217234 PSD Dec 10 Interims - Web

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PSource Structured Debt LimitedInterim Report and Unaudited Consolidated Financial Statements

For the Period from 1 July 2010 to 31 December 2010

P R E M I U M

L I S T E D


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Contents

Company Information 1

Directors 2-3

Financial Calendar 3

Investment Objective and Policy 3

Summary Information 3

Monthly total return performance, NAV and dividends declared since inception 4

Chairmans Statement 5-6

Responsibility Statement 7

Consolidated Statement of Financial Position (unaudited) 8

Consolidated Statement of Comprehensive Income (unaudited) 9

Consolidated Statement of Changes in Equity (unaudited) 10

Consolidated Statement of Cash Flows (unaudited) 11

Notes to the Financial Statements (unaudited) 12-46

Analysis of Significant Investments (unaudited) 47

Portfolio Analysis (unaudited) 48-49


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1

Company Number47075 (Registered in Guernsey)

Directors:William Scott, ChairmanSoondra AppavooPeter NivenTim JenkinsonKeith Dorrian

Company Secretary and Administrator:Praxis Fund Services Limited

Sarnia HouseLe TruchotSt Peter PortGuernsey, GY1 4NA

Registered office of the Company:Sarnia HouseLe TruchotSt Peter PortGuernsey, GY1 4NA

Manager:PSource Capital Guernsey Limited

Sarnia HouseLe TruchotSt Peter PortGuernsey, GY1 4NA

Investment Manager:Laurus Capital Management, LLC875 Third Avenue, 3rd FloorNew York, NY 10022USA

Investment Consultant and Promoter:PSource Capital Limited126 Jermyn StreetLondon SW1Y 4UJ

Independent Valuation Consultant:Clayton IPS Corporation1700 Lincoln StreetSuite 1600Denver, Colorado 80263USA

Financial Public Relations:Weber Shandwick Financial

Fox Court14 Grays Inn RoadLondon WC1X 8WS

Financial adviser and stockbroker to the Company:Numis Securities LimitedThe London Stock Exchange Building10 Paternoster SquareLondon EC4M 7LT

Auditors to the Company:KPMG Channel Islands Limited20 New StreetSt Peter PortGuernsey, GY1 4AN

Solicitors to the Company:Eversheds LLP

1 Wood StreetLondon EC2V 7WS

Guernsey lawyers to the Company:Mourant OzannesPO Box 1861 Le Marchant StreetSt Peter PortGuernsey, GY1 4HP

U.S. Counsel:Alston & Bird LLP

90 Park AvenueNew York, NY 10016-1387USA

Bankers:Bank of Scotland plc (part of the Lloyds Banking Group)PO Box No 39900155 Bishopsgate ExchangeLondon EC2M 3YB

Custodian:Wells Fargo Bank45 Broadway,14th FloorNew York, NY 10006USA

Equity Custodian & Broker:Fidelity Prime Services Albert Fried & Company, LLC200 Seaport Boulevard, Z2H 45 Broadway, 24th FloorBoston, MA 02210 New York, NY 10006USA USA(until 25 October 2010) (from 25 October 2010)

Registrar:Capita Registrars (Guernsey) LimitedLongue Hougue House

St SampsonGuernsey, GY2 4JN

Company Information


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2

DirectorsThe Directors are responsible for the determination of

PSource Structured Debt Limiteds (the Groups or

Companys) investment policy and have overall

responsibility for the Groups 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-executivedirectorships 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 acts as

consultant to offshore investment management

organisations. 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 17 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 theManager on the Board.

Peter Niven

Peter Niven has worked in the financial services industry inthe UK and offshore for over 30 years, most recently as

Chief Executive of the Lloyds TSB Groups offshore banking

operations, until his retirement from the Bank in June 2004.

A Fellow of the Institute of Bankers and a Chartered

Director, he has served as a director of many Lloyds TSB

group companies and is currently a director of a number of

Guernsey based investment funds and captive insurance

companies, including London listed Dexion Trading Limited

and F&C Commercial Property Trust Limited. He is also

Chief Executive of Guernsey Finance LBG. Mr Niven is a

resident of Guernsey.

Tim Jenkinson

Tim Jenkinson is Professor of Finance at the Oxford Sad

Business School. He is an expert on corporate finance, in

particular initial public offerings, private equity and the cost

of capital. He has written widely on finance and economics

and his work has been published in books and leading

international journals. He is a Research Fellow of the Centre

for Economic Policy Research, a Research Associate of the

European Corporate Governance Institute, is ManagingEditor of the Oxford Review of Economic Policy, and is a

Professorial Fellow of Keble College, Oxford.

Professor Jenkinson is a director of the economic

consulting firm Oxford Economic Research Associates

(Oxera), and has consulted for a large number of

companies and regulators. He is also a non-executive

director of Oxford Sad Business School Limited.

Professor Jenkinson joined the Sad Business School in

2000. He was previously in the economics department at

Oxford University, which he joined in 1987. 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

Company Information continued


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3

the group. He took up the position of Manager Corporate

Clients in Bank of Bermuda Guernsey in 1999 and wasappointed Head of Global Fund Services and Managing

Director of the banks 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.

Financial Calendar

Interim Report and Accounts sent to shareholders

by 28 February 2011.

Annual Report and Accounts sent to shareholders

by 28 September 2011.

Annual General Meeting to be held

during October 2011.

Investment Objective andPolicyThe Groups investment objective is to seek to provide a

total return to shareholders of 10-15% per annum over a

rolling 3-year period with annual standard deviation of less

than 5%.

The Groups investment policy is 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 ofassets and strategies in which the Group invests may vary

over time but the Directors expect that the Group will be

invested at all times in a minimum of 30 underlying

companies.

The Company has one Subsidiary, PSD SPV 2, Inc

(SPV2), which has been established to hold certain US

assets. For reasons of tax efficiency, the Group proposes to

make newly originated direct investments and enter into

co-investments through this Subsidiary. In prior periods the

Company also used another Subsidiary, being PSource

Structured Debt SPV1 Limited (SPV1), to make newly

originated direct investments and enter into

co-investments. On 29 December 2010, when this

Subsidiary no longer had any holdings, SPV1 was

voluntarily liquidated.

It is the intention of the Group to remain substantially fully

invested at all times, although the Group may use its

discretion to hold cash or short-term money market

instruments (including gilts) from time to time for the

purposes of paying margin calls on hedging, paying

dividends, meeting other expenses of the Group, funding

buybacks and pending full investment. Cash will be held in

accounts with institutions which are rated A1 (or above) by

Standard & Poors or an equivalent rating by another

reputable agency (or wholly owned subsidiary of suchinstitutions).

The Group will be a passive investor and will not control,

seek to control, or be actively involved in the management

of, any companies or businesses in which it invests. The

Group will not be a dealer in investments.

The Group will not enter into long term borrowing. Under its

Articles of Association, the Company has the ability to

borrow up to 30% of net assets in order to facilitate its

intention of remaining fully invested, to implement any

hedging and buyback strategies and to meet ongoing

expenses (please refer to note 10 of the consolidated

financial statements for details on the Groups loan and

overdraft facilities).

Summary InformationThere are 59,564,681 (30 June 2010: 59,564,681) Ordinary

Shares in issue and the NAV per Ordinary Share at

31 December 2010 was US$1.7947 (30 June 2010:

US$1.8922). The Company listed on 3 August 2007 withan initial NAV per Ordinary Share after launch costs of

97.75p. No interim dividends have been declared in

respect of the 6 months ended 31 December 2010

(6 months ended 31 December 2009: zero pence per

Ordinary Share).

As at 31 December 2010 the portfolio which comprised 36

companies (30 June 2010: 47), represented 108.01% of

Net Asset Value (30 June 2010: 111.35%). The maximum

position in any company was 76.22% of the portfolio

(30 June 2010: 64.92%).


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Company Information continued 4

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

5 June 2007

To Financial

30 June 2008 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD

NAV (p) 97.37 98.53 100.17 102.13 103.81 103.13 105.06 107.21 107.54 109.40 110.19 -

Returns (%) -0.38 1.19 2.49 1.95 1.64 0.55 1.87 2.05 1.49 1.73 0.72 16.37

Dividend (p) - - 0.8 - - 1.25 - - 1.25 - - 3.30

1 July 2008

To Financial

30 June 2009 Jul Aug Sep Oct Nov Dec Jan* Feb Mar Apr May Jun YTD

NAV (p) 110.48 113.17 113.20 110.78 105.49 105.88 - - - - - - -

NAV ()* - - - - - - 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 Financial


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 () - - - - - - - - - - - - -

1 July 2010

To Financial


NAV () 187.02 179.00 1.8093 1.8223 181.83 179.47 177.73 -

Returns (%) -1.16 -4.29 1.08 0.72 -0.22 -1.30 -0.97 -6.07

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 Companys 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.

Total net return since inception as at 31 December 2010 in reporting currency 31.36%

Total net return since inception as at 31 December 2010 in reporting currency (annualised) 8.31%

Annualised standard deviation (volatility) 8.54%


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Chairmans Statement 5

Period ended 31 December 2010

It is my pleasure to present the semi-annual report for

PSource Structured Debt Limited (the Company orPSD) for the half-year ended 31 December 2010.

The past 6-months have continued to be challenging for

the Company seeing a return of -5.15% to 31 December

2010. However, there have been steady improvements in

key areas including the bank debt, cash realisations from

the non-PetroAlgae portfolio, and the progress of

PetroAlgae. I would like to discuss each in turn.

Bank DebtThe terms of the banking facilities have necessarilyprioritised paying off the Companys debt and significant

progress has been made in this respect. During the

6-month period the Company has reduced its net

borrowings from US$8.5 million to US$5.1 million (U$S4.6

million after taking into account brokerage account cash) as

at 31 December 2010. At 31 January 2011 the bank debt

has been further reduced to US$4.2 million.

On 30 November 2010, PSD secured a new 6-month

US$8 million US Dollar denominated credit facility with itsexisting lender, Bank of Scotland, to replace the expiring

credit facilities. The reduction in the bank facility and strong

nature of the cash flows this calendar year, US$10.4 million

in cash receipts in 2010, have enabled the Company to

obtain this refinancing on relatively attractive terms.

Cash Realisation ProcessThe Company is dependent upon liquidity in the US small

and micro cap public markets to exercise the warrants inits portfolio and to sell the resultant shares. I am pleased to

report that opportunities continue to reveal themselves as

the markets recover, and total activity in this area has

resulted in significant cash receipts (US$1.9 million) by the

Company in the second half of 2010. In particular this has

come from the Companys disposal of the majority of its

holdings in Mitek and Bioniche.

In addition to warrant and share sales, the firm has visibility

of cash realisations from a number of identified asset sales

and liquidations over the next two quarters significantly inexcess of our current indebtedness, although such asset

sales have been and remain subject to delays. This is

independent of both the PetroAlgae IPO process and any

cash realisations from the holdings in Biovest.

PetroAlgae, Inc.The Companys largest holding is its holding in PetroAlgae

(US$81.5 million). PetroAlgae, Inc., a leading Florida-based

renewable energy company, licenses a commercial lemna

based micro-crop technology system that enables the

production of green diesel and a high-value protein food

source in an environmentally friendly manner. PSDs holding

in PetroAlgae is being held at a valuation of US$11.56 per

share as of 31 January 2010. This compares to average

trading on the OTC in the year at US$12.16 per share,

albeit on thin trading.

In early 2010 a process was set in motion to list PetroAlgae

on a broader exchange. This move will create the

opportunity for PSD to realise the full value of its investment

in PetroAlgae although shareholders should understand

that it is likely that there can only be a partial realisation at

the time of the new listing with the remainder only possible

after the expiry of any customary IPO lock-ups required of

existing shareholders. I am pleased to note that PetroAlgae

filed its draft prospectus (Form S-1) in August. Goldman

Sachs, UBS, and Citi are managing this process.

Since that time PetroAlgae has announced the signing of

one umbrella contract with the Chinese state renewable

energy company (CECEP) to build a trial facility in Hainan

Province. CECEP has committed to build ten further full

size units, each 5,000 hectares, contingent on the success

of the trial facility.

It is the commercial progress of PetroAlgae, such as the

signing of further contracts, which underpins any

realisation. We look forward to updating the market as

PetroAlgae converts further advanced leads to commercial

contracts.

Change in CustodyArrangementsEffective 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. In addition, effective 1 December 2010, the

Company migrated its trading services from Fidelity to GP

Nurmenkari Inc., a New York based trading firm. The

purpose of both of the above changes in service providers

was to reduce costs for the Company. The Companys

main custodian remains Wells Fargo which held all of the


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Chairmans Statement continued

Companys certificated assets at 31 December 2010,

which includes the Companys loan, warrant and

PetroAlgae investments.

Share PriceUntil October 2008, the Companys shares traded at or

above NAV. However, the shares have recently fallen to a

low of 37p in January 2011. This share price fall was due

to a number of factors; a fall in liquidity which affected the

entire investment company sector, uncertainty over the

Companys banking facilities, the continued suspension of

our dividend, and the lack of certainty and timing of a

liquidity event from PetroAlgae.

The Board shares investor concern and frustration with the

level of the share price and has taken such steps as our

banking facilities permit to address this. Notably, we believe

that progress on extinguishing the bank debt and realising

as cash the position in PetroAlgae should remove two of

the major factors holding back a restart of distributions and

material share repurchases, also key to the share price.

Future prospects for PSourceStructured DebtWhile a full exit from PetroAlgae is likely to take some time,

a successful IPO will unlock a significant initial cash

payment which the Company could use for dividends or

share buybacks.

The Annual General Meeting for PSD occurred in October

2010 and included a continuation vote. The Board believes

that the success of this vote has preserved fund value and

will enable the shareholders to benefit fully from the

planned PetroAlgae IPO. It is the intention of the Board to

hold another continuation vote at the next AGM.

It is clear that the banks in the US continue to reduce

lending to small companies. The opportunity set for the

strategy remains, therefore, attractive.

Prior to this years AGM the Board and Manager intend to

liaise with shareholders to ascertain how best to realise

value from the strategy.

William Scott (Chairman)

Date: 21 February 2011

6

Period ended 31 December 2010

Change in CustodyArrangements continued


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We confirm that to the best of our knowledge and in

accordance with DTR 4.2.10R of the Disclosure andTransparency Rules:

a) The financial statements have been properly prepared

in accordance with the Disclosure and Transparency

Rules of the Financial Services Authority and with

IAS34 as adopted by the EU, Interim Financial

Reporting and give a true and fair view of the assets,

liabilities, financial position and profit or loss of the

Group as at and for the period ended 31 December

2010.

b) The interim report, which includes information detailed

in the Chairmans Statement and Notes to financial

statements, provides a fair review of the development

and performance of the Group during the period; and

includes a description of the principal risks and

uncertainties faced as at and for the period ended

31December 2010.

Director: William Scott

Director: Peter Niven

Date: 21 February 2011

On behalf of the Board of Directors

Responsibility Statement 7


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Consolidated Statement of Financial Position (unaudited) 8

As at 31 December 2010

31 December 30 June 2010

Notes 2010 (audited)US$ US$

Investments 6

Fair value through profit and loss 89,524,026 92,635,523

Held for trading 2,755,118 2,834,377

Loans and receivables 23,183,468 30,031,017

Total investments 115,462,612 125,500,917

Current assets

Cash and cash equivalents 7 1,958,375 194,315

Unsettled investment sales 6,237 6,839

Other receivables 8 1,901,899 1,619,955

3,866,511 1,821,109

Current liabilities

Bank overdraft 7 & 10 1 1,136,519

Other payables 9 5,927,999 5,993,380

Loan 10 6,500,000 7,484,003

12,428,000 14,613,902

Net current liabilities (8,561,489) (12,792,793)

Total net assets 106,901,123 112,708,124

Represented by Shareholders equity:

Share Premium 11 47,512,742 47,512,742

Distributable reserve 11 42,793,973 42,793,973

Reserves 12 16,594,408 22,401,409

Total Shareholders equity 106,901,123 112,708,124

Net asset value per Ordinary Share 13 US$1.7947 US$1.8922

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


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1 July 1 July

2010 to 2009 to31 December 31 December

Notes 2010 2009

US$ US$

Income

Loan interest income 827,536 1,840,628

Bank interest 152 932

Subordination fees - 79,456

Bad debt provision (258,449) (638,819)

Movement in net unrealised gains on investments 6 & 14 1,632,003 24,812,730

Movement in net unrealised losses on restructuring of loans 6 & 14 (1,549,159) (50,932)

Net realised losses on disposal/restructuring of investments 6 & 14 (2,134,510) (11,378,767)

Impairment charge on loans and receivables 6 & 14 (2,193,953) 2,879,156

Net foreign exchange losses (6,787) (12,685)

Net investment (deficit)/income (3,683,167) 17,531,699

Expenses

Management fee 3 1,093,474 1,066,814

Performance fee 3 - 3,448,768

Directors fees and expenses 4 93,114 93,396

Administration fees 3 117,076 127,394

Custodian fees 3 21,790 2,199Registrar fees 3 10,691 8,238

Auditors remuneration 55,169 85,154

Loan arrangement fees 113,595 156,970

Legal and professional fees 357,833 516,247

Independent valuation consultancy fee 59,861 70,248

US Taxation (16,457) 134,254

Other expenses 38,936 28,709

Operating expenses before finance costs 1,945,082 5,738,391

Net (deficit)/return from operations before finance costs (5,628,249) 11,793,308

Finance costsBank interest 10 26,218 4,498

Loan interest 10 152,534 203,672

(Deficit)/return after finance costs for the period (5,807,001) 11,585,138

Total comprehensive (deficit)/income for the period 12 (5,807,001) 11,585,138

Basic & diluted earnings per Ordinary Share before dividends paid 5 US$(0.0975) US$0.1945

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

Consolidated Statement of Comprehensive Income (unaudited) 9

For the period ended 31 December 2010



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Consolidated Statement of Changes in Equity (unaudited) 10


1 July 2010 to 31 December 2010

Share DistributableNotes Premium Reserve Reserves Total

US$ US$ US$ US$

Balance brought forward 47,512,742 42,793,973 22,401,409 112,708,124Total comprehensive deficit for the period 12 - - (5,807,001) (5,807,001)

Balance carried forward 47,512,742 42,793,973 16,594,408 106,901,123

1 July 2009 to 31 December 2009

Share Distributable

Notes Premium Reserve Reserves Total

US$ US$ US$ US$Balance brought forward 47,512,742 42,793,973 10,269,631 100,576,346

Total comprehensive income for the period 12 - - 11,585,138 11,585,138

Balance carried forward 47,512,742 42,793,973 21,854,769 112,161,484



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Consolidated Statement of Cash Flows (unaudited) 11



1 July 1 July

2010 to 2009 to31 December 31 December

Notes 2010 2009

US$ US$

Cash flows from/(used in) operating activities

Loan interest received 667,478 1,597,524

Operating expenses paid (2,398,836) (2,716,760)

Amounts paid for purchase of investments (4,089,610) (3,165,701)

Sale proceeds received from disposal of investments 4,900,634 1,903,934

Amounts received on loan repayments 4,982,458 7,753,259

Net cash from operating activities 4,062,124 5,372,256Cash flows (used in)/from financing activities

Bank interest received 152 932

Bank interest paid (26,218) (4,498)

Loan interest paid (144,690) (245,158)

Loan repayments (984,003) (9,687,546)

Net cash used in financing activities (1,154,759) (9,936,270)

Net increase/(decrease) in cash and cash equivalents 2,907,365 (4,564,014)

Cash and cash equivalents, start of period (942,204) 4,151,052

Effect of exchange rate changes during the period (6,787) (12,685)

Cash and cash equivalents, end of period 7 1,958,374 (425,647)

Cash and cash equivalents comprise the following amounts:

Bank deposits 1,958,375 489,855

Bank overdrafts (1) (915,502)

1,958,374 (425,647)


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Notes to the Financial Statements

1. The Company:

The Company is a closed-ended investment company, incorporated and registered with limited liability in Guernsey on5 June 2007. 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 on 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.

During the period ended 30 June 2008 a capital reorganisation took place and a Placing and Offer for Subscription

dated 8 June 2008 for a second issue up to 100,000,000 shares in the Company was approved by and filed with the

Financial Services Authority. The second issue was for a total of 24,154,681 Ordinary Shares of the Company and

these Ordinary Shares were issued and admitted to the Official List on the London Stock Exchange on 20 June 2008.

On 30 July 2008 the Company issued 5,410,000 Ordinary Shares of no par value, representing 9.9% of the OrdinaryShares in issue. These Ordinary Shares were issued and admitted to the Official List on the London Stock Exchange

for trading on the same day.

The Company has one wholly owned subsidiary, PSD SPV 2 Inc (SPV2), which has been established to hold certain

US assets. For reasons of tax efficiency, the Company proposes to make newly originated direct investments through

this Subsidiary.

SPV 2 was incorporated in the State of Delaware on 2 April 2009. The Subsidiary commenced trading on 1 May 2009.

On 29 December 2010, PSource Structured Debt SPV 1 Limited (SPV1), a wholly owned Subsidiary of the Company

was voluntarily liquidated. SPV1 was incorporated in Guernsey on 27 September 2007.

PSource Structured Debt Limited and SPV2 have been consolidated to produce the consolidated results of the

Group.

Any references to Company relate to PSource Structured Debt Limited whereas references to the Group relate to

PSource Structured Debt Limited and SPV2.

2. Principal Accounting Policies:

(a) Basis of Preparation:

(i) General

The interim financial statements of the Group have been prepared in accordance with IAS 34 (IFRS) asadopted by the EU Interim Financial Reporting, which comprise standards and interpretations approved

by the International Accounting Standards Board (IASB), and International Accounting Standards and

Standing Interpretations Committee interpretations approved by the International Accounting Standards

Committee (IASC) that remain in effect.

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 Companies (Guernsey) Law, 2008 and the Listing Rules of the Financial Services Authority.

(ii) Functional and Presentation Currency

The Groups investors are mainly from the UK, however, the vast majority of underlying investment portfoliois denominated in US Dollars. For this reason the Directors consider the presentation and functional

currency of the Group to be US Dollars. As at 31 December 2010 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 Groups functional and presentation currency.

12



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13

2. Principal Accounting Policies continued:

(a) Basis of Preparation continued

(ii) Functional and Presentation Currency continued

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.

(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. Actual results could differ

from such estimates.

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)(i)). 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 consolidated financial statements.

(iv) Going concern

These consolidated financial statements have been prepared on a going concern basis taking into account

the renewal of banking facilities during the next financial year. The Directors anticipate that the Group will

generate further net cash during the twelve months following the date of signing these consolidated

financial statements to repay the Companys current bank loan.

(v) IFRS

New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the

current period, and have not been applied in preparing these financial statements. None of these will have

an effect on the financial statements of the Company, with the exception of the following:


16/53

Notes to the Financial Statements continued


(a) Basis of Preparation continued:

(v) IFRS continued

IFRS 9 Financial Instruments, published on 12 November 2009 as part of phase I of the IASBs

comprehensive project to replace IAS 39, deals with classification and measurement of financial

assets. The requirements of this standard represent a significant change from the existing

requirements in IAS 39 in respect of financial assets. The standard contains two primary

measurement categories for financial assets: amortised cost and fair value. A financial asset would

be measured at amortised cost if it is held within a business model whose objective is to hold

assets in order to collect contractual cash flows, and the assets contractual terms give rise on

specified dates to cash flows that are solely payments of principal and interest on the principal

outstanding. All other financial assets would be measured at fair value.

The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and

loans and receivables. For an investment in an equity instrument which is not held for trading, the

standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis,

to present all fair value changes from the investment in other comprehensive income. No amount

recognised in other comprehensive income would ever be reclassified to profit or loss at a later

date. However, dividends on such investments are recognised in profit or loss, rather than other

comprehensive income unless they clearly represent a partial recovery of the cost of the investment.

Investments in equity instruments in respect of which an entity does not elect to present fair value

changes in other comprehensive income would be measured at fair value with changes in fair valuerecognised in profit or loss.

The standard requires that derivatives embedded in contracts with a host that is a financial asset

within the scope of the standard are not separated; instead the hybrid financial instrument is

assessed in its entirety as to whether it should be measured at amortised cost or fair value.

(b) Basis of Consolidation:

The consolidated financial statements of the Group incorporate the financial statements of the Company and its

one wholly owned subsidiary made up to 31 December 2010. There are no minority interests in the income or

assets of the subsidiary. Control is achieved where the Company has the power to govern the financial and

operating policies of the subsidiary so as to benefit the Company.

(c) Income:

Bank interest, loan interest income and other income are included in these consolidated 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.

14



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(d) Investments:

The Groups 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 Groups right to receive payments is established.

Loans, royalties and fee receivables 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.

(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

Companys 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.

15


18/53



(d) Investments continued:

(iii) Fair Value Estimation continued

Royalty investments are valued using a discounted cash flows approach, based on the Companys

contractually determined portion of projected revenue streams from specific products and/or businesses.

When valuing the royalty investments, the Directors consider it prudent to apply a discount that reflects the

full risks associated with each specific investment, including but not limited to the certainty of the projected

cash flows and the liquidity of the investment.

Fee receivables are valued at fair value with fair value being the value of the fee receivables less

impairments to reflect the collectability of the fee receivable (see note 2(e)).

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

(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 eventshave 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 theimpairment 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.

16



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(h) 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 Companys 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%. Tax Exempt status continues to exist and the Company has been granted this status for 2010. The

Company has not suffered any withholding tax in the period.

PSD SPV 2, Inc is a Delaware corporation and subject to US taxation. As such, PSD SPV 2, Inc will suffer taxeson 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

asset of US$17,895 (30 June 2010: US$8,966 liability) associated with income tax rebates and withholding tax

rebates related to PSD SPV 2, Inc has been made as at 31 December 2010.

(i) 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.

3. 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 Consultants Agreements.

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 of the Company. This fee is paid monthly in arrears. As at

31 December 2010, the management fee creditor was US$181,919 (30 June 2010: US$185,603).

17


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3. Material Agreements & Related Parties continued:

Management Agreement continued

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%

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% 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 31 December 2010, the Performance Fee creditor was US$5,581,184

(30 June 2010: US$5,581,184).

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. This is estimated to be in the range of 20,000 to 25,000 per annum. As at

31 December 2010, the administration fee creditor was US$19,077 (30 June 2010: US$15,668).

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 31 December 2010, the registrar fee creditor was US$4,230

(30 June 2010: US$3,121).

Custodian Agreement

Pursuant to the provisions of the Custodial Agreement that was in place during the period, Wells Fargo Bank will be

entitled to receive a custodian fee as follows:

Wells Fargo Bank

US$30,000 acceptance fee; plus

US$30,000 annual administration fee; plus US$30 per asset annual custody fee; plus

various activity 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 period Albert Fried & Company, LLC were

entitled to receive US$500 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 period

GP Nurmenkari Inc. were entitled to receive US$nil in respect of such services.

In addition to the above agreements, during the period the Group paid US$6,064 to Fidelity Prime Services for

custodial services provided in respect of the Groups short term trading assets.

18



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19


Independent Valuation Consultant

Pursuant to the provisions of the Independent Valuation Consultants Agreement between the Company and Clayton

IPS Corporation (Clayton). Clayton has agreed to provide a monthly and quarterly valuation of the assets of the

Company. For these services Clayton is entitled to a fee of US$10,000 for each monthly valuation. As at 31 December

2010, the independent valuation consultancy fee creditor was US$10,192 (30 June 2010: US$20,331).

Master Agreement

The Master Agreement dated 31 July 2007 (and as subsequently amended on 1 September 2007 and 29 October

2007) between the Company and Laurus Master Fund Ltd which governs the terms on which Laurus Master Fund Ltd

may, from time to time, offer investments for sale to the Company and the Company may, if it wishes, accept such

offers of investments (including the Initial Portfolio). The Company shall not be obliged to accept such an offer, but isentitled to accept the offer in respect of one or more of the investments offered. Investments will be offered on the

basis of an agreed valuation methodology set out in the Agreement.

The Laurus Master Fund Ltd makes a number of representations and warranties in the Master Agreement in respect

of the investments that it offers to the Company.

Under the Master Agreement ongoing investments made by the Company may include purchases from Laurus Master

Fund Ltd and other affiliates of the Investment Adviser, subject to approval by the Board of Directors or a duly

authorised committee of the Board.

The Company entered into a similar Master Agreement with Valens Offshore SPV I Ltd (4 September 2007 and

amended on 29 October 2007) and Valens US SPV 1, LLC (19 October 2007 and amended on 29 October 2007).

Valens Offshore SPV I Ltd and Valens US SPV 1, LLC are managed by an affiliate of the Investment Manager, Valens

Capital Management, LLC.

Related Party Transactions

During prior periods the Company has 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 transactions from related parties for the period 1 July 2010 to 31 December 2010 (period

1 July 2009 to 31 December 2009: none).

Directors and Other Related Parties Interests

As at 31 December 2010 the interests of the Directors and their families who held office during the year are set out

below:

31 December 2010 30 June 2010

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.


22/53

Notes to the Financial Statements continued 20



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 31 December 2010, the Investment Manager held 500,000 (30 June 2010: 500,000) Ordinary Shares in the

Company.

4. 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 dutieswhich were reimbursed by the Company were as follows:


Annual Fee Annual Fee

William Scott (Chairman) 30,000 30,000

Soondra Appavoo - -

Peter Niven 27,000 27,000

Tim Jenkinson 25,000 25,000

Keith Dorrian 25,000 25,000

Mr Appavoo has waived his Directors fees for the period. As at 31 December 2010 the Directors fees creditor was

US$2,368 (30 June 2010: US$1,863).

As chairman of the Audit Committee Mr Nivens fee includes a further 2,000 per annum.

5. Basic & diluted earnings per Ordinary Share:

Basic earnings per Ordinary Share is based on the net deficit for the period of US$5,807,001 (period ended

31 December 2009: US$11,585,138 net return) and on a weighted average of 59,564,681 (period ended

31 December 2009: 59,564,681) Ordinary Shares in issue.

Diluted earnings per Ordinary Share is based on the net deficit for the period of US$5,807,001 (period ended31 December 2009: US$11,585,138 net return) and on a weighted average of 59,564,681 (period ended

31 December 2009: 59,564,681) Ordinary Shares in issue adjusted for the effects of all dilutive potential Ordinary

Shares.


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6. Investments:

Fair Value Through Profit or Loss Investments: 1 July 2010 1 July 2009 1 July 2009

to to to

31 December 2010 30 June 2010 31 December 2009

US$ US$ US$

Investments listed on recognised investment

exchanges 4,402,416 5,122,205 1,060,346

Unlisted investments 85,121,610 87,513,318 79,583,619

89,524,026 92,635,523 80,643,965

Opening fair value 92,635,523 46,012,447 46,012,447

Converted from loans - 458,114 89,724Converted from fee receivables - 896,147 -

Converted from warrants 294,427 2,926,747 -

Converted from penny warrants - 3,038,184 -

Purchases 294,351 1,383,093 2,737,354

Sales proceeds (4,552,002) (1,722,123) (1,414,086)

Sales realised gains/(losses) on disposals 1,032,184 (1,641,034) (1,538,393)

Movement in net unrealised (loss)/gain (180,457) 41,283,948 34,756,919

Closing fair value 89,524,026 92,635,523 80,643,965

Closing book cost 20,367,427 23,298,467 17,833,938

Closing net unrealised gain 69,156,599 69,337,056 62,810,027Closing fair value 89,524,026 92,635,523 80,643,965

Held for Trading Investments: 1 July 2010 1 July 2009 1 July 2009

to to to


US$ US$ US$


Opening fair value 2,834,377 19,000,009 19,000,009

Purchases - - -

Converted to equity (294,427) (5,964,931) -Sales proceeds (348,030) (443,508) (143,508)

Sales realised losses on disposals (1,249,262) (3,176,744) (676,548)

Movement in net unrealised gain/(loss) 1,812,460 (6,580,449) (9,418,548)



Closing net unrealised loss (26,300,609) (28,113,069) (30,951,168)


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6. Investments continued:

Loans and Receivables: 1 July 2010 1 July 2009 1 July 2009

to to to


US$ US$ US$

Loans 23,183,468 30,031,017 34,189,904

Receivable * - - 896,147

23,183,468 30,031,017 35,086,051

Opening carrying value 30,031,017 48,475,029 48,475,029

Loans converted to equity - (458,114) (89,724)

Fee receivables converted to equity - (896,147) -Purchases 3,795,453 577,880 1,315,248

Sales proceeds - - -

Sales realised losses on disposals - - (796,564)

Repayments/restructuring of loans proceeds (4,982,458) (8,288,795) (7,753,259)

Repayments/restructuring of loans/fee

receivables realised losses on

repayments/restructuring (1,917,432) (9,200,721) (8,367,262)

Movement in unrealised gains on restructuring

of loans (1,549,159) 994,159 (50,932)

Movement in impairment charge (2,193,953) (646,633) 2,879,156

Movement in net unrealised loss on fee

receivables and fee/proceeds receivable - (525,641) (525,641)

Closing carrying value 23,183,468 30,031,017 35,086,051


Closing unrealised gains on restructuring of

loans 1,952,200 3,501,359 2,456,268

Impairment charge (9,122,898) (6,928,945) (3,403,156)

Closing carrying value 23,183,468 30,031,017 35,086,051

* Receivable As part of a restructured loan, the Group was entitled to US$896,147. During the prior year this

receivable was converted into an equity holding.

22



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6. Investments continued:

Total Investments: 1 July 2010 1 July 2009 1 July 2009

to to to


US$ US$ US$

Investments listed on recognised investment

exchanges 4,402,416 5,122,205 1,060,346


Loans 23,183,468 30,031,017 34,189,904

Receivable - - 896,147

115,462,612 125,500,917 124,491,421

Opening fair/carrying value 125,500,917 113,487,485 113,487,485

Purchases 4,089,804 1,960,973 4,052,602

Sales proceeds (4,900,032) (2,165,631) (1,557,594)

Sales realised losses on disposals (217,078) (4,817,778) (2,214,941)

Sales realised impairment on disposals - - (796,564)

Repayments/restructuring of loans proceeds (4,982,458) (8,288,795) (7,753,259)

Repayments/restructuring of loans/fee receivables

realised losses on repayments/restructuring (1,917,432) (9,200,721) (8,367,262)

Movement in unrealised (losses)/gains on

restructuring of loans (1,549,159) 994,159 (50,932)

Movement in impairment charge (2,193,953) (646,633) 2,879,156

Movement in net unrealised gains 1,632,003 34,177,858 24,812,730

Closing fair/carrying value 115,462,612 125,500,917 124,491,421


Closing unrealised gains on restructuring of loans 1,952,200 3,501,359 2,456,268

Impairment charge (9,122,898) (6,928,945) (3,403,156)

Closing net unrealised gain 42,855,990 41,223,987 31,858,859

Closing fair/carrying value 115,462,612 125,500,917 124,491,421

As at 31 December 2010 the Directors identified impairment charges on loans and receivables, in accordance with

IAS 39, due to an underlying investment filing for chapter 11 bankruptcy. This resulted in the investments being written

down by a further US$2,193,953 during the period (period ended 31 December 2009: US$2,879,156 write back).

This impairment charge is reflected in the Consolidated Statement of Comprehensive Income. Due to several

restructurings during the period ended 31 December 2009, a number of previously unrealised impairment charges

were realised. This resulted in a transfer between unrealised and realised impairments during that period, with a net

credit to the movement in unrealised impairment charge of U$2,879,156. Both realised and unrealised impairment

charges are reflected in the Consolidated Statement of Comprehensive Income for the period ended 31 December

2009.

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7. Cash and Cash Equivalents:

31 December 2010 30 June 2010US$ US$

Bank deposits 1,958,375 194,315

Bank overdrafts (see note 10) (1) (1,136,519)

1,958,374 (942,204)

8. Other Receivables:


US$ US$

Loan interest & fee receivables* 1,851,876 1,600,591

Prepayments 32,128 19,364

US Tax receivable 17,895 -

1,901,899 1,619,955

* These are shown less a bad debt provision the bad debt provision is a 0%-100% provision against fee receivables

of US$3,427 (30 June 2010: US$nil) (included in loan interest & receivables).

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

9. Other Payables:31 December 2010 30 June 2010

US$ US$

Management fee payable 181,919 185,603

Performance fee 5,581,184 5,581,184

Administration fee 19,077 15,668

Audit fee 46,097 104,615

Loan interest payable 29,459 21,615

US Tax payable - 8,966

Other payables 70,263 75,729

5,927,999 5,993,380

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

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10. Loan and Overdraft:

As at 31 December 2010 the Company had credit facilities with Bank of Scotland plc (Bank of Scotland), in

accordance with a facility agreement dated 30 November 2007 and a supplemental restatement facility agreement

(utilisation date 1 December 2010). The facilities comprise a US$ 6.5million term note and a US$1.5 million committed

overdraft. The key terms of these facilities are as follows:

Facility available for 6 months from 1 December 2010;

Interest is chargeable at a rate of the US 3 month LIBOR plus 5.0% per annum;

Arrangement fee of US$75,000;

No fixed amortisation;

Cash sweep equal to 80% of monthly free cashflow;

No net debt/gross asset covenants;

Margin ratchet applicable based on repayment schedule set out in agreement; and

Dividend payments by the Company may be permitted subject to approval by Bank of Scotland.

A further condition to the amendment and restatement of the facility agreement (utilisation date 1 December 2010),

the Companys subsidiary, PSD SPV 2, Inc. (SPV2), would accede to the facility agreement as a guarantor and grant

security over its assets in favour of the Bank. In turn, the Company was required to grant security over its shares in

SPV2 in favour of the Bank.

As at 31 December 2010 the Companys outstanding loan balance was US$6,500,000 (30 June 2010:

US$7,484,003) and the overdraft balance was US$1 (30 June 2010: US$1,136,519). The above credit facility is

secured against the Companys investment portfolio.

11. Share Capital:

31 December 2010

& 30 June 2010

US$

Authorised Share Capital

Unlimited Ordinary and Qualifying C Shares of no par value -

-


US$ US$

Allotted, issued and fully paid

59,564,681 (30 June 2010: 59,564,681) Ordinary Shares of no par value each - -

1 July 2010 to 1 July 2009 to


No. No.

Brought forward & carried forward 59,564,681 59,564,681

US$ US$

Share premium


US$ US$

Distributable reserve


25


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11. Share Capital continued:

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.

(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 the surplus thereby created formed a distributable reserve.

By a resolution dated 2 November 2009, the holders of the Subscriber Shares in the Company granted the

Company the authority to make market purchases of up to 14.99% of its own issued Ordinary Shares. A renewal

of the authority to make purchases of Ordinary Shares is sought from Shareholders at each annual general

meeting of the Company.

Following closing of an Offer for Subscription on 18 June 2008, the Placing and the Offer raised 26.53 million

(net of placing costs) and on 20 June 2008 24,154,681 additional Ordinary Shares in the Company were

admitted to the Official List of the London Stock Exchange.

On 30 July 2008 the Company issued 5,410,000 Ordinary Shares of no par value, representing 9.9% of the

Ordinary Shares in issue. These Ordinary Shares were issued and admitted to the Official List on the London

Stock Exchange for trading on the same day.

Re-Designation of Sterling Shares into US Dollar Shares

On 30 January 2009, a special resolution was passed by the shareholders so that the sterling currency of all of the

issued Sterling Shares of the Sterling Class be re-designated into the U.S. Dollar currency in accordance with article

3.12 of the Companys Articles of Association at an exchange rate of US$1.4593/ calculated as at 31 December

2008.

Capital Management

Under its Articles of Association, 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 (please refer to note 10).

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12. Reserves:

1 July 2010 to 1 July 2009 to31 December 2010 31 December 2009

US$ US$

Brought forward 22,401,409 10,269,631

Total comprehensive (deficit)/income for the period (5,807,001) 11,585,138

Carried forward 16,594,408 21,854,769

Reserves represent retained net realised and unrealised gains and losses of the Group. The reserve is used to facilitate

payments of future dividends.

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$106,901,123 (30 June 2010: US$112,708,124) and on the period/year end Shares in issue of 59,564,681

(30 June 2010: 59,564,681).

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14. Financial Instruments:

(a) Significant accounting policies:

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the

basis of measurement and the basis on which income and expenses are recognised, in respect of its financial

assets and financial liabilities are disclosed in note 2 to these consolidated financial statements.

(b) Categories of financial instruments:

Financial instruments comprise loans, fees receivables, royalties, equity, warrants, penny warrants and cash and

cash equivalents. Investments in loans have been classified as loans and receivables. The warrants and options

are derivative instruments and have been classified as held for trading and are accounted for as fair value

through profit or loss. All other financial instruments have been classified as fair value through profit or loss.


Percentage Percentage

of net assets of net assets

attributable to attributable to

Ordinary Ordinary

Fair Value Shareholders Fair Value Shareholders

US$ % US% %

Assets

Financial assets at fair value

through profit or loss:

Listed equity securities 4,402,416 4.12 5,122,205 4.54Unlisted equity securities 85,121,610 79.62 87,513,318 77.65

Warrants 2,180,722 2.04 1,852,177 1.64

Penny warrants 574,396 0.54 982,200 0.87

92,279,144 86.32 95,469,900 84.70

Cash and cash equivalents 1,958,375 1.83 194,315 0.17

Loans and receivables*:

Loans 23,183,468 21.69 30,031,017 26.65

Unsettled investment sales 6,237 0.01 6,839 0.01Other receivables 1,901,899 1.78 1,619,955 1.44

119,329,123 111.63 127,322,026 112.97Liabilities

Cash and cash equivalents

(bank overdrafts) (1) - (1,136,519) (1.01)

Loans and receivables:

Loan (6,500,000) (6.08) (7,484,003) (6.64)Other payables (5,927,999) (5.55) (5,993,380) (5.32)

(12,428,000) (11.63) (14,613,902) (12.97)

*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.

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14. Financial Instruments continued:

(c) Net gains and losses on financial instruments:

Movement in

net unrealised

(losses)/gains Net realised Movement in

and unrealised gains/(losses) unrealised

foreign exchange on Movement in loss on

gains on disposals/loan Impairment restructuring

translation repayments charge of loans

US$ US$ US$ US$

Period ended 31 December 2010Financial assets at fair value


Listed equity securities (237,685) 1,032,184 - -

Unlisted equity securities 57,228 - - -Warrants 2,220,264 (1,249,262) - -

Penny warrants (407,804) - - -

1,632,003 (217,078) - -


Loans - (1,917,432) (2,193,953) (1,549,159)

1,632,003 (2,134,510) (2,193,953) (1,549,159)

Movement in

net unrealised

(losses)/gains Net realised Movement in

and unrealised gains/(losses) unrealised

foreign exchange on Movement in gain on



US$ US$ US$ US$

Year ended 30 June 2010

Financial assets at fair valuethrough profit or loss:

Listed equity securities 42,335,279 (252,998) - -

Unlisted equity securities (1,051,331) (1,388,036) - -Warrants (4,929,891) (3,176,744) - -

Penny warrants (1,650,558) - - -

34,703,499 (4,817,778) - -


Loans - (8,404,157) (1,443,197) 994,160

Royalties (525,641) - - -

Receivable - (796,564) 796,564 -

(525,641) (9,200,721) (646,633) 994,160

34,177,858 (14,018,499) (646,633) 994,160

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(c) Net gains and losses on financial instruments continued:

Movement in

net unrealised

gains/(losses) Net realised Movement in

and unrealised (losses)/gains unrealised

foreign exchange on Movement in loss on



US$ US$ US$ US$

Period ended 31 December 2009Financial assets at fair value


Listed equity securities 561,507 (150,357) - -

Unlisted equity securities 34,195,412 (1,388,036) - -Warrants (7,199,943) (676,548) - -

Penny warrants (2,218,605) - - -

25,338,371 (2,214,941) - -


Loans - (8,367,262) 2,082,592 (50,932)

Fee receivables - (796,564) 796,564 -

Royalties (525,641) - - -(525,641) (9,163,826) 2,879,156 (50,932)

24,812,730 (11,378,767) 2,879,156 (50,932)

(d) Derivatives:

The following tables detail the Groups aggregate investments in derivative contracts, by maturity, outstanding as

at 31 December 2010.

Penny Warrants


Maturity Fair Value Fair Value

US$ US$

1-3 years 5,438 11,598

3-5 years 1,625 4,876

5-10 years 98,141 154,229

>20 years 469,192 811,497

Total 574,396 982,200

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 orloss disclosed in note (b) 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)).

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(d) Derivatives continued:

Warrants


Maturity Fair Value Fair Value

US$ US$

< 1 year 991,475 381,449

1-3 years 362,125 841,142

3-5 years 613,313 357,505

5-10 years 90,026 152,664

10-15 years 123,783 119,417Total 2,180,722 1,852,177

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 are included in warrants classified as financial assets

at fair value through profit or loss disclosed in note (b) above. The warrants are valued at a 30% discount to

Black Scholes value (see note 2(d) (iii)).

Forward foreign currency swaps

As at 31 December 2010 and 30 June 2010, the Group had no outstanding forward foreign currency swaps.

In accordance with the Groups scheme particulars the Group may invest in forward foreign exchange contracts

for the purpose of efficient portfolio management.

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 annum over a rolling 3-year period

with annual standard deviation of less than 5%, 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 Groups 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 Groups overall risk management

program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the

Groups 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 Groups investment portfolio is monitored by the Investment Manager,Investment Consultant and the Directors in pursuance of the investment objectives.

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15. Financial Risk Management continued:

Market Price Risk continued:

All investments present a risk of loss of capital. The profitability of a significant portion of the Groups 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 Groups 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 Groups equity investments at fair value through profit and loss, and, warrants and penny warrantsinvestments held for trading are directly exposed to market price risk. The Groups 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 Groups exposure to this risk is dealt with under credit risk.

The following details the Groups 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

managements assessment of the possible changes in market prices.

At 31 December 2010, the Groups 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 4.19% or US$4,476,206 (30 June 2010: 4.11% or US$4,631,776) 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 a 4.19% or US$4,476,206 (30 June 2010: 4.11% or

US$4,631,776). 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 expiry 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 0.19% or US$203,037 (30 June 2010: 0.17% or US$192,761) 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 0.19% or US$198,559 (30 June 2010: 0.16% or US$185,945)

decrease in net assets attributable to equity shareholders.

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 suchprotections 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.

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15. Financial Risk Management continued:

Credit Risk continued:

At the reporting date financial assets exposed to credit risk include loan instruments, receivables and derivatives

disclosed in note 14 to these financial statements. 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 Clayton. Clayton 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 andreceivable instruments in accordance with the Independent Valuation Consultants Agreement. Any impairment on the

loan and receivable instruments is written off to the Consolidated Statement of Comprehensive Income. As at

31 December 2010, impairment charges totaling US$9,122,898 (30 June 2010: US$6,928,945) 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 31 December 2010, the following amounts on debt instruments were past due:

31 Dece

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