agreements & Related Parties:

The Company is responsible for the continuing fees of the Manager, the Investment Manager, the Administrator, the Registrar, the Custodian and the Independent Valuation Consultant in accordance with the Management, Investment Management, Administration, Registrar, Custodian and Independent Valuation Consultant's Agreements.

 

 



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









4.   Material Agreements & Related Parties, continued:

 

Management Agreement

Pursuant to the provisions of the Management Agreement, the Manager is entitled to receive a management fee during the year at 2.0% per annum of the net asset value ("NAV") of the Company. This fee is paid monthly in arrears. As at 30 June 2012, the management fee creditor was US$70,877 (30 June 2011: US$162,453).

 

With effective from 16 May 2012, the Management Agreement was amended so that the annual management fee would be paid at the rate of 2 per cent per annum of NAV up to 31 March 2013 and will thereafter drop to a rate of 1.25 per cent per annum of NAV. The management fee will continue to be accrued daily and calculated and paid monthly.

 

In addition, the Manager is entitled to a Performance Fee in respect of any Performance Fee Period in which the Performance Trigger has been achieved.  If the Performance Trigger is achieved, the Performance Fee shall equal 20 per cent of the amount by which the Total Return NAV per Ordinary Share exceeds the NAV per Ordinary Share at the end of the previous Performance Fee Period, multiplied by the time-weighted average number of Ordinary Shares in issue during the relevant Performance Fee Period.  If there has not been any previous Performance Fee Period the Performance Fee shall equal 20 per cent of the amount if any by which the Total Return NAV per Ordinary Share exceeds the NAV per Ordinary Share (calculated net of all initial expenses payable by the Company) on the Effective Date (date of Admission of the Company), multiplied by the time-weighted average number of Ordinary Shares in issue during the relevant Performance Fee Period. As at 30 June 2012, the Performance Fee creditor was US$4,185,888 (30 June 2011: US$5,581,184). In January 2009, the Manager agreed to defer payment of the Performance Fee owed by the Group until such time as the Group has resumed dividend payments.

 

With effective from 16 May 2012, the Company waived the condition that any performance fee payments would be deferred until such date as the Company has resumed payment of dividends to Shareholders.

 

During the current year, the Manager (and in turn the Investment Manager) also has agreed to waive 25 per cent (being US$ 1,395,296) of its entitlement to the deferred Performance Fee. This amount has been written back in the Consolidated Statement of Comprehensive Income during the current year. The Manager (and in turn the Investment Manager) has further agreed that it will only be entitled to receive the remaining 75 per cent (being US$ 4,185,888) of its entitlement to the deferred Performance Fee if following such waiver:

 

·      Parabel Inc ("Parabel"), formerly Petro Algae Inc, is the subject of an IPO whereby its shares are listed on either NASDAQ or the NYSE or another stock exchange approved by the Company, and the proceeds of such IPO are distributed to the Company by PetroTech; or

·      more than 50 per cent of the shares of common stock in Parabel, attributable to the Company by virtue of its investment in PetroTech, are sold by private sale and the proceeds of such sale net of the proportion of expenses of PetroTech in respect of such sale attributable to the Company which were sold are distributed to the Company by PetroTech.

 

For details of changes to potential future performance fees please refer to the EGM Circular dated 16 May 2012.

 

Administration Agreement

Pursuant to the provisions of the Administration Agreement, Praxis Fund Services Limited is entitled to receive an administration fee at an annualised rate of 0.16% up to £150 million, 0.12% for the following £100 million and 0.10% thereafter, subject to a monthly minimum of £4,500.  With regard to company secretarial services, the Administrator is compensated on a time cost basis.  As at 30 June 2012, the administration fee creditor was US$12,166 (30 June 2011: US$23,421).

 

Registrar Agreement

Pursuant to the provisions of the Registrar Agreement, Capita Registrars (Guernsey) Limited is entitled to a maintenance fee of £2.00 per shareholder (subject to an annual minimum maintenance fee of £5,000) together with various per deal fees per shareholder transactions. As at 30 June 2012, the registrar fee creditor was US$5,942 (30 June 2011: US$4,302).

 

 



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









4.   Material Agreements & Related Parties, continued:

 

Custodian Agreement

During the year, Wells Fargo Bank were entitled to receive US$807 (30 June 2011: US$18,843) in respect of custodian fees.

 

Effective from 26 November 2010, the Company migrated its custody and clearing services for its short term trading assets from Fidelity Prime Services to Albert Fried & Company, LLC. Albert Fried & Company, LLC is entitled to receive various activity based fees for its services to the Company. During the current year Albert Fried & Company, LLC were entitled to receive US$14,211 (30 June 2011: US$6,004) in respect of such services.

 

Effective 1 December 2010, the Company migrated its trading services from Fidelity to GP Nurmenkari Inc.. GP Nurmenkari Inc. is entitled to receive various activity based fees for its services to the Company. During the current year GP Nurmenkari Inc. were entitled to receive US$10,761 (30 June 2011: US$1,878) in respect of such services.

 

In addition to the above agreements, during the prior year the Group paid US$6,064 to Fidelity Prime Services for custodial services provided in respect of the Group's short term trading assets.

 

As at 30 June 2012, the custodian fees creditor was US$nil (30 June 2011: US$nil).

 

Independent Valuation Consultant

Pursuant to the provisions of the Independent Valuation Consultant's Agreement between the Company and MountainView IPS (formerly Clayton IPS Corporation) ("MountainView"), MountainView had agreed to provide a monthly and quarterly valuations of the assets of the Company. For these services MountainView was entitled to a fee of US$10,000 for each monthly valuation up to 30 April 2012. With effect from 1 May 2012, MountainView provide only a quarterly valuation of the assets of the Company for a fee of US$12,500 per quarter valuations. As at 30 June 2012, the independent valuation consultancy fee creditor was US$12,500 (30 June 2011: US$9,507).

 

Related Party Transactions

During prior years the Company had undertaken investment transactions with Laurus Master Fund Ltd, Calliope Capital Corporation, Erato Corp, Promethean Industries, Inc and Valens Offshore SPV I Ltd, being other affiliates of the Investment Manager, under the terms of the Master Agreements.

 

There were no purchase or sales transactions with related parties during the current or immediately prior years.

 

Directors' and Other Related Parties' Interests

As at 30 June 2012, the interests of the Directors and their families who held office during the year are set out below:


30 June 2012


30 June 2011


Ordinary Shares


Ordinary Shares

William Scott (Chairman)

50,000


50,000

Peter Niven

30,000


30,000

Soondra Appavoo

20,000


20,000

Tim Jenkinson

50,000


50,000

Keith Dorrian

-


-

 

There were no changes in the interests of the Directors prior to the date of this report.

 

No Director, other than those listed above, and no connected person of any Director has any interest, the existence of which is known to, or could with reasonable diligence be ascertained by that Director, whether or not held through another party, in the share capital of the Company.

 

As at 30 June 2012, the Investment Manager held 500,000 (30 June 2011: 500,000) Ordinary Shares in the Company.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









5.   Directors' Fees:

Each of the Directors has entered into an agreement with the Company providing for them to act as a non-executive director of the Company. Their annual fees, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company were as follows for the year:

 


30 June 2012*


30 June 2011


Annual Fee


Annual Fee


£


£

William Scott (Chairman)

27,500


30,000

Soondra Appavoo

-


-

Peter Niven (Audit Committee chairman)

24,500


27,000

Tim Jenkinson

22,500


25,000

Keith Dorrian

22,500


25,000

 

*All Directors annual fees were reduced by £10,000 per annum per Director with effect from 1 April 2012.

 

Mr Appavoo has waived his Director's fees for the year. As at 30 June 2012, the Directors' fees creditor was US$nil (30 June 2011: US$42,139).

 

6.   Basic & diluted deficit per Ordinary Share:

Basic deficit per Ordinary Share is based on the net deficit for the year of US$56,790,146 (30 June 2011: US$14,058,015) and on a weighted average of 59,564,681 (30 June 2011: 59,564,681) Ordinary Shares in issue.

 

Diluted deficit per Ordinary Share is the same as basic deficit per Ordinary Share since there are no dilutive potential Ordinary Shares arising from financial instruments.

 

7.   Investments:


30 June 2012


30 June 2011

Fair Value Through Profit or Loss Investments:

US$


US$

Investments listed on recognised investment exchanges

1,744,422


2,285,132

Unlisted investments

28,677,602


81,524,576


30,422,024


83,809,708

 


30 June 2012


30 June 2011

Held for Trading Investments:

US$


US$

Unlisted investments

723,605


1,210,737

 


30 June 2012


30 June 2011

Loans and Receivables at amortised cost:

US$


US$

Loans

10,642,455


21,126,349

 


30 June 2012


30 June 2011

Total Investments:

US$


US$

Investments listed on recognised investment exchanges

1,744,422


2,285,132

Unlisted investments

29,401,207


82,735,313

Loans

10,642,455


21,126,349


41,788,084


106,146,794

 

8.   Cash and Cash Equivalents:

30 June 2012


30 June 2011


US$


US$

Bank deposits

293,808


280,038

Bank overdrafts (see note 11)

-


(790,281)


293,808


(510,243)

 

9.   Other Receivables:

30 June 2012


30 June 2011


US$


US$

Loan interest & fee receivables

4,239,484


2,384,950

Prepayments

36,436


22,177

US Tax receivable

-


16,308


4,275,920


2,423,435

 

The Directors consider that the carrying amount of other receivables approximates fair value.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









 

10.  Other Payables:

30 June 2012


30 June 2011


US$


US$

Management fee payable

70,877


162,453

Performance fee payable

4,185,888


5,581,184

Administration fee payable

12,166


23,421

Audit fee payable

78,535


86,606

Legal & professional fees payable

100,000


-

US Tax payable

46


-

Other payables

50,337


81,663


4,497,849


5,935,327

 

      The Directors consider that the carrying amount of other payables approximates fair value.

 

11.  Loan and Overdraft:

During the period the Company had bank facilities with Bank of Scotland plc ("Bank of Scotland"), in accordance with the facility agreement dated 30 November 2007 and supplemental restatement facility agreement (utilisation date 1 September 2011). The facilities comprised a US$3.7million term note and a US$1.5million committed overdraft.

 

As at 30 June 2012, the Company had fully repaid the loan facility with Bank of Scotland (30 June 2011: US$3,867,480). The outstanding overdraft facility as at 30 June 2012 was US$nil (30 June 2011: US$790,281).

 

On 21 February 2012, the Company migrated its banking provider to Investec Specialist Private Bank. The above credit facility was secured against the Company's investment portfolio.

 

12.  Share Capital and Distributable Reserve:

 

30 June 2012

 &

30 June 2011

Authorised Share Capital

US$

Unlimited Ordinary and Qualifying C Shares of no par value

-

 


30 June 2012


30 June 2011

Allotted, issued and fully paid

US$


US$

59,564,681 (30 June 2011: 59,564,681) Ordinary Shares of no par value each

 

-


 

-






30 June 2012


30 June 2011


No.


No.

Brought forward & carried forward

59,564,681


59,564,681





Share premium

US$


US$

Brought forward & carried forward

47,512,742


47,512,742





Distributable reserve

US$


US$

Brought forward & carried forward

42,793,973


42,793,973

 

The Ordinary Shareholders shall have the following rights:

 

(i)         Dividends

During the period Shareholders (other than the Company itself where it holds its own Shares as treasury Shares) are entitled to receive, and participate in, any dividends or other distributions out of the profit of the Company available for dividend and resolved to be distributed in respect of any accounting period or other income or right to participate therein.

 

(ii)         Winding up

On a winding up, Shareholders (other than the Company itself where it holds its own Shares as treasury Shares) shall be entitled to the surplus assets remaining after payment of all the creditors of the Company.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









12.  Share Capital and Distributable Reserve, continued:

 

(iii)        Voting

Shareholders (other than the Company itself where it holds its own Shares as treasury Shares) shall have the right to receive notice of and to attend and vote at general meetings of the Company and each Shareholder being present in person or by proxy or by a duly authorised representative (if a corporation) at a meeting shall upon a show of hands have one vote and upon a poll each such holder present in person or by proxy or by a duly authorised representative (if a corporation) shall have one vote in respect of every Ordinary Share held by him.

 

On 27 July 2007, an ordinary resolution was passed at an extraordinary general meeting of the Shareholders approving the cancellation of the entire amount which will stand to the credit of the share premium account immediately after the Placing, conditionally upon the issue of the Shares and the payment in full thereof and with respect to any further issue of Shares. The cancellation was confirmed by the Royal Court on 25 January 2008 that thesurplus thereby created formed a distributable reserve.

 

Capital Management

Under its Articles of Incorporation, the Company has the ability to borrow up to 30% of net assets in order to implement any hedging and buyback strategies and to meet ongoing expenses.

 

13.  Net Asset Value per Ordinary Share:

The net asset value per Ordinary Share is based on the net assets attributable to Ordinary shareholders of US$41,859,963 (30 June 2011: US$98,650,109) and on the year end Ordinary Shares in issue of 59,564,681 (30 June 2011: 59,564,681).

 

14.  Financial Instruments:

 

(a)    Categories of financial instruments:


30 June 2012

30 June 2011


 

 

Fair Value / Amortised Cost

Percentage of net assets attributable to Ordinary Shareholders

 

 

Fair Value / Amortised Cost

Percentage of net assets attributable to Ordinary Shareholders

Assets

US$

%

US$

%

Financial assets at fair value through profit or loss:





  Listed equity securities

1,744,422

4.17

2,285,132

2.32

  Unlisted equity securities

28,677,602

68.51

81,524,576

82.64

  Warrants

709,521

1.70

1,021,683

1.03

  Penny warrants

14,084

0.03

189,054

0.19


31,145,629

74.41

85,020,445

86.18






  Cash and cash equivalents

293,808

0.70

280,038

0.28






Loans and receivables*:





  Loans

10,642,455

25.42

21,126,349

21.42






  Unsettled investment sales

-

0.00

392,930

0.40

  Other receivables

4,275,920

10.22

2,423,435

2.46







46,357,812

110.75

109,243,197

110.74

Liabilities





  Cash and cash equivalents (bank overdrafts)

 

-

0.00

 

(790,281)

(0.80)

  Loan

-

0.00

(3,867,480)

(3.92)

  Other payables

(4,497,849)

(10.75)

(5,935,327)

(6.02)







(4,497,849)

(10.75)

(10,593,088)

(10.74)

 

*The Directors deem that the carrying value of loans and receivables at amortised cost, written down where appropriate for known impairments, is not considered to be materially different from fair value.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









14.  Financial Instruments, continued:

 

(b)                Net gains and losses on financial assets at fair value through profit or loss:

 



30 June 2012


30 June 2011



US$


US$

Financial assets at fair value through profit or loss:





  Listed equity securities


236,756


(1,924,825)

  Unlisted equity securities


(53,209,694)


1,232,026

  Warrants and penny warrants


(487,133)


(783,822)



(53,460,071)


(1,476,621)

 

(c)    Derivatives:

The following tables detail the Group's aggregate investments in derivative contracts, by maturity, outstanding as at 30 June 2012.

 

Penny Warrants

 


30 June 2012

30 June 2012


30 June 2011

Maturity

Nominal

Fair Value


Fair Value


No.

US$


US$

3-5 years

1,952,238

-


7,417

5-10 years

-

-


70,097

>20 years

1,376,703

14,084


111,540

Total


14,084


189,054

 

A penny warrant is a derivative financial instrument with similar economic characteristics to the underlying equity instrument which gives the right, but not the obligation to buy a specific amount of a given stock, at a specified price (strike price) during a specified period (American option) or on a specific date (European option). The fair value of the penny warrants are included in options classified as financial assets at fair value through profit or loss disclosed in note (a) above. All the penny warrants the Group owns have an exercise price of US$0.01 or less (quasi equities) and are valued at a 7% discount to net intrinsic value (see note 2(d) (iii)).

 

Warrants

 


30 June 2012

30 June 2012


30 June 2011

Maturity

Nominal

Fair Value


Fair Value


No.

US$


US$

< 1 year

651,579

-


363,540

1-3 years

6,996,924

709,245


514,362

3-5 years

1,663,154

-


31,590

5-10 years

8,014,094

276


20,714

10-15 years

758,333

-


91,477

Total


709,521


1,021,683

 

A warrant is a derivative financial instrument which gives the right, but not the obligation to buy a specific amount of a given stock, at a specified price (strike price) during a specified period (American option) or on a specific date (European option). The fair value of warrants is included in warrants classified as financial assets at fair value through profit or loss disclosed in note (a) above. The warrants are valued at a 30% discount to Black Scholes value (see note 2(d) (iii)).

 

Forward foreign currency swaps

 

As at 30 June 2012 and 30 June 2011, the Group had no outstanding forward foreign currency swaps.

 

In accordance with the Group's scheme particulars the Group may invest in forward foreign exchange contracts for the purpose of efficient portfolio management.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management:

 

      Strategy in Using Financial Instruments:

The Group's investment objective is to seek to provide a total return of 10-15 per cent per annum over a rolling 3-year period with annual standard deviation of less than 5 per cent, primarily through investing in a diversified portfolio of asset backed loans made predominantly to publicly traded small and micro-cap companies and equity warrants issued predominantly by publicly traded small and micro-cap companies. 

 

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value, interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. These policies include the use of certain financial derivative instruments. The risk management policies employed by the Group to manage these risks are discussed below.

 

Market Price Risk:

Market price risk results mainly from the uncertainty about future prices of financial instruments held. It represents the potential loss the Group may suffer through holding market positions in the face of price movements and changes in interest rates or foreign exchange rates, with the maximum risk resulting from financial instruments being determined by the fair value of the financial instruments. The Group's investment portfolio is monitored by the Investment Manager, Investment Consultant and the Directors in pursuance of the investment objectives.

 

All investments present a risk of loss of capital. The profitability of a significant portion of the Group's investment program depends to a great extent upon correctly assessing the future course of movements in interest rates, currencies and other investments. There can be no assurance that the Investment Manager will be able to predict accurately these price movements. The Investment Manager moderates this risk through a careful selection of securities and other financial instruments within specified limits. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. The Group's portfolio and investment strategy is reviewed continuously by the Investment Manager, Investment Consultant and on a quarterly basis by the Board and the Manager.

 

By their nature, the Group's equity investments at fair value through profit and loss, and, warrants and penny warrants investments held for trading are directly exposed to market price risk. The Group's investments in loans and receivables are not directly subject to market price risk in the same way as equities and derivatives. By their nature there is no upside in the value of loans and receivables. However market conditions may dictate that loan investments need to be impaired. The Group's exposure to this risk is dealt with under credit risk.

 

The following details the Group's sensitivity to a 5% increase and decrease in market prices of equities, with 5% being the sensitivity rate used when reporting price risk internally to key management personnel and representing management's assessment of the possible changes in market prices.

 

As at 30 June 2012, the Group's market risk is affected by four main components: changes in actual market prices, credit risk, interest rate and foreign currency movements. Credit risk, interest rate and foreign currency movements are covered below. A 5% increase in the value of equity investments, with all other variables held constant, would bring about 3.63% or US$1,521,100 (30 June 2011: 4.25% or US$4,190,485) increase in net assets attributable to equity shareholders. If the value of equity investments had been 5% lower, with all other variables held constant, net assets attributable to equity shareholders would have fallen by 3.63% or US$1,521,100 (30 June 2011: 4.25% or US$4,190,485). Warrants and penny warrants by their nature may be more sensitive to changes in the value of the underlying equity instrument dependent upon a number of factors including time to expire and whether or not they are in the money. A 5% increase in the value of underlying equity prices for derivatives held, with all other variables held constant, would bring about a 0.00% or US$789 (30 June 2011: 0.14% or US$133,712) increase in net assets attributable to equity shareholders. A 5% decrease in the value of underlying equity prices for derivatives held, with all other variables held constant, would bring about a 0.00% or US$791 (30 June 2011: 0.13% or US$125,154) decrease in net assets attributable to equity shareholders.

 



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Credit Risk:

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group, resulting in financial loss to the Group.

 

To the extent the Group invests in derivative instruments, certain types of options or other customised financial instruments or non-UK securities, the Group takes the risk of non-performance by the other party to the contract. This risk may include credit risk of the counterparty and the risk of settlement default. This risk may differ materially from those entailed in UK exchange-traded transactions which generally are supported by guarantees of clearing organisations, daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered directly between two counterparties generally do not benefit from such protections and expose the parties to the risk of counterparty default. In addition, there are risks involved in dealing with the custodians or brokers who settle trades particularly with respect to non-UK investments.

 

At the reporting date financial assets exposed to credit risk include loan instruments, receivables and derivatives. It is the opinion of the Board of Directors that the maximum exposure to credit risk that the Group faces is equal to the carrying value of these financial instruments held by the Group.

 

The loan and receivable instruments are private loans and receivables with the underlying counterparties and as such do not have associated agency credit ratings. To mitigate the credit risk on these loan and receivable instruments the Directors consider impairment on an ongoing basis also taking into consideration the results of any reviews performed by MountainView. MountainView is employed to review a sample the of loan and receivable instruments on a monthly basis and report to the Board of Directors/Investment Manager any issues with regards to the valuation of the loan and receivable instruments in accordance with the Independent Valuation Consultant's Agreement. Any impairment on the loan and receivable instruments is written off to the Consolidated Statement of Comprehensive Income. As at 30 June 2012, impairment charges totaling US$2,891,177 (30 June 2011: US$13,357,267) had been written off to the Consolidated Statement of Comprehensive Income since the Group commenced trading (see note 2(e)).

 

The credit risk on cash transactions and transactions involving derivative financial instruments is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, or with high credit-ratings assigned by international credit-rating agencies.

 

In accordance with the investment restrictions as described in its Placing Document, the Group may not invest more than 10% of its total assets in any one underlying company (calculated at the time of any relevant investment being made).

 

As at 30 June 2012, the following amounts on debt instruments were past due:

 


30 June 2012


30 June 2011


US$


US$

Principal default

6,531,068


4,912,865

Interest default

389,956


61,811

 

The Group has entered into certain agreements with affiliates of the Investment Manager in which the Group and the affiliates have investments in the same loan instruments. The Group has agreed to alter the allocation of cash principal and interest repayments in the event of a restructuring or liquidation of the entity in which the Group and affiliate(s) are invested. The agreements provide for the Group to receive upfront consideration from the affiliate(s) in exchange for reallocating the cash liquidation proceeds received by the Investment Manager in respect of the loan securities first to the affiliate(s) and secondly to the Group. This reallocation applies only to regular principal and interest, and not to any contingent amounts including default interest and fees.

 

The Group has mitigated the credit risk of these certain agreements by only entering into agreements related to loan instruments in which the collateral and/or operating strength of the invested companies was sufficiently in excess of the loan amounts outstanding such that doing so did not materially alter the credit risk of the loan instruments held by the Group. This determination of whether the loan instruments were sufficiently collateralised was made by Clayton IPS Corporation at the time of the agreements, and Clayton IPS Corporation continues to evaluate the loan instruments in the context of these agreements.

 

As at 30 June 2012, of the total loans held by the Group of US$10,642,455 (30 June 2011: US$21,126,349), US$3,646,631 (30 June 2011: US$9,270,719) were subordinated.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Liquidity Risk:

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments.

 

The Group invests in loan notes and warrants that are not liquid and there may not be any secondary market for these instruments. Even though the warrants are generally convertible into securities listed on the national securities exchanges, quoted on NASDAQ or traded in the over-the counter markets or other markets (eg pink sheets), the instruments themselves are not liquid. In addition, the Group's assets (including the loan notes) may, at any given time, include securities and other financial instruments or obligations which are very thinly traded or for which no market exists or which are restricted as to their transferability under applicable securities laws. The sale of any such investments may be possible only at substantial discounts. Further, such investments may be extremely difficult to value with any degree of certainty.

 

The Group may also invest in private placements and other similar issues of securities (including investments in privately held companies).  This may involve a high degree of business and financial risk that can result in substantial losses. In addition, there is no existing market for the purchase and sale of such investments and the Group may not be able to readily sell such investments. Such investments may be subject to greater economic, business and market risks than the marketable securities of more well-established companies.

 

While the Investment Manager will attempt to spread the Group's assets among a number of investments in accordance with the investment policies adopted by the Group, at times the Group may hold a relatively small number of investments each representing a relatively large portion of the Group's net assets.  Losses incurred in such investments could have a materially adverse effect on the Group's overall financial condition. Whilst the Group's portfolio is diversified in terms of the companies in which it invests, the investment portfolio of the Group may be subject to more rapid change in value than would be the case if the Group were required to maintain a wide diversification among types of securities, countries and industry groups.

 

In particular the Group is exposed to its large holdings in Petrotech Holdings/Parabel Inc (formerly PetroAlgae) which constitutes 68.63%, excluding accrued interest, (30 June 2011: 76.47%) of the investment portfolio as at 30 June 2012.

 

At any given time, the Group may have significant investment in smaller and medium sized companies of a less seasoned nature whose securities are traded in the over-the-counter market.  These "secondary" securities often involve significantly greater risks than the securities of larger, better known companies. Such securities may not be liquid and there may be only a limited market for such securities.

 

The Group's portfolio and investment strategy is reviewed continuously by the Investment Manager and on a quarterly basis by the Board. In addition, the Directors will seek to review capital requirements on an annual basis.

 

 


PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Liquidity Risk, continued:

 

The following table details the maturity profile of the Group's financial instruments:

 

Maturity Analysis

 

As at 30 June 2012

less than 1 year

1-3 years

3-5 years

5-10 years

> 10 years

No fixed maturity

Total

Assets

US$

US$

US$

US$

US$

US$

US$

Financial assets at fair value through profit or loss:








  Listed equity securities

-

-

-

-

-

1,744,422

1,744,422

  Unlisted equity securities

-

-

-

-

-

28,677,602

28,677,602

  Warrants

-

709,245

-

276

-

-

709,521

  Penny warrants

-

-

-

-

14,084

-

14,084


-

709,245

276

14,084

30,422,024

31,145,629









  Cash and cash equivalents

293,808

-

-

-

-

-

293,808









Loans and receivables:








Loans

3,650,997

779,214

-

-

-

6,212,244

10,642,455









Other receivables

4,275,920

-

-

-

-

-

4,275,920










8,220,725

1,488,459

-

276

14,084

36,634,268

46,357,812

Liabilities








Other payables

(4,497,849)

-

-

-

-

-

(4,497,849)


(4,497,849)

-

-

-

-

-

(4,497,849)



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Liquidity Risk, continued:

 

The following table details the maturity profile of the Group's financial instruments:

 

Maturity Analysis

 

As at 30 June 2011

less than 1 year

1-3 years

3-5 years

5-10 years

> 10 years

No fixed maturity

Total

Assets

US$

US$

US$

US$

US$

US$

US$

Financial assets at fair value through profit or loss:








  Listed equity securities

-

-

-

-

-

2,285,132

2,285,132

  Unlisted equity securities

-

-

-

-

-

81,524,576

81,524,576

  Warrants

363,540

514,362

31,590

20,714

91,477

-

1,021,683

  Penny warrants

-

-

7,417

70,097

111,540

-

189,054


363,540

514,362

90,811

203,017

83,809,708

85,020,445









  Cash and cash equivalents

280,038

-

-

-

-

-

280,038









Loans and receivables:








Loans

11,100,719

5,114,482

312,750

-

-

4,598,398

21,126,349









Unsettled investment sales

392,930

-

-

-

-

-

392,930

Other receivables

2,423,435

-

-

-

-

-

2,423,435










14,560,662

5,628,844

351,757

90,811

203,017

88,408,106

109,243,197

Liabilities








  Cash and cash equivalents (Bank overdraft)

(790,281)

-

-

-

-

-

(790,281)









Loans and receivables:








  Loans

(3,867,480)

-

-

-

-

-

(3,867,480)









Other payables

(5,935,327)

-

-

-

-

-

(5,935,327)


(10,593,088)

-

-

-

-

-

(10,593,088)

 

 


PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Interest Rate Risk:

The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial instruments and future cash flows.

 

The Group is exposed to interest rate risk as it invests in loan instruments bearing interest at both fixed and floating interest rates. Other financial assets and liabilities exposed to interest rate risk include borrowings and cash and cash equivalents which are invested at short term rates. The Investment Manager manages the Group's exposure to interest rate risk daily in accordance with the Group's investment objectives and policies, as disclosed on page 3. The Group's overall exposure to interest rate risk is monitored regularly by the Board of Directors.

 

The table below summarises the Group's exposure to interest rate risk:

 


30 June 2012

30 June 2011

 

 

Weighted average effective interest rate

 

 

Total

Weighted average effective interest rate

 

 

Total

Assets

%

US$

%

US$

Fixed rate equity (preference share holdings)

 

9.00

 

7,198,510

 

9.00

 

7,198,510

Fixed interest rate unlisted loan instruments

 

7.85

 

4,868,228

 

6.14

 

8,135,236

Floating interest rate unlisted loan instruments

 

6.28

 

5,774,227

 

5.30

 

12,991,113

Floating interest rate cash and cash equivalents

 

0.23

 

293,808

 

0.23

 

280,038

Non-interest bearing

-

28,223,039

-

80,638,300

Total assets


46,357,812


109,243,197






Liabilities





Floating interest rate cash and cash equivalents

 

-

 

-

 

5.41

 

(790,281)

Floating interest rate loan

-

-

6.19

(3,867,480)

Non-interest bearing

-

(4,497,849)

-

(5,935,327)

Total liabilities


(4,497,849)


(10,593,088)






The analysis below has been determined based on the Group's exposure to interest rates for interest bearing assets and liabilities (included in the interest rate exposure table above) at the reporting date.

 

The Group's interest bearing assets are comprised of a fixed rate equity preference share instrument, fixed and floating rate loan instruments and floating rate cash and cash equivalents. The floating rate assets are generally indexed on US Prime. As at 30 June 2012, 100% (30 June 2011: 59%) of the floating rate loans have an interest rate floor, with an average floor of 7.21% (30 June 2011: 7.48%). In contrast, the interest rate of these loans in absence of the floor provisions would have been 2.02% (30 June 2011: 2.28%) lower. Therefore, the majority of the interest income generated by the Group is not sensitive to normal changes in interest rates. An immediate 200 basis point drop in US Prime would cause the yield on the interest bearing assets to fall by 0.16 basis points or US$678 (30 June 2011: 0.10 basis points or US$644). Conversely, an immediate 200 basis point increase in US Prime would cause the yield on the interest bearing assets to increase by 1.4 basis points or US$5,876 (30 June 2011: 0.60 basis points or US$5,601).

 

During the prior year, the Group's interest bearing liabilities were comprised of floating rate cash and cash equivalents and floating rate loans. The floating rate loans are comprised of loans that are indexed on US LIBOR with a margin of 600 basis points, and reset either monthly or quarterly. The change in yield on these liabilities therefore changes directly with changes in US LIBOR. The 3 month US LIBOR as at 30 June 2011: 0.19% an immediate drop to zero in the US LIBOR on the interest bearing liabilities would have caused net assets attributable to equity holders as at 30 June 2011 to increase by US$8,643 or 0.01% on an annualised basis due to the reduction in interest payable on floating rate interest bearing liabilities.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Interest Rate Risk, continued:

Conversely, as at 30 June 2011 an immediate 200 basis point increase in US LIBOR would cause net assets attributable to equity holders to decrease by US$93,155 or 0.09% on an annualised basis due to the increase in interest payable on floating rate interest bearing liabilities. As at 30 June 2012, the Group had no interest bearing liabilities.

 

As a result of low interest rates generally causing the floating rate loan asset yields to be based upon their floor rates, marginal increases of interest rates up to approximately 3 percent would only marginally increase income on interest bearing assets.

 

Foreign Currency Risk:

Foreign currency risk is the risk that the fair value of future cash flows of a foreign currency financial instrument will fluctuate because of changes in foreign exchange rates.

 

As at 30 June 2012, the Group's assets are invested predominately in securities and other investments that are denominated in the same currency as the reporting currency.  Accordingly the Groupis at low risk to fluctuations in foreign exchange rate. However, should this change the Group has the ability to manage any significant exposure to foreign currencies through forward foreign exchange contracts to hedge its exposure back to US Dollar. As at 30 June 2012, there was no open currency hedging (30 June 2011: none).

 

Currency Exposure:

As at 30 June 2012, the majority of the net assets of the Group are denominated in US Dollars. The carrying amounts of these assets and liabilities are as follows:

 


Assets

Liabilities

Net


30 June 2012

30 June 2012

30 June 2012


US$

British Pound

11,140

(224,979)

(213,839)

Canadian Dollar

-

-

-

Euro

8

-

8

US Dollars

46,346,664

(4,272,870)

42,073,794


46,357,812

(4,497,849)

41,859,963

 


Assets

Liabilities

Net


30 June 2011

30 June 2011

30 June 2011


US$

British Pound

23,032

(208,928)

(185,896)

Canadian Dollar

41,624

(1)

41,623

Euro

9

-

9

US Dollars

109,178,532

(10,384,159)

98,794,373


109,243,197

(10,593,088)

98,650,109

 

The Group has no significant currency risk. The Group has the ability to implement a policy of currency hedging.

 

As at 30 June 2012, the Group's sensitivity to foreign currency risk is low due to the majority of the net assets of the Company are denominated in US Dollars.

 

Concentration Risk

The Investment Manager originally spread the Group's assets among a number of investments at the time of investment in accordance with the original investment policies adopted by the Group.

 

The current balance of the Group's portfolio has partly resulted from the requirement to monetise liquid assets to enable the Group to repay bank debt. Please refer to the Analysis of Significant Investments and Portfolio Analysis that follows the Notes to the Financial Statements.

 

In particular the Group is exposed to its large holdings in Petrotech Holdings/Parabel Inc which constitutes 68.63%, excluding accrued interest, (30 June 2011: 76.47%) of the investment portfolio as at 30 June 2012.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Classification of Fair Value Measurements

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

 

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

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

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

 

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

 

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

 

The following table analyses within the fair value hierarchy the Company's financial assets (by class) measured at fair value as at 30 June 2012:

 


Fair Value as at 30 June 2012

 


Level 1

Level 2

Level 3

Total


US$

US$

US$

US$

Financial assets at fair value through profit or loss:





  Equity securities

-

1,744,422

28,677,602

30,422,024

  Warrants

-

-

709,521

709,521

  Penny warrants

-

-

14,084

14,084


-

1,744,422

29,401,207

31,145,629

 


Fair Value as at 30 June 2011

 


Level 1

Level 2

Level 3

Total


US$

US$

US$

US$

Financial assets at fair value through profit or loss:





  Equity securities

2,253,964

31,168

81,524,576

83,809,708

  Warrants

-

-

1,021,683

1,021,683

  Penny warrants

-

-

189,054

189,054


2,253,964

31,168

82,735,313

85,020,445

 

Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include active listed equities. No adjustments are made to the quoted price for these instruments. For the prior year the level 1 amount above related to a single investment. Whilst this investment remains listed there is not sufficient trading in its equity to class the market as "active", therefore this investment has been transferred to level 2 during the current year.



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









15.  Financial Risk Management, continued:

 

Classification of Fair Value Measurements, continued

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments may include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

 

Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include unquoted equity instruments which the Company values in accordance with the International Private Equity and Venture Capital valuation guidelines or any other valuation model and techniques which can provide a reasonable estimate of fair value of the investment involved. The Company considers liquidity, credit and other market risk factors. Warrants and penny warrants are classified as level 3 investments due to a lack of observable inputs.

 

The tables below provide a reconciliation from brought forward to carried forward balances of financial instruments categorised under level 3 during the year:

 


30 June 2012

Assets at Fair Value based on

Level 3:

Equity securities

Warrants and Penny warrants

Total


US$

US$

US$

Fair value brought forward

81,524,576

1,210,737

82,735,313

Exercise of warrants

-

(60,401)

(60,401)

Movement in net unrealised losses on fair value through profit or loss investments

 

(52,657,457)

 

23,706,866

 

(28,950,591)

Realised losses on disposals

(189,517)

(24,133,597)

(24,323,114)

 

Fair value carried forward

 

28,677,602

 

723,605

 

29,401,207

Total (losses)/gains for the year relating to assets still held at the year end

 

(52,597,949)

 

44,665

 

52,553,284

 


30 June 2011

Assets at Fair Value based on

Level 3:

Equity securities

Warrants and Penny warrants

Total


US$

US$

US$

Fair value brought forward

87,521,003

2,834,377

90,355,380

Purchases

171,835

-

171,835

Sales

(2,461,630)

(351,781)

(2,813,411)

Exercise of warrants

-

(488,038)

(488,038)

Equity converted to loans

(3,157,331)

-

(3,157,331)

Movement in net unrealised (losses)/gains on fair value through profit or loss investments

 

(549,301)

 

1,991,751

 

1,442,450

Realised losses on disposals

-

(2,775,572)

(2,775,572)

 

Fair value carried forward

 

81,524,576

 

1,210,737

 

82,735,313

Total gains and (losses)/gains for the year relating to assets still held at the year end

 

(2,280,158)

 

49,505

 

(2,230,653)

 

16.  Dividends:

At inception, it was the Group's intention to pay an annual dividend (paid gross quarterly) of not less than 5 pence per Ordinary Share (or its equivalent in US Dollars) in its first year growing by 0.5 pence per Ordinary Share (or its equivalent in US Dollars) per annum in its second and third years. Although this was achieved in respect of the first accounting period of the Group, a breach of the Group's banking facilities led to the suspension of dividends during the current and prior years.

 

All dividends in prior periods were paid from the Group's reserves.


PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012







17.  Significant Investment Holding:

 

Parabel Inc./PetroTech Holdings Inc.

The Group has a significant holding in Parabel Inc (formerly PetroAlgae), a food, feed and fuel development stage company based in Florida, through its holding in PetroTech Holdings Inc. The holding structure and some of the commercial progress of PetroAlgae is discussed below.

 

Holding structure

The Group has a significant holding in PetroTech Holdings Inc, a Delaware corporation. PetroTech Holdings Inc is a privately held holding company whose principal asset at 30 June 2012 was 100,000,000 shares (30 June 2011: 100,000,000 shares) of the common stock of Parabel, Inc ("Parabel"). PetroTech Holdings Inc is owned jointly by the Group, Laurus Master Fund and Valens (which are funds managed by the Investment Manager). Through its holding in PetroTech Holdings, the Group has an effective interest in approximately 7% of the common shares in Parabel at the valuation price.

 

Parabel is registered with the SEC and quoted on OTC Link (PABL.US), following a reverse merger into a quoted shell in December 2008. OTC Link is an electronic quotation system that displays quotes from broker dealers for many over-the-counter securities.

 

In February 2010, Parabel announced its intention to migrate to a higher exchange. On 11 August 2010, Parabel filed an S-1 registration statement for a proposed IPO with Goldman Sachs, UBS and Citi as the lead underwriters. On 1 December 2011, the company filed a significantly amended S-1 with the same lead underwriters. The Company changed its name from PetroAlgae Inc to Parabel on 9 February 2012, reflecting its increased focus on food solutions.

 

Valuation

The Group owns 8.24% (30 June 2011: 8.24%) of the common stock and US$7.2 million (30 June 2011: US$7.2 million) in preferred stock in PetroTech Holdings Inc. The preferred stock is held at par plus accrued interest. The common stock is valued based on an assessment of the realisable value of Parabel Inc.

 

The PSD Board has undertaken a review of the valuation of Parable Inc as at 30 June 2012. It has set the valuation at US$31,755,566 (including accrued income) (30 June 2011: US83,098,599, 31 December 2011: US$62,969,485) based on a value per share of US$4.24 (US$11.56 at 30 June 2011; US$8.70 at 31 December 2011).

 

In coming to this assessment of value, the Board, with advice from the Independent Valuation Agent and the Investment Consultant have taken the following factors into account:

 

·      Public trading of stocks on OTC Link

·      Valuation of comparable companies

·      Model based valuations

 

The shares of Parabel Inc are traded on OTC Link. The trading is irregular and volumes traded are very limited. The Directors note the public trading but do not principally rely upon it for valuation purposes. The Volume Weighted Average Price of the shares traded in the period ended 30 June 2012 was as follows (source: Bloomberg):

 

1 month - US$2.73/share

6 month - US$3.73/share

12 month - US$5.72/share

 

There are no directly comparable companies to Parabel. However, the Directors note that several IPO's have occurred in the United States of companies in similar markets to Parabel, and at a similar stage in development. The Board also note the poor IPO market at present, however.

 

The Directors have looked at model based discounted cash flow valuations. The models used have been based on the latest Parabel management forecasts. Recognising that the IPO market remains depressed, the Directors have taken a valuation approach more consistent with an M&A approach and have not applied a mid term growth rate (as set out in the Parabel valuation note in the December 2011 interims).

 



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









17.  Significant Investment Holding, continued:

 

Valuation, continued

Any such valuation is sensitive to valuation inputs. In particular changes in assumptions of license fees, royalty rates, implementation rates and discount rates have a significant impact on valuation. The sensitivity of the model to changing these main assumptions is show in the table below:

 

Impact of key sensitivities on value of Parabel Inc holding






Sensitivity range

Implied value per share US$

 

PSD holding value US$


Base case assumption

Low

High

Low

High

Low

High

Discount rate

20%

22%

18%

3.36

5.42

25,606,380

39,970,261

Investor discount to management forecasts

50%

60%

40%

3.26

5.23

 

24,871,588

 

38,639,545

 

Risks

Parabel is a development stage company with a limited operating history. Parabel faces many risks in implementing its business plans. The risks faced by Parabel include, but are not limited to, the following:

 

§ It is materially a pre-revenue company and in the absence of outside funding faces ongoing funding risk.

§ It may be unable to acquire and retain licensees. In addition, during the next year or so, Parabel will be dependent upon a limited number of customers.

§ It has entered into several contracts and MOUs with prospective customer licensees, MOUs are not binding agreements and they might not result in any enforceable contracts or generate any revenue.

§ Initial contracts will be conditioned on the demonstration facilities deployed by licensees meeting certain levels of productivity, and the failure to meet those levels may lead to the termination of these contracts.

§ The market may not accept the end-products produced by Parabel's technology.

§ The revenue and returns licensees will realise from Parabel's technology are highly dependent on the market price of the biocrude and protein end-products produced using Parabel's technology, and those prices will be considerably lower if Parabel fails to receive certain regulatory or industry approvals or if those markets are unavailable for other reasons.

§ The end-products produced by Parabel's technology are subject to industry and regulatory testing.

§ Its long-term success depends on future royalties paid by customer licensees, and Parabel faces the risks inherent in a royalty-based business model.

§ If a competitor were to achieve a technological breakthrough, Parabel's operations and business could be negatively impacted.

§ It has filed patent applications. However, these may not be granted which may negatively affect revenues.

§ It may not be able to manage its growth. In particular, the company may not be able to recruit sufficient, qualified staff.

§ It does business in developing economies with less developed legal frameworks. This may affect the enforceability of contracts and intellectual property.

§ PSD is dependent on the proposed IPO or other transaction to realise the value of its shares. There is no guarantee that such a transaction will occur. In particular, the equity and general investment markets have been poor in 2012. Continued poor market conditions may significantly delay any exit process and/or result in a lower realisable value for the Group.

 

Prospects

The Directors continue to monitor Parabel with a view to its commercial progress and the liquidity in the stock. In particular, the Directors will look to any significant capital markets or private transactions that Parabel may undertake in the future as an important indicator of value. Longer term, the Group continues to examine, together with its Investment Manager and Investment Consultant, the best options for realising its significant holding in Parabel Inc.

 

 



PSOURCE STRUCTURED DEBT LIMITED

Notes to the Financial Statements, continued

For the year ended 30 June 2012









18.  Reconciliation of Published NAV to Financial Statements NAV

 


30 June 2012


 

US$

US$ per Ordinary Share

Published NAV

43,156,976

0.7245




Adjustment under break up basis accounting:



  Provision for realisation costs

(100,000)

(0.0017)

  Write down of fair value through profit or loss investment

(26,909)

(0.0004)

  Write down of held for trading investment

(624,474)

(0.0105)

  Write down of loans and receivables investments

(545,630)

(0.0091)




Financial Statements NAV

41,859,963

0.7028

 

Please refer to note 2a(iv) for an explanation as to why the above adjustments have been included in these financial statements.

 

19.                                  Post Year End Events:

As already announced, on 31 July 2012 there was a novation of the Management Agreement from PSource Capital Guernsey Limited (hitherto the Manager) to PSource Capital Limited (the Investment Consultant). As a consequence of this novation, PSource Capital Limited will now act as Manager and Investment Consultant to the Company. Laurus Capital Management LLC will continue to act as Investment Manager. The novation will have no material impact on the operations of the Company in the opinion of the Directors.

 

During the post year end period the Board agreed to sell the Company's warrant holding in Biodelivery Sciences for US$709,000.

 

There are no other significant post year end events that require disclosure in these consolidated financial statements.

 

 



PSOURCE STRUCTURED DEBT LIMITED

Analysis of Significant Investments (unaudited)

As at 30 June 2012









The ten largest holdings of the Group, by underlying investment company as at 30 June 2012 are set out below:





 

 

Name of investment

 

Book

Cost

 

Fair

Value

Percentage

of

NAV

 

US$

US$

%

Petrotech Holdings Corp

7,198,509

28,677,569

68.51

Biovest International

8,464,918

5,267,668

12.58

Creative Vistas

3,646,615

3,646,631

8.71

Mascon Global Consulting Inc

3,069,867

1,973,263

4.71

Biodelivery Sciences Intl

686,000

709,245

1.69

North Texas Steel

944,209

606,434

1.45

Accentia Biopharmaceuticals

437,569

562,249

1.34

Presilient, LLC

837,529

251,279

0.60

GPSI Holdings, LLC

1,256,062

91,294

0.22

Prolink Holdings

-

1,275

0.00





9 other underlying investment companies

4,924,047

1,177

0.00






31,465,325

41,788,084

99.83

 

Parabel

 

Technology and Commercial Progress

Parabel provides renewable technology and solutions to address the global demand for new economical sources of feed, food and fuel.

 

Parabel's objective is to be the leading global provider of technology and processes for the commercial production of micro-crop biomass. Parabel has developed proprietary technology, which it believes will allow customer licensees to grow aquatic micro-crops at accelerated rates for conversion into products for both agriculture and energy markets. It seeks to license this renewable technology to meet the significant and growing demand in these markets in both emerging and developed economies. Furthermore, it expects that its solution will deliver strong and consistent economic returns to its customer licensees as a consequence of continuous, predictable, year-round operations without the need for government subsidies.

 

Parabel's strategy is to license and provide management support for micro-crop production facilities in equatorial regions around the world. Its solution is scalable and flexible, which will allow customer licensees to expand in order to meet market demand. The company intends to generate revenue from licensing fees and royalties primarily from customer licensees. Its licensing approach is designed to minimize its capital expenditures, because customer licensees will be expected to invest in the development and construction of the production facilities.

 

The company's proprietary technology uses indigenous micro-crops that are not genetically modified and demonstrate an optimal growth profile for a particular geography and environment. These micro-crops will then be grown, harvested and processed in a manner that will optimize the production of micro-crop biomass, which licensees can use to produce three products:

 

§ Lemna Protein Concentrate, or LPC: LPC is a free-flowing powder containing a minimum 65% crude protein. Parabel expects that its customer licensees will manufacture LPC for use in both animal and, potentially, human markets. Based on internal and third-party testing, Parabel believes that LPC is similar in quality to fish meal and represents a potentially viable protein source for feed formulations in multiple industries, including aquaculture and swine. Parabel believes that LPC can also be used as an alternative to kelp meal in fertilizer applications.

 

§ Lemna Meal, or LM: LM is a carbohydrate-rich free-flowing powder containing a minimum 15% crude protein. Parabel expects that licensees will manufacture LM for use in animal feed markets. Based on internal and third-party testing, Parabel believes that LM is similar in quality to alfalfa meal and represents a potentially viable feed ingredient for formulations in multiple industries, including dairy and swine. Parabel also believes that LM could be used in fertilizer and animal bedding applications.

 



PSOURCE STRUCTURED DEBT LIMITED

Analysis of Significant Investments (unaudited), continued

As at 30 June 2012









Parabel, continued

 

Technology and Commercial Progress, continued

 

§ Biocrude: With a small change in process parameters (but not equipment),Parabel's processing system can produce Biocrude rather than LM. Biocrude is a renewable energy feedstock that, through the use of a variety of third-party conversion systems currently under development, could potentially be converted into renewable fuels.

 

Parabel's proposition to customers is based on licensees building large farm units in suitable locations (typically in warm climates with sufficient rainfall). Parabel anticipates these units being from 600 hectares to 4,800 hectares in size.

 

Customer Licensees

Parabel is currently negotiating agreements with prospective customer licensees, including, among others, state-owned enterprises and multinational food companies. Parabel expects that the successful execution of early projects will help validate its technology and ultimately enhance its ability to enter into commercial-scale agreements with other customer licensees.

 

During the course of the 12 months period of these financial statements, Parabel and its customers have built test facilities in China, Indonesia, Chile, Ecuador and Suriname and Parabel has received certain initial fee income, as set out in its SEC filings.. This represents a significant move forward in commercialisation of the company's technology. The various customers are discussed below.

 

Key Milestones and commercial contracts

In 2006, Parabel began the research and development of its growth and harvesting technologies. Its efforts focused on experimentation and testing, developing processes and equipment, and building the infrastructure and databases necessary to support its technology.

 

During 2007 and 2008, Parabel developed its proprietary growth algorithms-the complex mathematical formulas it uses to determine the correct harvesting density and sunlight exposure of the biomass.

 

In 2009, it completed its fully operational demonstration facility and established its business development team. This facility consists of a large bioreactor (approximately one hectare) and three smaller bioreactors that display Parabel's technology and processes.

 

In November 2009, the Indonesian Ministry of Agriculture approved Parabel's LPC product as an approved raw material for use in animal feed.

 

In May 2011, Parabel entered into an agreement for the construction of a pilot-scale bioreactor in the Republic of Suriname. The construction of this bioreactor was completed in October 2011 and testing is ongoing.

 

In October 2011, Parabel entered into a license agreement with AIQ, a customer licensee in South America, with initial construction of a pilot-scale bioreactor having begun in September 2011. The AIQ Agreement provides for the construction of a pilot-scale bioreactor in the Republic of Chile and a framework for the subsequent build-out of a commercial-scale facility in South America, subject to the parties' agreement that the pilot-scale bioreactor has been operated successfully.

 

The AIQ Agreement provides for three separate phases: the Preliminary Phase, Phase I and Phase II. In the Preliminary Phase, AIQ will construct and operate a pilot-scale bioreactor of 0.75 hectares to test and demonstrate the growth and harvesting aspects of Parabel's technology. Parabel will grant AIQ a license to construct and operate the pilot-scale bioreactor in the Preliminary Phase in consideration for a limited license fee from AIQ.

 

If the parties agree that the Preliminary Phase has been operated successfully, Parabel and AIQ will proceed to Phase I, during which the first commercial-scale unit increment of 150 hectares, including growth, harvesting and processing modules, will be constructed. Parabel has agreed to construct the 150 hectare commercial growth unit on a turnkey basis, in return for payments from AIQ, billed on a progress basis, not to exceed a prescribed limit. After completion of Phase I, the parties will proceed to Phase II. In Phase II, AIQ will continue to expand the project in 150 hectare unit increments, including growth, harvesting and processing modules, until the facility forms a unit of up to 5,000 hectares.

 

In November 2011, CECEP, a Chinese state renewables business, began construction of a pilot-scale bioreactor. In May 2012 - Parabel, Inc. and its operating company PA LLC finalized a restated Master Framework Agreement with CECEP for the implementation of its technology in China as well as around the world, to include the eventual joint completion of ten 5,000 hectare commercial-scale units.

 



PSOURCE STRUCTURED DEBT LIMITED

Analysis of Significant Investments (unaudited), continued

As at 30 June 2012









Parabel, continued

 

Customer Licensees, continued

In June 2012, Parabel, Inc. finalised a Master License Agreement with Lemna Asia SDN BHD for the implementation of a commercial-scale license unit in Malaysia. The agreement provides a framework for the construction and operation of a commercial-scale license unit of approximately 5,000 hectares, which may consist of modules in different locations in Malaysia.

 

In August 2012, Parabel, Inc. finalized a Master License Agreement with FertiGreen, a subsidiary of Probac S.A. for the implementation of a commercial-scale license unit in Ecuador. Probac SA is an animal feed corporation operating in Latin America. The agreement provides a framework for the construction and operation of a commercial-scale license unit of approximately 5,000 hectares.  The first phase will consist of 300 hectares.

 

Industry and Test Results

The food, feed and fuel markets are global and significant in size and the demand in these markets is expected to grow rapidly. Parabel believes that its products will meet a portion of that growing demand. It also believe that Parabel's technology will deliver high production yields, particularly in equatorial regions, in which it expect the demand for Parabel's feed and food substitutes will be strong, and will enable Parabel's customer licensees to address the needs of the following markets.

 

Animal Feed

Fish Meal: Fish meal, most of which is produced by the commercial fishing of wild schools of small fish, is a critical ingredient in the diets of nursery animals and aquaculture stocks. The fish meal supply is currently limited due to the effects of overfishing, while the demand for fish meal as a source of protein in animal diets continues to rise sharply. Global fish meal demand for aquafeed is expected to reach approximately 7 million metric tonnes in 2012 and to rise every year thereafter to approximately 16 million metric tonnes in 2020, a rate which is expected to significantly outpace supply. As a consequence, there is a large and growing need for an alternative protein to address this supply and demand imbalance.

 

Based on research conducted by the University of Idaho, Parabel believes that LPC is strongly positioned as a fish meal alternative due to its nutritive qualities. Parabel expects that Parabel's ability to locate production near source of demand will provide Parabel's customer licensees with several commercial advantages, including the potential to reduce freight and duty import expenses, along with the ability to offer continuous production and just-in-time inventory management. Based on these factors, the company expects the market price of LPC to be comparable to fish meal.

 

Alfalfa Meal: Alfalfa meal is a premium forage ingredient, used to meet nutrition and growth requirements in numerous animal diets. The supply of alfalfa is limited due to the concentration of production in specific areas, such as the United States and Europe. Meanwhile, demand is continuing to rise, particularly in Asia. For dairy and swine alone, the global demand for alfalfa meal will be approximately 254 million metric tonnes in 2012, rising every year thereafter to approximately 262 million metric tonnes in 2020.

 

Trials conducted by the University of Minnesota demonstrated that LM is a high quality alternative for alfalfa meal in diets for dairy cattle. Third-party testing is continuing with other animals that are customarily fed alfalfa, such as swine and horses. Based on LM's nutritional similarity with alfalfa meal, Parabel expects that its market price will be comparable.

 

Fertilizer

Kelp and other high nitrogen biomass can be used as organic fertilizers. However, the production of kelp is costly due to the limited areas in which it grows in the wild, as well as environmental regulations that limit the scale of its harvesting. Parabel believes that LPC can be a lower-cost, potentially higher-value alternative to kelp. Parabel also believes that LM could be used as a nitrogen source in organic fertilizers. Parabel believes that LPC will be competitive in the specialty turf fertilizer market given its favorable chemical composition and the opportunity it presents to reduce potential environmental pollution as compared to other alternatives.

 

Fortification of Basic Human Food Products

Parabel is developing its technology to address the rising demand for human food, a market of particular relevance in the equatorial regions in which it believes Parabel's technology will be well-suited to grow. It believes that LPC can eventually serve the global market for fortification of basic food ingredients for malnourished populations, particularly in developing and emerging countries. Given the rapidly growing populations in regions such as South Asia, Africa and South America, the company believes that there is a clear need for an alternative supply of high quality and economical protein to supplement and enhance basic foods, such as breads, tortillas, noodles and crackers.

 



PSOURCE STRUCTURED DEBT LIMITED

Analysis of Significant Investments (unaudited), continued

As at 30 June 2012









Parabel, continued

 

Industry and Test Results, continued

Specialty Markets for Prepared Foods

In the long term, Parabel believes it can develop a higher protein content product from lemna using alternative separation techniques. This would allow Parabel's customer licensees to access specialty markets for prepared foods for human consumption, such as baked goods, meats and frozen foods. Third-party research is continuing to validate Parabel's results and enhance Parabel's understanding of these properties. While this process change would increase the capital expenditure and operating costs associated with Parabel's technology, the company anticipates that the increased value of the end product produced would in many cases justify the additional expenses.

 

Renewable Fuels

Parabel expects that third-party technology will lead to the conversion of Biocrude into drop-in fuels. If the technology is successfully developed in this manner, the company anticipates that Parabel's customer licensees will have the ability to create products that address the significant and continuing global demand for renewable fuel.

 

Parabel's Solution and Customer Licensee Approach

Parabel believes that its solution will result in the commercial scale production of renewable products specifically for the feed, food and fuel industries. Parabel's technology platform primarily consists of Parabel's components: micro-crop selection and testing, growth and harvesting techniques, processing technology, and control systems. Parabel's technology includes the selection of indigenous micro-crops that demonstrate an optimal profile for a particular geography and environment, which Parabel believes will allow Parabel's customer licensees to grow, harvest and process these micro-crops efficiently and profitably. It has developed a scalable and flexible model based on micro-crop growth units of 150 hectare increments. This model is designed to be attractive to a wide range of entities, including agricultural customers with an interest in the sustainable production of feed products, larger operators of renewable fuel production facilities and financial investment groups.

 

The estimated capital expenditure for a 150 hectare facility as an entry point is $12 million (excluding the cost of land and improvements)-a model that Parabel believes involves manageable costs, risks and build-out times, while also enabling Parabel's customer licensees to evaluate the commercial potential of the technology on a larger scale. Due to economies of scale, Parabel believes that a 600 hectare unit would deliver an attractive internal rate of return on Parabel's customer licensees' investment. Ultimately, the company expects that Parabel's customer licensees will expand their facilities in 150 hectare increments at similar costs in order to complete facilities of up to 5,000 hectares. Depending on economies of scale, Parabel expects that the capital expenditure for a 5,000 hectare facility will be approximately $375 million (excluding the cost of land and improvements). The company believes that a license unit of this size will enable Parabel's customer licensees to deliver significant volumes of product to market, thereby maximizing internal rates of return on their investments.

 

Management

Parabel has strengthened its management team in the last 18 months. In particular, the company has appointed (or promoted) the following experienced key team members:

 

§ CEO - Tony Tiarks appointed June 2011 as CEO and appointed as Chairman of the company on 9 February 2012

§ CFO - Syed Naqvi appointed May 2012

§ COO - Peter Sherlock appointed July 2011

 

 



PSOURCE STRUCTURED DEBT LIMITED

Analysis of Significant Investments (unaudited), continued

As at 30 June 2012









Biovest

Biovest International, Inc., a US biotechnology company, develops therapeutic anti-cancer vaccine for the treatment of low-grade Follicular Lymphoma in the United States. It develops BiovaxID, a Phase III clinical trial product, which is an injectable patient-specific vaccine to treat the follicular form of non-Hodgkin's lymphoma. Biovest is traded on the OTC market in the USA.

 

PSD's holding is in the form of debt and common stock. The debt is held in syndication with funds affiliated with the Investment Manager.  The Investment Manager is working with the Company to achieve a refinancing of this debt. The common stock (equity) is tradeable, but PSD (and affiliates) are subject to selling volume limits.

 

Creative Vistas

Creative Vistas, Inc. is a Canadian provider of security-related technologies and systems. It also provides retail and commercial broadband services through its affiliate Cancable Inc.

 

PSD's holding is debt syndicated with funds affiliated with the Investment Manager. This debt is secured against the Cancable Inc cable servicing business, which is currently being sold.

 

Mascon

Mascon Global Limited is a global (principally US and Indian) provider of technology services in the form of information technology. The Company has three service offerings: identity management services (IDM), infrastructure management services (IMS) and product engineering services (PES).

 

PSD's holding is in the form of debt, which is held in syndicate with funds affiliated to the Investment Manager. The Investment Manager is working with the Company to achieve a refinancing of this debt.



PSOURCE STRUCTURED DEBT LIMITED

Portfolio Analysis (unaudited)

As at 30 June 2012









 

An analysis of the portfolio by industry at 30 June 2012 is set out below: 

 



 

Loans

&

Fair Value Through Profit & Loss

 

Investments Held for

 

 

No. of

Industry

Total

Receivables

Investments

Trading

companies


US$

US$

US$

US$

No.

Biotech

6,539,162

4,087,667

1,742,250

709,245

4

Business Services

-

-

-

-

1

Computers

252,180

251,250

930

-

2

Consulting

1,973,263

1,973,263

-

-

1

Energy

-

-

-

-

1

Industrial

606,710

592,350

-

14,360

2

IT

-

-

-

-

1

Clean Tech

28,677,569

-

28,677,569

-

1

Security

3,646,631

3,646,631

-

-

1

Technology

92,569

91,294

1,275

-

4

Transport

-

-

-

-

1


41,788,084

10,642,455

30,422,024

723,605

19

 

An analysis of the portfolio by geography at 30 June 2012 is set out below: 

 

 

 

US State


 

Loans

&

Fair Value Through Profit & Loss

 

Investments Held for

 

 

No. of

or Country

Total

Receivables

Investments

Trading

companies


US$

US$

US$

US$

No.

Arizona

92,569

91,294

1,275

-

1

California

-

-

-

-

2

Canada

3,646,631

3,646,631

-

-

2

Colorado

252,176

251,250

926

-

1

Florida

34,507,486

4,087,667

30,419,819

-

3

Illinois

1,973,539

1,973,263

-

276

2

Israel

-

-

-

-

1

Minnesota

-

-

-

-

1

North Carolina

709,245

-

-

709,245

1

New Hampshire

-

-

-

-

1

New Jersey

-

-

-

-

1

New York

-

-

-

-

1

Other

4

-

4

-

-

Texas

606,434

592,350

-

14,084

2


41,788,084

10,642,455

30,422,024

723,605

19

 

 



NOTICE

 

PSOURCE STRUCTURED DEBT LIMITED (the "Company")

(An investment company incorporated in Guernsey with registration number 47075)

 

Notice of Annual General Meeting

 

NOTICE IS HEREBY GIVEN that an Annual General Meeting (the "Annual General Meeting") of PSource Structured Debt Limited will be held at Sarnia House, Le Truchot, St Peter Port, Guernsey, on Tuesday, 6 November 2012 at 10.00am for the purpose of considering and, if thought fit, passing the following resolutions:

 

Resolutions

Ordinary Business

1.     That the Financial Statements of the Company for the year ended 30 June 2012 with the Report of the Directors and Auditors thereon be received and adopted.

2.     That the re-appointment of KPMG Channel Islands Limited, 20 New Street, St. Peter Port, Guernsey as Auditors of the Company to hold office until the conclusion of the next annual general meeting be and is hereby approved.

3.     That the Directors be authorised to fix the remuneration of the Auditors for their next period of office.

4.     That Mr Soondra Appavoo be re-elected as a Director.

5.     That Mr Tim Jenkinson be re-elected as a Director.

6.     That Mr William Scott be re-elected as a Director.

 

Special Business

7.     That the Company be and is hereby authorised in accordance with section 5 of the Companies (Guernsey) Law, 2008 to make market purchases of ordinary shares in the Company provided that:

(a)         the maximum number of Ordinary Shares authorised to be purchased is up to 14.99% of the issued Ordinary Shares;

(b)         the minimum price payable by the Company for each Ordinary Share is 1p (or its equivalent in US Dollars);

(c)         and the maximum price for each Ordinary Share shall be the higher of (a) 105 percent of the average of the middle market quotation for an Ordinary Share as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day on which that share is purchased; and (b) the higher of the price of the last independent trade in the shares and the highest then current independent bid for the shares on the London Stock Exchange;

(d)         such authority shall expire on the earlier of 15 months from the date of this resolution or the conclusion of the next annual general meeting of the Company unless such authority is renewed, varied or revoked prior to such time;

(e)         the Company may make a contract to purchase Ordinary Shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiration of such authority and may make a purchase of ordinary Shares pursuant to any such contract; and

(f)         any Ordinary Shares bought back may be held in treasury in accordance with Guernsey law or be subsequently cancelled by the Company and the timing of any purchases in accordance with the above authority will be decided by the board of directors of the Company.  The terms of this authority to make market purchases of Ordinary Shares shall supersede any previous resolution authorising the purchase of Ordinary Shares in the Company.

 

By order of the Board


Registered Office:

Praxis Fund Services Limited

Secretary

Sarnia House, Le Truchot, St Peter Port, Guernsey

GY1 4NA

 

Notes:

1.         If you wish to appoint as your proxy someone other than the Chairman of the meeting, cross out the words "the Chairman of the meeting" and write on the dotted line the full name and address of your proxy.  The changes should be initialed.

 

2.         In the absence of instructions, the person appointed proxy may vote or abstain from voting as he or she thinks fit on the specified resolutions and, unless instructed otherwise, the person appointed proxy may also vote or abstain from voting as he or she thinks fit on any other business (including amendments to resolutions) which may properly come before the meeting.

 

3.         This form must be signed and dated by the shareholder or his/her attorney duly authorised in writing.  If the shareholder is a company, it may execute under its common seal or by the signature of a duly authorised officer or attorney.  In the case of joint holdings, any one holder may sign this form.  The vote of the senior joint holder who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of the other joint holder and for this purpose seniority will be determined by the order in which the names stand in the register of members in respect of the joint holding.

 

4.         To appoint more than one proxy you may photocopy this form. Please indicate the proxy holder's name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope.

 

5.         To be valid, this form must be completed and lodged with the Company's Registrar, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, or at the Registered Office, together with the power of attorney or other authority (if any) under which it is signed or a copy of such authority certified notarially, not less than 48 hours before the time fixed for holding the meeting. 



FORM OF PROXY

 

PSOURCE STRUCTURED DEBT LIMITED (the "Company")

 

Form of Proxy for use by holder of Ordinary Shares at the Annual General Meeting of the Company to be held at Sarnia House, Le Truchot, St Peter Port, Guernsey, convened for Tuesday, 6 November 2012 at 10.00am

 

I/We_________________________________________________________________________________________

 

of__________________________________________________________________________________________

 

hereby appoint the Chairman of the meeting or the Company Secretary, such appointment being determined at the Company Secretary's discretion (See Note 1 below), or

 

_____________________________________________________________________________________________

 

_____________________________________________________________________________________________

 

(name and address of proxy in block capitals)

 

as my/our proxy to attend, and on a poll, vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held on Tuesday, 6 November 2012 at 10.00am

 

I/We wish my/our proxy to vote as indicated below in respect of the resolutions to be proposed at the meeting.  Please indicate which way you wish your proxy to vote by ticking the appropriate box alongside each resolution.  (See Note 2 below).

RESOLUTIONS

 



FOR

AGAINST

WITHHELD

1.

Ordinary Resolution - Approval of the Financial Statements




2.

Ordinary Resolution - Re-appointment of the Auditors




3.

Ordinary Resolution - Directors to fix remuneration of Auditors




4.

Ordinary Resolution - Re-election of Mr Soondra Appavoo as a Director




5.

Ordinary Resolution - Re-election of Mr Tim Jenkinson as a Director




6.

Ordinary Resolution - Re-election of Mr William Scott as a Director




7.

Ordinary Resolution - To authorise the Company to purchase its own shares




 

Signature ……………………………………………(see Note 3 below)     Date …………………2012

 

Notes:

1.         If you wish to appoint as your proxy someone other than the Chairman of the meeting, cross out the words "the Chairman of the meeting" and write on the dotted line the full name and address of your proxy.  The changes should be initialed.

 

2.         In the absence of instructions, the person appointed proxy may vote or abstain from voting as he or she thinks fit on the specified resolutions and, unless instructed otherwise, the person appointed proxy may also vote or abstain from voting as he or she thinks fit on any other business (including amendments to resolutions) which may properly come before the meeting.

 

3.         This form must be signed and dated by the shareholder or his/her attorney duly authorised in writing.  If the shareholder is a company, it may execute under its common seal or by the signature of a duly authorised officer or attorney.  In the case of joint holdings, any one holder may sign this form.  The vote of the senior joint holder who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of the other joint holder and for this purpose seniority will be determined by the order in which the names stand in the register of members in respect of the joint holding.

 

4.          To appoint more than one proxy you may photocopy this form. Please indicate the proxy holder's name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope.

 

5.          To be valid, this form must be completed and lodged with the Company's Registrar, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, or at the Registered Office, together with the power of attorney or other authority (if any) under which it is signed or a copy of such authority certified notarially, not less than 48 hours before the time fixed for holding the meeting.

 

6.          The 'vote withheld' option is provided to enable you to abstain on any particular Resolution. However, it should be noted that a 'vote withheld' is not a vote in law and will not be counted in the calculation of the proportion of the votes 'for' and 'against' a resolution.

 


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