Allied Minds plc[1]

Half-Yearly Report for the six months ended 30 June 2019

 

26 September 2019 -- Boston, MA - Allied Minds plc, the IP commercialisation company focused on early stage technology businesses, today announces its interim results for the six months ended 30 June 2019.

Highlights

 

·      Allied Minds invested $24.3 million into its portfolio companies during 2019, including $15.3 million post period end

 

·      Third party investors subscribed for $110.3 million of portfolio company equity during 2019, including $105.8 million post period end

 

·      Net cash and investments at 30 June 2019: $56.8 million (FY18: $97.7 million), of which $46.6 million held at parent level (FY18: $50.6 million)

 

·      In August 2019, HawkEye 360 secured a $70.0 million funding round, which included new investors Airbus and Esri, existing investors Razor's Edge Ventures, Allied Minds ($5.0 million), and Shield Capital Partners, and additional undisclosed parties, at a pre-money valuation of $200.0 million, up from prior round post-money of $89.9 million

 

·      In September 2019, Federated Wireless secured a $51.3 million funding round, which included new investors SBA Communications and Pennant Investors, alongside existing investors GIC, American Tower and Allied Minds ($10.0 million), at a pre-money valuation of $150.0 million, up from prior round post-money of $121.5 million

 

·      In September 2019, the Federal Communications Commission (FCC) certified the Spectrum Access System (SAS) operated by Federated Wireless and approved its Initial Commercial Deployment (ICD), allowing Federated Wireless to initiate its commercial services with over 20 customers in 36 states in the U.S.

 

·      In September 2019, Allied Minds entered into an agreement to sell its entire shareholding in HawkEye 360 to Advance for an aggregate cash consideration of $65.6 million, subject to shareholder approval.  The consideration represents a 5.6x return on invested capital, and also represents an internal rate of return (IRR) equal to 96.0% for such shares.

 

Joseph Pignato and Michael Turner, Co-Chief Executive Officers of Allied Minds, commented:

 

"We have made good progress since our appointment to implement our revised strategy of focusing exclusively on supporting our existing portfolio companies and maximising monetisation opportunities at the right time, while reducing ongoing annualised HQ operating expenses.

 

The strong funding rounds at HawkEye 360 and Federated Wireless, together with the significant technical and commercial progress throughout the technology portfolio, demonstrate the value and momentum of the portfolio.

 

The announced sale of our HawkEye 360 shares is a major development.  The sale provides an excellent return on invested capital, enables us to make a significant return of cash to shareholders, and strengthens our ability to continue to fund and support our existing technology portfolio."

 

Financial Highlights

 

·      Net cash and investments* at 30 June 2019: $56.8 million (FY18: $97.7 million), of which $46.6 million held at parent level (FY18: $50.6 million), reflecting investment in portfolio companies and HQ operating expense offset by cash inflows from the sale or dissolution of Allied-Bristol Life Sciences, Percipient Networks and Signature Medical -- *includes excess cash in form of fixed income securities

 

·      Revenue: $1.5 million (HY18: $2.1 million), reflecting the early stage nature of our portfolio companies, and the deconsolidation of two of the Group's existing portfolio companies, HawkEye 360 and Spin Memory in the second half of 2018

 

·      Income for the period: $2.5 million (HY18: income of $4.3 million), of which income of $3.1 million attributable to the Company (HY18: loss of $12.5 million), primarily reflects SG&A and R&D spending of $16.4 million and $12.3 million, respectively, to support portfolio company development activities, as well as other income of $24.7 million, reflecting $33.9 million in gain on investments held at fair value offset by the Company's share of loss of $9.2 million from the deconsolidated entities accounted under the equity method

Selected Portfolio Company Highlights

 

·      Federated Wireless completed nationwide deployment of its Environmental Sensing Capability (ESC) network and received full FCC approval of its ESC network deployment and coverage plan, providing authorisation to operate its ESC sensors

 

·      Federated Wireless also received a perfect score on its final SAS lab test report from the Institute for Telecommunication Sciences (ITS), which led to the FCC certifying the SAS operated by Federated Wireless and approving its Initial Commercial Deployment (ICD), and allowing Federated Wireless to initiate its commercial services with over 20 customers in 36 states in the U.S.

 

·      HawkEye 360 completed successful commissioning of its Pathfinder Cluster within 10 weeks of launch, and initiated commercial operations with two products released to the market -- RF Geolocation and RF Mosaic

 

·      HawkEye 360 also established valuable partnerships with Esri, Windward, Ursa, and BlackSky, and completed its RFP for construction of the next four clusters of satellites and awarded the contract to Space Flight Laboratory

 

·      Orbital Sidekick expanded its pilot programs to additional oil and gas pipeline operators to deliver Spectral Intelligence™ for asset integrity and regulatory compliance monitoring via web-based user interface

 

·      Orbital Sidekick also captured over 12 million square kilometers of earth imaging data captured from its first-generation hyperspectral system on-board the International Space Station (ISS)

 

·      Spark Insights built a core data science & machine learning team consisting of 6 data scientists, engineers and machine learning experts, sourced and labelled thousands of satellite and aerial images to support modelling efforts, and built initial machine learning models and achieved initial R&D performance milestones for accuracy

 

·      Spin Memory achieved significant technical milestones in connection with its partnership with ARM Limited, including co-developing a demonstration vehicle that will tape out next month, completing design and layout of the crucial Endurance Engine™, as well as design and analysis of bitcells and critical circuits such as sense amps across many different process technologies

 

·      Spin Memory also achieved significant technical milestones in connection with its partnership with Applied Materials, including APTD "dedicated" pMTJ deposition tool has been qualified and process has been fully transferred, 1st pipe-cleaner CMOS wafers were processed by Applied's BEOL process, and "best performing" pMTJ was demonstrated on CMOS utilising Spin's BEOL process, as well as very high yield was demonstrated for the critical "solder reflow" high-temperature retention specification

 

·      Spin Memory was awarded a multi-phase, multi-year, multi-million US government project as subcontractor to a leading US semiconductor company

 

Corporate Developments

 

·      On 26 April 2019, the Company announced that it would focus exclusively on supporting its existing portfolio companies and maximising monetisation opportunities for portfolio company interests, and not deploy any capital into new portfolio companies, and that it was implementing steps to reduce ongoing annualised HQ operating expenses

 

·      The Company also announced that in light of changes to the strategy, it would retire the long term incentive plan (LTIP) scheme for executive directors, management and other employees, and cease future awards to these persons

 

·      On 10 June 2019, each of Joseph Pignato and Michael Turner were appointed as Co-Chief Executive Officer and Executive Director, while also maintaining their duties as Chief Financial Officer and General Counsel, respectively

 

·      Peter Dolan and Kevin Sharer, Chairman and Senior Independent Director, respectively, retired from the Board effective from the Company's Annual General Meeting held on 28 June 2019 (AGM)

 

·      At the same time it was announced that Jeff Rohr and Harry Rein, would assume the Chairman and Senior Independent Director roles, respectively, following the AGM, and that Audit Committee would be chaired by Fritz Foley; the Nomination Committee would be chaired by Jeff Rohr; and the Remuneration Committee would be chaired by Harry Rein

 

·      Effective as of the date of this report, Nina Thayer shall serve as Secretary of the Company

 

·      Effective as of 27 September 2019, Simon Davidson, EVP, Technology Investments, shall resign from the Company

For more information, please contact:

 

Allied Minds plc  

ir@alliedminds.com                                               +1 617 419 1800

    

Instinctif Partners     

Adrian Duffield, Kay Larsen, Chantal Woolcock       020 7457 2020

 

Further information on Allied Minds is available on our website: www.alliedminds.com

 

This 2019 half-yearly report release may contain statements that are or may be forward-looking statements, including statements that relate to the Company's future prospects, developments and strategies. The forward-looking statements are based on current expectations and are subject to known and unknown risks and uncertainties that could cause actual results, performance and achievements to differ materially from current expectations, including, but not limited to, those risks and uncertainties described in the risk management section of the strategic report included in the 2018 annual report and accounts. These forward-looking statements are based on assumptions regarding the present and future business strategies of the Company and the environment in which it will operate in the future. Each forward-looking statement speaks only as at the date of this half-yearly report release. Except as required by law, regulatory requirement, the Listing Rules and the Disclosure Guidance and Transparency Rules, neither the Company nor any other party intends to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

 

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014.

 

[1] Allied Minds plc is referred to as "Allied Minds" or "the Company". "The Group" refers to Allied Minds plc and its consolidated subsidiaries.

 

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Interim Management Report

Overview

Allied Minds is an IP commercialisation company focused on early stage company development within the technology sector.  With origination relationships that span US federal laboratories, universities, and leading US corporations, Allied Minds historically created, and now operates and funds, a portfolio of companies to generate long-term value for its investors and stakeholders.  Based in Boston, Allied Minds supports its businesses with capital, management, expertise and shared services.

Allied Minds is currently invested in eight active portfolio companies which are primarily in the technology sector, and are based on multiple underlying innovative technologies ranging from semiconductor memory, shared spectrum access, optical wireless communication, and space-based imagery and analytics.

Allied Minds currently focuses exclusively on supporting its existing portfolio companies and maximising monetisation opportunities for portfolio company interests, and not deploying any capital into new portfolio companies.  In the event of successful monetisation events from the sale of portfolio companies or portfolio company interests, Allied Minds anticipates distributing the net proceeds to its shareholders, after due consideration of potential follow-on investment opportunities within the existing portfolio, working capital requirements and the most appropriate capital return mechanism. 

Developments and Execution

The year to date has been defined by significant change and renewed focus, and during the last three months the Company achieved a number of significant developments, including:

·      Funding HawkEye 360, which secured a $70.0 million financing round, which included new investors Airbus and Esri, at a pre-money valuation of $200.0 million, up from prior round post-money of $89.9 million

 

·      Funding Federated Wireless, which secured a $51.3 million financing round, which included new investors SBA Communications and Pennant Investors, at a pre-money valuation of $150.0 million, up from prior round post-money of $121.5 million

 

·      Announcing that Federated Wireless will begin Initial Commercial Deployment (ICD) of its services to more than 20 customers in both urban and rural markets across 36 states in the U.S. immediately following the FCC's public notice of approval in September 2019

 

·      Entering into an agreement to sell Allied Minds' entire shareholding in HawkEye 360 to Advance for an aggregate cash consideration of $65.6 million, which transaction, due to its size and nature, constitutes a "Class 1" transaction under the Listing Rules and therefore is conditional upon the approval of shareholders; Allied Minds has received confirmations of intention to vote in favour of the proposed disposal from shareholders representing an aggregate of approximately 58.0% of the issued share capital

 

o  The consideration represents a 5.6x return on invested capital from the Series A preferred stock, and also represents an internal rate of return (IRR) equal to 96.0% for such shares

 

o  Allied Minds proposes to initially return $32.8 million, or 50% of the gross proceeds, to shareholders, subject to creating sufficient distributable reserves

 

o  The remainder of the proceeds will be used to fund potential follow-on investment opportunities within Allied Minds' existing technology portfolio in order to maximise their value and monetisation opportunities, and for working capital 

Central Costs

In order to address the commitment to reduce HQ operating expenses, the management team has:

·      Implemented a reduction in headcount from 19 employees at 31 December 2018, to a planned 8 employees at 31 October 2019, and transitioned the workload to the remaining employees

 

·      Sublet our current HQ office space, and leased new space that represents an 80% reduction in square footage and annual expense, effective as of 1 November 2019

 

·      In connection with the deconsolidation of HawkEye 360, Spin Memory and Federated Wireless, begun to transition these portfolio companies off the central shared services platform, and as of 31 October 2019, will no longer provide accounting, financial, HR, payroll, recruiting, IT, legal and other services to these portfolio companies; Allied Minds will only be providing streamlined shared services to its three active consolidated portfolio companies, which have much smaller headcounts and demands

 

·      Eliminated other non-essential third-party costs, and reviewed all vendors and service providers and transitioned to lower cost alternatives where appropriate, including IT, HR, payroll and benefits

The Board has refined its estimate of ongoing annualised HQ operating expenses excluding interest, depreciation, severance and share-based payments, to approximately $7.5 million in 2020.  This increase from its earlier estimate is driven primarily by the increased cost of director and officer insurance.  During the renewal of the D&O policy in June 2019, the Company incurred substantially increased costs for the same coverage due to increased premiums in the UK for non-UK domiciled businesses.  Of the estimated $7.5 million for 2020, $2.9 million represents public company costs, including audit, valuations, legal, broking, registrar, listing fees, director fees, D&O insurance and other expenses.

Outlook

Allied Minds' key portfolio companies, led by experienced, motivated and resourceful management teams, have continued to make substantial technical and commercial progress.  The milestones achieved demonstrate examples of solving difficult technical problems, developing innovative products and services in demand across a range of large potential markets, establishing important partnerships to develop technology and go to market, and the ultimate creation of shareholder value.

The Board believes that these portfolio company milestones and expected future achievements, taken together with Allied Minds' revised strategy to exclusively support its existing portfolio companies under a reduced central cost and disciplined capital allocation structure, has positioned Allied Minds to maximise returns to its shareholders.

Portfolio Summary and Valuation

Allied Minds currently has eight active portfolio companies, of which four were majority owned and controlled at 30 June 2019, and therefore fully consolidated in the Group's consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS).  Post period end, Federated Wireless ceased to be majority owned and controlled.

With respect to the other portfolio companies, Allied Minds holds a significant minority stake.  In each case, Allied Minds is able to exercise significant influence over the portfolio company by virtue of its large, albeit minority, ownership stake in the portfolio company and its representation on the board of directors.

Allied Minds provides qualitative and quantitative disclosure in relation to the commercial and financial progress of its portfolio companies, and directional commentary on valuation.  In addition, where commercially possible, Allied Minds provides, for each portfolio company: (i) the date of the last equity funding round, (ii) the post-money valuation of such round, (iii) the named key co-investors in such round, and (iv) the Company's issued and outstanding ownership, and fully-diluted ownership, of such portfolio company. 

This information is set forth below.  The ownership interests are as at 24 September 2019 (being the latest practicable date prior to the publication of this document).  The fully-diluted percentages take into account outstanding stock options granted to employees, directors and advisors, current stock options available for grant pursuant to the company's stock option plan, and outstanding warrants to purchase common and preferred stock. 

BridgeComm

·      Year formed: 2015

·      Date of last funding round: September 2018

·      Post-money valuation: $38.0 million

·      Co-investors: Boeing HorizonX Ventures (venture arm of Boeing Company)

·      Issued and outstanding ownership: 81.38%

·      Fully-diluted ownership: 62.92%

·      BridgeComm continues to make reasonable progress against its key operational objectives.  See Portfolio Review and Developments for more information.

Federated Wireless

·      Year formed: 2012

·      Date of last funding round: September 2019

·      Post-money valuation: $201.3 million

·      Co-investors: SBA Communications (NASDAQ: SBAC), Pennant Investors, GIC (Singapore's sovereign wealth fund), and American Tower (NYSE: AMT), with Charter Communications (NASDAQ: CHTR), ARRIS International (NASDAQ: ARRIS) and Woodford Investment Management having invested in earlier rounds

·      Issued and outstanding ownership: 42.57%

·      Fully-diluted ownership: 35.81%

·      Federated Wireless continues to make significant progress against its key operational objectives, including the recent Federal Communications Commission approval of an initial commercial deployment (ICD) of Citizen Band Radio Service (CBRS), and the initiation of services to its customer base.  See Portfolio Review and Developments for more information.

HawkEye 360

·      Year formed: 2015

·      Date of last funding round: August 2019 (date of first closing; final closing pending)

·      Post-money valuation: $235.0 million (with an additional $35.0 million expected at final closing)

·      Co-investors: Airbus (final closing), Esri, Shield Capital, Razor's Edge Ventures and other undisclosed investors, with Raytheon Company, Sumitomo Corporation of Americas, Space Angels, Woodford Investment Management and Invesco Asset Management having invested in earlier rounds

·      Issued and outstanding ownership: 40.66%

·      Fully-diluted ownership: 32.47%

·      HawkEye 360 continues to make significant progress against its key operational objectives, including operating the Pathfinder Cluster, initiating commercial operations with two products released to the market -- RF Geolocation and RF Mosaic, and completing the RFP for construction of the next four clusters of satellites.  See Portfolio Review and Developments for more information.

Orbital Sidekick

·      Year formed: 2016

·      Date of last funding round: April 2018

·      Post-money valuation: $11.7 million

·      Co-investors: 11.2 Capital

·      Issued and outstanding ownership: 33.23%

·      Fully-diluted ownership: 29.87%

·      Orbital Sidekick continues to make reasonable progress against its key operational objectives.  See Portfolio Review and Developments for more information.

Spark Insights

·      Year formed: 2018

·      Date of last funding round: April 2019

·      Post-money valuation: $3.2 million

·      Co-investors: n/a

·      Issued and outstanding ownership: 70.59%

·      Fully-diluted ownership: 60.00%

·      Spark Insights continues to make reasonable progress against its key operational objectives.  See Portfolio Review and Developments for more information.

Spin Memory

·      Year formed: 2007

·      Date of last funding round: November 2018 (date of first closing, final closing in April 2019)

·      Post-money valuation: $172.0 million

·      Co-investors: Arm Technology Investments Limited, Applied Ventures, LLC, Abies Venture Fund, Woodford Investment Management and Invesco Asset Management

·      Issued and outstanding ownership: 42.69%

·      Fully-diluted ownership: 33.58%

·      Spin Memory continues to make significant progress against its key operational objectives, including technical co-development milestones under the license agreements with each of ARM Limited and Applied Materials.  See Portfolio Review and Developments for more information.

TableUp

·      Year formed: 2013

·      Date of last funding round: April 2018

·      Post-money valuation: $12.0 million

·      Co-investors: n/a

·      Issued and outstanding ownership: 35.52%

·      Fully-diluted ownership: 30.20%

·      TableUp continues to make reasonable progress against its key operational objectives.  See Portfolio Review and Developments for more information.

SciFluor Life Sciences

·      Year formed: 2010

·      Date of last funding round: April 2015

·      Post-money valuation: $130.7 million

·      Co-investors: Woodford Investment Management and Invesco Asset Management

·      Issued and outstanding ownership: 70.03%

·      Fully-diluted ownership: 59.57%

·      SciFluor has experienced clinical delays since its last funding round.  The valuation has been reduced to $nil due to a prolonged and continued inability to attract new external financing, and limited cash available to fund its future operations.  See Portfolio Review and Developments for more information.

During the period, Allied Minds sold the assets of LuxCath, LLC for an undisclosed consideration, ceased operations of Precision Biopsy, Inc. and determined to seek to sell its remaining intellectual property and other assets, and ceased operations and dissolved each of ABLS Capital, LLC, Allied-Bristol Life Sciences, LLC, ABLS II, LLC, ABLS IV, LLC, and Signature Medical, Inc.  Post period end, Allied Minds sold all of its shares of QuayChain, Inc. for an undisclosed consideration.

There can be no guarantee that the aforementioned post-money valuations of the portfolio companies will be considered to be correct in light of the future performance of the various companies, or that the Company would be able to realise proceeds in the amount of such valuations, or at all, in the event of a sale by it of any of its portfolio companies or its ownership interest in such portfolio companies. 

Portfolio Review and Developments

 

Technology Companies

 

BridgeComm, Inc. (formerly known as BridgeSat, Inc.)

Overview

Formed in 2015, BridgeComm is seeking to build an Optical Wireless Communications (OWC) big data delivery service that will enable communications between satellites, aircraft and the ground at speeds of 100+ Gigabits per second (Gbps).  The driving value propositions for this technology include high OWC data speeds which are not achievable with Radio Frequency (RF) technology, near unlimited OWC capacity compared to scarce RF resources which drive RF spectrum prices, and the enhanced security of OWC that does not exist in RF.  BridgeComm believes that OWC will augment current RF technology to extend the overall capabilities of communication systems.  The technology underpinning BridgeComm's offering was sourced originally from The Aerospace Corporation and Draper Laboratories.  BridgeComm has further developed its OWC technology as well as partnered with key industry players to provide unique system solutions and capabilities.  BridgeComm is based in Denver, Colorado.  In September 2018, BridgeComm raised $10 million in a Series B round led by The Boeing Company via its Boeing HorizonX Ventures arm.

2019 key operational management objectives

·      Successfully demonstrate One-To-Many (OTM) optical communications technology

·      Develop strategic partnership program with commercial technology partners to extend the OWC technology offerings

·      Expand the capacity of the global ground network through industry partnerships and ground station installations

·      Continue developing intellectual property around BridgeComm specific technology 

·      Continue the strategic relationship with The Boeing Company on both commercial and US Government programs

·      Build strong commercial and government customer backlog

Progress in 2019

·      In February 2019, announced a strategic relationship with Es'HailSat, a Qatari satellite company, to build an optical ground station to be co-located at Es'HailSat's new satellite operations center in Doha, Qatar

·      In June 2019, announced name change to BridgeComm, Inc. to reflect growing demand and involvement in optical wireless communications beyond space to terrestrial and airborne markets, where 5G and US Government demands are increasing at a rapid pace

 

Federated Wireless, Inc.

Overview

Federated Wireless offers a cloud-based software as a service (SaaS) that unlocks spectrum previously unavailable to commercial users by enabling government and commercial users to securely share the same spectrum band.  Founded in 2012, the company's solution is based on technology developed with support from Virginia Tech and the US Department of Defense (DoD).  Federated Wireless is the leader in enabling shared spectrum via a software-based service that leverages artificial intelligence (AI).  Investors include SBA Communications, Pennant Investors, GIC, American Tower, Charter Communications and Arris International.  Federated is poised for full Federal Communications Commission (FCC) certification of Citizens Broadband Radio Service (CBRS) shared spectrum, beginning with a live application to roll out commercial services under the FCC's Initial Commercial Deployment (ICD) program with 20 end-user partners.  Federated Wireless has multi-year contracts signed for the provision of spectrum allocation services with multiple customers, including a large mobile network operator (MNO), ExteNet, Zinwave, Accelleran, Airspan, Telrad, Blinq, Baicells, Landmark, Cambium, Ruckus and Motorola.  Federated Wireless is based in Arlington, Virginia.

2019 key operational management objectives

·      ICD approval, followed by FCC certification

·      Complete build out of nationally available of Environmental Sensing Capability (ESC) network to meet customer requirements

·      Build infrastructure and capacity to support scale of the business

Progress in 2019

·      In February 2019, co-founded the Utility Broadband Alliance (UBBA) whose mission is to assist its members in planning, designing and deploying secure, reliable and resilient private broadband networks to support America's transforming critical infrastructure

·      In May 2019, completed nationwide deployment of its Environmental Sensing Capability (ESC) network; Federated Wireless was the first company to achieve this milestone

·      In July 2019, received perfect score on its final Spectrum Access System (SAS) lab test report from the Institute for Telecommunication Sciences (ITS), paving the way for Initial Commercial Deployment (ICD)

·      In July 2019, received full FCC approval of its ESC network deployment and coverage plan, providing authorisation to operate its ESC sensors

·      In September 2019, received approval from the FCC for Initial Commercial Deployment (ICD), initiating its commercial services with over 20 customers in 36 states in the U.S.

·      In September 2019, secured $51.3 million in Series C funding from GIC (Singapore's sovereign wealth fund), Pennant Investors, American Tower, SBA Communications and Allied Minds.

HawkEye 360, Inc.

Overview

Formed in 2015, HawkEye 360 is a data analytics company operating low earth orbit (LEO) small satellites that detect, independently geo-locate and analyse diverse Radio Frequency (RF) signals from space. Using its unique data set, sourced from the Pathfinder satellites, HawkEye 360 applies proprietary algorithms to produce contextually relevant analytics and reports for government and commercial end market applications.  Its first cluster of satellites was launched in December 2018 and commissioning was successfully completed in February 2019.  Data products from the Pathfinder cluster are now commercially available.  Construction of the next satellite cluster has been initiated.  This cluster will apply information learned from the Pathfinder to further enhance RF data collection capabilities and expand revenue opportunities.  Co-investors in HawkEye 360 include Raytheon, Razor's Edge and Sumitomo Corporation of the Americas.  HawkEye 360 is based in Herndon, Virginia.

2019 key operational management objectives

·      Successfully launched three core analytic products in the Spectrum Awareness product line, RF Geo, RF Survey and Emitter Data Base.

·      Complete development of next cluster and ready for launch

·      Commence development of follow-on clusters two, three and four, for launch in 2020.

Progress in 2019

·      Completed successful commissioning of Pathfinder Cluster within 10 weeks of launch

·      Operating the Pathfinder Cluster, the company initiated commercial operations with two products released to the market -- RF Geolocation and RF Mosaic

·      Established valuable partnerships with Esri, Windward, Ursa, and BlackSky

·      Grew the team from 30 to 40 individuals, including the recruitment of Alex Fox as the company's EVP, Sales, Marketing and Business Development

·      Completed RFP for construction of the next four clusters of satellites and awarded contract to Space Flight Laboratory

·      Secured $70.0 million in Series B financing, which included new investors Airbus and Esri; this includes $35.0 million of pending subscriptions that are subject to closing conditions precedent, including approval by the Committee on Foreign Investments in The United States (CFIUS)

Post period end, in September 2019, Allied Minds announced that it had entered into a stock purchase agreement to sell its entire shareholding in the share capital of HawkEye 360 to Advance for an aggregate cash consideration of $65.6 million, which transaction, due to its size and nature, constitutes a "Class 1" transaction under the Listing Rules and therefore is conditional upon the approval of shareholders.  The consideration represents a 5.6x return on invested capital from the Series A preferred stock, and also represents an internal rate of return (IRR) equal to 96.0% for such shares.

Orbital Sidekick, Inc.

Overview

Orbital Sidekick is a company developing capabilities in aerial and space-based hyperspectral imaging and analytics, initially for the oil and gas industry.  Orbital Sidekick's Spectral Intelligence™ platform is designed to enable more efficient monitoring of natural resource assets and infrastructure integrity.  Orbital Sidekick is initially targeting monitoring of assets for the oil and gas market - estimated at over $4 billion annually.  There are potentially multiple additional commercial and government applications for its technology.  Orbital Sidekick was founded by Dan Katz and Tushar Prabhakar, leveraging their extensive experience in small-sat design as engineers at Space Systems Loral.  The team has built a complementary network of advisors to bring expertise in oil and gas operations and regulations, hyperspectral analysis, and data services.  Allied Minds led the seed round of Orbital Sidekick in April 2018 with an investment of $3.5 million for a significant minority stake.  11.2 Capital, a VC firm specialising in breakthrough technologies, invested alongside Allied Minds.

2019 key operational management objectives

·      Integrate and test second-generation hyperspectral space payload for launch in Q1 2020

·      Evolve pilot programs into long-term contracts with key oil and gas pipeline operators

·      Provide full web-based user interface access to key commercial and government customers

Progress in 2019

·      Expanded Orbital Sidekick's pilot programs to additional oil and gas pipeline operators to deliver Spectral Intelligence™ for asset integrity and regulatory compliance monitoring via web-based user interface

·      Captured over 12 million square kilometers of earth imaging data from its first-generation hyperspectral system on-board the International Space Station (ISS)

·      Successfully completed a Phase I SBIR contract from AFWERX, the United States Air Force program with the goal of fostering a culture of innovation within the service, and subsequently awarded a Phase II SBIR contract

·      Successfully commenced its second-generation hyperspectral payload aerial campaign for commercial customers

Spark Insights, Inc.

Overview

Spark Insights is an advanced analytics company developing data products for the rapidly growing insurance analytics market.  Allied Minds formed Spark Insights in late 2018 and subscribed to a $3.2 million financing in April 2019, with $1.2 million invested immediately and the remaining $2.0 million due upon the achievement of technical milestones, which was completed in September 2019.  Given the increasing prevalence of catastrophic events, including hurricanes, floods, and wildfires, property, insurers are struggling to quantify the impact on their policies, both before and after a catastrophic event occurs.  Spark Insights plans to leverage the advent of unique data sets, including advances in satellite imagery and weather data, combined with proprietary analytics to transform critical workflows for these property insurers.  Spark Insights draws from Allied Minds' expertise in the SpaceTech sector and perspective on the maturing data sets emerging from new space platforms, analytics conducted at NASA and deep insurance and weather expertise of Allied Minds' Entrepreneur-In-Residence, Ira Scharf.  Spark Insights' focus is at the intersection of several multi-billion dollar addressable markets including an approximately $7.0 billion per year insurance analytics market, approximately $10.0 billion per year in underwriting losses, and approximately $1.0 billion per year in catastrophe modeling platforms.  Ira Scharf is a co-founder of Spark Insights and has been appointed as the company's CEO.  Ira's background includes over 15 years bringing products to market in the insurance industry and over 10 years in the weather industry, in addition to degrees from MIT and Harvard Business School.

2019 key operational management objectives

·      Develop initial prototype to improve processes in the property insurance industry using novel data sets and analytics capabilities

·      Engage with pilot customers in the insurance and reinsurance industries

·      Build team to support data science, engineering, and business development activities in initial pilots

Progress in 2019

·      Built a core data science & machine learning team consisting of 6 data scientists, engineers and machine learning experts

·      Sourced and labelled thousands of satellite and aerial images to support modelling efforts

·      Built initial machine learning models and achieved initial R&D performance milestones for accuracy

Spin Memory, Inc. (formerly known as Spin Transfer Technologies, Inc.)

Overview

Spin Memory is developing technology solutions that have the potential to materially enhance the endurance, speed and size characteristics of MRAM (magneto-resistive random access memory) - the emerging next generation memory technology.  Spin Memory believes these technologies hold the potential to unlock the widespread adoption of MRAM as a replacement for existing SRAM and DRAM.  It has licensed its Endurance Engine technology to ARM Limited and will work with ARM Limited to create a range of embedded MRAM solutions, including SRAM-class MRAM design solutions based on this proprietary technology.  Furthermore, Spin Memory has entered into a commercial agreement with Applied Materials, Inc. (Applied Materials) to jointly create a comprehensive MRAM manufacturing solution for foundries.  ARM Limited and Applied Materials were co-investors in Spin Memory's Series B funding round completed in November 2018.  Based in Fremont, California, Spin Memory was formed in 2006 and employs over 20 PhDs in fields including engineering, physics, materials sciences and mathematics.

2019 key operational management objectives

·      Create proof of concepts in silicon that demonstrate the superior performance of Spin Memory's technologies

·      Leverage exclusive licensing agreements with Applied Materials and ARM Limited to bring technology IPs into the mainstream

·      Build strong commercial and government customer backlog for new use cases in AI, ADAS, 5G, IoT and more

Progress in 2019

·      In 2018, Spin Memory signed a licensing agreement with ARM Limited, the world's leading semiconductor intellectual property (IP) company.  The licensing agreement extends to Spin Memory's Endurance Engine™ technology and related IP, and governs the terms on which ARM Limited and Spin Memory will work together to create SRAM-class magnetoresistive random-access memory (MRAM) design solutions based on this proprietary technology.  Under the licensing agreement, Spin Memory will provide ARM Limited with its innovative Endurance Engine design architecture to develop a new line of embedded MRAM design IP.  This MRAM design IP will address two new applications areas for embedded MRAM:

o  High-speed / high-endurance (HSE) non-volatile memories for the Internet of Things (IoT) and Edge Artificial Intelligence (AI) devices.  Progress to date includes co-developing with ARM Limited a demonstration vehicle that will tape out next month.

o  Static random-access memory (SRAM) application in SoCs (Systems-on-a-Chip), with denser and lower power solutions than typically achieved with the current 6T SRAM cell-based IP.  Progress to date includes the completion of design and layout of the crucial Endurance Engine™ in the previous project, as well as design and analysis of bitcells and critical circuits such as sense amps across many different process technologies.

·      In 2018, Spin Memory announced a commercial agreement with Applied Materials to create a comprehensive embedded MRAM solution.  The solution brings together Applied Materials' internal MRAM IP as well as its industry-leading deposition and etch capabilities with Spin Memory's MRAM process IP.  Key elements of the offering include Applied Materials' innovations in PVD and etch process technology, Spin Memory's revolutionary Precessional Spin Current™ (PSCᵀᴹ) structure (also known as the Spin Polarizer), and industry-leading perpendicular magnetic tunnel junction (pMTJ) technology from both companies.  The solution is designed to allow customers to quickly bring up an MRAM manufacturing line and start producing world-class MRAM products.  Spin Memory and Applied Materials are working together to make this turnkey solution commercially available.  Progress to date includes: APTD "dedicated" pMTJ deposition tool has been qualified and process has been fully transferred, 1^st pipe-cleaner CMOS wafers were processed by Applied's BEOL process, and "best performing" pMTJ was demonstrated on CMOS utilizing Spin's BEOL process, as well as very high yield was demonstrated for the critical "solder reflow" high-temperature retention specification.

·      Awarded multi-phase, multi-year, multi-million US government project as subcontractor to a leading US semiconductor company

·      Progressed Ultra-dense Selector, including silicon process flow defined; silicon started in major R&D fab; physical structure determined; with electrical results expected at end September, and next steps to shrink, optimise and combine with magnetics.

TableUp, Inc.

Overview

TableUp is a software provider enabling end-to-end transparency through the restaurant supply chain to enable more effective inventory and operations management.  Allied Minds' minority investment in TableUp in April 2018 represents a first entry into a vertical market where efficiency gains in operations, supply chain management, and marketing are expected to be unlocked through improved connectivity.   TableUp is a revenue-generating company and has a relationship with Reyes Group LLC, one of the largest food and beverage distributors in the US.

2019 key operational management objectives

·      Expand referral partner network

·      Expand traction in mid-market segment

·      Build integrations with additional key POS systems

Progress in 2019

·      Added integrations with Epos Now and Toast, the fastest growing restaurant POS system

·      Signed partnership agreement with Upserve point-of-sale (POS) system

·      During the period, achieved 160% year-over-year revenue growth

Life Science Company

 

SciFluor Life Sciences, Inc.

Overview

SciFluor is a drug development company focused on creating best-in-class compounds, initially targeting the field of ophthalmology.  SciFluor's lead clinical asset, SF0166, is a topical eye droplet treatment for Age-related Macular Degeneration (AMD) and Diabetic Macular Edema (DME), both widely prevalent retinal diseases that lead to blindness if left untreated.  The disclosure below focuses on SF0166.

2019 key operational management objectives

·      Complete toxicology studies for SF0166

·      Submit amended IND to US FDA

Progress in 2019

·      SciFluor has been seeking to raise external financing over the course of 2019 to fund Phase II trials for SF0166, on the back of safety and preliminary efficacy data from the Phase I/II trials.  This process has not been successfully completed.  As a result, clinical development activities at SciFluor have been pared back, and in 2019 have been focused exclusively on completing the toxicology studies necessary to initiate the Phase II trials for SF0166.

 

Risk Management

 

The principal risks and uncertainties surrounding Allied Minds and its portfolio companies are set out in detail on pages 45 to 51 in the Risk Management section of the Strategic Report included in the 2018 Annual Report and Accounts. Such risks and uncertainties include those in connection with science and technology development or commercialisation failures; lack of profitability; inherent limitations on exclusive licenses with US universities and other federally-funded research institutions; regulatory restrictions and limitations; key senior management risk; termination of critical IP licenses; significant delays or failure to complete clinical studies; and lack of capital; all as further described in the 2018 Annual Report and Accounts.

There have not been any significant changes in the nature of the risks set forth therein that will affect the next six months of the financial year, therefore, such risks are applicable to the remaining six months of the financial year. A copy of the 2018 Annual Report and Accounts is available on the Company's website at www.alliedminds.com under "Investors - Reports & Presentations".

Financial review

 

Condensed Consolidated Statement of Comprehensive Income

 

For the six months ended:	30 June 2019		30 June 2018
	$'000		$'000
Revenue	1,520		2,062
Cost of revenue	(616)		(1,184)
Selling, general and administrative expenses	(16,356)		(23,030)
Research and development expenses	(12,257)		(22,970)
Finance income, net	5,495		49,376
Other income	24,760		―
Income for the year	2,546		4,254
Other comprehensive loss, net of tax	(199)		(89)
Total comprehensive income	2,347		4,165

 

Revenue decreased by $0.6 million, to $1.5 million for the six months ended 30 June 2019 (HY18: $2.1 million), when compared to the same period in the prior year. This decrease is primarily attributable to deconsolidation of two of the company's subsidiaries in the second half of 2018. The decrease is partly offset by revenue from new contracts in 2019 at BridgeComm of $0.4 million. Cost of revenue at $0.6 million for the six months ended 30 June 2019 (HY18: $1.2 million) was lower as a percentage of revenue, when compared to the same period in the prior year, mainly due to deconsolidation of the two of the company's subsidiaries and inventory write-offs at closed and dissolved companies in the first half of 2018.

Selling, general and administrative (SG&A) expenses decreased by $6.6 million, to $16.4 million for the six months ended 30 June 2019 (HY18: $23.0 million). This reduction was mainly due to the restructuring charge for closed and dissolved subsidiaries in the first half of 2018 and deconsolidated subsidiaries in the second half of 2018, as well as cost reductions at headquarters implemented at the end of 2018. Total SG&A was offset, in part, by the net gain from the disposal of assets at LuxCath in the first half of 2019.

Research and development (R&D) expenses decreased by $10.7 million, to $12.3 million for the six months ended 30 June 2019 (HY18: $23.0 million). The decrease was primarily due to the deconsolidated and closed and dissolved subsidiaries in the second half of 2018. The remainder of the decrease reflects the net effect from R&D spend at the other subsidiaries.

Net finance income decreased by $43.9 million for the six months ended 30 June 2019 to $5.5 million (HY18: $49.4 million). The decrease reflects the impact from deconsolidation of two of the company's subsidiaries in the second half of 2018 partly offset by net finance income of $4.9 million from IFRS 9 fair value accounting of the subsidiary preferred shares liability balance (HY18: $48.5 million). The change was primarily from adjustments at SciFluor and Precision Biopsy.

Other income increased to $24.7 million (2018: $nil) reflecting $33.9 million in gain on investments held at fair value that is offset by the company's share of loss of $9.2 million from the deconsolidated entities accounted under the equity method.

As a result of the above discussed factors, total comprehensive income for the year decreased by $1.8 million to $2.3 million for the six months ended 30 June 2019 (HY18: $4.1 million).

Condensed Consolidated Statement of Financial Position

 

As of the period ended:	30 June 2019		31 December 2018 Restated*
	$'000		$'000
Non-current assets	116,995		83,739
Current assets	63,134		107,034
Total assets	180,129		190,733
Non-current liabilities	4,623		436
Current liabilities	64,510		69,557
Equity	110,996		120,780
Total liabilities and equity	180,129		190,733

 

* See note 13 for details of the adjustment.

Significant performance-impacting events and business developments reflected in the Group's financial position at the half year end include:

Non-current assets increased by $33.3 million, to $117.0 million at 30 June 2019 (FY18: $83.7 million), mainly due to an increase of $36.4 million in investment in portfolio companies at fair value, offset in part by share of net loss recorded for investments accounted under equity method of $9.2 million.

 

o  Investments at fair value increased to $92.9 million as of 30 June 2019 (FY18: 56.5 million). As a result of the deconsolidation of Spin Memory and HawkEye 360 and fair value accounting for investments held on the date of deconsolidation, Allied Minds recorded a gain of $33.9 million in the Consolidated Statements of Comprehensive Income/ (Loss). In addition, the increase reflects $2.5 million that was released from escrow by Allied Minds in April 2019 when Spin Memory completed the final closing of its $52.0 million Series B Preferred Stock financing.

 

o  Investments in associates decreased to $10.3 million as of 30 June 2019 (FY18: 19.5 million). As a result of the deconsolidation of Spin Memory and equity method accounting for investments held on the date of deconsolidation, Allied Minds recorded a share of loss of $9.2 million in the Consolidated Statements of Comprehensive Income/ (Loss).

 

o  Right-of-use assets increased by $4.3 million as of 30 June 2019 (FY18: $ nil) offset by depreciation of $0.7 million. On 1 January 2019, the Company elected to adopt the new lease standard using the modified retrospective approach applied to lease arrangements that were in place on the transition date. As such, results reported as of 30 June 2019 are presented under the new standard.

 

o  Property and equipment increased by $1.6 million to $7.6 million as of 30 June 2019 (FY18: $6.0 million), mainly reflecting acquisition of property and equipment of $2.5 million offset by depreciation of $0.6 million.

 

o  Intangible assets decreased by $0.5 million to $0.7 million at 30 June 2019 (FY18: $1.2 million) as a result of impairment and amortisation of $0.5 million.

Current assets decreased by $43.9 million, to $63.1 million as of 30 June 2019 (FY18: $107.0 million), mainly due to a reduction in cash and cash equivalents of $40.9 million.

 

o   Cash and cash equivalents decreased by $40.9 million to $56.8 million at 30 June 2019 from $97.7 million at 31 December 2018. The decrease is mainly attributed to $37.4 million of net cash used in operations, $5.0 million cash from investing activities and $1.0 million cash used in financing activities;

 

o   Restricted cash decreased by $2.5 million due to Allied Minds' additional investment in Spin Memory of $2.5 million, cash that was released from the escrow in April 2019.

 

o   Trade and other receivables decreased by $0.5 million due to a decrease in trade receivables of $0.6 million from customer collections mainly at Federated Wireless. This decrease is offset in part by an increase in prepaid expenses of $1.1 million as a result of advanced payments made by BridgeComm towards the construction of a ground station.

Non-current liabilities increased by $4.2 million, to $4.6 million as of 30 June 2019 (FY18: $0.4 million) reflecting an increase of $4.6 million in lease liability as a direct result of the Company's implementation of the new lease standard that was partly offset by a reduction in the deferred rent balance of $0.4 million at 30 June 2019.

Current liabilities decreased by $5.0 million, to $64.5 million at 30 June 2019 (FY18: $69.5 million) mainly reflecting a net decrease of $0.9 million in subsidiary preferred shares liability and a decrease in trade and other payables by $4.9 million. The decrease in subsidiary preferred shares liability reflects the fair value adjustment for the period of $0.9 million. The overall decrease in current liabilities was offset in part by the increase in deferred revenue of $0.8 million.

Net equity decreased by $9.8 million to $111 million at 30 June 2019 (FY18: $120.8 million) reflecting the combination of comprehensive income for the period of $2.3 million offset by the effect of closed and dissolved operations of $11.1 million and $1.0 million charge due to equity-settled share based payments.

Condensed Consolidated Statement of Cash Flows

 

For the six months ended:	30 June 2019		30 June 2018
	$'000		$'000
Net cash outflow from operating activities	(26,339)		(39,739)
Net cash outflow/inflow from investing activities	(5,047)		1,970
Net cash outflow/inflow from financing activities	(12,043)		11,849
Net decrease in cash and cash equivalents	(43,429)		(25,920)
Cash and cash equivalents at beginning of period	100,234		158,075
Cash and cash equivalents at end of the period	56,805		132,155

 

The Group's net cash outflow from operating activities of $26.3 million in the six months ended 30 June 2019 (HY18: $39.7 million) was primarily due to the net operating losses for the period of $27.7 million (HY18: $45.1 million) and an increase in working capital and other finance costs of $8.2 million (HY18: $3.5 million). The operating cash outflow was offset by adjustments for non-cash accounting entries such as depreciation, amortisation, share of net loss of associate and share-based expenses of $9.6 million (HY18: $8.9 million).

The Group had a net cash outflow from investing activities of $5.0 million in the six months ended 30 June 2019 (HY18: net cash inflow of $2.0 million). This outflow predominately related to purchases of property and equipment and intangibles of $2.5 million (HY18: $1.6 million) and an additional investment in Spin Memory of $2.5 million made by Allied Minds in April 2019.

The Group's net cash outflow from financing activities of $12.0 million in the six months ended 30 June 2019 (HY18: $11.9 million) reflects, in part, the cash distributions to shareholders of $12.0 million as a result of the dissolution of Signature Medical, Inc. and the remaining ABLS companies in the first half of 2019. Additionally, cash inflows from financing activities in the period included proceeds from issuance of share capital at Allied Minds.

The Group's strategy is to manage its cash balance to focus exclusively on supporting its existing portfolio companies and maximising monetisation opportunities for such companies. To further minimise its exposure to risks the Group does not maintain any material borrowings or cash balances in foreign currency.

 

 

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended:	Note	30 June 2019		30 June 2018
		$'000		$'000
Revenue		1,520		2,062
Operating expenses:
Cost of revenue		(616)		(1,184)
Selling, general and administrative expenses		(16,356)		(23,030)
Research and development expenses		(12,257)		(22,970)
Operating loss		(27,709)		(45,122)
Other income/(expense):
Gain on investments held at fair value		33,913		―
Other income		33,913		―
Finance income		678		908
Finance cost		(123)		(48)
Finance income from IFRS 9 fair value accounting	7	4,940		48,516
Finance income, net		5,495		49,376
Share of net loss of associates accounted for using the equity method	3	(9,153)		―
Income before tax		2,546		4,254
Taxation		-		―
Income for the period	2	2,546		4,254
Other comprehensive income/(loss):
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences		(199)		(89)
Other comprehensive income, net of taxation		(199)		(89)
Total comprehensive income		2,347		4,165
Income/(loss) attributable to:
Equity holders of the parent		3,057		(12,538)
Non-controlling interests	6	(511)		16,792
		2,546		4,254
Total comprehensive income attributable to:
Equity holders of the parent		2,858		(12,627)
Non-controlling interests	6	(511)		16,792
		2,347		4,165
Income/(loss) per share		$		$
Basic	4	0.01		(0.05)
Diluted	4	0.01		(0.05)

 

 

 

Condensed Consolidated Statement of Financial Position

As of the period ended:	Note	30 June 2019		31 December 2018 Restated*
		$'000		$'000
Non-current assets
Property and equipment		7,595		5,997
Intangible assets		706		1,221
Investments at fair value	3	92,957		56,544
Investment in associate	3	10,390		19,543
Right-of-use assets	7	4,329		―
Other financial assets		512		434
Other non-current assets		506		―
Total non-current assets		116,995		83,739
Current assets
Cash and cash equivalents		56,805		97,734
Restricted cash		-		2,500
Trade and other receivables		6,325		6,400
Other financial assets		4		400
Total current assets		63,134		107,034
Total assets		180,129		190,773
Equity
Share capital		3,748		3,743
Share premium		160,170		160,170
Merger reserve		263,367		263,367
Translation reserve		451		651
Accumulated deficit		(289,500)		(302,661)
Equity attributable to owners of the Company	5	138,236		125,270
Non-controlling interests	6	(27,240)		(4,490)
Total equity		110,996		120,780
Non-current liabilities
Lease liability	7	4,621		―
Other non-current liabilities		2		436
Total non-current liabilities		4,623		436
Current liabilities
Trade and other payables		8,110		13,030
Deferred revenue		3,146		2,333
Subsidiary preferred shares	8	53,254		54,194
Total current liabilities		64,510		69,557
Total liabilities		69,133		69,993
Total equity and liabilities		180,129		190,773

 

 

* Prior year investment in associate balance has been adjusted - see note 13.