N4 Pharma Plc
(“N4 Pharma” or the “Company”)
Annual Report and Financial Statements
Year Ended 31 December 2017
Table of contents
Directors, Company Secretary and Advisors
Chief Executive Officer’s and Strategic Report
Board of Directors
Director’s Report
Auditor’s Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Statement of Cash Flow
Company Statement of Cash Flow
Notes to the Consolidated Financial Statements
3
4
7
8
12
16
17
18
19
20
21
22
23
2
Directors, Company Secretary and Advisors
Company Number 01435584 (England and Wales)
Directors:
Gavin John Burnell (Chief Executive Officer – resigned 3 May 2017)
Prof. Humayun Akhter Mughal (Non-Executive Director – resigned 3 May 2017)
Nigel Theobald (Chief Executive Officer – appointed 3 May 2017)
Paul Titley (Executive Director – appointed 3 May 2017)
Dr David Templeton (Non-Executive Chairman – appointed 3 May 2017)
Luke Cairns (Non-Executive Director)
Registrars
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen, West Midlands
B63 3DA
Accountants
Offshore Accounting Limited
Offshore View
Les Bas Courtils Road
St Sampson
GY2 4BH
Guernsey
Registered Office of the Company
6th Floor
60 Gracechurch Street
London
EC3V 0HR
United Kingdom
Administrator and Company Secretary
Shakespeare Martineau LLP
60 Gracechurch Street
London
EC3V 0HR
United Kingdom
Nominated Adviser and Broker
Stockdale Securities Limited
100 Wood Street
London
EC2V 7AN
United Kingdom
Independent Auditor
Saffery Champness LLP
Unex House
Bourges Boulevard
Peterborough
PE1 1NG
Financial/Public Relations
Alma PR
Aldwych House
71-91 Aldwych
London
WC2B 4HN
United Kingdom
Company’s website www.n4pharma.com
3
Chief Executive Officer’s and Strategic Report
N4 Pharma Plc (the “Company”), formerly known as Onzima Ventures Plc, is the holding company
of N4 Pharma UK Limited (“N4 UK”) and with N4 UK form the group (the “Group”). N4 UK is a
specialist pharmaceutical company which reformulates existing drugs and vaccines to improve their
performance.
The Company acquired the remaining 51 per cent. of the share capital of N4 UK on 3 May 2017 by
way of a reverse takeover (“RTO”).
This is the first set of annual results produced by the Company following the reverse takeover of N4
UK to form the Group with effect from 3 May 2017.
Highlights:
Successfully completed the reverse takeover of N4 Pharma Limited (“RTO”)
Successful placing to raise £1.5m (the “Placing”) and re-admission to AIM
Change of name to N4 Pharma Plc (formerly known as Onzima Ventures Plc)
Divestment of investment portfolio to focus solely on reformulation of generic drugs and
vaccines
Filing of sildenafil PCT patent application
Filing of additional generic product patent opportunities
Appointment of BDD to undertake initial human pilot clinical trial for sildenafil
reformulation
Commencement of research program for Nuvec®, its vaccine delivery system
Cash balance at period end of approximately £1.3 million
Total of £1,230,832 was raised in aggregate via warrant exercises since RTO and period end
24 April 2018.
Review of operations for the financial year ended 31 December 2017
During the year to 31 December 2017, as anticipated, no revenue was generated by the Group. Other
operating income included £109,913 of government grants.
The operating loss for the year of £897,825 (9 months to 31 December 2016: £185,083 loss) was
impacted by the costs associated with the RTO and are in line with management’s expectations at
the time of the transaction.
Key Events and Opportunities
The new Board completed its planned reorganisation of the Group to focus on its research and
development programme for both its generic and vaccine divisions.
The net proceeds of the Placing and subsequent warrant exercises ensure that the Group will be
funded throughout 2018 and well into 2019. The funds raised will continue to enable us to produce
initial human clinical data to establish the pharmacokinetic profile of our sildenafil reformulation
and help us to determine how we will position the Nuvec® vaccine delivery system for the best
approach to allow commercial engagement with potential third party licensees.
Subsequent to the year end, the Group announced a grant collaboration with MedImmune UK to
evaluate its Nuvec® technology which, if successful, would give MedImmune an option to license
Nuvec® for a defined area. This is the first of many such collaborations the Group is looking to
undertake as it extends its research on Nuvec®
4
Chief Executive Officer’s and Strategic Report (Cont’d)
Generic Division
The main focus for the Group’s generic division is the reformulation of sildenafil (commonly known
as Viagra TM), where we are seeking to improve the speed in which the drug takes effect whilst also
extending the duration of the action. We completed our initial “in vitro” reformulation work on the
drug and appointed Bio-Images Drug Delivery Limited (“BDD”) to conduct a small scale human pilot
clinical trial (the “Trial”) which started as announced on 18th April 2018.
The Trial will be conducted in twelve healthy male volunteers to give us human pharmacokinetic
data, which will determine the amount of drug our reformulation will deliver, and which can then
be compared against existing sildenafil products. The Trial is expected to take 8-10 weeks with top
line results data available in July 2018 with the final clinical study report expected at the end of
August 2018.
The data gathered from the Trial will enable the Company to establish whether its reformulation
has been sufficiently successful to allow N4 Pharma to prepare for a pre-IND meeting with the FDA
towards the end of this year along with a proposed approach to conducting a pivotal clinical study
which will be required for marketing authorisation or whether further amendments to the
reformulation may be required to optimise efficacy.
Assuming success it would then be our intention then either to partner with a large pharmaceutical
company to complete the pivotal trial (thereby earning a licence fee and generating milestone
payments for the Company) or to explore the possibility of conducting the pivotal trial ourselves
and, in doing so, assess the balance of increased capital risk versus the rewards relative to a
company of our size.
In addition to licensing the patents for sildenafil from Opal IP Limited (“Opal IP”) and Nuvec® from
the University of Queensland, we have licensed four further patents from Opal IP for reformulations,
namely valsartan, aprepitant, duloxetine and paroxetine. Subsequently, we have decided to
abandon our paroxetine patent application. The Board believes that the drugs, such as paroxetine,
that do not make strong commercial sense will most likely not make it through to the next stage
development. Our initial approach for these products is to file the relevant data needed for a Patent
Co-operation Treaty (“PCT”) patent application and to evaluate the clinical and market potential
before embarking on detailed formulation development for a product to take into clinic. In our
opinion, this gives the Group the optimal chance to secure patent protected reformulations for these
products as well as sildenafil.
Whilst we continue to commit resources to the reformulation of sildenafil ahead of bringing it to
market, we are also undertaking all the necessary preparatory work on the other three drugs
referred to above to allow us to take them forward in the future.
Vaccine Division
The focus for the Group’s vaccine division continues to be on generating data for our Nuvec®
delivery system which will enable us to engage commercially with pharmaceutical and biotech
companies which are looking to utilise delivery systems to deliver vaccines and therapeutics they
are developing. We intend to engage with commercial partners to exploit the potential clinical
utility of Nuvec®. Our intention is not to develop vaccines ourselves. The business model is similar
to that in our generics division in that we aim to secure licence payments for the use of our delivery
system and ultimately royalties on any products sold using Nuvec®.
Initially, we are targeting collaborations and evaluation agreements with biotech and
pharmaceutical companies to evaluate Nuvec® alongside their existing delivery system. We have
already announced our first collaboration with MedImmune and are working on securing further
collaborations. A successful collaboration would then mean we could license the use of Nuvec® for
a particular therapeutic indication. We will therefore have numerous licensing opportunities for our
platform technology.
5
Chief Executive Officer’s and Strategic Report (Cont’d)
Vaccine Division (Cont’d)
During the year, the Group announced the results of a study it conducted for its Nuvec® silica
nanoparticles (“SiNPs”) delivery system. As well as investigating tolerability, the objective of the
study (funded via a biomedical Catalyst Grant) was to determine the in-vivo capacity for the
Company's SiNPs to deliver DNA to generate local expression of a protein. This is a key indicator as
to whether a vaccine delivery system is likely to successfully generate an immune response. Results
from the study gave us the evidence that our SiNPs have many desirable features for use in either a
vaccine approach or to deliver therapeutic proteins to tissues and are uncovering key commercial
advantages compared to lipid nanoparticles. This increases the scope of Nuvec's® application which,
in turn enhances the potential value of the technology to potential commercial partners. The Board
continues to explore further research options and regular updates will be provided when
appropriate.
The Board is pleased to have welcomed Dr Andrew Leishman as Head of Nuvec® Development.
Andrew joined the Company in March 2018 and has quickly become a valued member of the team.
Currently, we are focusing our efforts on Nuvec® development to help secure collaborations and
have therefore placed on hold additional research on a potential hepatitis B vaccine.
Future prospects
The Board remains optimistic about the future of the Group and its prospects. We have reached a
key milestone with the commencement of the pilot human trial for our reformulation which, if the
results are positive, will greatly advance the value of the data we have obtained and furthermore
provide a clearer path towards commercialisation for our sildenafil reformulation. We have already
announced one collaboration for Nuvec® and are looking to enter into further agreements with other
companies in 2018.
Whilst we are excited about the Group’s potential pipeline of products we are establishing, our
immediate focus is on those products with the opportunity for near term commercialisation, namely
sildenafil and Nuvec®. In parallel, we hope shortly to have a plan and budget in place for our pipeline
of other generic products which also seek to address potential multi-billion dollar markets whilst,
as detailed above, setting out a programme for our vaccine work.
On behalf of the Board, I would like to thank all of our shareholders for their continued support and
welcome all new shareholders to the Company for what we believe will be another exciting year in
the development of our business.
Principal risks and uncertainties
The Group is exposed to a variety of financial risks including market risk, liquidity risk, tax risk and
credit risk. These risks are discussed in detail in Note 2.
Financial instruments and associated risks:
The Board of Directors is committed to effective risk management and is responsible for ensuring
that the Group has an appropriate framework in place to identify and effectively manage business
risks and to monitor business performance and the Group’s financial position. The Board is also
responsible for overseeing compliance with regulatory, prudential, legal and ethical standards.
These risks are discussed in detail in Note 11.
By order of the Board
Nigel Theobald
Chief Executive Officer
N4 Pharma Plc
6
Board of Directors
Nigel Theobald (Chief Executive Officer – appointed 3 May 2017)
Nigel has over 25 years’ experience in healthcare and in building businesses, strategy development
and its implementation and a strong network covering all aspects of pharmaceutical product
development and commercialisation. He was the head of healthcare brands at Boots Group Plc in
2002 before leaving to set up a series of successful businesses, including Oxford Pharmascience
Group Plc, which he grew over 5 years into an AIM quoted company with a market capitalisation of
£40 million upon departure. Nigel formed N4 Pharma UK Limited in 2014.
Paul Titley (Executive Director – appointed 3 May 2017)
Paul has over 40 years’ experience in the pharmaceutical industry. Led the pharmaceutical
development of major tablet products and new manufacturing and formulation technologies at
Wellcome (including Zovirax), set up and audited pharmaceutical plants around the world as well as
conducting acquisition due diligence. He has also advised over 900 pharmaceutical/biotech
companies on how to develop products to meet their clinical and commercial goals. On the
commercial and business development front, as Chief Executive, built R5 Pharmaceuticals Limited
into a profitable business, leading to its acquisition by Aesica Pharmaceuticals Limited after 4 years
of trading. Subsequently, Paul introduced Aesica to Consort Medical Plc which resulted in Aesica’s
acquisition by Consort Medical for £230 million in 2014.
Dr David Templeton (Non-Executive Chairman – appointed 3 May 2017)
An experienced R&D manager having worked in major pharmaceutical, biotech and in the generic
industry with specific expertise in early clinical development and translational biology, toxicology
and safety pharmacology, lead selection, candidate characterisation, PK/PD analysis and
bioanalysis. David has worked in various pharmacology and pre-clinical drug discovery roles for
Pfizer, Xenova, Smithkline Beecham and GSK and was the head of non-clinical development at
Celltech Limited from 2003 to 2004 before moving to Merck Generics UK as head of biometrics. He
was appointed as director of clinical pharmacology of Eisai Limited in 2007 until in 2010 setting up
his own consulting business offering discovery and early development advice to several
pharmaceutical companies.
Luke Cairns (Non-Executive Director)
Luke has spent over 16 years working in corporate finance and is a former head of corporate finance
and managing director at Northland Capital Partners, an FCA regulated stockbroking firm. Having
left Northland in 2014, Luke founded LSC Advisory Limited to provide advisory and consultancy
services to growth companies. He has worked with many growth companies across a number of
sectors and regions on a wide range of transactions, including IPOs, secondary fundraisings,
corporate restructurings and takeovers. He is an Associate of the Chartered Institute of Secretaries.
7
Directors’ Report
The Directors present their report together with the consolidated financial statements of the Group.
Performance review
The Group made a total comprehensive loss of £1,836,984 during the year ended 31 December 2017.
This is the first set of annual results produced by the Company following the reverse takeover of N4
Pharma Limited (“N4 UK”) to form the Group with effect from 3 May 2017.
Background and principal activities
N4 UK is a specialist pharmaceutical company which improves the delivery of existing drugs and
novel vaccines and therapeutics. The nature of the business is not deemed to be impacted by
seasonal fluctuations and as such performance is expected to be consistent.
The Company acquired the remaining 51 per cent. of the share capital of N4 on 3 May 2017 by way
of a reverse takeover. The Company is domiciled in England and Wales and was incorporated and
registered in England and Wales on 6 July 1979 as a public limited company and its shares are
admitted to trading on AIM (LSE: N4P). The Company’s registered office is located at 6th Floor, 60
Gracechurch Street, London EC3V 0HR.
Subsequent events
Between 1 January 2018 and 24 April 2018, a total of 9,228,280 warrants were exercised at a price
of 8.5p per warrant. This resulted in the issue of 9,228,280 ordinary shares of 0.4p each subsequent
to the year end. The warrants were issued on 3 May 2017 as part of the Placing.
As a result of these warrant exercises, the Company has received £784,404 in additional funding.
On 5 February 2018, 4,951,400 ordinary shares were issued to Nigel Theobald (the “Deferred
Consideration Shares”) in accordance with the terms of the share purchase agreement entered into
between the Company and Nigel Theobald dated 13 April 2017.
The RTO brought into the Group an investment in Alecto Minerals Plc (“Alecto”) at a cost of £59,186
which could not be sold prior to completion of the RTO. Trading on AIM in Alecto’s shares was
cancelled with effect from 11 July 2017 due to the delay in publishing an admission document for a
proposed reverse takeover.
The Board took the view that, in light of the circumstances referred to above, it is reasonable to
assume that the Alecto shares no longer hold any value and, as such, took the decision to impair the
value of the shares to nil at 31 December 2017.
Subsequent to the year end, Alecto’s shares were re-admitted into trading on AIM under the new
name ‘Cradle Arc’. As a result, the Group sold its shares and received £27,262.
Dividends
The Board has not declared a dividend for the year ended 31 December 2017 (2016: nil).
8
Directors’ Report (Cont’d)
Directors’ remuneration and interests
2017
Director
Nigel Theobald (Chief
Executive Officer)
Paul Titley
David Templeton
Luke Cairns
Gavin Burnell (resigned)
Prof. Humayun Akhter Mughal*
(resigned)
Cash-based
payments
Remuneration
Share-based
payments
£
61,786
34,366
16,000
21,000
30,000
4,000
£
299,045
-
-
-
-
-
Interests
Shares
Options
No.
12,255,233
No.
-
142,857
-
142,857
1,107,143
1,835,400
1,434,286
717,143
1,392,455
2,701,210
-
Totals
£
360,831
34,366
16,000
21,000
30,000
4,000
167,152
299,045
466,197
15,483,490
6,245,094
*Professor Mughal’s interest in the Company includes those shares held directly by him, his indirect
holdings via companies of which he is a director and the holdings of close members of his family
2,868,572 options were issued during the year ended 31 December 2017. These are detailed in note
8.
The above remuneration relates to N4 Pharma Plc (and N4 Pharma UK Limited) directors. There is
no other Key Management Personnel remuneration.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’ Report and the financial statements in
accordance with applicable law and regulations.
Company law and AIM Rules require the directors to prepare financial statements for each financial
year. Under that law they have elected to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by the EU and applicable law. 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 loss
of the Group for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Group will continue in business.
The directors are responsible for keeping proper accounting records that are sufficient to show and
explain the Group’s transactions and disclose with reasonable accuracy at any time the financial
position of the Group and enable them to ensure that the financial statements comply with the
Companies Act 2006 and the AIM Rules. They are also responsible for safeguarding the assets of the
Group 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 Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from legislation in other
jurisdictions.
The Company is compliant with AIM Rule 26 regarding the Company’s website.
9
Directors’ Report (Cont’d)
Directors’ confirmation
So far as the directors are aware, there is no relevant audit information (as defined by Section 418
of the Companies Act 2006) of which the Group’s auditors are unaware, and each director has taken
all the steps that he ought to have taken as a director in order to make himself aware of any relevant
audit information and to establish that the Group's auditor is aware of that information.
Going concern
These financial statements have been prepared on the basis of accounting principles applicable to
a going concern. The Directors consider that the Group will have access to adequate resources, as
set out below, to meet both operational requirements for at least 12 months from the date of
approval of these financial statements. For this reason, they continue to adopt the going concern
basis in preparing the financial statements.
The Group currently has no source of operating cash inflows, other than interest and grant income,
and has incurred net operating cash outflows for the year ended 31 December 2017 of £950,800 (9
months to 31 December 2016: £144,485 outflow). At 31 December 2017, the Group had cash
balances of £1,326,272 (2016: £19,751) and a surplus in net working capital (current assets, including
cash, less current liabilities) of £1,279,754 (2016: £79,742 deficit).
The Group continues to take steps to manage operational expenditure effectively and to manage
the cash required for budgeted activities and working capital for at least 12 months from the date
of approval of the financial statements.
Further exercises of warrants have taken place in January and February 2018 resulting in further
generation of new funds.
Corporate governance statement
The Company, being quoted on AIM, is not required to comply with the UK Corporate Governance
Code (the “Code”). However, the Company has given consideration to the main principles of the
Code and the Directors support the objectives of the Code and intend to comply with those aspects
that they consider relevant to the Group’s size and circumstances. Details of these are set out
below.
Board and board committees
Board members are listed below. The non-executive director is considered to be independent.
Board members attended the following meetings:
Director
Gavin John Burnell (resigned)
Prof. Humayun Akhter Mughal (resigned)
Nigel Theobald
Paul Titley
Dr. David Templeton
Luke Cairns
Board Meetings attended
3
3
8
8
8
11
The Board determines the overall strategic direction of the Group, oversees the development and
control of the Group and reviews financial and operational performance. The Board approves
acquisitions and disposals, annual budgets and monthly forecasts and reviews monthly management
accounts. Day-to-day and business management control is delegated to the executive directors who
are responsible for performance and the implementation of Group policy.
10
Directors’ Report (Cont’d)
Audit committee
Luke Cairns, non-executive director, chairs the committee. The auditors and the executive director
also attend the meetings at the invitation of the chairman of the committee. The audit committee
reviews and approves the annual report and interim statement. It also reviews the Group's scope of
the audit and the independence and objectivity of the auditors. The auditors have direct access to
the chairman of the committee, if required. The audit committee is responsible for recommending
the appointment, re-appointment or removal of auditors. The committee is also responsible for
monitoring the level of non-audit services provided by the auditors to ensure that objectivity and
independence is maintained.
Internal control
The Board has overall responsibility for internal control systems and the executive directors are
charged with implementing and maintaining them.
At present the directors do not consider there is a justifiable need for a dedicated internal audit
function given the size of the Group.
Operational risks are identified and assessed by management and any significant risks are reported
to the Board. Financial and commercial risks are reviewed by the Board.
The Group's internal control systems are designed to provide directors with reasonable assurance
that any problems are identified on a timely basis and dealt with appropriately. The Board considers
the internal controls to be effective but no system of internal control can provide absolute assurance
against material misstatement or loss.
Relationship with shareholders
It is a high priority for the Board to establish relationships with shareholders. The Board welcomes
the opportunity to meet institutional and individual shareholders at the company’s annual general
meeting.
The Company continues to assess its Board and management requirements to determine the
appropriate committee and governance structures.
On behalf of the Board
_____________________________________
Nigel Theobald
Director
24 April 2018
11
Independent auditor’s report to the members
Opinion
We have audited the financial statements of N4 Pharma Plc (the ‘parent company’) and its subsidiary
(the ’group’) for the year ended 31 December 2017 set out on pages 23 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.
In our opinion, the financial statements:
give a true and fair view of the state of the group’s and the parent company’s affairs as at
31 December 2017 and its loss for the period then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union;
and
have been prepared in accordance with the requirements 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 auditors report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent
of the company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK)
require us to report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the group’s or the parent company’s
ability to continue to adopt the going concern basis of accounting for a period of at least
twelve months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of
our audit of the financial statement as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
12
Independent auditor’s report to the members (Cont’d)
Key Audit Matter
Going concern
How our audit addressed the key audit matter
Our audit procedures included the following:
The going concern assumption is
a fundamental principle in the
financial
preparation
statements.
of
The group is loss making and yet
to generate revenue, other than
grant income and research and
development (R&D) tax credits.
There is the risk that the group
could run out of cash whilst
its
investing and developing
Generic and Vaccine Divisions.
The going concern assumption
has been recognised as a key
audit matter.
Reverse acquisition accounting
The transaction between N4
Pharma Plc (formerly Onzima
Plc) and N4 Pharma UK Limited
has been concluded to be a
reverse acquisition.
risk
that
is a
the
There
disclosure around the reverse
acquisition
disclosed
is
incorrectly as the transaction is
complex and unusual.
Capitalisation of research and
development expenditure
The group is incurring significant
expenditure in respect of R&D.
the
There
the
treatment
is
financial
incorrect.
that
risk
applied
in
statements
is a
We have obtained and critically appraised the Directors’
going concern assessment and management’s strategic
plans to generate revenue and profitability;
We have reviewed projected cash flows and other available
evidence to assess the ability of the group and the parent
company to continue in operation for the 12 months after
the date of signing;
We have discussed post balance sheet events with the
Directors to assess their impact on the going concern
assumption; and
We have performed a sensitivity analysis on the key
assumptions underlying management’s going concern
assessment.
Based on our procedures we have considered that disclosures
relating to going concern have been made appropriately.
Our audit procedures included the following:
We have reviewed the substance of the acquisition to
ensure the correct entries are captured in the financial
statements
We have completed a review of the reverse acquisition
disclosure requirements, to ensure all relevant information
is included in the financial statements
The reverse acquisition accounting has been subject to
additional technical review
Based on our procedures performed we have considered that
the disclosure relating to the reverse acquisition to have been
made appropriately.
Our audit procedures included the following:
We have discussed the treatment of R&D expenditure and
future probable income streams with the Directors
We have tested a sample of R&D expenses and
corroborated the accounting treatment
We have considered the claim for R&D tax credits
Based on our procedures performed we have considered that
the expenditure on R&D has been appropriately accounted for.
Our application of materiality
We apply the concept of materiality in planning and performing our audit, in evaluating the effect
of any identified misstatements and in forming our opinion. Our overall objective as auditor is to
obtain reasonable assurance that the financial statements as a whole are free from material
misstatement, whether due to fraud or error. We consider a misstatement to be material where it
could reasonably be expected to influence the economic decisions of the users of the financial
statements.
We have determined a materiality of £50,000. This is based on 3.5% of gross assets for the year
ended 31 December 2017.
13
Independent auditor’s report to the members (Cont’d)
An overview of the scope of our audit
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial statements as a whole, taking into account the structure of the Group and
the parent company, the accounting processes and controls, and the industry in which they operate.
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we looked at where the Directors made
subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. We also addressed
the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon. Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the
financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information; we
are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
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;
and
the Strategic Report and the Directors’ Report have been prepared in accordance with
applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the
course of the audit, we have not identified material misstatements in the Strategic Report or the
Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies
Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have
not been received from branches not visited by us; or
the 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.
14
Independent auditor’s report to the members (Cont’d)
Responsibilities of directors
As explained more fully in the Directors’ Responsibilities Statement set out on page 9, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and
the parent company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on
the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Alistair Hunt (Senior Statutory Auditor)
for and on behalf of Saffery Champness LLP
Chartered Accountants
Statutory Auditors
Unex House
Burges Boulevard
Peterborough
PE1 1NG
24 April 2018
15
Consolidated Statement of Comprehensive Income for the year ended 31 December 2017
N4 Pharma Plc
Notes
Year ended 31
December 2017
£
Proforma
9 month period to 31
December 2016
£
Government grant income
109,913
-
Gross Profit
109,913
-
Research and development costs
(409,808)
-
General and administration costs
(316,632)
(185,083)
Reorganisation costs
(281,298)
-
Operating loss for the period
(897,825)
(185,083)
Deemed cost of acquisition
(1,023,734)
-
Finance income/ (expenditure)
(5,299)
(5,857)
Loss for the period before tax
Taxation
4
5
(1,926,858)
(190,940)
89,874
14,362
Loss for the period after tax
(1,836,984)
(176,578)
Other comprehensive income net of
tax
Total comprehensive loss for the
period attributable to equity owners
of N4 Pharma Plc
Loss per share attributable to
owners of the parent
Weighted average number of shares:
Basic
Diluted
Basic loss per share
Diluted loss per share
-
-
(1,836,984)
(176,578)
64,783,082
27,852,274
(1.26p)
(1.24p)
8,844,706
8,844,706
(2.00p)
(2.00p)
All activities derive from continuing operations.
The notes on pages 23 to 41 are an integral part of the consolidated financial statements
16
N4 Pharma Plc
Consolidated Statement of Financial Position as at 31 December 2017
Notes
31 December 2017
£
Proforma
31 December 2016
£
Assets
Non-current assets
Investments
6
Current assets
Trade and other receivables
Cash and cash equivalents
Total Assets
Liabilities
Current liabilities
Trade and other payables
Accruals and deferred income
Total assets less current
liabilities
Non-current liabilities
Amounts falling due after
more than one year
-
-
132,700
1,326,272
1,458,972
1,458,972
-
-
23,187
19,751
42,938
42,938
(143,788)
(35,430)
(179,218)
(102,046)
(20,634)
(122,680)
1,279,754
(79,742)
-
(204,922)
Net Assets/ (Liabilities)
1,279,754
(284,664)
Equity
Share capital
Share premium
Share option reserve
Reverse acquisition reserve
Merger reserve
Retained earnings
Total Equity / (Deficit)
9
9
9
8,579,396
8,513,670
147,635
(14,138,244)
299,045
(2,121,748)
100
-
-
-
-
(284,764)
1,279,754
(284,664)
The notes on pages 23 to 41 are an integral part of the consolidated financial statements.
The financial statements were approved by the board of directors on 24 April 2018 and signed on its
behalf:
Nigel Theobald
17
Company Statement of Financial Position as at 31 December 2017
N4 Pharma Plc
Notes
31 December 2017
£
31 December 2016
£
Assets
Non-current assets
Investments
Intercompany loan receivable
Current assets
Inventory of securities
Trade and other receivables
Cash and cash equivalents
Total Assets
Liabilities
Current liabilities
Trade and other payables
Accruals and deferred income
Total assets less current
liabilities
Net Assets
Equity
Share capital
Share premium
Share option reserve
Merger reserve
Retained earnings
Total Equity
6
6
9
9
9
1,094,747
809,000
1,903,747
-
51,030
1,266,921
1,317,951
302,705
214,949
517,654
231,591
197,027
172,430
601,048
3,221,698
1,118,702
(4,125)
(16,400)
(20,525)
-
(77,263)
(77,263)
3,201,173
1,041,439
3,201,173
1,041,439
8,579,396
8,513,670
147,635
299,045
(14,338,573)
8,452,782
6,880,766
30,812
-
(14,322,921)
3,201,173
1,041,439
The Company recorded a pre-tax loss of £15,652 for the year (31 December 2016: £22,000 loss).
The notes on pages 23 to 41 are an integral part of the consolidated financial statements.
The financial statements were approved by the board of directors on 24 April 2018 and signed on its
behalf:
Nigel Theobald
18
N4 Pharma Plc
Consolidated Statement of Changes in Equity for the year ended 31 December 2017
(i) Year ended 31 December 2017
Share
Capital
Share
Premium
£
£
Share
Option
Reserve
£
Reverse
Acquisition
Reserve
Merger
Reserve
Retained
Earnings
Proforma
Total Equity
£
£
£
£
Balance at 1 January 2017
100
-
-
-
-
(284,764)
(284,664)
Total comprehensive loss for the year
-
-
-
-
- (1,836,984)
(1,836,984)
Share issue
Cost of share issue
Share option reserve
Group Reconstruction
At 31 December 2017
8,561,253 8,643,010
-
-
18,043
(129,340)
-
-
-
-
147,635
-
-
-
17,204,263
-
-
- (14,138,244)
-
-
299,045
-
-
-
(129,340)
147,635
(13,821,156)
8,579,396
8,513,670
147,635
(14,138,244)
299,045
(2,121,748)
1,279,754
(ii) Nine months ended 31 December 2016
Balance at 1 April 2016
Share
Capital
Share
Premium
£
£
100
Share
Option
Reserve
£
Reverse
Acquisition
Reserve
£
Merger
Reserve
Retained
Earnings
Proforma
Total Equity
£
£
£
-
-
-
-
(108,186)
(108,086)
Total comprehensive loss for the period
-
- -
-
-
(176,578)
(176,578)
At 31 December 2016
100
-
-
-
-
(284,764)
(284,664)
The notes on pages 23 to 41 are an integral part of the consolidated financial statements.
19
N4 Pharma Plc
Company Statement of Changes in Equity for the year ended 31 December 2017
(i) Year ended 31 December 2017
Share Capital
Share
Premium
Share Option
Reserve
Merger
Reserve
Retained
Earnings
Total Equity
Balance at 1 January 2017
8,452,782
6,880,766
30,812
-
(14,322,921)
1,041,439
£
£
£
£
£
£
Total comprehensive loss for the year
Share issue
Cost of share issue
Share option reserve
Group Reconstruction
-
108,571
-
-
18,043
-
1,762,244
(129,340)
-
-
-
-
116,823
-
-
-
-
-
299,045
(15,652)
-
-
-
-
(15,652)
1,870,815
(129,340)
116,823
317,088
At 31 December 2017
8,579,396
8,513,670
147,635
299,045
(14,338,573)
3,201,173
(ii) Year ended 31 December 2016
Share Capital
Share
Premium
Share Option
Reserve
Merger
Reserve
Retained
Earnings
Total Equity
Balance at 1 January 2016
8,409,457
6,503,000
30,812
-
(14,300,921)
642,348
£
£
£
£
£
£
Share issue
Total comprehensive loss for the period
43,325
377,766
-
-
-
-
At 31 December 2016
8,452,782
6,880,766
30,812
-
-
-
-
(22,000)
421,091
(22,000)
(14,322,921)
1,041,439
The notes on pages 23 to 41 are an integral part of the consolidated financial statements.
20
N4 Pharma Plc
Consolidated Statement of Cash Flow for the year ended 31 December 2017
Operating activities
Loss before tax
Interest
Deemed cost of acquisition
Operating loss before changes in working
capital
Movements in working capital:
(Increase)/ decrease in trade and other
receivables
Increase in trade, other payables and
accruals
Year ended 31
December 2017
£
Proforma
9 months to 31
December 2016
£
(1,926,858)
5,299
1,023,734
(190,940)
5,857
-
(897,825)
(185,083)
(109,513)
3,844
56,538
36,754
Cash used in operations
(950,800)
(144,485)
Net cash flows used in operating activities
(950,800)
(144,485)
Investing activities
Cash acquired on reverse acquisition
402,990
-
Net cash flows from investing activities
402,990
-
Financing activities
Interest paid
Proceeds from loan advanced
Loan repayments
Net proceeds of ordinary share issue
Cost of share issue
(5,299)
-
-
1,988,970
(129,340)
(5,857)
129,922
(10,000)
-
-
Net cash flows from financing activities
1,854,331
114,065
Net increase/ (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of
the year/ period
1,306,521
(30,420)
19,751
50,171
Cash and cash equivalents at 31 December
1,326,272
19,751
The notes on pages 23 to 41 are an integral part of the consolidated financial statements
21
N4 Pharma Plc
Company Statement of Cash Flow for the year ended 31 December 2017
Operating activities
Loss before tax
Interest
Unrealised gain on investments
Year ended 31
December 2017
£
Year ended 31
December 2016
£
(15,652)
(21,261)
(669)
(22,000)
(5,979)
-
Operating loss before changes in working capital
(37,582)
(27,979)
Movements in working capital:
Decrease/ (Increase) in inventories
Decrease/ (Increase) in trade and other receivables
(Decrease)/ Increase in trade and other payables
231,591
145,998
(56,738)
(231,591)
(176,000)
60,000
Cash generated/ (used) in operations
283,269
(375,570)
Net cash flows generated/ (used) in operating
activities
283,269
(375,570)
Investing activities
Proceeds from sale of investments
Investment costs capitalised
Acquisition of investment
Loan receivable advancements
-
(71,013)
(404,605)
(594,051)
(9,000)
-
-
(209,000)
Net cash flows used investing activities
(1,069,669)
(218,000)
Financing activities
Interest received
Net proceeds of ordinary share issue
Cost of share issue
21,261
1,988,970
(129,340)
-
179,000
-
Net cash flows from financing activities
1,880,891
179,000
Net increase/ (decrease) in cash and cash
equivalents
1,094,491
(414,570)
Cash and cash equivalents at beginning of the year
172,430
587,000
Cash and cash equivalents at 31 December
1,266,921
172,430
The notes on pages 23 to 41 are an integral part of the consolidated financial statements
22
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
1.
Accounting policies
1.1
Reporting entity
N4 Pharma Plc (the “Company”), (formerly known as Onzima Ventures Plc) is the holding company for
N4 Pharma UK Limited (“N4 UK”), (formerly known as N4 Pharma Limited) and together form the group
(the “Group”). N4 UK is a specialist pharmaceutical company which reformulates existing drugs and
vaccines to improve their performance. The nature of the business is not deemed to be impacted by
seasonal fluctuations and as such performance is expected to be consistent.
The Company acquired the remaining 51 per cent. of the share capital of N4 UK on 3 May 2017 by way of
a reverse takeover. The terms of the share purchase are set out in the share purchase agreement dated
13 April 2017. The Company is domiciled in England and Wales and was incorporated and registered in
England and Wales on 6 July 1979 as a public limited company and its shares are admitted to trading on
AIM (LSE: N4P). The Company’s registered office is located at 6th Floor, 60 Gracechurch Street, London
EC3V 0HR.
The Group consolidated financial statements have been prepared and approved by the Directors in
accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”).
The financial statements comply with the Companies Act 2006 and give a true and fair view of the state
of affairs of the Group.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all
periods presented in these Group consolidated financial statements.
1.2
Measurement convention
The financial statements are prepared on the historical cost basis, except for the following item in the
consolidated statement of financial position and statement of comprehensive income:
Share-based payments are measured at fair value shown in the Merger Reserve.
Share Warrants and Options are measured at fair value using the Black Scholes model (see note
8).
Equity investments are measured at fair value.
The financial statements are presented in Great British Pounds (“GBP” or “£”).
1.3
Going concern
These financial statements have been prepared on the basis of accounting principles applicable to a
going concern. The Directors consider that the Group will have access to adequate resources, as set out
below, to meet both operational requirements for at least 12 months from the date of approval of these
financial statements. For this reason, they continue to adopt the going concern basis in preparing the
financial statements.
The Group currently has no source of operating cash inflows, other than government grant income, and
has incurred net operating cash outflows for the year ended 31 December 2017 of £950,800 (9 months to
31 December 2016: £144,485). At 31 December 2017, the Group had cash balances and term deposits of
£1,326,272 (2016: £19,751) and a surplus in net working capital (current assets, including cash, less
current liabilities) of £1,279,754 (2016: £79,742 deficit).
The Group continues to take steps to manage operational expenditure effectively and to manage the
cash required for budgeted activities and working capital for at least 12 months from the date of approval
of the financial statements. Close monitoring of current and forecast expenditure is undertaken by the
board and key executive decisions discussed at monthly board meetings.
As per the subsequent events note, further funds have been received after 31 December 2017 as a result
of warrants exercised and the sale of the remaining investment in Alecto Minerals.
23
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
1.
Accounting policies (Cont’d)
1.3
Going concern (continued)
The Group have also been awarded a feasibility grant from Innovate UK (“Innovate”), the UK’s innovation
agency, to co-fund a collaborative project with MedImmune UK, a leading global biologics R&D company,
to explore the manufacture of a prototype using the Group’s Nuvec® system. The grant funding for this
project is expected to last for approximately nine months from 1 February 2018.
1.4
Basis of consolidation
On 3 May 2017, the Company became the legal parent of N4 UK through a reverse takeover transaction
(“RTO” or “reverse takeover”). The Company was not a business as defined by IFRS 3 prior to the
transaction and as such was outside of the scope of IFRS 3, Business Combinations. The consolidated
financial statements present the substance of the transaction in accordance with IFRS2. The comparative
results to 31 December 2016 represent the position of N4 UK prior to the reverse takeover.
The consolidated financial statements of the Company are presented as a continuation of N4 UK’s
financial statements, reflecting the commercial substance of the transaction. However, the equity
structure presented in the consolidated financial statements reflects the equity structure of the
Company, including the new shares issued as part of the transaction. Where information relates or
includes the results of N4 UK prior to the reverse takeover, it has been labelled ‘pro forma’.
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.
Revenue
1.5
Revenue is recognised to the extent this it is probable that economic benefit will flow to the Group and
the revenue can be reliably measured. Revenue is measured at the lower of value of the consideration
received or receivable for the sale of goods or services, excluding discounts, rebates, VAT and other
sales taxes and duties.
The Group has not yet completed the reformation of its generic drugs and as such reports no revenue.
1.6
Government grant income
Government grants are recognised only when there is reasonable assurance that the Group will comply
with the conditions attaching to them and that the grants will be received.
Government grants are recognised in the consolidated statement of comprehensive income on a
systematic basis over the periods in which the Group recognises and expenses the related costs for which
the grants are intended to compensate.
Government grants that are receivable as compensation for expenses or losses already incurred or for
the purpose of giving immediate financial support to the Group with no future related costs are
recognised in the income statement in the period in which they become receivable.
1.7
Expenses
Financing income and expenses
Financing expenses comprise interest payable and finance charges and net foreign exchange losses that
are recognised in the consolidated statement of comprehensive income (see foreign currency accounting
policy note 1.13). Financing income comprises interest receivable on funds invested and net foreign
exchange gains.
24
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
1.
Accounting policies (Cont’d)
1.7
Expenses (continued)
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective
interest method. Foreign currency gains and losses are reported on a net basis.
Research and development
Research costs are charged against the income statement as they are incurred. Certain development
costs will be capitalised as intangible assets when it is probable that the future economic benefits will
flow to the Group. Such intangible assets will be amortised on a straight-line basis from the point at
which the assets are ready for use, over the period of the expected benefit, and are reviewed for
impairment at each year end date. Other development costs are charged against income as incurred
since the criteria for their recognition as an asset is not met.
The criteria for recognising expenditure as an asset are:
It is technically feasible to complete the product;
Management intends to complete the product and use or sell it;
There is an ability to use or sell the product;
It can be demonstrated how the product will generate probable future economic benefits;
Adequate technical, financial and other resources are available to complete the development,
use and sale of the product; and
Expenditure attributable to the product can be reliably measured.
The costs on an internally generated intangible asset comprise all directly attributable costs necessary
to create, produce and prepare the asset to be capable of operating in the manner intended by
management. Directly attributable costs include employee costs incurred on technical development,
testing and certification, materials consumed and any relevant third party cost. The costs of internally
generating developments are recognised as intangible assets and are subsequently measured in the same
way as externally acquired intangible assets. However, until completion of the development project, the
assets are subject to impairment testing only.
1.8
Taxation
Taxation
Taxation for the year comprises current and deferred tax. Tax is recognised in the consolidated
statement of comprehensive income, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity.
Current or deferred taxation assets and liabilities are not discounted.
Current tax
Current tax is recognised at the amount of tax payable using the tax rates and laws that have been
enacted or substantively enacted by the consolidated statement of financial position date.
Deferred tax
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the
consolidated statement of financial position date.
Timing differences arise from the inclusion of income and expenses in tax assessments in periods different
from those in which they are recognised in financial statements. Deferred tax is measured using tax rates
and laws that have been enacted or substantively enacted by the year end and that are expected to apply
to the reversal of the timing difference.
Unrelieved tax losses and other deferred tax assets are recognised only to the extent that it is probable
that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.
25
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
1.
Accounting policies (Cont’d)
1.9
Earnings per share
The Group presents basic and diluted earnings or loss per share data for its ordinary shares. Basic
earnings/loss per share is calculated by dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares outstanding during the period,
adjusted for own shares held. Diluted earnings/loss per share is determined by adjusting the profit or
loss attributable to ordinary shareholders and the weighted average number of ordinary shares
outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which
comprise share options and warrants granted.
1.10 Operating segments
Segment results that are reported to the Chief Executive Officer include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly
corporate assets, head office expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire plant and equipment,
and intangible assets other than goodwill.
The Group operated in one business segment, that of the development and commercialisation of
medicines via reformulation using advanced pharmaceutical technologies to add value to generic and
soon to be generic drugs. No revenue has yet been generated by any of the work undertaken by the
Group.
The Directors consider that there are no identifiable business segments that are subject to risks and
returns different to the core business. The information reported to the Directors, for the purposes of
resource allocation and assessment of performance, is based wholly on the overall activities of the Group.
1.11 Classification of financial instruments issued by the Group
In accordance with IAS 32, financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
(a)
(b)
they include no contractual obligations upon the Group to deliver cash or other financial assets
or to exchange financial assets or financial liabilities with another party under conditions that
are potentially unfavourable to the Group; and
where the instrument will or may be settled in the Company’s own equity instruments, it is either
a non-derivative that includes no obligation to deliver a variable number of the Company’s own
equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed
amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability.
Where the instrument so classified takes the legal form of the Company’s own shares, the amounts
presented in these financial statements for called up share capital and share premium account exclude
amounts in relation to those shares.
Where a financial instrument that contains both equity and financial liability components exists these
components are separated and accounted for individually under the above policy.
26
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
1.
Accounting policies (Cont’d)
1.12 Non-derivative financial instruments
Non-derivative financial instruments comprise investments, trade and other receivables, cash and cash
equivalents and trade and other payables.
Investments
Investments are equity investments recognised initially at cost and subsequently revalued to their fair
value. Fair value is determined by reference to published price quotations in the AIM market. Gains and
losses arising from changes in the fair value are recognised in profit or loss within other income or other
expenses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are
measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents are basic financial assets and comprise cash in hand, deposits held at call with
banks, other short-term liquid investments with original maturities of three months or less, and bank
overdrafts. Any overdrafts are shown within borrowings in current liabilities.
1.13
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Group’s
entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the consolidated statement of financial position date are
retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the consolidated statement of comprehensive income.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction.
1.14
Impairment
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to
determine whether there is objective evidence that it is impaired. A financial asset is impaired if
objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and
that the loss event had a negative effect on the estimated future cash flows of that asset that can be
estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the
difference between its carrying amount and the present value of the estimated future cash flows
discounted at the asset’s original effective interest rate. Interest on the impaired asset continues to be
recognised through the unwinding of the discount. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell.
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 the purpose of impairment testing, assets that cannot be tested individually
are grouped together into the smallest Group of assets that generates cash inflows from continuing use
that are largely independent of the cash inflows of other assets or Groups of assets (the “cash-generating
unit”).
27
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
1.
Accounting policies (Cont’d)
1.14
Impairment (Cont’d)
An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds
its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses
recognised in respect of cash generated units are allocated first to reduce the carrying amount of any
goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit
(Group of units) on a pro rata basis.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that
the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
1.15
Share based payment arrangements
Share-based payment arrangements in which the Group receives goods or services as consideration for
its own equity instruments are accounted for as equity-settled share-based payment transactions,
regardless of how the equity instruments are obtained by the Group.
Share-based transactions, other than those with employees, are measured at the value of goods or
services received where this can be reliably measured. Where the services received are not identifiable,
their fair value is determined by reference to the grant date fair value of the equity instruments
provided. Should it not be possible to measure reliably the fair value of identifiable goods and services
received, their fair value shall be determined by reference to the fair value of the equity instruments
provided measured over the period of time that the goods and services are received.
The expense is recognised in profit or loss or capitalised as part of an asset when the goods are received
or as services are provided, with a corresponding increase in equity.
The grant date fair value of share-based payment awards granted to employees is recognised as an
employee expense, with a corresponding increase in equity, over the period that the employees become
unconditionally entitled to the awards. The fair value of the options granted is measured using an option
valuation model, taking into account the terms and conditions upon which the options were granted. The
amount recognised as an expense is adjusted to reflect the actual number of awards for which the related
service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognised as an expense is based on the number of awards that do meet the related service and non-
market performance conditions at the vesting date. For share-based payment awards with non-vesting
conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and
there is no “true-up” for differences between expected and actual outcomes.
Share-based payment transactions in which the Group receives goods or services by incurring a liability
to transfer cash or other assets that is based on the price of the Group’s equity instruments are accounted
for as cash-settled share-based payments. The fair value of the amount payable to recipients is
recognised as an expense, with a corresponding increase in liabilities, over the period in which the
recipients become unconditionally entitled to payment. The liability is re-measured at each consolidated
statement of financial position date and at settlement date. Any changes in the fair value of the liability
are recognised in profit or loss.
28
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
1.
Accounting policies (Cont’d)
1.16 Adopted IFRS not yet applied
All new standards and amendments to standards and interpretations effective for annual periods
beginning on or after 1 January 2017 that are applicable to the Group have been applied in preparing
these financial statements.
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of
the financial statements are disclosed below. The Group intends to adopt these standards, if applicable,
when they become effective. Given that the Group does not generate any revenue, IFRS 15 is not
expected to have a significant impact on the Group at this stage.
Standard
IAS 12 (Amendments)
IAS 23
IAS 28
IFRS 3 (Amendments)
IFRS 9
IFRS 15
IFRS 16
IFRS 2 (Amendments)
Annual Improvements
IFRIC 22
IAS 40 (Amendments)
Effective date
1 January 2019
1 January 2019
1 January 2019
Impact on initial application
Income Tax Consequences of Dividends
Borrowing Costs Eligible for Capitalisation
Investment in Associates and Joint Ventures – Fair Value
Measurement Clarification & Long Term Interests
Remeasurement of previously held interest for Business
Combinations
Financial Instruments
Revenue from Contracts with Customers
Leases
Classification and measurement of share-based payment
transactions
Annual Improvements to IFRS Standards 2014-2016 cycle 1 January 2018
1 January 2018
IFRIC Interpretation 22 Foreign Currency transactions
and advanced consideration
Transfer of investment property
1 January 2019
1 January 2018
1 January 2019
1 January 2018
1 January 2018
1 January 2019
The Directors are assessing the potential impact that the adoption of the standards listed above will have
on the financial statements in future periods.
1.17 Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to make certain
judgements, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses during the period. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimates are revised and in any future periods
affected.
In the process of applying the Group’s accounting policies, management has decided the following
estimates and assumptions are material to the carrying amounts of assets and liabilities recognised in
the condensed consolidated financial statements.
The key estimates and judgements surrounding the capitalisation of Research & Development
expenditure is such that this expenditure will only be capitalised when the recognition criteria is met
and is otherwise written off to the Statement of Comprehensive Income. The recognition criteria includes
the identification of a clearly defined project with separately identifiable expenditure where the
outcome of the project, in terms of its technical feasibility and commercial viability, can be measured
or assessed with reasonable certainty and that sufficient resources exist to complete a profitable project.
In the event that this criteria is met and it is probable that future economic benefit attributable to the
product will flow to the Group, then the expenditure will be capitalised.
29
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
2.
Risk management
Overview
The Group has exposure to the following risks:
Liquidity risk;
Credit risk;
Tax risk;
Market risk; and
Operational risk
This note presents information about the Group’s exposure to each of the above risks, its objectives,
policies and processes for measuring and managing risk, and its management of capital. Further
quantitative disclosures are included throughout these consolidated financial statements.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the risk
management framework and developing and monitoring the Group’s risk management policies. Key risk
areas have been identified and the Group’s risk management policies and systems will be reviewed
regularly to reflect changes in market conditions and the Group’s activities.
The Audit Committee oversees how management monitors compliance with the Group’s risk management
policies and procedures and reviews the adequacy of the risk management framework in relation to the
risks faced by the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Group’s bank deposits and
receivables. The risk of non-collection is considered to be low. This risk is deemed low at present due to
the Group not yet trading and generating revenue but is a consideration for future risks.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated
with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s
approach to managing liquidity is to ensure, as far as possible, that 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.
Tax risk
Any change in the Group’s tax status or in taxation legislation or its interpretations could affect the value
of the investments held by the Group or the Group’s ability to provide returns to shareholders or alter
post-tax returns to shareholders.
Market risk and competition
The Group operates as a specialist pharmaceutical company with reformulates existing drugs and
vaccines to improve their performance. The Group is entering into a market with existing competitors
and the prospect of new entrants entering the current market. There is no guarantee that current
competitors or new entrants to the market will not appeal to a wider portion of the Group’s target
market or command broader band awareness.
In addition, the Group’s future potential revenues from product sales will be affected by changes in the
market price of pharmaceutical drugs and could also be subject to regulatory controls or similar
restrictions.
Operational risk
The Group is at an early stage of development and is subject to several operational risks. The
commencement of the Group’s material revenues is difficult to predict and there is no guarantee the
Group will generate material revenues in the future.
30
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
2.
Risk management (Cont’d)
Operational risk (Cont’d)
The Group has a limited operation history upon which its performance and prospects can be evaluated
and faces the risks frequently encountered by developing companies. The risks include the uncertainty
as to which areas of pharmaceuticals to target for growth.
Regulatory and legislative risk
The operations of the Group are such that it is exposed to the risk of litigation from its suppliers,
employees and regulatory authorities. Exposure to litigation or fines imposed by regulatory authorities
may affect the Group’s reputation even though monetary consequences may not be significant.
Changes to legislation, regulations, rules and practices may change and is often the case in the
pharmaceutical industry which is highly regulated and susceptible to regular change. Any changes may
have an adverse effect on the Group’s operations.
Protection of intellectual property
The Group’s ability to compete significantly relies upon the successful protection of its intellectual
property, in particular its patent applications for reformulations of existing drugs. The Group seeks to
protect its intellectual property through the filing of worldwide patent applications, as well as robust
confidentiality obligations on its employees. However, this does not provide assurance that a third party
will not infringe on the Group’s intellectual property, release confidential information about the
intellectual property or claim technology which is registered to the Group.
Capital management
The Group has no loans or borrowings and has sufficient resources, in the view of the Directors, to meet
its working capital requirements for the next 12 months.
The Group manages its capital through the preparation of detailed forecasts, and tracks actual receipts
and outlays against the forecasts on a regular basis, to ensure that the Group will be able to continue
as a going concern while maximising the return to shareholders.
The capital structure of the Group consists of cash and cash equivalents and equity comprising, capital,
reserves and accumulated losses.
3.
Employees and directors
The average monthly number of employees during the year was 5 (2016: 2). The directors of the Group
are employed by N4 UK and as such are included in the employee figure. Total directors remuneration is
detailed in note 13 of these consolidated financial statements.
4.
Loss before tax
Year to 31
December 2017
Proforma
9 months to 31
December 2016
£
1,023,734
18,000
42,000
3,350
7,875
£
-
12,500
-
-
-
Loss before taxation is arrived after charging:
Deemed cost of listing
Fees payable to the Group’s auditors for the audit
of the Group‘s financial statements
Other fees payable to auditors:
- Corporate finance services
- Other assurance services
- Tax advisory services
31
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
5.
Taxation
Current tax
Research and development tax credit receivable for the
current period
Deferred tax
Origination and reversal of temporary differences
Tax in income statement
2017
£
Proforma
2016
£
(89,874)
(14,362)
-
-
(89,874)
(14,362)
The tax charge for the year can be reconciled to the loss in the Consolidated Statement of Comprehensive
Income as follows:
2017
£
Proforma
2016
£
Loss before taxation
(1,926,858)
(190,940)
Tax at the UK corporation tax rate of 19% (2016: 20%)
(366,103)
(38,188)
Expenses not deductible
Deemed cost of acquisition
Research and development tax credits
Changes in unrecognized deferred tax
Effect of change in corporation tax rate
Tax charge for the year
101,411
194,509
(89,874)
67,904
2,279
(89,874)
11,195
-
(14,362)
26,993
-
(14,362)
At the year end the Group had trading losses carried forward of £585,624 (2016: £227,872) for use against
future profits.
6.
Investments
Inventory of securities
The RTO brought into the Group an investment in Alecto Minerals Plc (“Alecto”) at a cost of £59,186
which could not be sold prior to completion of the RTO and as at 31 December 2017 forms part of the
Group’s assets. On 21 December 2016, trading in Alecto’s shares on AIM was suspended due to a proposed
reverse takeover.
Trading on AIM in Alecto’s shares was cancelled with effect from 11 July 2017 due to the delay in
publishing an admission document for the proposed reverse takeover.
Management took the view at 31 December 2017 that, in light of the circumstances referred to above, it
was reasonable to assume that the Alecto shares no longer held any value and, as such, took the decision
to impair the value of the shares to nil.
All other securities held in the portfolio were sold in the year and a gain on the same of these securities
was £177,222.
32
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
6.
Investments (Cont’d)
Investment in subsidiary
Company
Cost
Balance at 1 January 2016 & 31 December 2016
Additions (see note 7)
Balance at 31 December 2017
£
302,705
792,042
1,094,747
Details of the Company’s subsidiary at 31 December 2017 are as follows:
Place of
incorporation and
operation
Principal activity
Proportion of
ownership and
voting rights held
N4 Pharma UK Limited
England and Wales
Reformulation of
generic drugs
100%
The accounting reference date of the subsidiary is co-terminus with that of the Company. The registered
office of the subsidiary is The Mills, Canal Street, Derby, DE1 2RJ.
7.
Business combinations
On 3 May 2017, Onzima Ventures Plc (now N4 Pharma Plc) became the legal parent of N4 Pharma UK
Limited by way of a reverse acquisition. The cost of the acquisition is deemed to have been incurred by
N4 Pharma UK Limited, the legal subsidiary, in the form of equity instruments issued to the owners of
the legal parent. The deemed cost of listing arising on the reverse acquisition was £1,023,734 which was
expensed in the Consolidated Statement of Comprehensive Income.
The Company previously held 49 per cent. of the issued share capital in N4 UK at 2 May 2017.
On 13 April 2017, the Company published an admission document regarding the proposed acquisition of
the remaining 51 per cent. of N4 UK that it did not already own and to raise capital by way of a reverse
takeover.
Consideration for the acquisition was satisfied by the issue of 4,510,800 new ordinary shares in the
Company to the existing shareholder of N4 UK and 4,591,400 deferred consideration shares. This
constitutes the “post-Share Re-Organisation”. The post-Share Re-Organisation is discussed in more detail
in the share capital note 9 below. The deemed cost of the acquisition is recognised in the Consolidated
Statement of Comprehensive Income.
The Company also conditionally raised £1,500,000 (gross) by way of a placing of 21,428,571 new ordinary
shares at 7p per share (the “Placing”) to fund the development of additional patent applications for
reformulations of a wide range of generic drugs, to undertake clinical trials for N4 UK’s reformulation of
sildenafil and for working capital purposes.
Shareholders’ approval of the proposals was obtained at the Company’s general meeting held on 2 May
2017 (the “General Meeting”). The Placing and reverse takeover was completed on 3 May 2017. The
consolidated financial statements of the Group are presented as a continuation of N4 UK’s financial
statements, reflecting the commercial substance of the transaction. However, the equity structure
presented in the consolidated financial statements as discussed above and in note 8 and 9 below reflects
the equity structure of the Company, including the equity instruments issued as part of the transaction.
33
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
7.
Business combinations (Cont’d)
Group
Consideration for initial 49% of equity
Notional consideration for remaining 51% of equity
Net liabilities acquired
Deemed cost of acquisition
Company
Consideration for initial 49% of equity
Notional consideration for remaining 51% of equity
Net liabilities acquired
Acquisition related costs capitalised
Investment in subsidiary (note 6)
8. Share-based payments
£
303,373
315,756
404,604
1,023,734
£
303,373
315,756
404,604
71,013
1,094,747
a) Options
The Company has the ability to issue options to Directors to compensate them for services rendered and
incentivise them to add value to the Group’s longer term share value. Equity settled share-based payments
are measured at fair value at the date of grant. The fair value determined is expensed on a straight line
basis over the vesting period based on the Group’s estimate of the number of shares that will vest. The
value of the change is adjusted to reflect the expected and actual levels of vesting.
Cancellations of equity instruments are treated as an acceleration of the vesting period and any outstanding
charge is recognised in full immediately.
Fair value is measured using a Black Scholes pricing model. The key assumptions used in the model have
been adjusted based on management’s best estimate for the effects of non-transferability, exercise
restrictions and behavioral considerations. The inputs into model were as follows:
Share price
Exercise price
Expected volatility
Expected option life
Risk-free rate
6.375p
7p
27.2%
3 years
4.75%
As at 31 December 2017, there were 6,245,084 options in existence over ordinary shares of the Company
allocated as follows:
Name
Date of Grant
Gavin Burnell
Luke Cairns
Luke Cairns
David Templeton
Paul Titley
14.10.15
14.10.15
03.05.17
03.05.17
03.05.17
Ordinary Shares
under option
2,701,210
675,302
717,143
717,143
1,434,286
6,245,084
Expiry Date
Exercise Price £
14.10.25
14.10.25
03.05.20
03.05.20
14.10.25
0.028
0.028
0.07
0.07
0.07
34
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
8.
Share-based payments (Cont’d)
Options (Cont’d)
a)
On 14 October 2015, 10,804,840 share options were granted to Gavin Burnell, the Company’s former chief
executive. Following the post-Share Re-Organisation, including the consolidation of shares and subsequent
sub-division, these options now equate to a quarter of the original options issued. The 2,701,210 options
held by Gavin Burnell, issued on 14 October 2015 are exercisable at a price of 2.8p at any time before 14
October 2025.
On 14 October 2015, Luke Cairns, a non-executive director of the Company, was granted 2,701,210 share
options. Following the post-Share Re-Organisation, including the consolidation of shares and subsequent sub-
division, these options now equate to a quarter of the original options issued. The 675,302 options held by
Luke Cairns, issued on 14 October 2015 are exercisable at a price of 2.8p at any time before 14 October
2025.
The aggregate fair value of the share options issued on 14 October 2015 as at 31 December 2017 is £23,636.
Each option entitles the holder to subscribe for one ordinary share in N4 Pharma Plc. Options do not confer
any voting rights on the holder.
Following the RTO and subsequent re-admission to AIM on 3 May 2017 (“Admission”), options over new
ordinary shares were granted under the Company’s share option scheme to Luke Cairns, David Templeton
and Paul Titley and are exercisable at a price of 7p per share.
The share options granted on 3 May 2017 are exercisable following the third anniversary of Admission, being
3 May 2020. In the case of Paul Titley, the exercise of options over 717,143 ordinary shares is subject to
certain performance conditions. These options are exercisable at a price of 7 pence per share at any time
before 14 October 2025.
The fair value of the share options issued on 3 May 2017 is £23,962. The total fair value of share options in
issue and not yet exercised as at 31 December 2017 is £47,950.
b) Warrants
A previous placing by the Company when trading as Onzima Ventures Plc resulted in the issue of
15,000,000 investor warrants issued at an exercise price of 2p per warrant. These warrants expired on 7
June 2017.
Of these investor warrants, 12,000,000 were exercised before the expiry date resulting in the balance of
3,000,000 warrants expiring. Details of the warrants exercised are set out below. Due to the post-Share
Re-Organisation and the 4:1 consolidation of shares, the warrants exercised resulted in the issue of 1
share for every 4 warrants.
Warrants issued on 7 June 2016 as at 31 December 2017:
Date of Grant Warrants
issued
Expiry
Date
Exercise
Price £
Exercised
Warrants
07.06.2016
15,000,000
07.06.2017
0.02
12,000,000
Number of
Shares issued
(1:4)
3,000,000
Warrants
Expired
3,000,000
As part of the Placing on 3 May 2017 which raised £1,500,000 before fees and expenses, the Company
issued warrants on a 1 for 1 basis at an exercise price of 8.5p per warrant. This resulted in the issue of
21,428,571 warrants exercisable at 8.5p. The Company also issued warrants, exercisable at 8.5p, to the
Company’s brokers on the transaction lieu of fees (together, the “Placing Warrants”). This resulted in
the total number of Placing Warrants in issue immediately following the Placing being 22,710,923.
35
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
8. Share-based payments (Cont’d)
b) Warrants
The warrants entitle holders to subscribe for new ordinary shares at any time in the period of two years
following the grant of the warrants. The expiry date of the placing warrants is 3 May 2019.
Date of Grant Warrants
issued
Expiry
Date
Exercise
Price £
Exercised
Warrants
03.05.2017
22,710,923
03.05.2019
0.085
2,428,572
Number of
Shares issued
(1:1)
2,428,572
Remaining
Warrants
20,282,351
On 18 December 2017, 2,071,210 of the warrants issued on 3 May 2017 were exercised and a further
357,143 were exercised on 29 December 2017.
During the period, an amount of £424,714, representing the exercised warrants, has been recognised
against share premium and £21,714 to share capital. The fair value of the warrants in issue and not yet
exercised was determined using the Black Scholes model. The fair value of the warrants at 31 December
2017 was £99,685.
c) Share based payments
On his appointment to the board, Nigel Theobald was issued with 4,510,800 new ordinary shares and
4,591,400 deferred consideration shares. The issue of these shares occurred as consideration to Mr
Theobald as the remaining shareholder of N4 UK for the remaining 51% of the share capital. This
transaction constitutes the post-Share Re-Organisation. The deemed cost of the acquisition is recognised
in the Consolidated Statement of Comprehensive Income.
9.
Capital and reserves
77,142,857 Ordinary Shares of 0.4p each (2016: 100
ordinary shares of £1 each)
137,674,431 Deferred Shares of 4p each
279,176,540 Deferred Shares of 0.099p each
2017
£
2016
£
308,571
5,506,977
2,763,848
8,579,396
100
-
-
100
A resolution was passed at the General Meeting for the issue of 21,428,571 new ordinary shares (the
“Placing Shares”) at a price of 7p per share (the “Placing Price”) on 2 May 2017. On 3 May 2017, the
Placing raised £1,500,000 before fees and expenses.
As part of the Placing, a post-Share Re-Organisation took place, for which a number of actions occurred.
On 2 May 2017, prior to the RTO being completed, the following transactions took place:
242 shares were allotted before the share capital re-organisation resulting in a share capital of
181,956,800 ordinary shares of £0.001 each;
The total ordinary shares were then consolidated into 227,446 ordinary shares of £0.08 each; and
The 227,446 ordinary shares of £0.08 each were then sub-divided into 45,489,200 ordinary shares
of £0.004 each.
36
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
9.
Capital and reserves (Cont’d)
The transactions that took place on 3 May 2017 were as follows:
4,510,800 new ordinary shares were issued to the remaining shareholder of N4 UK in return for
the remaining 51 per cent. of shares in N4 UK constituting the reverse takeover;
4,591,400 deferred consideration shares to be issued under certain conditions to the same
recipient in return for the remaining 51 per cent. of shares constituting the reverse takeover;
£1,500,000 was raised by the Placing of 21,428,571 new ordinary shares at 7 pence per share;
Issue of placing warrants on a 1 for 1 basis at an exercise price of 8.5p per placing warrant;
The Company settled a broker invoice via the issue of 285,714 ordinary shares at 7p each
All ordinary shares rank equally in all respects, including for dividends, shareholder attendance and
voting rights at meetings, on a return of capital and in a winding-up.
The 137,674,431 deferred shares acquired as part of the reverse takeover as noted above, have no right
to dividends nor do the holders thereof have the right to receive notice of or to attend or vote at any
general meeting of the Company. On a return of capital or on a winding up of the Company, the holders
of the deferred shares shall only be entitled to receive the amount paid up on such shares after the
holders of the ordinary shares have received the sum of £1,000,000 for each ordinary share held by them.
A further 2,428,572 ordinary shares were issued during the year as a result of the exercise of 2,071,210
warrants on 18 December 2017 and a further 357,143 exercised on 29 December 2017.
Reserves
Share premium reserve
The share premium reserve comprises the excess of consideration received over the par value of the
shares issued, plus the nominal value of share capital at the date of redesignation at no par value.
Share option reserve
The share option reserve comprises the fair value of warrants and options granted, less the fair value of
lapsed and expired warrants and options.
Reserves in the consolidated statement of financial position comprise the share option reserve, reverse
acquisition reserve and the merger reserve.
37
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
10.
Earnings per share
The calculation of basic loss per share at 31 December 2017 was based on the loss of £1,836,984 (9
months to 31 December 2016: £176,578), and a weighted average number of ordinary shares outstanding
of 64,783,082 (2016: 8,844,706), calculated as follows:
Loss attributable to ordinary shareholders
Deemed cost of listing
Adjusted losses attributable to ordinary shareholders
Weighted average number of ordinary shares
Issued ordinary shares at 1 January
Effect of shares issued during the year
Weighted average number of shares at 31 December
Basic loss per share
2017
£
1,835,984
(1,023,734)
813,250
Proforma
2016
£
176,578
-
176,578
100
64,782,982
64,783,082
100
-
100
2017 pence
per share
Proforma
2016 pence
per share
(1.26)
(2.00)
Diluted loss per share
Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding
to assume conversion of all potential dilutive shares, namely share options. The calculation of diluted
loss per share at 31 December 2017 was based on the loss of £1,836,984 (9 months to 31 December 2016:
£176,578), and a weighted average number of ordinary shares outstanding of 65,811,509 (2016:
8,844,706).
Diluted loss per share
11.
Financial instruments
(a) Fair values of financial instruments
2017 pence
per share
Proforma
2016 pence
per share
(1.24)
(2.00)
The fair values of all financial assets and financial liabilities are equal to their carrying amounts shown
in the consolidated statement of financial position.
Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows,
discounted at the market rate of interest at the reporting date if the effect is material.
Trade and other payables
The fair value of trade and other payables is estimated as the present value of future cash flows,
discounted at the market rate of interest at the reporting date if the effect is material.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is
repayable on demand. Where it is not repayable on demand then the fair value is estimated at the
present value of future cash flows, discounted at the market rate of interest at the reporting date.
38
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
11.
Financial instruments (Cont’d)
(b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Group’s receivables and cash and
cash equivalents. The carrying amount of cash, cash equivalents and term deposits represents the
maximum credit exposure on those assets. The cash and cash equivalents are held with UK bank and
financial institution counterparties which are rated at least A.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. Therefore, the
maximum exposure to credit risk at the reporting date was £132,700 (2016: £23,187), being the total of
the carrying amount of financial assets, shown in the consolidated statement of financial position.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The following are the contractual maturities of financial liabilities, including estimated interest
payments and excluding the impact of netting agreements.
Group:
Financial liabilities
31 December 2017
Trade and other
payables
Proforma
31 December 2016
Trade and other
payables
(c) Liquidity risk (Cont’d)
Company:
Financial liabilities
31 December 2017
Trade and other
payables
Proforma
31 December 2016
Trade and other
payables
(d) Currency risk
Carrying
amount
£
Contractual
cash flows
£
6 months or
less
£
6-12
months
£
1 -2 years
£
143,788
143,788
143,788
102,046
102,046
102,046
-
-
-
-
Carrying
amount
£
Contractual
cash flows
£
6 months or
less
£
6-12
months
£
1 -2 years
£
4,125
4,125
4,125
-
-
-
-
-
-
-
The Group does not have significant exposure to foreign currency risk at present. The Group does not
have any monetary financial instruments which are held in a currency that differs from that entity’s
functional currency.
39
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
11.
Financial instruments (Cont’d)
(e) Interest rate risk
Profile
At the reporting date the interest rate profile of interest-bearing financial instruments was:
Group:
Variable rate instruments
Cash and cash equivalents
Company:
Variable rate instruments
Cash and cash equivalents
Carrying amount
2017
£
Proforma
2016
£
1,326,272
19,751
Carrying amount
2017
£
2016
£
1,266,921
172,430
Cash flow sensitivity analysis for variable rate instruments
The Group’s interest bearing assets at the reporting date were invested with financial institutions in the
United Kingdom with a S&P rating of A2 and comprised solely bank accounts.
A change in interest rates would have increased/(decreased) profit or loss by the amounts shown below.
This analysis assumes that all other variables, in particular foreign currency rates, remain constant. This
analysis is performed on the same basis for 2016.
Group:
Variable rate instruments
Company:
Variable rate instruments
2017
Profit or loss
2016
Profit or loss
100 bp
increase
13,263
100 bp
decrease
(13,263)
100 bp
increase
198
100 bp
decrease
(198)
2017
Profit or loss
2016
Profit or loss
100 bp
increase
12,669
100 bp
decrease
(12,669)
100 bp
increase
1,724
100 bp
decrease
(1,724)
40
Notes to the consolidated financial statements for the year ended 31 December 2017
N4 Pharma Plc
12.
Related parties
Key management personnel
As at the year end, there are no key management personnel employed by the Group in addition to the
Directors.
Directors’ remuneration and interests
2017
Director
Nigel Theobald (Chief
Executive Officer)
Paul Titley
David Templeton
Luke Cairns
Gavin Burnell (resigned)
Prof. Humayun Akhter Mughal*
(resigned)
Cash-based
payments
Remuneration
Share-based
payments
£
61,786
34,366
16,000
21,000
30,000
4,000
£
299,045
-
-
-
-
-
Interests
Shares
Options
No.
12,255,233
No.
-
142,857
-
142,857
1,107,143
1,835,400
1,434,286
717,143
1,392,455
2,701,210
-
Totals
£
360,831
34,366
16,000
21,000
30,000
4,000
167,152
299,045
466,197
15,483,490
6,245,094
An amount of £56,000 (2016: £81,000) is payable to Nigel Theobald by N4 UK Limited. This forms part of
the Trade and Other payables.
No contributions are paid by the Group to a pension scheme on behalf of the Directors.
There are no further related parties identified.
13.
Subsequent events
Between 1 January 2018 and 24 April 2018, a total of 9,228,280 warrants were exercised at a price of
8.5p per warrant. This resulted in the issue of 9,228,280 ordinary shares of 0.4p each subsequent to the
year end. The warrants were issued on 3 May 2017 as part of Placing.
As a result of these warrant exercises, the Company has received £784,404 in additional funding.
On 5 February 2018, 4,951,400 ordinary shares were issued to Nigel Theobald (the “Deferred
Consideration Shares”) in accordance with the terms of the share purchase agreement entered into
between the Company and Nigel Theobald dated 13 April 2017.
The RTO brought into the Group an investment in Alecto Minerals Plc (“Alecto”) at a cost of £59,186
which could not be sold prior to completion of the RTO. Trading on AIM in Alecto’s shares has been
cancelled with effect from 11 July 2017 due to the delay in publishing an admission document for the
proposed reverse takeover.
Management took the view that, in light of the circumstances referred to above, it is reasonable to
assume that the Alecto shares no longer hold any value and, as such, took the decision to impair the
value of the shares to nil at 31 December 2017.
Subsequent to year end, Alecto was re-admitted onto the AIM market under the new name ‘Cradle Arc’.
As a result of the re-admission to the market, the Group redeemed the shares held in this investment
and received £27,262 from the sale.
41