Registered No. 08840579
Annual Report and Accounts
For the year to 31 December 2015
Contents
Company Information
Chairman and Chief Executive Officer’s Joint Review
The Board
Strategic Report
Directors’ Report
Corporate Governance Statement
Report of the Remuneration Committee
Independent Auditor’s Report
Group Statement of Total Comprehensive Income
Group Statement of Financial Position
Company Statement of Financial Position
Group Statement of Changes in Equity
Company Statement of Changes in Equity
Group Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
Notice of Annual General Meeting
Notes to the Notice of Annual General Meeting
Explanatory Notes to the Notice of Annual General Meeting
2
3
6
7
9
12
15
16
17
18
19
20
21
22
23
24
43
45
47
4D pharma plc Annual Report and Financial Statements 2015
1
Company Information
Directors
David Norwood
Duncan Peyton
Dr Alexander Stevenson
Thomas Engelen
(non-executive Chairman)
(Chief Executive Officer)
(Chief Scientific Officer)
(non-executive director)
Secretary
Laurence Dale
Nominated advisor and broker
Auditor
Registrar
Registered office
Zeus Capital Limited
82 King Street
Manchester M2 4WQ
and
41 Conduit Street
London W1S 2YQ
RSM UK Audit LLP
3 Hardman Street
Manchester M3 3HF
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham Kent BR3 4TU
Third Floor,
9 Bond Court
Leeds LS1 2JZ
Website
www.4dpharmaplc.com
4D pharma plc Annual Report and Financial Statements 2015
2
Chairman and Chief Executive Officer’s Joint Review
For the year ended 31 December 2015
4D pharma plc (“4D”, the “Company” and, together with its subsidiaries, the “Group”) is a group based on nearly two
decades of research into bacteria that could be considered to have a profound effect on disease pathways. During 2014
the Group developed this research to build MicroRx; a discovery methodology that is able to rationally select those
bacteria that have a precise and evolved therapeutic effect.
Over the last twelve months, our MicroRx methodology has allowed 4D to expand its live biotherapeutics pipeline from two
discovery projects to a pipeline of 15 therapeutic programmes covering autoimmune diseases, CNS disorders and cancer.
Utilising MicroRx, 4D is able to rapidly develop its programmes into the clinic, currently having two programmes in patient
trials, with the expectation to initiate another three programmes over the coming twelve months.
In line with industry standard policies for research and development the Group will continue to expense the costs for this
work until regulatory approval is achieved for candidates; only once this milestone is reached will the costs be capitalised.
Bacteria, drugs and the regulators
It is widely understood that bacteria within our gut, referred to as the microbiome, play a key role in the development and
regulation of our immune systems. Building on this fact, it has been shown that bacteria not only play a crucial role in the
regulation of diseases of the gut such as Crohn’s and irritable bowel syndrome, but also potentially those immune
diseases that affect other parts of the body, such as rheumatoid arthritis, asthma and multiple sclerosis.
Research into the microbiome and live biotherapeutics is an exciting area of development. There is intense interest as we
begin to unravel the impact that the genes in our microbiome may have on our genes and also how the microbiome can
impact the response to therapeutic regimes. The thinking within this area of research has moved swiftly from the role of
bacteria in diseases of the gut to leading us towards trying to understand the link between the microbiome and diseases
such as cancer and autism.
Live biotherapeutics are drugs that build on the understanding of the microbiome and how bacteria can affect disease
pathways. They are a class of drugs, regulated and defined by the FDA as “a biological product that contains live
organisms, such as bacteria, applicable to the prevention, treatment or cure of a disease and are not vaccines”. The
rationale for the regulators establishing this new class is based on the compelling scientific evidence provided by several
leading academic groups, but also the advances made by companies, such as 4D, in bringing this new class of
therapeutics to patients.
At 4D we develop bacteria that are isolated from healthy humans. We believe these bacteria are safe and have no toxic
effects. The lack of toxicity or side effects brings a significant advantage over existing therapies for diseases such as
rheumatoid arthritis, Crohn’s or multiple sclerosis that are aggressive and can cause serious life-threatening conditions as
a result of treatment.
In allowing 4D to take its proprietary candidates into clinical trials in patients directly, the FDA and EMA concur with our
views regarding the lack of toxicity and reduced side effects of the live biotherapeutics developed by 4D. 4D continues to
work with the regulatory bodies to help determine the regulatory agenda and develop live biotherapeutics in the safest and
most efficient route.
From research to patients
During 2014 the challenge for 4D was: could we rationally identify bacteria that were therapeutically relevant? With the aid
of the MicroRx methodology, 4D showed we could identify bacteria that had effect in pharmaceutical standard models of
rheumatoid arthritis, multiple sclerosis and asthma.
The challenge in 2015 was: could 4D take the research and move this towards the clinic? Towards the end of 2015, we
commenced our first trial in patients with irritable bowel syndrome and gained approval to start a trial in paediatric Crohn’s
disease.
We believe we are the first company to address an immune disease using live biotherapeutics delivered by an
oral capsule.
In simple terms this means we have addressed the development, optimisation, manufacturing, stability, encapsulation,
dosing and regulatory challenges over the last twelve months which, under normal circumstances, we believe would take
the pharmaceutical industry up to six years. 4D is pioneering in its approach which aims to take a novel pure piece of
research into patient trails within an 18-month timeframe. This has been a huge achievement requiring considerable effort
across the organisation.
It has also been a significant learning process. As we continue to focus and refine these processes, we believe 4D will be
able to increase the efficiency in taking our research into the clinic.
4D pharma plc Annual Report and Financial Statements 2015
3
Chairman and Chief Executive Officer’s Joint Review continued
For the year ended 31 December 2015
New areas of research and future developments
4D chose to initially focus on immune conditions associated with the gut. It was a logical step to look at the bacteria in the
gut and look for a local effect. This research gave 4D programmes in paediatric Crohn’s, paediatric colitis and irritable
bowel syndrome.
All the above are immune-related disorders. As we began to understand the potential of bacteria in the pathways
associated with these diseases, we focussed on other immune pathways using the MicroRx methodology to rationally
select bacteria that could have a therapeutic effect in diseases such as rheumatoid arthritis, asthma and multiple sclerosis.
Our research, understanding and ambition have moved on further.
In August we initiated a research programme in conjunction with University College Cork to look at the potential effect of
bacteria on conditions such as autism, depression and anxiety. This research will bring together the world-leading
research at UCC in the gut–brain axis with the power of the MicroRx methodology, identifying those bacteria that have a
disease-modifying effect.
In late November, two publications in Science discussed the interaction of the microbiome in cancer: a paper by Sivian
discussed the potential of constituents of microbiome to promote antitumor activity; and a paper by Vetizou highlighted
that the patient’s microbiome could play a significant role in the response to treatment by a checkpoint inhibitor.
Also in November, 4D announced its first live therapeutic oncology candidate, being the first company to do so globally.
Both these programmes further demonstrate that 4D continues to lead in the research and development of live
biotherapeutics into new areas and MicroRx can rapidly and efficiently build a pipeline that now covers diseases in CNS,
cancer and autoimmunity.
On 9 February 2016, 4D purchased the entire issued share capital of Tucana Health Limited, a company based in Cork in
Ireland. Tucana, a start-up company from University College Cork, was founded by Prof Fergus Shanahan and Prof Paul
O'Toole to investigate the use of microbiome signatures to aid the diagnosis and treatment of diseases, including those
targeted by 4D. Following the acquisition, 4D will continue to build on this research, investing in the platform and building
further research capability based at the APC Microbiome Institute at UCC. Initially, the focus will be on work on the
diagnosis and patient stratification for Irritable Bowel Syndrome. Longer term the Company will focus on building a
diagnostic platform across multiple disease areas mirroring the programmes developed by MicroRx, 4D's therapeutic
methodology. This work will be led by Prof Fergus Shanahan and Prof Paul O'Toole, the founders of Tucana.
Over the coming twelve months our aim is to further build and solidify our position; we will continue to develop our
research and understanding of the microbiome, and expand our clinical programmes to rapidly bring safe, efficacious
therapies to patients.
Financial results and finance review
Results
R&D expenses were £6.9 million for the year ended 31 December 2015 (period to 31 December 2014: £1.8 million),
reflecting the increase in activity and headcount.
Administrative expenses were £3.6 million for the year ended 31 December 2015 (period to 31 December 2014:
£1.7 million). The loss after tax for the year ended 31 December 2015 was £7.7 million or 12.62 pence per share (period to
31 December 2014: £2.4 million or 4.81 pence per share).
Total staff costs for the year were £1.1 million (period to 31 December 2014: £0.5 million), primarily driven by research and
development through further studies using the MicroRx methodology which has identified candidates and on moving
recognised candidates into the development phases.
Corporation tax reclaims on research and development equated to £2.3 million with £1.6 million relating to reclaims for the
current year and £0.7 million for the prior year (period to 31 December 2014: £Nil).
Cash flow and balance sheet
The Group had net assets at 31 December 2015 of £92.7 million (period to 31 December 2014: £37.0 million) and cash,
cash equivalents, short-term investments and deposits of £85.4 million (period to 31 December 2014: £31.8 million).
During the year 4D raised £64.8 million (before expenses) from existing and new shareholders. Funds were raised from
two placings, the first in January 2015 to raise £34.8 million and the second in December 2015 to raise £30.0 million.
The cost of issuing new share capital for the additional placings which amounted to £976,000, has been charged against
the share premium account.
During the year, the Company purchased the remaining non-controlling interest equating to 16.5% of the capital in 4D
Pharma Research Limited at a cost of £0.4 million. In the period to 31 December 2014 83.5% of the capital was purchased
for £1.730 million.
4D pharma plc Annual Report and Financial Statements 2015
4
Chairman and Chief Executive Officer’s Joint Review continued
For the year ended 31 December 2015
Financial results and finance review continued
Treasury activities and policies
The Group manages its cash deposits prudently and invests its funds across a number of financial institutions which have
investment-grade credit ratings. The deposits range from instant access to twelve-month term deposits and are regularly
reviewed by the Board. Cash forecasts are updated monthly to ensure that there is sufficient cash available for the
Group’s foreseeable requirements.
Foreign exchange management
The Group does not take out forward contracts against uncertain or forecast expenditure, as the timings and extent of
future cash flow requirement denominated in foreign currencies are difficult to predict. Future currency needs are
continually monitored and purchased when the extent and timings are known.
David Norwood
Non-executive Chairman
30 March 2016
Duncan Peyton
Chief Executive Officer
30 March 2016
4D pharma plc Annual Report and Financial Statements 2015
5
The Board
David Norwood – Non-executive Chairman
David has had a long career building a number of science, technology and investment companies. He is the founder of IP
Group plc, one of the UK’s leading technology commercialisation businesses, and a shareholder in the Company.
Previously, he was Chief Executive of stockbroker Beeson Gregory (acquired by Evolution Group plc) after it acquired
IndexIT Partnership, a technology advisory boutique he had founded in 1999. He was a founding shareholder of Evolution
Group plc (recently acquired by Investec), and also co-founder of Ora Capital plc. He has been a founder and director of
many UK technology companies, including Oxford Nanopore Technologies Ltd, Proximagen Ltd, Synairgen plc, Ilika
Technologies Ltd, Oxford Catalysts and Plectrum Petroleum (acquired by Cairn Energy plc). He has also acted as seed
investor and/or advisor to Wolfson Microelectronics Ltd, Nanoco Technologies Ltd, Tissue Regenix Group plc and Arc
International (now part of Synopsys). He is also non-executive Chairman of Oxford Pharmascience Group plc.
Duncan Peyton – Chief Executive Officer
Duncan has a proven track record in identifying, investing in and growing businesses within the pharmaceutical sector. He
was the founder of Aquarius Equity, a specialist investor in businesses within the life science sector, which provided
investors with access to innovative, high growth potential companies that delivered significant capital growth. Duncan
started his career in a bioscience start-up business, which ultimately went on to list on the London Stock Exchange,
subsequently qualified as a corporate finance lawyer with Addleshaw Goddard, then Addleshaw Booth & Co, and later
joined 3i plc as an investment manager. Duncan founded Aquarius Equity in 2005, which made founding investments into
Nanoco Technologies Ltd, Auralis Limited (subsequently sold to ViroPharma) and Tissue Regenix Group plc.
Dr Alexander Stevenson – Chief Scientific Officer
Alex began his career as a scientist, working in research and for an NYSE-quoted drug development company, before
moving into early-stage pharmaceutical and healthcare investments. He has fulfilled board-level investment and
operational management roles. He was a director and shareholder in Aquarius Equity from 2008, where he was
responsible for identifying new investments and developing and implementing scientific strategies both pre- and post-
investment. Prior to joining Aquarius Equity, Alex worked for IP Group plc where he specialised in life science investments,
identifying, developing and advising a number of companies in its portfolio, some of which went on to list on AIM. He
joined IP Group following its acquisition of Techtran Group Ltd in 2005.
Thomas Engelen – Non-executive director
Thomas is also non-executive Chairman at Akcros Holdings Ltd and Penlan Healthcare. Thomas has been a founder
and/or non-executive director of a number of UK life sciences companies, including Colonis Pharma Ltd, Warneford
Partners Ltd and Martindale Pharma Ltd. Thomas has supported private equity and other investors in over 50 potential
deal transactions, on targets in Europe and the USA, from cash constrained/chapter 11 to cash-rich with EV of up to $1B.
Before this, he worked in life sciences for over 20 years in senior executive roles. Starting in 1987 at Akzo Nobel Pharma
he worked with hospital products, diagnostics and medical equipment as General Manager for the Middle East and Africa.
After this, he led Rosemont Pharmaceuticals in Leeds in niche oral liquid medicines, followed by being President of
Organon in Brazil. He was promoted to VP The Americas and, lastly, to CMO at Organon, in charge of the global product
portfolio, based in the USA. Returning to Europe, he led Novartis Consumer Health in the UK.
4D pharma plc Annual Report and Financial Statements 2015
6
Strategic Report
For the year ended 31 December 2015
The information required by schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 has been included in the separate Strategic Report in accordance with section 414C(11) of the
Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
Principal activity
The principal activity of the Group during the year (and that of the previous 51-week period) was the research and
development of pharmaceutical products in new live biotherapeutic areas.
Business model
A description of the Group’s activities and how it seeks to add value are included in the Chairman and Chief Executive
Officer’s (“CEO’s”) Joint Review on pages 3 to 5.
Review of the business and future developments
A review of the Group’s performance during the year and its future prospects are included in the Chairman and CEO’s
Joint Review on pages 3 to 5, which should be read in conjunction with this report.
Staff numbers in the Group increased during the year from 13 to 24, with staff costs increasing from £0.5 million for the
period to 31 December 2014 to £1.1 million for the year to 31 December 2015 as the Group focussed on accelerating the
MicroRx methodology and the development of existing candidates.
Presently, the focus is on bringing a candidate to market and in locating other suitable candidates and one of the key
components to achieving this is ensuring that the Group is adequately funded to get there and the Directors recognise the
required cash to achieve this. There were two share issues in the year which collectively raised net proceeds, after costs,
of £63.8 million (share issues in the period to 31 December 2014: £38.4 million) leaving cash and cash equivalents at 31
December 2015 at £1.8 million (31 December 2014: £28.8 million) and a balance of £83.7 million on short-term deposits at
the year end (2014: £3.0 million). The current cash position should allow the necessary further development of existing
candidates and research into new candidates from the MicroRx methodology for the foreseeable future.
Key performance indicators
The key indicators of performance for the business in its current stage of development are the completion of technical
milestones in relation to the development of targeted products and the research pipeline. In addition, the management and
control of cash balances is a priority for the Group and these are budgeted and monitored closely to ensure the Group
maintains adequate liquid resources to meet financial commitments as they arise.
At this stage in its development, quantitative key performance indicators are not an effective way of measuring the Group’s
performance. However, a qualitative summary of performance in the period is provided in the Chairman and CEO’s
Joint Review.
Principal risks and uncertainties
The principal risks to achieving full commercialisation and to becoming cash generative are outlined as follows:
Technology and development risk
There can be no guarantee that any of the products currently in development will be developed into commercially viable
products, meet regulatory requirements, be manufactured in commercial quantities at an acceptable cost or marketed
successfully and profitably. The Group employs experienced development personnel who have experience of successfully
bringing such products to the market.
Regulatory risk
Regulatory approval timelines can be affected by a number of factors, such as trial recruitment rates, clinical results and
changes to regulatory requirements which are outside the control of the Group. However, all of the Group’s products follow
well established regulatory routes and the Group works with experienced regulatory personnel and consultants to navigate
the process.
4D pharma plc Annual Report and Financial Statements 2015
7
Strategic Report continued
For the year ended 31 December 2015
Principal risks and uncertainties continued
Competition
Although the directors believe that for certain of the Group’s products there is limited direct competition, there may be
products and competitors of which they are currently unaware, which could have a detrimental effect on the Group’s
trading performance in the future. The Group expects a balanced exposure to competition with some offerings facing little
competition, but others facing more.
Attraction and retention of key employees
The Group depends on directors and certain key employees spread across the various subsidiaries. The ability to attract
and retain key employees cannot be guaranteed. However, the Group endeavours to ensure succession planning where
possible and ensures that remuneration and incentive packages are in line with industry standards.
On behalf of the Board
Duncan Peyton
Chief Executive Officer
30 March 2016
4D pharma plc Annual Report and Financial Statements 2015
8
Directors’ Report
For the year ended 31 December 2015
The directors present their report and the audited financial statements for the Group and the Company for the year ended
31 December 2015. 4D pharma plc (formerly Schosween 18 Limited) was incorporated on 10 January 2014 and details of
the various investments in subsidiaries are contained in note 12 to the financial statements.
Directors
The directors who held office during the year and as at the date of signing the financial statements were as follows:
David Norwood
Duncan Peyton
Dr Alexander Stevenson
Thomas Engelen
Details of the directors’ remuneration are shown in the Report of the Remuneration Committee on page 15. Details of the
directors’ interests in the share capital of the Company are set out below.
No director had an interest in any contract that was significant in relation to the Company’s business at any time during
the year.
Financial instruments
Details of the Group’s financial risk management objectives and policies are disclosed in note 23 to the
financial statements.
Research and development
The principal activity of the Group is research and development, a review of which is included in the Chairman and CEO’s
Joint Review on pages 3 to 5.
Total research and development spend in the year to 31 December 2015 was £6.895 million (period to 31 December
2014: £1.823 million). No development expenditure was capitalised in the current year or the previous 51-week period to
31 December 2014.
Corporation tax
Corporation tax reclaims on research and development equated to £2.328 million with £1.641 million relating to reclaims
for the current year and £0.687 million for the prior year (period to 31 December 2014: £Nil).
Dividends
The directors do not recommend payment of a dividend nor was there a dividend in the previous 51-week period to 31
December 2014.
Share capital and funding
As at 31 December 2015 share capital comprised 64,365,198 ordinary shares of 0.25 pence each. There is only one class
of share and all shares are fully paid. Full details of the Group’s and the Company’s share capital movements during the
year are given in note 19 to the financial statements.
Details of shares under option are provided in note 20 to the financial statements.
Directors’ indemnity insurance
The Group has maintained insurance throughout the year for its directors and officers against the consequences of actions
brought against them in relation to their duties for the Group. Such provision remains in force as at the date of approval of
the Directors’ Report.
Directors’ interests
Directors’ interests in the shares of the Company, including family and beneficial interests, at 31 December 2015 were:
David Robert Norwood
Duncan Joseph Peyton
Dr Alexander James Stevenson
Thomas Engelen
Ordinary shares of 0.25 pence each
31 December
2015
Number
7,000,000
6,250,286
6,250,286
500,000
31 December
2015
%
10.9
9.7
9.7
0.8
31 December
2014
Number
7,000,000
6,250,286
6,250,286
500,000
31 December
2014
%
13.4
12.0
12.0
1.0
4D pharma plc Annual Report and Financial Statements 2015
9
Directors’ Report continued
For the year ended 31 December 2015
Substantial shareholders
In addition to the Directors’ interests the Company is aware that the following had an interest in 3% or more of the issued
ordinary share capital of the Company at 31 December 2015 based on the ordinary shares in issue of 64,365,198 (as at
31 December 2014: 52,092,119):
Woodford Investment Management LLP
Invesco Asset Management Limited
Lansdowne Partners
Aviva Investors Global Services Limited
Number of 0.25 pence
ordinary shares
as at 31 December 2015
15,607,071
9,163,617
4,531,707
2,926,132
% of
issued
capital
24.3
14.2
7.0
4.6
Number of 0.25 pence
ordinary shares
as at 31 December 2014
6,857,113
6,905,667
3,800,000
1,998,399
% of
issued
capital
13.2
13.3
7.3
3.8
There were no notified significant changes in these holdings between 31 December 2015 and the date of signing of these
financial statements.
Donations
No charitable or political donations were made in the year or during the previous period.
Acquisition of non-controlling interest
During the year, the Company purchased the remaining non-controlling interest equating to 16.5% of the capital in 4D
Pharma Research Limited at a cost of £0.402 million. In the period to 31 December 2014 83.5% of the capital was
purchased for £1.730 million.
Policy on payment of suppliers
It is the policy and normal practice of the Group to make payments due to suppliers, in accordance with agreed terms and
conditions, with payments being made generally in the month following receipt of invoice.
Employment policies
The Group is committed to ensuring the health and safety of its employees in the workplace. This includes the provision of
regular medical checks.
The Group supports the employment of disabled people where possible through recruitment, by retention of those who
become disabled and generally through training, career development and promotion.
The Group is committed to keeping employees as fully informed as possible with regard to the Group’s performance and
prospects and seeks their views, wherever possible, on matters which affect them as employees.
Corporate Governance Statement
The Group’s statement on corporate governance can be found in the Corporate Governance Statement on pages 12
to 14.
Going concern
The Chairman and CEO’s Joint Review on pages 3 to 5 outlines the business activities of the Group, along with the factors
which may affect its future development and performance, and discusses the Group’s financial position, along with details
of its cash flow and liquidity. Note 23 to the financial statements sets out the Group’s financial risks and the management
of those risks.
Having prepared management forecasts and made appropriate enquiries, the directors are satisfied that the Group has
adequate cash and other resources for the foreseeable future, as the Group is at the start-up stage of its business
lifecycle. Accordingly, they have continued to adopt the going concern basis in preparing the Group and Company
financial statements.
4D pharma plc Annual Report and Financial Statements 2015
10
Directors’ Report continued
For the year ended 31 December 2015
Disclosure of information to the auditor
The directors who held office at the date of approval of this Directors’ Report confirm that:
so far as they are each aware there is no relevant audit information of which the Group’s auditor is unaware; and
each director has taken all the steps that he ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the Group’s auditor is aware of that information.
Auditor
RSM UK Audit LLP (formerly Baker Tilly UK Audit LLP) has indicated its willingness to continue in office.
Ordinary resolutions to re-appoint RSM UK Audit LLP as auditor and to authorise the directors to agree its audit fee will be
proposed at the forthcoming Annual General Meeting.
Subsequent events
On 10 February 2016, 4D pharma plc purchased the entire issued share capital of Tucana Health Limited. Further detail
of this acquisition is contained in note 25.
Annual General Meeting
The Annual General Meeting of the Company will be held on 23 May 2016 at 2 p.m. at the Gridiron Building, 1 Pancras
Square, London N1C 4AG. The notice convening the Annual General Meeting, together with an explanation of the
resolutions to be proposed at the meeting, is contained in the notice of meeting on pages 43 to 48.
Recommendation
The Board considers that the resolutions to be proposed at the Annual General Meeting are in the best interests of the
Company and it is unanimously recommended that shareholders support these proposals as the Board intends to do in
respect of their own holdings.
The Directors’ Report was approved by the Board on 30 March 2016 and was signed on its behalf by:
Duncan Peyton
Chief Executive Officer
30 March 2016
4D pharma plc Annual Report and Financial Statements 2015
11
Corporate Governance Statement
For the year ended 31 December 2015
Compliance
The Board believes in the importance of corporate governance and is aware of its responsibility for overall corporate
governance, and for supervising the general affairs and business of the Group.
The Company’s shares are quoted on the AIM Market of the London Stock Exchange (“AIM”) and is subject to the
continuing requirements of the AIM Rules. Although the Group is not required to comply with the UK Corporate
Governance Code by virtue of being an AIM-quoted company, the Board seeks to apply the QCA Corporate Governance
Code (as devised by the QCA in consultation with a number of significant institutional small company investors) to the
extent appropriate and practical for a company of its nature and size. This section provides general information on the
Group's adoption of the QCA Corporate Governance Code.
Board composition and responsibility
The Board consists of four directors, two of whom are non-executive. The names of the directors, together with their
biographical details, are set out on page 6.
The Board has determined that Thomas Engelen is independent in character and judgement and that there are no
relationships or circumstances which could materially affect or interfere with the exercise of his independent judgement.
The Board is satisfied with the balance between executive and non-executive directors, which allows it to exercise
objectivity in decision making and proper control of the Group’s business. The Board considers its composition is
appropriate in view of the size and requirements of the Group’s business and the need to maintain a practical balance
between executives and non-executives. Due to the structure of the Company it is considered that it is not appropriate to
change the successful Board composition at present.
All directors appointed by the Board are subject to election by shareholders at the first Annual General Meeting after their
appointment. Directors are also subject to retirement by rotation and re-election in accordance with the articles of
association of the Company.
The non-executive directors constructively challenge and help develop proposals on strategy and bring strong,
independent judgement, knowledge and experience to the Board’s deliberations. The directors are given access to
independent professional advice at the Group’s expense, when the directors deem it is necessary in order for them to
carry out their responsibilities.
The Board’s primary objective is to focus on adding value to the assets of the Group by identifying and assessing
business opportunities and ensuring that potential risks are identified, monitored and controlled. Matters reserved for
Board decisions include strategy, budget, performance, and approval of major capital expenditure and the framework
of internal controls. The implementation of Board decisions and day-to-day operations of the Group are delegated to
executive directors.
The Board receives appropriate and timely information prior to each meeting, with a formal agenda and Board and
Committee papers being distributed several days before meetings take place. Any director may challenge Group
proposals, and decisions are taken democratically after discussion. Any director who feels that any concern remains
unresolved after discussion may ask for that concern to be noted in the minutes of the meeting. Any specific actions
arising from such meetings are agreed by the Board and then followed up by management.
The Group maintains, for its directors and officers, liability insurance for any claims made against them in that capacity.
The Group has effective procedures in place to deal with conflicts of interest. The Board is aware of other commitments
of its directors and changes to these commitments are reported to the Board.
The Board has established an Audit and Risk Committee and a Remuneration Committee, with formally delegated duties
and responsibilities. The directors do not consider that, given the size of the Board, it is appropriate at this stage to have
a nomination committee. However, this will be kept under regular review by the Board.
Audit and Risk Committee
The Audit and Risk Committee comprises Thomas Engelen as Chairman and David Norwood as the other member of the
Committee. Thomas Engelen is an independent director and has recent and relevant financial experience. The Committee
has primary responsibility for monitoring the quality of internal controls, ensuring that the financial performance of the
Company is properly measured and reported on, and reviewing reports from the Company’s auditor relating to the
Company’s accounting and internal controls, in all cases having due regard to the interests of shareholders. The Audit
and Risk Committee will meet twice a year.
4D pharma plc Annual Report and Financial Statements 2015
12
Corporate Governance Statement continued
For the year ended 31 December 2015
Remuneration Committee
The Company has established a formal and transparent procedure for developing policy on Executive remuneration and
for fixing the remuneration packages of individual directors. This Committee comprises Thomas Engelen as Chairman and
David Norwood as the other member of the Committee. The Committee reviews the performance of the Executive
directors and determines their terms and conditions of service, including their remuneration and the grant of options,
having due regard to the interests of shareholders. The Remuneration Committee will meet at least once a year.
The number of Board and Committee meetings attended by each of the directors during the year is shown below:
Number of meetings in year
Attendance:
Executive directors
Duncan Peyton
Dr Alexander Stevenson
Non-executive directors
David Norwood
Thomas Engelen
Full Board
12
Audit and Risk Committee
2
Remuneration Committee
1
12
10
10
8
—
—
2
2
—
—
1
1
Approach to risk and internal control
The Board is responsible for establishing and maintaining the Group’s systems of internal control. Internal control systems
are designed to meet the particular needs of the Group and to address the risks to which it is exposed. By their nature,
internal control systems are designed to manage rather than eliminate risk, and can provide only reasonable and not
absolute assurance against material misstatement or loss. As stated, primary responsibility for monitoring the quality of
internal control has been delegated to the Audit and Risk Committee.
Communicating vision and strategy
The directors seek to visit institutional shareholders at least twice a year. In addition, all shareholders are welcome to
attend the Company’s Annual General Meeting, where there is an opportunity to question the directors as part of the
agenda, or more informally after the meeting. Communication with shareholders is seen as an important part of the
Board’s responsibilities, and care is taken to ensure that all price-sensitive information is made available to all
shareholders at the same time.
Share dealing
The directors understand the importance of complying with the AIM Rules for Companies relating to directors’ dealings
and has established a share dealing code which is appropriate for an AIM-quoted company.
Annual General Meeting
At the Annual General Meeting, separate resolutions will be proposed for each substantially different issue. The outcome
of the voting on resolutions is disclosed by means of an announcement on AIM.
Statement of directors’ responsibilities in relation to the Annual Report and financial statements
The directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Company financial statements for each financial year. The
directors have elected to prepare the Group and Company financial statements in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union (“EU”).
The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and
performance of the Group and the Company. The Companies Act 2006 provides, in relation to such financial statements,
that references in the relevant part of that Act to financial statements giving a true and fair view are references to their
achieving a fair presentation.
4D pharma plc Annual Report and Financial Statements 2015
13
Corporate Governance Statement continued
For the year ended 31 December 2015
Statement of directors’ responsibilities in relation to the Annual Report and financial statements continued
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.
In preparing each of the Group and the Company financial statements, the directors are required to:
a.
b.
c.
d.
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
for the Group financial statements, state whether they have been prepared in accordance with IFRS as adopted
by the EU; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group
and the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and
the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
4D pharma plc website (www.4dpharmaplc.com). Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
4D pharma plc Annual Report and Financial Statements 2015
14
Report of the Remuneration Committee
For the year ended 31 December 2015
Statement of compliance
This report does not constitute a directors’ remuneration report in accordance with the Companies Act 2006. As a
company whose shares are admitted to trading on AIM, the Company is not required by the Companies Act 2006 to
prepare such a report. This report sets out the Group policy on directors’ remuneration, including emoluments, benefits
and other share-based awards made to each director.
Policy on Executive directors’ and senior management’s remuneration
The overall policy of the Board is to ensure that Executive management is provided with appropriate incentives to
encourage enhanced performance and is, in a fair and responsible manner, rewarded for its contribution to the success of
the Group.
The main elements of the remuneration packages for Executive directors and senior management are as follows:
Basic annual salary
The base salary is reviewed annually at the beginning of each year. The review process is undertaken by the
Remuneration Committee and takes into account several factors, including the current position and development of the
Group, individual contributions and market salaries for comparable organisations.
The Company does not provide an occupational pension scheme for Executive directors, nor does it make contributions
into the private pension schemes of Executives.
Discretionary annual bonus
All Executive directors and senior managers are eligible for a discretionary annual bonus. This takes into account
individual contribution, business performance and technical and commercial progress, along with financial results.
Discretionary share incentives
The Group operates a share option scheme; all directors and employees are eligible for the granting of the options, which
are at the discretion of Group when granted in accordance with the approved share option scheme requirements. Details
of the grants made under the scheme are provided in note 20 to the financial statements. This takes into account the need
to motivate and retain key individuals. Details of share options granted to directors are detailed in the directors’
remuneration note below.
Benefits in kind
The Company does not provide any taxable benefits for Executives.
Policy on non-executive directors’ remuneration
Non-executive directors receive a fixed fee and do not receive any pension payments or other benefits, nor do they
participate in bonus or share schemes. The Remuneration Committee reviews non-executive remuneration to ensure that
it is in line with current market rates in order to attract and retain high calibre individuals.
Service contracts
Duncan Peyton and Dr Alexander Stevenson have service agreements with an indefinite term providing for a maximum of
twelve months’ notice by either party.
Non-executive directors are employed on letters of appointment which may be terminated on not less than three
months’ notice.
Directors’ remuneration
The remuneration of the directors who served on the Company’s Board during the year to 31 December 2015
is as follows:
31 December 2015
Period to 31 December 2014
Base salary and fees
£000
Total
£000
Base salary and fees
£000
Executive directors
Duncan Peyton
Dr Alexander Stevenson
Non-executive directors
David Norwood
Thomas Engelen
101
101
25
33
260
101
101
25
33
260
97
97
23
47
264
Total
£000
97
97
23
47
264
The directors were not granted any share options in the year ended 31 December 2015 or the period ended 31 December
2014 and therefore none of the directors held any share options at 31 December 2015. There were no bonus or pension
schemes for the directors during the year and for the period ended 31 December 2014.
4D pharma plc Annual Report and Financial Statements 2015
15
Independent Auditor’s Report To the members of 4D pharma plc
For the year ended 31 December 2015
We have audited the group and parent company financial statements (“the financial statements”) on pages 17 to 42.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As more fully explained in the Directors’ Responsibilities Statement set out on pages 13 - 14, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s)
Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website
at http://www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion
the financial statements give a true and fair view of the state of the group’s and the parent’s affairs as at
31 December 2015 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the parent financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you
if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Graham Bond FCA (Senior Statutory Auditor)
For and on behalf of RSM UK AUDIT LLP (formerly Baker Tilly UK Audit LLP),
Statutory Auditor
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
4D pharma plc Annual Report and Financial Statements 2015
16
Group Statement of Total Comprehensive Income
For the year to 31 December 2015
Research and development costs
Administrative expenses
Operating loss
Finance income
Finance expense
Share of losses in associated undertaking
Gain on remeasurement of equity interest to fair value on acquisition
of subsidiary
Loss before taxation
Taxation
Loss for the year and total comprehensive income for the year
Loss for the year and total comprehensive income for the year
attributable to:
Owners of the parent undertaking
Non-controlling interests
Loss for the year and total comprehensive income for the year
Loss per share
Basic and diluted for the year
Notes
4
4
4
6
6
7
7
8
31 December
2015
£000
(6,895)
(3,615)
(10,510)
451
—
—
—
(10,059)
2,328
(7,731)
(7,547)
(184)
(7,731)
Period to
31 December
2014
£000
(1,823)
(1,653)
(3,476)
92
(5)
(379)
1,388
(2,380)
—
(2,380)
(2,021)
(359)
(2,380)
9
(12.62)p
(4.81)p
The loss for the year arises from the Group’s continuing operations and is attributable to the equity holders of the parent.
There were no other items of comprehensive income for the year and therefore the loss for the year is also the total
comprehensive loss for the year.
The basic and diluted loss per share are the same as the effect of share options is anti-dilutive.
The notes on pages 24 to 42 form an integral part of these financial statements
4D pharma plc Annual Report and Financial Statements 2015
17
Group Statement of Financial Position
At 31 December 2015
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Taxation receivables
Short-term investments and cash on deposit
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Non-current liabilities
Deferred tax
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Merger reserve
Other reserve
Share-based payments reserve
Retained earnings
Attributable to owners of parent
Non-controlling interest
Total equity
As at
31 December
2015
£000
As at
31 December
2014
£000
Notes
10
11
13
14
15
16
16
17
18
19
19
20
1,115
6,171
7,286
28
2,013
2,623
83,664
1,777
90,105
97,391
4,309
4,309
385
385
4,694
92,697
161
102,003
958
(864)
7
(9,568)
92,697
—
92,697
417
6,266
6,683
115
356
234
3,007
28,823
32,535
39,218
1,785
1,785
385
385
2,170
37,048
130
38,259
958
—
—
(2,021)
37,326
(278)
37,048
Approved by the Board and authorised for issue on 30 March 2016.
The notes on pages 24 to 42 form an integral part of these financial statements.
Duncan Peyton
Director
30 March 2016
4D pharma plc Annual Report and Financial Statements 2015
18
Company Statement of Financial Position
At 31 December 2015
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Current assets
Loans to subsidiaries
Trade and other receivables
Taxation receivables
Short-term investments and cash on deposit
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Merger reserve
Share-based payments reserve
Retained earnings
Total equity
As at
31 December
2015
£000
As at
31 December
2014
£000
Notes
10
11
12
12
14
15
16
16
17
19
19
20
369
1,076
2,323
3,768
8,916
1,940
536
83,664
1,684
96,740
100,508
2,768
2,768
97,740
161
102,003
958
7
(5,389)
97,740
4
—
6,519
6,523
—
194
91
3,007
28,784
32,076
38,599
417
417
38,182
130
38,259
958
—
(1,165)
38,182
Approved by the Board and authorised for issue on 30 March 2016.
The notes on pages 24 to 42 form an integral part of these financial statements.
Duncan Peyton
Director
30 March 2016
4D pharma plc Annual Report and Financial Statements 2015
19
Group Statement of Changes in Equity
For the year to 31 December 2015
Attributable to owners of parent
Share
capital
£000
—
Share
premium
£000
—
Share-
based
payment
reserve
£000
—
Merger
reserve
£000
—
Other
reserve
£000
—
Retained
earnings
£000
—
Non-
controlling
interest
£000
—
Total
£000
—
Total
equity
£000
—
130
38,259
—
958
—
— 39,347
—
39,347
130
38,259
—
958
—
— 39,347
—
39,347
—
—
—
—
—
(2,021)
(2,021)
(359)
(2,380)
—
130
—
38,259
31
—
63,744
—
31
63,744
—
—
—
161
—
102,003
—
—
—
—
—
—
7
7
—
958
—
—
—
—
—
—
—
(2,021) 37,326
81
(278)
81
37,048
— 63,775
—
63,775
(864)
—
(864)
462
(402)
—
(864)
— 62,911
462
63,373
—
—
958
—
(7,547)
(7,547)
(184)
(7,731)
—
(864)
—
7
(9,568) 92,697
—
—
7
92,697
At 10 January 2014
Issue of share capital
(net of expenses)
Total transactions
with owners
recognised in equity
for the period
Loss and total
comprehensive income
for the period
Non-controlling interest
share of the net assets
of the Group on
acquisition
At 31 December 2014
Issue of share capital
(net of expenses)
Acquisition of minority
interest
Total transactions
with owners
recognised in equity
for the year
Loss and total
comprehensive income
for the year
Issue of share-based
compensation
At 31 December 2015
Details regarding the purpose of each reserve within equity are given in note 21.
4D pharma plc Annual Report and Financial Statements 2015
20
Company Statement of Changes in Equity
For the year to 31 December 2015
At 10 January 2014
Issue of share capital (net of expenses)
Total transactions with owners
recognised in equity for the period
Loss and total comprehensive income
for the period
At 31 December 2014
Issue of share capital (net of expenses)
Total transactions with owners
recognised in equity for the year
Loss and total comprehensive income
for the year
Issue of share-based compensation
At 31 December 2015
Share capital
£000
—
130
Share
premium
£000
—
38,259
Share-based
payment
reserve
£000
—
—
Merger
reserve
£000
—
958
Retained
earnings
£000
—
—
Total
£000
—
39,347
130
38,259
—
130
31
—
38,259
63,744
31
63,744
—
—
161
—
—
102,003
—
—
—
—
—
—
7
7
958
—
958
—
—
—
—
958
—
39,347
(1,165)
(1,165)
—
(1,165)
38,182
63,775
—
63,775
(4,224)
—
(5,389)
(4,224)
7
97,740
Details regarding the purpose of each reserve within equity are given in note 21.
4D pharma plc Annual Report and Financial Statements 2015
21
Group Cash Flow Statement
For the year to 31 December 2015
Loss after taxation
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Finance income
Loss on disposal of property, plant and equipment
Finance expense
Share-based compensation
Gain on remeasurement of existing interest on
acquisition of subsidiary to fair value
Share of losses in associated undertaking
Cash flows from operations before movements
in working capital
Changes in working capital:
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase in taxation receivables
Increase in trade and other payables
Cash outflow from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Purchase of software and other intangibles
Loan advanced
Acquisition of subsidiaries net of cash acquired
Acquisition of non-controlling interest
Interest received
Monies placed on deposit
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issues of ordinary share capital
Expenses on issue of shares
Repayment of loan
Interest paid
Net cash inflow from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
Year to
31 December 2015
£000
(7,731)
Period to
31 December 2014
£000
(2,380)
143
110
(451)
2
—
7
—
—
(7,920)
87
(1,375)
(2,389)
2,524
(9,073)
(845)
(14)
—
—
(402)
170
(80,657)
(81,748)
64,751
(976)
—
—
63,775
(27,046)
28,823
1,777
65
49
(92)
—
5
—
(1,388)
379
(3,362)
(115)
(240)
(234)
133
(3,818)
(264)
—
(1,076)
238
—
92
(3,007)
(4,017)
38,100
(937)
(500)
(5)
36,658
28,823
—
28,823
Notes
10
11
7
7
10
11
19
6
16
4D pharma plc Annual Report and Financial Statements 2015
22
Company Cash Flow Statement
For the year to 31 December 2015
Loss after taxation
Adjustments for:
Depreciation of property, plant and equipment
Share-based consideration
Impairment of investment
Finance income
Finance expense
Cash flows from operations before movements in working capital
Changes in working capital:
Increase in trade and other receivables
Increase in taxation receivables
Increase in trade and other payables
Cash outflow from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Acquisition of subsidiaries net of cash acquired
Investment in share capital in subsidiary
Acquisition of non-controlling interest
Purchase of intangible fixed assets
Loans to subsidiary undertakings
Interest received
Monies placed on deposit
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issues of ordinary share capital
Expenses on issue of shares
Repayment of loan
Interest paid
Net cash inflow from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
Year to
31 December 2015
£000
(4,224)
Period to
31 December 2014
£000
(1,165)
10
7
986
(451)
—
(3,672)
(1,466)
(445)
2,352
(3,231)
(375)
—
(191)
(402)
(1,076)
(6,189)
170
(80,657)
(88,720)
64,751
(976)
1,076
—
64,851
(27,100)
28,784
1,684
—
—
—
(92)
5
(1,252)
(194)
(91)
417
(1,120)
(4)
(32)
—
—
—
(3,803)
92
(3,007)
(6,754)
38,100
(937)
(500)
(5)
36,658
28,784
—
28,784
Notes
10
12
10
12
12
11
12
19
19
11
6
16
4D pharma plc Annual Report and Financial Statements 2015
23
Notes to the Financial Statements
For the year ended 31 December 2015
1. General information
4D pharma plc (the “Company”) is an AIM-quoted company incorporated and domiciled in the UK. The locations and
principal activities of the subsidiaries are set out in note 12. The Company is incorporated in England and Wales. The
registered office is Third Floor, 9 Bond Court, Leeds LS1 2JZ. These Group financial statements consolidate those of the
Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) for the year ended
31 December 2015.
The financial statements of 4D pharma plc and its subsidiaries (the “Group”) for the year ended 31 December 2015 were
authorised for issue by the Board of Directors on 30 March 2016 and the Statement of Financial Position was signed on
the Board’s behalf by Duncan Peyton.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent
company’s Statement of Comprehensive Income.
The significant accounting policies adopted by the Group are set out in note 3.
2. Basis of preparation
(a) Statement of compliance
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union (“IFRS”) and IFRS Interpretations Committee (“IFRSIC”) interpretations as they apply to
the financial statements of the Group for the year ended 31 December 2015 and the requirements of the Companies Act
2006 applicable to companies reporting under IFRS.
(b) Basis of measurement
The parent company and Group financial statements have been prepared on the historical cost basis except for the
methods used to measure fair values of assets and liabilities, which are discussed in the respective notes and in note 3.
(c) Going concern
The Chairman and Chief Executive Officer’s Review on pages 3 to 5 outlines the business activities of the Group along
with the factors which may affect its future development and performance. The Group’s financial position is discussed in
the Financial Review on page 4 along with details of its cash flow and liquidity. Note 23 to the financial statements sets out
the Group’s financial risks and the management of those risks.
Having prepared management forecasts and made appropriate enquiries, the Directors are satisfied that the Group has
adequate resources for the foreseeable future as the Group is at the start-up stage of its business lifecycle. Accordingly
they have continued to adopt the going concern basis in preparing the Group and Company financial statements.
(d) Functional and presentational currency
These financial statements are presented in Pounds Sterling, which is the Group’s functional currency. All financial
information presented has been rounded to the nearest thousand.
(e) Use of estimates and judgements
The preparation of financial statements requires management to make estimates and judgements that affect the amounts
reported for assets and liabilities as at the reporting date and the amounts reported for revenues and expenses during the
year. The nature of estimation means that actual amounts could differ from those estimates. Estimates and judgements
used in the preparation of the financial statements are continually reviewed and revised as necessary. While every effort is
made to ensure that such estimates and judgements are reasonable, by their nature they are uncertain and, as such,
changes in estimates and judgements may have a material impact on the financial statements.
The key sources of estimation uncertainty and critical accounting policies that have a significant risk of causing material
adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.
(i) Taxation
Management judgement is required to determine the amount of tax assets that can be recognised, based upon the likely
timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. The
carrying value of the unrecognised tax losses at 31 December 2015 was £9.542 million. The value of the additional
deferred tax asset not recognised at the year end is £1.908 million. Further information is included in note 8.
(ii) Research and development
Careful judgement by the directors is applied when deciding whether the recognition requirements for development costs
have been met. This is necessary as the economic success of any product development is uncertain until such time as
technical viability has been proven and commercial supply agreements are likely to be achieved. Judgements are based
on the information available at each reporting date which includes the progress with testing and certification and progress
on, for example, establishment of commercial arrangements with third parties. In addition, all internal activities related to
research and development of new products are continuously monitored by the directors. Further information is included in
note 3.
4D pharma plc Annual Report and Financial Statements 2015
24
Notes to the Financial Statements continued
For the year ended 31 December 2015
2. Basis of preparation continued
(e) Use of estimates and judgements continued
(iii) Intangible fixed assets and goodwill
Estimated impairment of intangible fixed assets and goodwill
The Group tests annually whether intangible fixed assets and goodwill have suffered any impairment, in accordance with
the accounting policy stated in note 3. The potential recoverable amounts of intangible fixed assets and goodwill have
been determined based on value in use calculations. These calculations require the use of estimates both in arriving at the
expected future cash flows and the application of a suitable discount rate in order to calculate the present value of these
flows. There is a degree of judgement involved in making assessments of attributable values on acquisition and making
impairment assessments. More detail is given in notes 3(h) and 3(i).
Valuation of intangibles on acquisition
Valuation of an early stage drug discovery pharmaceutical company is a notoriously difficult task. Analysis of financial
history gives little indication of future performance. Despite this, for products currently in development, sales potentials can
be estimated and management has used its own experience as well as consulting with external experts to establish best
estimates of sales pricing and revenue forecasting and these can provide the starting point for valuing these products and
ensuring that their value has not been impaired. In addition, clinical development risks, measured as product attrition
failure rates, incurred as drugs progress through the clinic are reasonably well documented and can be applied as
meaningful risk adjusters to account for the chance of development failure.
3. Significant accounting policies
The accounting policies set out below are applied consistently by Group entities.
The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds
except where otherwise indicated.
(a) Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when control is
transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that are
currently exercisable. The Group measures goodwill at the acquisition date as:
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree;
less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection
with a business combination are expensed as incurred.
(ii) Non-controlling interests
For each business combination, the Group elects to measure any non-controlling interests in the acquiree either:
at fair value; or
at their proportionate share of the acquiree’s identifiable net assets, which are generally at fair value.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with
owners in their capacity as owners. Adjustments to non-controlling interests are based on a proportionate amount of the
net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognised in profit or loss.
(iii) Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases.
4D pharma plc Annual Report and Financial Statements 2015
25
Notes to the Financial Statements continued
For the year ended 31 December 2015
3. Significant accounting policies continued
(a) Basis of consolidation continued
(iv) Investments in associates
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial
and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the
voting power of another entity.
Investments in associates are accounted for under the equity method and are recognised initially at cost. The cost of the
investment includes transaction costs.
The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of
equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that
significant influence or joint control commences until the date that significant influence or joint control ceases.
When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of the
investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further
losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of
the investee.
(v) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are
eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity-
accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised
losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(b) Foreign currency transactions
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional
currency rate of exchange ruling at the reporting date. All differences are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was determined.
(c) Segmental reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and
incur expenses, whose operating results are regularly reviewed by the Group’s chief operating decision maker, being the
Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance,
and for which discrete financial information is available. As at the reporting date the Group operated as a single segment.
(d) Lease payments
Rentals payable under operating leases, which are leases where the lessor retains a significant proportion of the risks and
rewards of the underlying asset, are charged in profit or loss on a straight-line basis over the expected lease term.
Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
(e) Finance income and finance expense
Finance income comprises interest income on funds invested and changes in the fair value of financial assets at fair value
through profit or loss. Interest income is recognised as interest accrues using the effective interest rate method.
Finance expense comprises interest expense on borrowings, changes in the fair value of financial assets at fair value
through the Group Statement of Comprehensive Income, impairment losses recognised on financial assets and losses
on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised using the effective
interest method.
(f) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Income Statement
except to the extent that it relates to items recognised directly in equity or in other comprehensive income.
Current income tax assets and liabilities for the current and prior years are measured at the amount expected to be
recovered from, or paid to, the tax authorities. The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted by the reporting date.
4D pharma plc Annual Report and Financial Statements 2015
26
Notes to the Financial Statements continued
For the year ended 31 December 2015
3. Significant accounting policies continued
(f) Income tax continued
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements with the following exceptions:
where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and that at the time of the transaction affects neither accounting
nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured on an undiscounted basis using the tax rates and tax laws that
have been enacted or substantially enacted by the date and which are expected to apply when the related deferred tax
asset is realised or the deferred tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available
against which differences can be utilised. An asset is not recognised to the extent that the transfer or economic benefits in
the future is uncertain.
(g) Property, plant and equipment
Property, plant and equipment are recognised initially at cost. After initial recognition, these assets are carried at cost less
any accumulated depreciation and any accumulated impairment losses. Cost comprises the aggregate amount paid and
the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the
asset capable of operating as intended.
Depreciation is computed by allocating the depreciable amount of an asset on a systematic basis over its useful life and is
applied separately to each identifiable component.
The following bases and rates are used to depreciate classes of assets:
Office equipment, fixtures and fittings
Plant and machinery
Leasehold improvements
–
–
–
straight line over five years
straight line over five years
straight line over five years
The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances
indicate that the carrying value may not be recoverable, and are written down immediately to their recoverable amount.
Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.
A property, plant and equipment item is de-recognised on disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising on the de-recognition of the asset is included in the
Income Statement in the year of de-recognition.
(h) Intangible assets
Intellectual property and patents
The carrying value of intangible fixed assets is reviewed annually for impairment whenever events or changes in
circumstances indicate the carrying value may not be recoverable.
At each reporting date the Group reviews the carrying value of its intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss.
Where the asset does not generate cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest
identifiable group of assets that generates cash inflows from other assets or group assets.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset, for which the estimates of future cash flows
have not been adjusted.
4D pharma plc Annual Report and Financial Statements 2015
27
Notes to the Financial Statements continued
For the year ended 31 December 2015
3. Significant accounting policies continued
(h) Intangible assets continued
Intellectual property and patents continued
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is
reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the assets is increased to the revised climate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is
recognised in profit or loss immediately.
Amortisation is provided on the fair value of the asset and is calculated on a straight-line basis over its useful life.
Amortisation is recognised within the Statement of Comprehensive Income. Intellectual property and patents acquired as
part of a business combination are only amortised once technical viability has been proven and commercial agreements
are likely to be achieved.
Patents includes the costs associated with acquiring and registering patents in respect of intellectual property rights.
Patents are amortised on a straight-line basis over their useful lives (ten years).
Goodwill
Goodwill on acquisitions, being the excess of the fair value of the cost of acquisition over the Group’s interest in the fair
value of the identifiable assets and liabilities acquired, is capitalised and tested for impairment on an annual basis.
Any impairment is recognised immediately in profit or loss and is not subsequently reversed. For the purpose of
impairment testing goodwill is allocated to cash generating units of 4D pharma plc, which represent the smallest
identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets
or groups of assets.
Software
Software is recognised initially at cost. After initial recognition, these assets are carried at cost less any accumulated
amortisation and any accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of
any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of
operating as intended.
Amortisation is computed by allocating the amortisation amount of an asset on a systematic basis over its useful life and
is applied separately to each identifiable component. Amortisation is applied to software over five years on a straight-
line basis.
The carrying value of software is reviewed for impairment if events or changes in circumstances indicate that the carrying
value may not be recoverable, and is written down immediately to their recoverable amount. Useful lives and residual
values are reviewed annually and where adjustments are required these are made prospectively.
A software item is de-recognised on disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on the de-recognition of the asset is included in the Income Statement
in the year of de-recognition.
Internally generated intangible assets
Expenditure on research activities is recognised in the Statement of Comprehensive Income as incurred. Expenditure
arising from the Group’s development is recognised only if all of the following conditions are met:
an asset is created that can be identified;
it is probable that the asset created will generate future economic benefits;
the development cost of the asset can be measured reliably;
the Group has the intention to complete the asset and the ability and intention to use or sell it;
the product or process is technically and commercially feasible; and
sufficient resources are available to complete the development and to either sell or use the asset.
Where these criteria have not been achieved, development expenditure is recognised in profit or loss in the year in which
it is incurred.
The Group has adopted the industry standard approach to the treatment of development expenditure by capitalising
development costs at the point where regulatory approval is reached and the probability of generating future economic
benefits is high.
4D pharma plc Annual Report and Financial Statements 2015
28
Notes to the Financial Statements continued
For the year ended 31 December 2015
3. Significant accounting policies continued
(i) Impairment of assets
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its
value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. Where the carrying value of an asset exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal,
an appropriate valuation model is used; these calculations are corroborated by valuation multiples, or other available fair
value indicators. Impairment losses on continuing operations are recognised in the Income Statement in those expense
categories consistent with the function of the impaired asset.
(j) Investments in subsidiaries
Investments in and loans to subsidiaries are stated in the Company’s Statement of Financial Position at cost less provision
for any impairment.
(k) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost based on latest contractual prices includes
all costs incurred in bringing each product to its present location and condition. Net realisable value is based on
estimated selling price less any further costs expected to be incurred to disposal. Provision is made for slow-moving
or obsolete items.
(l) Cash, cash equivalents and short-term investments
Cash and cash equivalents comprise cash at hand and deposits with maturities of three months or less. Short-term
investments comprise deposits with maturities of more than three months, but no greater than twelve months.
(m) Trade and other payables
Trade and other payables are non-interest bearing and are initially recognised at fair value. They are subsequently
measured at amortised cost using the effective interest rate method.
(n) Financial assets and liabilities
Financial assets and liabilities are recognised when the Group becomes party to the contracts that give rise to them and
are classified as financial assets and liabilities at fair value through the Group Statement of Comprehensive Income.
The Group determines the classification of its financial assets and liabilities at initial recognition and re-evaluates this
designation at each financial year end.
A financial asset or liability is generally de-recognised when the contract that gives rise to it is settled, sold or cancelled
or expires.
At the year end, the Group had no financial assets or liabilities designated at fair value through the Group Statement of
Comprehensive Income.
(o) Share-based payments
Equity settled share-based payment transactions are measured with reference to the fair value at the date of grant,
recognised on a straight line basis over the vesting period, based on the Company’s estimate of shares that will eventually
vest. Fair value is measured using a suitable option pricing model.
At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting
period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and the
number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting
date is recognised in the Group Statement of Comprehensive Income, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled
award, the cost based on the original award terms continues to be recognised over the remainder of the original vesting
period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of
any modification, based on the difference between the fair value of the original award and the fair value of the modified
award, both as measured on the date of modification. No reduction is recognised if this difference is negative.
Where awards are granted to the employees of the subsidiary company, the fair value of the awards at grant date is
recorded in the Company’s financial statements as an increase in the value of the investment with a corresponding
increase in equity via the share-based payment reserve.
4D pharma plc Annual Report and Financial Statements 2015
29
Notes to the Financial Statements continued
For the year ended 31 December 2015
3. Significant accounting policies continued
(p) Share capital
Proceeds on issue of shares are included in shareholders’ equity, net of transaction costs. The carrying amount is not
remeasured in subsequent years.
(q) New accounting standards and interpretations
Adoption of IFRS
The Group and Company financial statements have been prepared in accordance with IFRS, IAS and IFRS Interpretations
Committee (“IFRSIC”) effective as at 31 December 2015. The Group and Company have not chosen to adopt any
amendments or revised standards early.
IFRS issued but not yet effective
At the date of issue of these financial statements, the following accounting standards and interpretations, which have not
been applied, were in issue but not yet effective. The directors do not anticipate that adoption of these will have a material
impact on the financial statements.
Amendments to IFRS 11
Accounting for Acquisitions of Interests in Joint Operations
Amendments to IAS 16 and 38
Clarification of Acceptable Methods of Depreciation and Amortisation
Amendments to IAS 27
Equity Method in Separate Financial Statements
Amendments to IFRS 10 and IAS 28
Various Standards
Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture
Annual Improvements to IFRSs 2012–2014 Cycle
Amendments to IFRS 10, IFRS 12 and IAS
28
Amendments to IAS 1
Investment Entities: Applying the Consolidation Exception
Presentation of Financial Statements – Disclosure Initiative
IFRS 15
IFRS 9
Revenue from Contracts with Customers
Financial Instruments
4. Operating loss
By nature:
Operating loss is stated after charging :
Research and development expense
Depreciation on property, plant, and equipment
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Staff costs (see note 5)
Foreign exchange (gains)/losses
Operating lease rentals:
Land and buildings
Auditor’s remuneration
Legal and professional
Consultancy
Other costs
Auditor’s remuneration:
Audit services:
- Fees payable to Company auditor for the audit of the parent and the consolidated
accounts
- Auditing the financial statements of subsidiaries pursuant to legislation
- Non-audit services
Other services
Total auditor’s remuneration
31 December
2015
£000
Period to
31 December
2014
£000
6,895
6,895
143
110
2
1,083
(82)
121
30
1,106
224
878
3,615
14
14
2
30
1,823
1,823
65
49
—
520
3
148
30
357
202
279
1,653
18
12
—
30
4D pharma plc Annual Report and Financial Statements 2015
30
Notes to the Financial Statements continued
For the year ended 31 December 2015
5. Staff costs
Wages and salaries
Social security costs
Pension contributions
Share-based compensation
Year to
31 December
2015
£000
971
97
8
7
1,083
Period to
31 December
2014
£000
470
50
—
—
520
Directors’ remuneration (including benefits in kind) included in the aggregate remuneration
above comprised:
Emoluments for qualifying services
264
Directors’ emoluments (excluding social security costs, but including benefits in kind) disclosed above include £101,000
(period to 31 December 2014: £97,000) paid to the highest paid director.
260
The directors were not granted any share options in the year ended 31 December 2015 or the period ended 31 December
2014 and none of the directors held any share options at 31 December 2015.
An analysis of the highest paid director’s remuneration is included in the Report of the Remuneration Committee.
The average number of employees during the year (including directors) was as follows:
Group
Directors
Laboratory and administrative staff
6. Finance income and finance expense
Finance income
Bank interest receivable
Finance expense
Loan interest payable
Year to
31 December
2015
Number
4
20
24
Period to
31 December
2014
Number
4
9
13
Year to
31 December
2015
£000
Period to
31 December
2014
£000
451
—
451
92
(5)
87
Bank interest receivable includes £280,818 (period to 31 December 2014: £12,000) which is receivable after the year end.
7. Interest in associate
In January 2014 the Group acquired a non-controlling interest in 4D Pharma Research Limited when it purchased 46% of
the ordinary share capital. 4D Pharma Research Limited subsequently became a subsidiary of the Group.
Year to
31 December
2015
£000
—
—
—
—
—
Fair value of identifiable net assets on date associate became a subsidiary
Gain on measurement of existing interest to fair value on acquisition of subsidiary
Period to
31 December
2014
£000
(500)
379
(121)
1,509
1,388
Cash consideration of acquisition
Share of losses in the associated undertaking
4D pharma plc Annual Report and Financial Statements 2015
31
Notes to the Financial Statements continued
For the year ended 31 December 2015
8. Taxation
The tax credit is made up as follows:
Current income tax
Total current income tax
Adjustment in respect of prior years
Current deferred tax
Current year charge
Total deferred tax
Total income tax credit recognised in the year
The income tax credit can be reconciled to the accounting loss as follows:
Loss before taxation
Tax at standard rate of 20% (period to 31 December 2014: 20%)
Effects of:
Expenses not deductible for tax purposes
Enhanced research and development expenditure
Gains not chargeable to tax
Bank interest
Property, plant, equipment and software timing differences
Tax losses carried forward to future years
Utilised losses from prior years
Adjustment in respect of prior years
Effects of variation on tax reclaims over the standard rate
Tax income tax credit recognised in the year
Year to
31 December
2015
£000
Period to
31 December
2014
£000
(1,398)
(930)
—
—
(2,328)
—
—
—
—
Year to
31 December
2015
£000
(10,059)
(2,012)
Period to
31 December
2014
£000
(2,380)
(476)
7
(1,276)
—
—
(40)
1,066
234
(930)
623
(2,328)
100
(18)
(277)
(55)
(206)
932
—
—
—
—
At 31 December 2015, the Group had tax losses available for carry forward of approximately £9.542 million
(period to 31 December 2014: £4.662 million). The Group has not recognised deferred tax assets relating to such
earned forward losses of approximately £1.908 million (period to 31 December 2014: £0.932 million).
At 31 December 2015, the Company had tax losses available for carry forward of approximately £3.740 million
(period to 31 December 2014: £0.745 million). The Group has not recognised deferred tax assets relating to such
earned forward losses of approximately £0.748 million (period to 31 December 2014: £0.149 million).
Group’s management considers that there is insufficient evidence of future taxable income, taxable temporary differences
and feasible tax-planning strategies to utilise all of the cumulative losses and therefore it is not considered certain that the
deferred tax assets will be realised in full. If future income differs from current projections, this could significantly impact
the tax charge or benefit in future years.
9. Loss per share
Loss for the year attributable to equity shareholders
Weighted average number of shares:
Ordinary shares in issue
Basic loss per share (pence)
Year to
31 December
2015
£000
(7,547)
Period to
31 December
2014
£000
(2,021)
59,823,755 42,001,850
(4.81)
(12.62)
The basic and diluted loss per share are the same as the effect of share options is anti-dilutive.
4D pharma plc Annual Report and Financial Statements 2015
32
Notes to the Financial Statements continued
For the year ended 31 December 2015
10. Property, plant and equipment
Group
Cost
At 31 December 2014
Additions
Disposals
Reclassification as intangible assets
At 31 December 2015
Depreciation
At 31 December 2014
Provided during the year
Released on disposal
At 31 December 2015
Net book value:
At 31 December 2015
At 31 December 2014
Company
Cost
At 31 December 2014
Additions
At 31 December 2015
Depreciation
At 31 December 2014
Provided during the year
At 31 December 2015
Net book value:
At 31 December 2015
At 31 December 2014
Fixtures,
fittings and
office
equipment
£000
Plant and
machinery
£000
Leasehold
improvements
£000
6
88
—
—
94
—
6
—
6
88
6
476
653
(4)
(1)
1,124
65
137
(1)
201
923
411
—
104
—
—
104
—
—
—
—
104
—
Fixtures,
fittings and
office
equipment
£000
Plant and
machinery
£000
Leasehold
improvements
£000
4
71
75
—
3
3
72
4
—
200
200
—
7
7
193
—
—
104
104
—
—
—
104
—
Total
£000
482
845
(4)
(1)
1,322
65
143
(1)
207
1,115
417
Total
£000
4
375
379
—
10
10
369
4
During the year, the directors reviewed the policy on the treatment of software and have concluded that software should
be treated as intangible asset. They have therefore elected to transfer these assets from tangible assets to intangible
assets.
11. Intangible assets
Group
Cost
At 31 December 2014
Additions
Reclassified from tangible assets
At 31 December 2015
Amortisation
At 31 December 2014
Provided during the year
At 31 December 2015
Net book value:
At 31 December 2015
At 31 December 2014
Software
£000
Goodwill
£000
Intellectual
property
£000
—
14
1
15
—
2
2
13
—
3,316
—
—
3,316
—
—
—
1,923
—
—
1,923
—
—
—
3,316
3,316
1,923
1,923
Patents
£000
1,076
—
—
1,076
49
108
157
919
1,027
Total
£000
6,315
14
1
6,330
49
110
159
6,171
6,266
4D pharma plc Annual Report and Financial Statements 2015
33
Notes to the Financial Statements continued
For the year ended 31 December 2015
11. Intangible assets continued
Company
Cost
At 31 December 2014
Acquired
At 31 December 2015
Amortisation
At 31 December 2014
Provided during the year
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
Patents
£000
—
1,076
1,076
—
—
—
Total
£000
—
1,076
1,076
—
—
—
1,076
—
1,076
—
Patent rights were acquired by 4D pharma plc from The Microbiota Company Limited (a 100% subsidiary) for £1.076
million on 22 December 2015; the transaction was at arm’s length.
Goodwill amounting to £3.316 million, intellectual property amounting to £1.923 million and patent rights amounting to
£1.076 million relate to a cash-generating unit (“CGU”), being 4D Pharma Research Limited (formerly GT Biologics
Limited) acquired on 10 June 2014 when the Group acquired 37.5% of the share capital for a total consideration of
£1,730,255 and The Microbiota Company Limited acquired on 17 July 2014 when the Group acquired 100% of the share
capital.
Goodwill, which has arisen on the business combinations, represents staff and accumulated know-how after fair value has
been attributed to all other assets and liabilities acquired. Intellectual property recognised on the business combinations
represents bacteria identified by the Group’s know-how and processes and at different stages of research and
development, from early identification to patented strains of bacteria.
During the year goodwill, intellectual property, patents and associated property, plant and equipment was tested for
impairment in accordance with IAS 36 Impairment of Assets. The recoverable amount of the CGU exceeds the carrying
amount of goodwill, intellectual property, patents and associated property, plant and equipment. The recoverable amount
of the CGU has been measured using a value-in-use calculation and, as such, no impairment was deemed necessary.
The key assumptions used, which are based on management’s past experience, for the value-in-use calculations are
those relating to the risk-adjusted net present value of candidates that have been identified as potential future products as
at 31 December 2015 and for which estimated potential peak sales have been estimated. The value-in-use calculations
are based on the future cash flows from approved risk-based net present value calculations that have been derived from
biotechnology industry standard discount factor tables. Valuation of an early stage drug discovery pharmaceutical
company is a notoriously difficult task. Analysis of financial history gives little indication of future performance. Despite this,
for products currently in development, sales potentials can be estimated and management has used its own experience as
well as consulting with external experts to establish best estimates of sales pricing and revenue forecasting and these can
provide the starting point for valuing these products and ensuring that their value has not been impaired.
The recoverable amount of goodwill, intellectual property, patents and associated property, plant and equipment exceeds
the carrying amount by 947%. The directors consider the peak projected sales to be the most sensitive assumptions used
in the impairment reviews. A reduction in excess of 91% in the estimated annual peak sales to be achieved would result in
the recoverable amount of the CGU being equal to its carrying amount.
Intangible assets, other than goodwill and intangible assets purchased as part of the acquisition of a subsidiary, are
amortised on a straight-line basis over ten years. Amortisation provided during the year is recognised in administrative
expenses. Patents amounting to £1.076 million were purchased by The Microbiota Company Limited in 2014 immediately
prior to its acquisition by the Group on 17 July 2014 via a loan advanced by 4D pharma plc.
4D pharma plc Annual Report and Financial Statements 2015
34
Notes to the Financial Statements continued
For the year ended 31 December 2015
12. Investment and loans to subsidiaries
Non-current assets
Company
At 31 December 2014
Additions in the year
Transferred to current assets
Impairment of investments
At 31 December 2015
By subsidiary
4D Pharma Research Limited
At 31 December 2015
Ordinary
Shares
£000
Loans to
subsidiary
undertakings
£000
2,716
593
—
(986)
2,323
2,323
2,323
3,803
—
(3,803)
—
—
—
—
Total
£000
6,519
593
(3,803)
(986)
2,323
2,323
2,323
Effective from 22 December 2015 the patent rights held by The Microbiota Company Limited were sold to 4D pharma plc.
The directors have reviewed the carrying value of the investment since the patents rights constituted substantially all the
assets in The Microbiota Company Limited and these have been transferred to 4D pharma plc. The outcome of the review
is that the directors have impaired the carrying value in full.
Current assets
Company
At 31 December 2014
Transferred from non-current assets
Additions in the year
Repaid during the year
At 31 December 2015
By subsidiary
4D Pharma Research Limited
At 31 December 2015
Loans to
subsidiary
undertakings
£000
—
3,803
6,189
(1,076)
8,916
8,916
8,916
During the year, the nature of the loans to subsidiary companies was reviewed. Following on from this review the Group
has agreed that the nature of these means that they should be reclassified as current assets from non-current assets. The
fair value of these loans is considered to be that of their current value.
The following addition was settled in cash:
Subsidiary
4D Pharma Research Ltd
Principal activity
Research and development
Date of acquisition
24 March 2015
Proportion of voting
equity interests
acquired
16.5%
Consideration
transferred
£000
402
On 24 March 2015 the Group acquired the remaining non-controlling interest for £402,000. The total deficit on the fair
value of the non-controlling interest at this point was £462,000. This transaction has resulted in the creation of the other
reserve within equity which totals £864,000 and represents the difference between the consideration transferred and the
total deficit on the fair value of the non-controlling interest at the date of acquisition.
As detailed in note 24 the acquisition of the non-controlling interest has resulted in a payment from 4D pharma plc to 4D
Pharma Research Limited for £191,160.
4D pharma plc Annual Report and Financial Statements 2015
35
Notes to the Financial Statements continued
For the year ended 31 December 2015
12. Investment and loans to subsidiaries continued
Subsidiary undertakings
4D Pharma Research Limited
The Microbiota Company Limited
Schosween 18 Limited
Country of incorporation
Scotland
England and Wales
England and Wales
Principal activity
Research and development
Research and development
Dormant
31 December 2015
100%
100%
100%
The shares in all the companies listed above are held by 4D pharma plc.
The following wholly owned subsidiaries were dormant and have been wound up during the year:
Subsidiary undertakings
GT Prohealth Limited
GT Therapeutics Limited
Country of incorporation
Scotland
Scotland
13. Inventories
Consumables
31 December
2015
Group
£000
28
31 December
2015
Company
£000
—
31 December
2014
Group
£000
115
31 December
2014
Company
£000
—
The directors consider that the carrying amount of inventories is the lower of cost and market value.
During the year £87,000 (period to 31 December 2014: £Nil) of inventories were expensed to the Income Statement.
14. Trade and other receivables
Prepayments
31 December
2015
Group
£000
2,013
31 December
2015
Company
£000
1,940
31 December
2014
Group
£000
356
31 December
2014
Company
£000
194
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
15. Taxation receivables
Corporation tax
VAT
31 December
2015
Group
£000
2,328
295
2,623
31 December
2015
Company
£000
477
59
536
31 December
2014
Group
£000
—
234
234
31 December
2014
Company
£000
—
91
91
The directors consider that the carrying amount of taxation receivables approximates to their fair value.
16. Cash, cash equivalents and deposits
Short-term investments and cash on deposit
Cash and cash equivalents
31 December
2015
Group
£000
83,664
1,777
85,441
31 December
2015
Company
£000
83,664
1,684
85,348
31 December
2014
Group
£000
3,007
28,823
31,830
31 December
2014
Company
£000
3,007
28,784
31,791
Under IAS 7 Statement of Cash Flows, cash held on long-term deposits (being deposits with maturity of greater than three
months and no more than twelve months) that cannot readily be converted into cash has been classified as a short-term
investment. The maturity on this investment was less than twelve months at the reporting date.
Cash and cash equivalents at 31 December 2015 include deposits with original maturity of three months or less of
£1,777,000 (Group) and £1,684,000 (Company).
The directors consider that the carrying value of cash and cash equivalents approximates their fair value. For details on
the Group’s credit risk management refer to note 23.
4D pharma plc Annual Report and Financial Statements 2015
36
Notes to the Financial Statements continued
For the year ended 31 December 2015
17. Trade and other payables
Current
Trade payables
Other payables
Taxation and social security
Accruals
31 December
2015
Group
£000
2,891
23
42
1,353
4,309
31 December
2015
Company
£000
1,808
20
24
916
2,768
31 December
2014
Group
£000
1,375
32
23
355
1,785
31 December
2014
Company
£000
302
29
19
67
417
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. Trade
payables are non-interest bearing and are typically settled on 30 to 45-day terms.
The directors consider that the carrying value of trade payables, other payables and accruals approximates to their
fair value.
All trade and other payables are denominated in Sterling.
The Group has financial risk management policies in place to ensure that any trade payables are settled within the credit
time frame and no interest has been charged by any suppliers as a result of late payment of invoices during the reporting
year presented herein.
18. Deferred tax
At 10 January 2014
Arising on the fair value acquisition of intellectual property on the
acquisition of subsidiaries
At 31 December 2014
Provided in the year
At 31 December 2015
31 December
2015
Group
£000
—
31 December
2015
Company
£000
—
385
385
—
385
—
—
—
—
Group’s management considers that there is insufficient evidence of future taxable income, taxable temporary differences
and feasible tax-planning strategies to utilise all of the cumulative losses and therefore it is not considered certain that the
deferred tax assets will be realised in full. If future income differs from current projections, this could significantly impact
the tax charge or benefit in future years. No deferred tax asset has been recognised due to the uncertainty surrounding its
recoverability.
19. Share capital
The Company and the Group
Allotted, called up and fully paid ordinary shares of 0.25p
Shares issued at par between 10 January and 18 January 2014
Shares issued on 18 February 2014
Expenses of placing on 18 February 2014
Shares issued on the acquisition of a subsidiary on 3 June 2014
Shares issued on 14 July 2014
Expenses of placing on 14 July 2014
Shares issued on the acquisition of a subsidiary on 17 July 2014
As at 31 December 2014
Shares issued on 10 February 2015
Expenses of placing on 10 February 2015
Shares issued on 11 December 2015
Expenses of placing on 11 December 2015
Ordinary shares as at 31 December 2015
Ordinary shares
Number
20,000,000
16,550,000
699,500
14,333,334
509,285
52,092,119
8,475,610
—
3,797,469
—
64,365,198
Share
capital
£000
Share
premium
£000
50
41
2
36
1
130
21
—
10
—
161
—
16,509
(503)
1,222
21,464
(433)
—
38,259
34,729
(487)
29,991
(489)
102,003
Total
£000
50
16,550
(503)
1,224
21,500
(433)
1
38,389
34,750
(487)
30,001
(489)
102,164
4D pharma plc Annual Report and Financial Statements 2015
37
Notes to the Financial Statements continued
For the year ended 31 December 2015
19. Share capital continued
The balances classified as share capital and share premium include the total net proceeds (nominal value and share
premium respectively) on issue of the Company’s equity share capital, comprising 0.25 pence ordinary shares.
The Company issued in aggregate 20,000,000 ordinary shares of 0.25 pence at par value between 10 January 2014 and
18 January 2014.
The Company raised gross proceeds of £16,550,000 from a placing on 18 February 2014 through the issue of 16,550,000
new ordinary shares at an issue price of 100 pence per share. Issue costs associated with the placing totalled £503,212.
The Company raised gross proceeds of £21,500,000 from a placing on 14 July 2014 through the issue of 14,333,334 new
ordinary shares at an issue price of 150 pence per share. Issue costs associated with the placing totalled £433,000.
The Company raised gross proceeds of £34,750,000 from a placing on 10 February 2015 through the issue of 8,475,610
new ordinary shares at an issue price of 410 pence per share. Issue costs associated with the placing totalled £487,000.
The Company raised gross proceeds of £30,000,000 from a placing on 11 December 2015 through the issue of 3,797,469
new ordinary shares at an issue price of 790 pence per share. Issue costs associated with the placing totalled £489,000.
20. Share-based payment reserve
Share-based payment reserve
The Group and the Company
At 31 December 2014
Share-based compensation
At 31 December 2015
£000
—
7
7
The share-based payment reserve accumulates the corresponding credit entry in respect of share-based payment
charges. Movements in the reserve are disclosed in the Group Statement of Changes in Equity.
A charge of £7,000 has been recognised in the Statement of Comprehensive Income for the year
(period to 31 December 2014: £Nil).
Share option schemes
The Group operates the following unapproved share option scheme:
4D pharma plc 2015 Long Term Incentive Plan (“LTIP”)
– Grant in November 2015
Share options were granted to staff members on 10 November 2015. Share options are awarded to management and key
staff as a mechanism for attracting and retaining key members of staff. These options vest over a three-year period from
the date of grant and are exercisable until the tenth anniversary of the award. Exercise of the award is subject to the
employee remaining a full-time member of staff at the point of exercise.
The fair value benefit is measured using a Black Scholes model, taking into account the terms and conditions upon which
the share options were issued.
The Group and the Company
Outstanding at the start of the year/period
Granted during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average exercise price of options
The Group and the Company
Outstanding at the start of the year/period
Granted during the year
Outstanding at 31 December
2015
Number
—
40,909
40,909
—
2015
Pence
—
0.25
0.25
2014
Number
—
—
—
—
2014
Pence
—
—
—
For the share options outstanding as at 31 December 2015, the weighted average remaining contractual life is 9.9 years.
No share options were exercised during the year (period to 31 December 2014: none) and no share options were
exercisable at 31 December 2015 and 31 December 2014.
4D pharma plc Annual Report and Financial Statements 2015
38
Notes to the Financial Statements continued
For the year ended 31 December 2015
20. Share-based payment reserve continued
Share option schemes continued
The following table lists the inputs to the models used for the year ended 31 December 2015:
The Group and the Company
Expected volatility
Risk-free interest rate
Expected life of options
Weighted average exercise price
Weighted average share price at date of grant
2015
52.5%
0.87%
3 years
0.25p
770p
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may
occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may
also not necessarily be the actual outcome.
No dividends were assumed to be paid in the foreseeable future.
The model assumes, within the calculation of the charge, delivery of options that are dependent on a judgemental
comparison to the total shareholder return against a specified comparator group of companies upon passing of the
vesting period.
No other features of options granted were incorporated into the measurement of fair value.
21. Capital and reserves
The components of equity are as follows:
Called-up share capital
The share capital account includes the par value for all shares issued and outstanding.
Share premium account
The share premium account is used to record amounts received in excess of the nominal value of shares on issue of new
shares less the costs of new share issues.
Merger reserve
The merger reserve comprises the premium arising on shares issued as consideration for the acquisition of subsidiary
undertakings where merger relief under section 612 of the Companies Act 2006 applies.
Retained earnings
Retained earnings includes the accumulated profits and losses arising from the Group Statement of Comprehensive
Income and certain items from other comprehensive income attributable to equity shareholders net of distributions
to shareholders.
Non-controlling interest
This reserve includes the accumulated profits and losses arising from the Group Statement of Comprehensive Income
and certain items from other comprehensive income attributable to the minority equity shareholders of subsidiary
undertakings not wholly owned by the Group.
Other reserve
The other reserve represents the balance arising on the acquisition of the former non-controlling interest in 4D Pharma
Research Limited.
Share-based payment reserve
The share-based payment reserve accumulates the corresponding credit entry in respect of share-based compensation
charges. Movements in the reserve are disclosed in the Group Statement of Changes in Equity.
4D pharma plc Annual Report and Financial Statements 2015
39
Notes to the Financial Statements continued
For the year ended 31 December 2015
22. Commitments
Operating lease commitments
The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease and
service charge payments under non-cancellable operating leases are as follows:
Land and buildings:
Not later than one year
After one year but not more than five years
31 December
2015
Group
£000
31 December
2015
Company
£000
31 December
2014
Group
£000
31 December
2014
Company
£000
126
236
362
43
160
203
210
402
612
—
—
—
Capital expenditure
The Group has no committed capital expenditure at 31 December 2015 nor at 31 December 2014.
The Company has no committed capital expenditure at 31 December 2015 nor at 31 December 2014.
Contractual commitments
The Group has the following non-cancellable contractual commitments at the balance sheet date:
Research and development:
Not later than one year
After one year but not more than five years
31 December
2015
Group
£000
31 December
2015
Company
£000
31 December
2014
Group
£000
31 December
2014
Company
£000
1,011
396
1,407
1,011
396
1,407
—
—
—
—
—
—
23. Financial risk management
Overview
This note presents information about the Group’s exposure to various kinds of financial risks, the Group’s objectives,
policies and processes for measuring and managing risk, and the Group’s management of capital.
The Board of directors has overall responsibility for the establishment and oversight of the Group’s risk management
framework. The Executive directors report regularly to the Board on Group risk management.
Capital risk management
The Company reviews its forecast capital requirements on a half-yearly basis to ensure that entities in the Group will be
able to continue as a going concern while maximising the return to stakeholders.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share
capital, reserves and retained earnings as disclosed in note 19 and in the Group Statement of Changes in Equity. Total
equity was £92.697 million at 31 December 2015 (period to 31 December 2014: £37.048 million).
The Company is not subject to externally imposed capital requirements.
Liquidity risk
The Group’s approach to managing liquidity is to ensure that, as far as possible, it will always have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Group’s reputation.
The Group manages all of its external bank relationships centrally in accordance with defined treasury policies. The
policies include the minimum acceptable credit rating of relationship banks and financial transaction authority limits. Any
material change to the Group’s principal banking facility requires Board approval. The Group seeks to mitigate the risk of
bank failure by ensuring that it maintains relationships with a number of investment grade banks.
4D pharma plc Annual Report and Financial Statements 2015
40
Notes to the Financial Statements continued
For the year ended 31 December 2015
23. Financial risk management continued
Liquidity risk continued
At the reporting date the Group was cash positive with no outstanding borrowings.
Categorisation of financial instruments
31 December 2015
Group
Cash and cash equivalents
Trade and other payables
Company
Cash and cash equivalents
Trade and other payables
Categorisation of financial instruments
31 December 2014
Group
Cash and cash equivalents
Trade and other payables
Company
Cash and cash equivalents
Trade and other payables
Fixed
rate
£000
62,211
—
62,211
62,211
—
62,211
Fixed
rate
£000
4,009
—
4,009
4,009
—
4,009
Floating
rate
£000
23,230
—
23,230
23,137
—
23,137
Non-interest
bearing
£000
—
(2,914)
(2,914)
—
(1,828)
(1,828)
Floating
rate
£000
Non-interest
bearing
£000
27,821
—
27,821
27,782
—
27,782
—
(1,767)
(1,767)
—
(331)
(331)
Total
£000
85,441
(2,914)
82,527
85,348
(1,828)
83,520
Total
£000
31,830
(1,767)
30,063
31,791
(331)
31,460
The values disclosed in the above table are carrying values. The Board considers that the carrying amount of financial
assets and liabilities approximates to their fair value.
Interest rate risk
As the Group has no significant borrowings the risk is limited to the reduction of interest received on cash surpluses held
at bank which receive a floating rate of interest. The exposure to interest rate movements is immaterial.
Maturity profile
The directors consider that the carrying amount of the financial liabilities approximates to their fair value.
As all financial assets are expected to mature within the next twelve months an aged analysis of financial assets has not
been presented.
As all financial liabilities are expected to mature within the next twelve months an aged analysis of financial liabilities has
not been presented.
Foreign currency risk
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the
respective functional currency of the Company. These are primarily US Dollars (USD), Euros (EUR) and Swiss Francs
(CHF). Transactions outside of these currencies are limited.
The Group may use forward exchange contracts as an economic hedge against currency risk, where cash flow can be
judged with reasonable certainty. Foreign exchange swaps and options may be used to hedge foreign currency receipts in
the event that the timing of the receipt is less certain. There were no open forward contracts as at 31 December 2015 or at
31 December 2014 and the Group did not enter into any such contracts during 2015 or 2014.
4D pharma plc Annual Report and Financial Statements 2015
41
Notes to the Financial Statements continued
For the year ended 31 December 2015
23. Financial risk management continued
Foreign currency risk continued
The split of Group assets between Sterling and other currencies at the year end is analysed as follows:
2015
2014
Group
Cash, cash equivalents
and deposits
Trade and other
payables
GBP
£000
USD
£000
EUR
£000
CHF
£000
Total
£000
GBP
£000
USD
£000
EUR
£000
Total
£000
81,520
—
3,921
—
85,441
31,830
(856)
(1,441)
(446)
(171)
(2,914)
(1,272)
80,664
(1,441)
3,475
(171)
82,527
30,558
—
—
—
—
31,830
(495)
(1,767)
(495)
30,063
Sensitivity analysis to movement in exchange rates
Given the immaterial net payable balances in foreign currency, the exposure to a change in exchange rate is negligible.
24. Related party transactions
Key management compensation
Fees for services provided as non-executive directors:
Salaries and short-term benefits
Employer’s national insurance and social security costs
Executive directors:
Salaries and short-term benefits
Employer’s national insurance and social security costs
Other key management:
Salaries and short-term benefits
Employer’s national insurance and social security costs
Share-based payment charge
Year to
31 December 2015
£000
Period to
31 December 2014
£000
58
5
63
202
25
227
241
29
7
277
70
6
76
192
22
214
24
2
—
26
Group
During the year Aquarius Equity Partners Limited, an entity controlled by Duncan Peyton and Dr Alexander Stevenson,
charged the Group £94,206 for consultancy and other office expenses (period to 31 December 2014: £155,549) and
were owed £Nil at 31 December 2015 (31 December 2014: £26,735).
During the year, Thomas Engelen charged the Group £9,210 for consultancy services (period to 31 December 2014:
£15,015) and was owed £Nil at 31 December 2015 (31 December 2014: £Nil).
In November 2012, Thomas Engelen was issued with 6,372 nil-paid shares in 4D Pharma Research Limited. On purchase
of the remaining non-controlling interest in 4D Pharma Research Limited in March 2015 by the Company, the valuation
clause associated with these shares was triggered at £30 per share. This resulted in a payment from the Company to 4D
Pharma Research Limited for the outstanding value on the shares of £191,160.
On 10 January 2014 a loan of £500,000 carrying an interest rate of 4% above Bank of England base rate was novated by
agreement between David Norwood and Schosween 17 Limited (company registered number: 8795203) to the Company.
This loan was repaid on 18 February 2014 by 4D pharma plc and £5,178 interest was charged.
Company
Transactions between 100% owned Group companies have not been disclosed as these have all been eliminated in the
preparation of the Group financial statements.
25. Subsequent events
On 9 February 2016, the Company purchased the entire issued share capital of Tucana Health Limited, a company based
in Cork in Ireland. The consideration will be satisfied by the issue of up to 1,410,603 Company shares, with 410,603
shares to be issued upfront at a price of £7.55, being the average mid-market price of a 4D share for the five business
days immediately preceding completion of the acquisition. The remaining consideration shares will be issued subject to
the achievement of milestones. The directors recognise that this represents a potential contingent consideration in respect
of the acquisition.
A fair value assessment of the acquired assets and liabilities has not yet been completed at the date of approval of the
Annual Report and Accounts and so a full disclosure of the valuation of the acquired assets and liabilities has not been
made.
4D pharma plc Annual Report and Financial Statements 2015
42
Notice of Annual General Meeting
4D pharma plc
(Incorporated and registered in England and Wales with registered number 08840579)
Notice is hereby given that the Annual General Meeting of 4D pharma plc will be held at the Gridiron Building, 1 Pancras
Square, London N1C 4AG on 23 May 2016 at 2 p.m. for the purpose of considering and, if thought fit, passing the
following resolutions, of which resolutions 1 to 5 will be proposed as ordinary resolutions and resolutions 6 and 7 will be
proposed as special resolutions.
Ordinary resolutions
1
That the Company’s Annual Report and audited financial statements, and the reports of the directors and auditor,
for the year ended 31 December 2015, now laid before this meeting, be and are hereby approved.
2
3
4
5
That Duncan Peyton, who retires by rotation, be and is hereby re-elected as a director of the Company.
That RSM UK Audit LLP be and is hereby re-appointed as auditor of the Company, to hold office until the
conclusion of the next general meeting at which accounts are laid before the Company.
That the directors be and they are hereby authorised to agree the remuneration of the auditor.
That, in accordance with section 551 of the Companies Act 2006:
5.1
5.2
the directors be and they are hereby generally and unconditionally authorised to exercise all the powers
of the Company to allot equity securities (as defined in section 560 of the Companies Act 2006) up to an
aggregate nominal value of £54,048 (approximately one-third of the Company’s issued share capital at
the date of this notice); and
in addition to the authority granted pursuant to subparagraph 5.1, the directors be and they are hereby
generally and unconditionally authorised to exercise all the powers of the Company to allot equity
securities up to an aggregate nominal value of £54,048 (approximately one-third of the Company’s
issued share capital at the date of this notice) in connection with a rights issue offered to holders of
equity securities and other persons who are entitled to participate, in proportion (as nearly as may be) to
their then holdings of equity securities (or, as appropriate, the numbers of such securities which such
other persons are for those purposes deemed to hold), subject only to such exclusions or other
arrangements as the directors may feel necessary or expedient to deal with treasury shares, fractional
entitlements or legal or practical problems under the laws of, or the requirements of any recognised
regulatory body of, or any stock exchange in, any territory,
provided that both such authorities shall (unless previously revoked, varied or renewed) expire on the earlier of
the date of the next Annual General Meeting of the Company and 23 August 2017, save that, in respect of either
authority, the Company may before such expiry make an offer or agreement which would or might require equity
securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such an
offer or agreement as if the authority conferred hereby had not expired.
These authorities are in substitution for any and all authorities previously conferred upon the directors for the
purposes of section 551 of the Companies Act 2006, without prejudice to any allotments made pursuant to the
terms of such authorities.
4D pharma plc Annual Report and Financial Statements 2015
43
Notice of Annual General Meeting continued
Special resolutions
6
That, conditionally upon the passing of resolution 5 above, in accordance with sections 570 and 573 of the
Companies Act 2006, the directors be and they are hereby given power to allot equity securities (as defined in
section 560 of the Companies Act 2006) pursuant to the authority conferred by resolution 5 above, and to sell
treasury shares, as if section 561 of the Companies Act 2006 did not apply to such allotment or sale, provided
that this power shall be limited to:
6.1
the allotment or sale of equity securities for cash in connection with or pursuant to an offer to the holders
of equity securities and other persons entitled to participate, in proportion (as nearly as may be) to their
then holdings of equity securities (or, as appropriate, the numbers of such securities which such other
persons are for those purposes deemed to hold), subject only to such exclusions or other arrangements
as the directors may feel necessary or expedient to deal with treasury shares, fractional entitlements or
legal or practical problems under the laws of, or the requirements of any recognised regulatory body of,
or any stock exchange in, any territory; and
6.2
the allotment or sale of equity securities (otherwise than pursuant to subparagraph 6.1) for cash up to a
maximum nominal value of £16,215 (approximately 10% of the Company’s issued share capital at the
date of this notice),
and shall (unless previously revoked, varied or renewed) expire on the earlier of the date of the next Annual
General Meeting of the Company and 23 August 2017, save that the Company may before such expiry make an
offer or agreement which would or might require equity securities to be allotted or sold after such expiry and the
directors may allot or sell equity securities in pursuance of such an offer or agreement as if the power conferred
hereby had not expired.
7
That the Company be and is hereby generally authorised pursuant to section 701 of the Companies Act 2006 to
make market purchases (as defined in section 693(4) of the Companies Act 2006) of its ordinary shares of 0.25
pence provided that:
7.1
7.2
7.3
the Company does not purchase more than 9,722,236 ordinary shares of 0.25 pence (approximately
14.99% of the Company’s issued share capital at the date of this notice);
the Company does not pay for any such ordinary share less than its nominal value at the time of
purchase; and
the Company does not pay for any such ordinary share more than 5% above the average of the closing
mid-market price for ordinary shares of 0.25 pence for the five business days immediately preceding the
date on which the Company agrees to buy the shares concerned, based on the share prices published
in the Daily Official List of the London Stock Exchange or the AIM supplement thereto.
The authority conferred by this resolution shall (unless previously revoked, varied or renewed) expire on the
earlier of the date of the next Annual General Meeting of the Company and 23 August 2017, save that the
Company may before such expiry make a contract to purchase shares which will or may be executed wholly or
partly after the expiry of such authority, and may make a purchase of shares in pursuance of any such contract,
as if such authority had not expired.
By order of the Board
Laurence Dale
Company Secretary
Registered office
Third Floor
9 Bond Court
Leeds LS1 2JZ
18 April 2016
4D pharma plc Annual Report and Financial Statements 2015
44
Notes to the Notice of Annual General Meeting
1.
2.
3.
4.
5.
6.
A member entitled to attend and vote at the meeting is also entitled to appoint one or more proxies of their own
choice to exercise all or any of their rights to attend, speak and vote on their behalf at the meeting. A member
can only appoint a proxy using the procedures set out in these notes and the notes to the accompanying form of
proxy.
A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to
exercise the rights attached to a different share or shares held by that member. A member may not appoint more
than one proxy to exercise rights attached to any one share. The proxy need not be a member of the Company,
but must attend the meeting to represent the member. Please refer to the notes to the form of proxy for further
information on appointing a proxy, including how to appoint multiple proxies.
In the absence of instructions, the person appointed proxy may vote or abstain from voting as he/she thinks fit on
the specified resolutions and, unless otherwise instructed, may also vote or abstain from voting on any other
matter (including amendments to the resolutions) which may properly come before the meeting.
In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy,
shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority is determined
by the order in which the names of the holders stand in the Company’s register of members in respect of the
joint holding.
Any corporation which is a member can appoint one or more corporate representative who may exercise on
its behalf all of its powers as a member, provided that each representative is appointed to exercise the rights
attached to a different share or shares held by the member.
Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), the Company
specifies that only those members registered on the register of members at 6.00 p.m. on 19 May 2016 (the
“Specified Time”) (or if the meeting is adjourned to a time more than 48 hours after the Specified Time, taking no
account of any part of a day that is not a working day, by 6.00 p.m. on the day which is two working days prior to
the time of the adjourned meeting) shall be entitled to attend and vote thereat in respect of the number of shares
registered in their name at that time. If the meeting is adjourned to a time not more than 48 hours after the
Specified Time (taking no account of any part of a day that is not a working day), that time will also apply for the
purposes of determining the entitlement of members to attend and vote (and for the purposes of determining the
number of votes they may cast) at the adjourned meeting. Changes to the register after the relevant deadline
shall be disregarded in determining rights to attend and vote.
Appointment of proxy using hard copy proxy form
7.
Members may appoint a proxy or proxies by completing and returning a form of proxy by post to the offices of the
Company’s registrar using the accompanying reply-paid envelope; or in an envelope addressed to Capita Asset
Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU; or by delivering a form of proxy by hand to
such address during normal business hours. In the case of a member which is a corporation, the proxy form must
be executed under its common seal or signed on its behalf by a duly authorised officer or an attorney. Any power
of attorney or any other authority under which the proxy form is signed (or a copy of such power of authority
certified in accordance with the Powers of Attorney Act 1971) must be included with the proxy form. Any such
power of attorney or other authority cannot be submitted electronically.
8.
To be effective, the appointment of a proxy, or the amendment to the instructions given for a previously appointed
proxy, must be received by the Company’s registrar by the method outlined in note 7 above no later than 2 p.m.
on 19 May 2016. If you submit more than one valid proxy appointment, the appointment received last before the
latest time for the receipt of proxies will take precedence.
Appointment of proxy using CREST electronic proxy appointment service
9.
CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment
service may do so for the meeting and any adjournment(s) of it by using the procedures described in the CREST
Manual (available from www.euroclear.com/site/public/EUI). CREST Personal Members or other CREST
sponsored members, and those CREST members who have appointed a voting service provider(s), should
refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on
their behalf.
10.
In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s
(“EUI’s”) specifications and must contain the information required for such instructions, as described in the
CREST Manual. The message must be transmitted so as to be received by the issuer’s agent (ID: RA10) by the
latest time(s) for receipt of proxy appointments specified in this notice. For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host)
from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed
by CREST.
4D pharma plc Annual Report and Financial Statements 2015
45
Notes to the notice of Annual General Meeting continued
Appointment of proxy using CREST electronic proxy appointment service continued
11.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI
does not make available special procedures in CREST for any particular messages. Normal system timings and
limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the
CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored
member or has appointed (a) voting service provider(s), to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and timings.
12.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a)
of the Uncertificated Securities Regulations 2001.
Termination of proxy appointments
13.
Completion and return of the form of proxy will not preclude a member from attending and voting in person at
the meeting.
14.
In order to terminate the authority of a proxy, you will need to inform the Company by sending a signed hard copy
notice clearly stating your intention to revoke such appointment to the Company’s registrar. To be effective, the
notice of termination must be received by the Company’s registrar by the method outlined in note 7 above no
later than 2 p.m. on 20 May 2016.
Voting rights
15.
As at 18 April 2016, being the latest practicable date prior to the printing of this notice, the Company’s issued
capital consisted of 64,858,150 ordinary shares carrying one vote each. Therefore, the total voting rights in the
Company as at 18 April 2016 are 64,858,150.
Communications
16.
This notice, together with information about the total number of shares in the Company in respect of which
members are entitled to exercise voting rights at the meeting as at 18 April 2016, being the latest practicable date
prior to the printing of this notice, will be available on the Company’s website, www.4dpharmaplc.com.
17.
Except as provided above, members who have general queries about the Annual General Meeting should
contact Laurence Dale (0113 895 0130; Third Floor, 9 Bond Court, Leeds LS1 2JZ). No other methods of
communication will be accepted. Any electronic address provided either in this notice or in any related documents
(including the form of proxy) may not be used to communicate with the Company for any purposes other than
those expressly stated.
Documents available for inspection
18.
There are available for inspection at the registered office of the Company during usual business hours on any
weekday (public holidays excepted), and there will be available for inspection at the place of the meeting from at
least 15 minutes prior to and until the conclusion of the meeting:
copies of the service contracts of Executive directors of the Company; and
copies of the letters of appointment of the non-executive directors of the Company.
4D pharma plc Annual Report and Financial Statements 2015
46
Explanatory Notes to the Notice of Annual General Meeting
These explanatory notes give further information in relation to the resolutions listed in the enclosed notice of the
Company’s Annual General Meeting.
Resolution 1 – Receipt of accounts
The directors must lay the Company’s accounts, the Directors’ Report and the Auditor’s Report before the shareholders at
a general meeting. This is a legal requirement after the directors have approved the accounts and the Directors’ Report,
and the auditor has prepared its report.
Resolution 2 – Re-election of Duncan Peyton
In accordance with the Company’s articles of association, all directors of the Company who have been appointed since the
Company’s last Annual General Meeting, and all other directors on a regular basis as set out in the Company’s articles of
association, seek election (or re-election as the case may be) by the shareholders.
Duncan Peyton, retiring by rotation, offers himself for re-election, in accordance with the Company’s articles of
association. Details of his CV are on page 6 of the Company’s Annual Report.
Resolution 3 – Re-election of RSM UK Audit LLP as auditor
The Board of directors, on the recommendation of its Audit and Risk Committee, recommends the re-election of RSM UK
Audit LLP as auditor, to hold office until the next general meeting at which accounts are laid.
Resolution 4 – Remuneration of the auditor
This resolution authorises the directors to agree the remuneration of the auditor.
Resolution 5 – Authority to allot shares
The purpose of resolution 5 is to renew the directors’ power to allot shares. Section 551 of the Companies Act 2006
provides that the directors may not allot new shares (other than for employee share schemes) without
shareholder authority.
Accordingly, resolution 5 will be proposed as an ordinary resolution to authorise the directors (pursuant to section 551
of the Companies Act 2006):
(i)
(ii)
to allot ordinary shares of 0.25 pence each in the capital of the Company up to a maximum nominal amount of
£54,048, being approximately one-third of the nominal value of the ordinary shares in issue on 18 April 2016; and
in addition to the authority described above, to allot ordinary shares of 0.25 pence each in the capital of the
Company up to a maximum nominal amount of £54,048 pursuant to a rights issue in respect of which all
shareholders are entitled to participate as nearly as possible in proportion to their holding of shares in the
Company at the time.
This authority (unless previously revoked, varied or renewed) will expire on the earlier of the date of the next Annual
General Meeting of the Company or 15 months after the date of the passing of the resolution. The directors will exercise
the authority to allot only when satisfied that it is in the interests of the Company to do so. The directors have no present
intention of allotting further shares.
Were the Company to use the relevant authorities and:
the number of shares in issue increased, in aggregate, by more than one-third; and
(as regards their use as a part of a rights issue) the proceeds of the relevant rights issue exceeded one-third
(or the relevant specific proportion) of the pre-issue market capitalisation,
then those members of the Board wishing to remain in office would stand for re-election at the next Annual
General Meeting.
4D pharma plc Annual Report and Financial Statements 2015
47
Explanatory notes to the notice of Annual General Meeting
continued
Resolution 6 – Disapplication of pre-emption rights
Section 561 of the Companies Act 2006 confers on shareholders’ rights of pre-emption in respect of the allotment of
“equity securities” which are, or are to be, paid up in cash, otherwise than by way of allotment to employees under an
employees’ share scheme. The provisions of section 561 apply to the ordinary shares of 0.25 pence each of the
Company, to the extent that they are not disapplied pursuant to section 570 of the Companies Act 2006. This provision
also covers the sale of treasury shares (should the Company elect to hold any) for cash.
It is proposed that the disapplication of these statutory pre-emption rights be approved, as a special resolution, to give the
directors power to allot shares without the application of these statutory pre-emption rights, first, in relation to rights issues
and, second, in relation to the issue of ordinary shares of 0.25 pence each in the capital of the Company for cash up to a
maximum aggregate nominal amount of £16,215 (representing approximately 10% of the nominal value of the ordinary
shares in issue on 18 April 2016).
This authority (unless previously revoked, varied or renewed) will expire on the earlier of the date of the next Annual
General Meeting of the Company or 15 months after the date of the passing of the resolution.
The directors have no present intention of exercising the authority; in accordance with the National Association of Pension
Funds’ Corporate Governance Policy and Voting Guidelines for Smaller Companies, they are seeking the authority so as
to be able to raise funds at short notice, where appropriate, from the issue of new share capital for the purpose of taking
advantage of investment opportunities that may arise.
Resolution 7 – Purchase by the Company of its own shares
The purpose of resolution 7 is to obtain the authority for the Company to make market purchases of its ordinary shares.
Under the Companies Act 2006 such an authority must first be sanctioned by an ordinary resolution of the Company in
general meeting, but current institutional shareholder voting guidelines require that any such authority should be
sanctioned by special resolution.
Accordingly, resolution 7 will be proposed as a special resolution to authorise the Company to purchase a maximum of
9,722,236 ordinary shares (equal to approximately 14.99% of the ordinary shares in issue on 18 April 2016) on AIM at a
price per share of not less than 0.25 pence, and not more than 5% above the average of the middle market quotations for
ordinary shares of the Company for the five business days immediately preceding the day of purchase. In order to
maximise the benefit to be derived by the Company, it would be the directors’ intention that any purchases should be
made at as low a price (within the limits specified in resolution 7) as they considered reasonably obtainable.
This authority (unless previously revoked, varied or renewed) will expire on the earlier of the date of the next Annual
General Meeting of the Company or 15 months after the date of the passing of the resolution.
Pursuant to the Companies Act 2006, the Company can hold the shares which have been repurchased as treasury shares
and either resell them for cash, cancel them (either immediately or at a point in the future) or use them for the purposes of
its employee share schemes. The directors believe that it is desirable for the Company to have this choice and therefore
currently envisage holding any shares purchased under this authority as treasury shares. Holding the repurchased shares
as treasury shares will give the Company the ability to resell or transfer them in the future, and so provide the Company
with additional flexibility in the management of its capital base. No dividends will be paid on, and no voting rights will be
exercised in respect of, treasury shares.
Shares will only be repurchased if the directors consider such purchases to be in the best interests of shareholders
generally and that they can be expected to result in an increase in earnings per share. The authority will only be used after
careful consideration, taking into account market conditions prevailing at the time, other investment opportunities and the
overall financial position of the Company. Shares held as treasury shares will not automatically be cancelled and will not
be taken into account in future calculations of earnings per share (unless they are subsequently resold or transferred out
of treasury).
If any shares repurchased by the Company are held in treasury and used for the purposes of its employee share
schemes, while so required under institutional shareholder voting guidelines, the Company will count those shares
towards the limits on the number of new shares which may be issued under such schemes.
Purchases will not be made to the extent that they may affect the eligibility of the Company for continued admission to AIM
and it is not the directors’ current intention that the Company should stand in the market for any particular year or until any
specified number of shares has been acquired.
The purchase of shares by the Company pursuant to these proposals will be a market purchase and thus made through
AIM. This means that any shareholder selling shares, even if those shares are subsequently acquired by the Company,
will not be subject to different tax considerations from those normally applying to a sale of shares in the market provided
that the purchase by the Company is made exclusively through a market maker acting as principal. In that event, for
shareholders who held their shares as an investment, the sale proceeds will normally be treated as capital and the normal
capital gains tax rules will apply to those sale shares. There will normally be no liability to tax on income unless the
shareholder’s disposal is by way of trade.
4D pharma plc Annual Report and Financial Statements 2015
48