Company Registration No. 01435584 (England and Wales)
N4 Pharma Plc
(“N4 Pharma” or the “Company”)
Annual Report and Consolidated Financial Statements
Year Ended 31 December 2018
N4 Pharma Plc
Table of contents
Directors, Company Secretary and Advisors
Chairman’s Report
Board of Directors
Director’s Report
Corporate Governance statement
Independent 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
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Registrars
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen, West Midlands
B62 8HD
Accountants
Offshore Accounting Limited
Offshore View
Les Bas Courtils Road
St Sampson
GY2 4BH
Guernsey
N4 Pharma plc
Directors, Company Secretary and Advisors
Company Number 01435584 (England and Wales)
Directors:
Nigel Theobald (Chief Executive Officer)
Paul Titley (Executive Director)
Dr David Templeton (Non-Executive Chairman)
Luke Cairns (Non-Executive Director)
Registered Office of the Company
6th Floor
60 Gracechurch Street
London
EC3V 0HR
United Kingdom
Company Secretary
SGH Company Secretaries Limited
60 Gracechurch Street
London
EC3V 0HR
United Kingdom
Nominated Adviser and Broker
Allenby Capital Limited
5th Floor
5 St Helen’s Place
London
EC3A 6AB
United Kingdom
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
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N4 Pharma plc
Chairman’s Report
N4 Pharma Plc (the “Company”), is the holding company of N4 Pharma UK Limited (“N4 UK”) and
N4 Biotech Limited (“N4 Biotech”) which form the group (the “Group”). N4 UK is a specialist
pharmaceutical company engaged in the development of mesoparticulate silica delivery systems to
improve the cellular delivery and potency of vaccines. N4 Biotech was originally formed as a
potential vehicle to split the groups’ activities between the Company’s Nuvec® delivery system and
its previous generics products but now remains dormant.
Review of operations for the financial year ended 31 December 2018
During the year to 31 December 2018, as anticipated, no revenue was generated by the Group. Other
operating income included £72,832 of government grants.
The operating loss for the year was £1,417,089 (31 December 2017: £897,825 loss).
Throughout the year, £784,404 of new funds were raised through the exercise of warrants and a
further £1.05m was raised post year end through the placing of 10,500,000 new ordinary shares (the
“Placing”). In addition to the £793,141 of cash at the year end, the recent Placing sees the Company
in a robust financial position in respect of its current work streams.
Key Operational Events and Opportunities
During the year, the Company completed a pilot human clinical trial to establish the
pharmacokinetic profile (“PK”) of its sildenafil reformulation, which unfortunately did not meet any
of the PK endpoints for the target product profile. The results of this trial indicated that additional
formulation development followed by further clinical testing was required.
The Board, having reviewed the full data report and considered the costs and time required to
perform additional reformulation, determined that the risk reward profile to reformulate sildenafil
to meet the required drug release profile, exemplified in the patent, would be too great. This result
with sildenafil also had similar implications for other patents within the Company’s generics
portfolio, namely aprepitant and duloxetine. The Board, therefore, took the decision that it was in
the best interest of the Company as well as its shareholders to focus the Company’s ongoing efforts
on Nuvec®, a novel drug delivery system licenced from the University of Queensland. The Company
subsequently stopped working on generating the required data needed to maintain the sildenafil
and associated patents and handed back the licence to these patents to OPAL IP.
The decision to close the Generics division was made in the knowledge that Nuvec® had
demonstrated promising results in relevant in vivo and in vitro models and had the potential to
develop into a significant opportunity for the Company. The decision was therefore taken to focus
available resources on this opportunity. Consequently, research with Nuvec® as a delivery system
for DNA and mRNA based vaccines is continuing. A significant property of Nuvec® which is worth
noting is that it acts as a natural adjuvant system, thereby removing the need to add additional
adjuvants in the vaccine formulation process.
N4 Biotech was formed as a potential vehicle to split the groups’ activities between its Nuvec®
delivery system and its previous generics products. Since the closure of the generics division, this
split is unnecessary so N4 Biotech will remain as dormant and will not be used.
The Company is continuing to confirm and extend the Nuvec® dataset and the post year end raise
of additional funds will allow it to undertake further research on the efficacy of Nuvec® in both a
virology and oncology setting with the aim of using this data to enable it to seek commercial pre-
clinical collaborations with owners of DNA and mRNA sequences developing vaccines and cancer
treatments.
In September 2018, the Board appointed Dr Allan Hey as Head of CMC Development and in November
2018 appointed Dr Melody Janssen as a Consultant to oversee the biological aspects of the Nuvec®
research program.
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N4 Pharma plc
Chairman’s Report (Cont’d)
The focus for the Company’s Nuvec® delivery system continues to be on generating data which will
enable the Company to engage commercially with pharmaceutical and biotech companies who are
looking to utilise novel delivery systems, such as Nuvec®, to improve the efficacy of their own DNA
and mRNA vaccines that they have in development.
In order to build a strong case with which to engage with potential partners, the Board has regularly
reviewed the data obtained in experimental studies conducted by both collaborators and
contract research organisations ("CROs") engaged by the Company. As part of that review, it has
become clear that not only were there a number of variables between the studies (as determined
by the collaborator or CRO) such as dosage, injection volume and source of antigen, but also the
handling and preparation of Nuvec® may have differed materially from the original protocols used
by the University of Queensland ("UQ") and then subsequently developed by N4 Pharma.
Consequently, the Directors have decided that, in order to maximise the chances of success for
future or repeat studies, the methodology used in the original UQ's studies needs to be more
extensively documented. This methodology will form the basis of the technical transfer to other
collaborators and will ensure collaborators and CROs use a standard methodology with their
subsequent work.
To that end, the Company has commissioned UQ to repeat its original studies to demonstrate
repeated strong antibody response with the standard test antigen Ovalbumin ("OVA") and, in doing
so, document extensively the preparation steps for Nuvec® prior to injection. This study at UQ will
provide a validated testbed against which future enhancements can be benchmarked.
Subject to this work achieving the targeted in vivo efficacy, the program to add further efficacy
data to our data package will recommence. As outlined above, the Directors believe that by
reverting to the original source of Nuvec® and more completely defining UQ's preparation
of Nuvec®, it will greatly enhance the potential for success and understanding of comparable studies
moving forward as well as assisting with potential collaboration opportunities in this significant
market.
Despite the current setback with regard to the in vivo reproducibility of results, the in vitro results
continue to show excellent results with DNA and mRNA antigens and fully support the potential of
Nuvec® as a novel delivery system. The business model and potential for Nuvec® remains the same
in that we aim to efficiently spend sufficient funds to develop our platform to the point where we
can secure licence payments for the use of our delivery system and ultimately achieve royalties on
any products developed using Nuvec®.
Future Prospects
In the short to medium term, we will continue to focus our efforts on building a robust data set for
Nuvec® which demonstrates its efficacy in a number of key non-clinical models. In addition, the
safety profile of Nuvec® will be evaluated in appropriate non-clinical tests to confirm the known
safe profile of mesoparticulate silica. Funds will also be utilised to move towards a good
manufacturing practise (“GMP”) ready manufacture ahead of clinical trials with partners, as and
when needed.
In pharmaceutical Research & Development there is no quick fix or alternative to doing things in a
methodical way and to the required standards to advance the product through key milestones
towards a point of commercialisation or a deal with a partner. The Company is prioritising the key
pieces of research it feels are required to advance its data and to enable it to seek such
collaborations and will provide updates as each element completes.
In addition to completing the studies at UQ to confirm the original in vivo results and then extending
the Nuvec® dataset, the board of directors will actively look to add or acquire additional assets to
the Company’s portfolio. These would ideally but not exclusively be in the same broad therapeutic
area, with a view to developing a portfolio of options for development. The Board believes
maintaining a portfolio of options will increase the Company’s ability to maximise shareholder value.
5
N4 Pharma plc
Chairman’s Report (Cont’d)
The recent fundraising leaves the Company with a strong cash position to continue to develop the
Nuvec® dataset and chemistry, manufacturing and controls (“CMC”) scale up work, whilst looking
for other opportunities to add to its portfolio.
On behalf of the Board, I would like to thank all of our shareholders for their continued patient
support and look forward to providing further updates on our progress.
By order of the Board
David Templeton
Chairman
13 May 2019
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N4 Pharma plc
Board of Directors
Nigel Theobald (Chief Executive Officer)
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 five 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)
Paul has over 40 years’ experience in the pharmaceutical industry. He 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 four
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 (Independent Non-Executive Chairman)
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 2010 when he set
up his own consulting business offering discovery and early development advice to several
pharmaceutical companies.
Luke Cairns (Independent Non-Executive Director)
Luke has spent over 19 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
N4 Pharma plc
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 £1,184,843 during the year ended 31 December 2018
(2017: £1,836,984).
Background and principal activities
N4 UK is a specialist pharmaceutical company which improves the delivery of novel vaccines and
cancer 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 UK 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
A total of 10,500,000 Placing Shares at a price of 10p per Ordinary Share were admitted to the
London Stock Exchange on 14 February 2019. On admission of the Placing Shares, the Group’s issued
ordinary share capital consisted of 101,462,537 ordinary shares of 0.4p each with one vote per
Ordinary Share. The placing of Shares raised £1.05 million before expenses.
Dividends
The Board has not declared a dividend for the year ended 31 December 2018 (2017: nil).
Directors’ remuneration and interests
2018
Director
Nigel Theobald
Paul Titley
David Templeton
Luke Cairns
Cash-based
payments
Remuneration
Share-based
payments
£
70,000
40,000
24,000
24,000
158,000
£
-
-
-
-
-
Interests
Shares
Options
No.
16,846,633
No.
-
142,857 1,434,286
717,143
142,857 1,392,445
-
Totals
£
70,000
40,000
24,000
24,000
158,000
17,132,347 3,543,874
1,004,000 options over Ordinary Shares were issued during the year ended 31 December 2018. These
are detailed in note 9.
The above remuneration relates to N4 Pharma Plc (and N4 Pharma UK Limited) directors. There is
no other Key Management Personnel remuneration.
8
N4 Pharma plc
Directors’ Report (Cont’d)
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’ Report and the consolidated financial
statements in accordance with applicable law and regulations.
Company law and AIM Rules require the directors to prepare consolidated financial statements for
each financial year. Under that law, they have elected to prepare the consolidated 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 consolidated 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 consolidated
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 consolidated financial statements; and
prepare the consolidated 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 and Company’s transactions and disclose with reasonable accuracy at any time
the financial position of the Group and Company and enable them to ensure that the consolidated
financial statements comply with the Companies Act 2006 and the AIM Rules. They are also
responsible for safeguarding the assets of the Group and Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of the consolidated financial statements may differ from legislation
in other jurisdictions.
The Company is compliant with AIM Rule 26 regarding the Company’s website.
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 consolidated 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 consolidated financial statements. For this reason, they continue to adopt
the going concern basis in preparing the consolidated 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 2018 of £1,344,247
(2017: £950,800 outflow). At 31 December 2018, the Group had cash balances of £793,141 (2017:
£1,326,272) and a surplus in net working capital (current assets, including cash, less current
liabilities) of £879,944 (2017: £1,279,754).
On 14 February 2019 the Group and Company raised £1,050,000 before expenses, from a share
placing.
9
N4 Pharma plc
Directors’ Report (Cont’d)
Going concern (cont’d)
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 consolidated financial statements. Close monitoring of current and forecast
expenditure is undertaken by the board and key executive decisions discussed at monthly board
meetings.
On behalf of the Board
_____________________________________
Nigel Theobald
Director
13 May 2019
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N4 Pharma plc
Corporate Governance Statement
The Company’s ordinary shares are admitted to trading on AIM of the London Stock Exchange and
the Company is subject to the continuing requirements of the AIM Rules. The UK Corporate
Governance Code sets out the principles of good practice in relation to corporate governance which
should be followed by companies with a full listing on the London Stock Exchange. Although the
Company is not required to comply with the UK Corporate Governance Code by virtue of being an
AIM-quoted company, during the period under review the Board sought to apply the QCA Corporate
Governance Code for Small and Mid-Size Quoted Companies (“QCA Guidelines”) to the extent
appropriate and practical for a company of its nature and size. With effect from September 2018,
the Company adopted the Quoted Companies Alliance Corporate Governance Code 2018 (the “QCA
Code”). This section provides general information on the Group’s adoption of the QCA Guidelines
and the QCA Code. In addition, further detail about how the Company complies with the ten
principles of the QCA Code can be found on the Company’s website.
The Board
The Board consists of four Directors, two of whom are Non-Executive and are considered to be
independent in character and judgement, and there are no relationships or circumstances which
could materially affect or interfere with the exercise of their judgement save only in respect of
their holding of ordinary shares and options in the Company as set out on page 8. The names of the
Directors, together with their biographical details, are set out on page 7.
The roles of Chairman and Chief Executive Officer are held by separate directors and there is clear
division of responsibilities between them. The Chairman is responsible for the leadership of the
board and is pivotal in fostering a culture that adopts good corporate governance. The Chairman
together with the rest of the board sets direction for the Company through a formal schedule of
matters reserved for its decision. The two executive directors have particular roles and areas of
responsibility and continually engage with the Company’s shareholders and stakeholders. The board
has a schedule of matters reserved for its review and approval, such items include strategy, approval
of major capital expenditure projects, approval of the annual and interim results, annual budgets,
dividend policy and Board structure. It monitors the exposure to key business risks and reviews the
strategic direction of all trading subsidiaries, their annual budgets, their performance in relation to
those budgets and their capital expenditure. The Board delegates day-to-day responsibility for
managing the business to the Executive Directors and the senior management team.
In 2018, the Board met formally seven times and each Director attended each board meeting. In
addition, the Board has ad hoc meetings as required and regular management meetings. Each of the
Directors is subject to retirement by rotation and re-election in accordance with the articles of
association of the Company. Any Directors appointed by the Board are subject to election by
shareholders at the first Annual General Meeting (“AGM”) after their appointment.
Non-Executive directors are expected to devote such time as is necessary for the proper
performance of their duties. This includes attendance at Board meetings, the AGM, meetings with
the directors, meetings with shareholders, and committee meetings.
Paul Titley is a part time executive director working two days per week.
The Board composition is reviewed from time to time as appropriate. The Board considers that,
collectively the Directors have the necessary mix of experience, skills, personal qualities and
capabilities, with the appropriate balance of Executives and Non-Executives, to deliver the strategy
of the Company for the benefit of its Shareholders over the medium term. As work continues on
Nuvec® it is the Directors’ intention to add to broaden the Board’s skill set particularly in the areas
of oncology and virology delivery systems. The non-executive directors use the board meetings to
review and assess the performance of the executive Directors.
11
N4 Pharma plc
Corporate Governance Statement (Cont’d)
Risk Management and Internal Control
The Directors are aware of their responsibility for establishing and communicating a system to
manage risk and implement internal controls.
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 on a regular basis.
The Company’s internal control systems are designed to provide the 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.
The key risks facing the Company together with any mitigation taken are considered further on
pages 41 to 43 of this document.
Committees
The Audit Committee consists of non-executive Directors, David Templeton and Luke Cairns, and is
chaired by Luke Cairns. The Audit Committee, inter alia, determines and examines matters relating
to the financial affairs of the Company including the terms of engagement of the Company’s auditors
and, in consultation with the auditors, the scope of the annual audit. It receives and reviews reports
from management and the Company’s auditors relating to the half yearly and annual accounts and
the accounting and internal control systems in use throughout the Group. It also monitors and is
responsible for ongoing compliance by the Company with the AIM Rules for Companies.
The Remuneration Committee consists of non-executive Directors, David Templeton and Luke
Cairns, and is chaired by David Templeton. The Remuneration Committee inter alia, reviews and
makes recommendations in respect of the Directors’ remuneration and benefits packages, including
share option and the terms of their appointment.
Given the Company’s current size, the Board has not considered it necessary to constitute a
nomination committee and the Board, as a whole, will consider the appointment of directors and
other senior employees of the Company as and when required.
In light of the size and stage of the Company does not consider it appropriate to publish an audit
committee or remuneration committee report in this annual report and accounts but will consider
the matter annually as the Company grows.
Communication with shareholders and stakeholders
Details of the Company’s current strategy and business model can be found in pages 4 to 6 of this
document and is reflective of where the Company sits in the research and development cycle with
Nuvec®.
As an AIM quoted company, the Company seeks to update investors on material matters through
announcements via RNS supplemented by presentations and the engagement of a PR firm. Historical
company documents can be found on the Company’s website.
In addition, all shareholders can attend the Company’s Annual General Meeting, where there is an
opportunity to question the Directors as part of the agenda, or more informally after the meeting.
Communication with shareholders is seen as an important part of the Board’s responsibilities, and
care is taken to ensure all price-sensitive information is made available to all shareholders at the
same time, in accordance with the AIM Rules, which, by definition, means the Board may not always
be able to answer questions as directly or immediately as shareholders may like.
12
N4 Pharma plc
Corporate Governance Statement (Cont’d)
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 12.
By order of the Board
David Templeton
Chairman
13
N4 Pharma plc
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 2018 set out on pages 19 to 44. 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 2018 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.
14
N4 Pharma plc
Independent auditor’s report to the members (Cont’d)
Key Audit Matter
How our audit addressed the key audit matter
Nuvec® delivery system
Our audit procedures included the following:
With the closure of the generics
division, the company and group
are focused on one business
segment. The success of this
delivery system is therefore of
the
importance
critical
group.
to
We discussed progress management have made with
case studies;
We reviewed board minutes for all references to
Nuvec®; and
We considered information in the public domain.
We concurred with Management that the project remains
viable at the date of signing the financial statements and the
continued investment by the company in Nuvec®.
Going concern
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
investing and developing
its
Nuvec® delivery system. The
going concern assumption has
been recognised as a key audit
matter.
We have obtained and critically appraised the
Directors’
and
concern
management’s strategic plans to generate revenue and
profitability;
assessment
going
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 consider that the disclosures
relating to going concern have been made appropriately.
Capitalisation of research and
development expenditure
Our audit procedures included the following:
is
group
expenditure
incurring
The
significant
in
respect of R&D. There is a risk
that the treatment applied in
the
is
incorrect.
statements
financial
We have discussed the treatment of R&D expenditure
income streams with the
and future probable
Directors;
We have tested a sample of R&D expenses and
corroborated the accounting treatment; and
We have considered the claim for R&D tax credits.
Based on our procedures performed we consider that the
expenditure on R&D has been appropriately treated.
15
N4 Pharma plc
Independent auditor’s report to the members (Cont’d)
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 5% of gross assets for the year ended
31 December 2018.
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.
16
N4 Pharma plc
Independent auditor’s report to the members (Cont’d)
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and 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.
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.
17
N4 Pharma plc
Independent auditor’s report to the members (Cont’d)
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to
the company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
…………………………………
Alistair Hunt (Senior Statutory Auditor)
for and on behalf of Saffery Champness LLP
Chartered Accountants
Statutory Auditors
Unex House
Burges Boulevard
Peterborough
PE1 1NG
13 May 2019
18
Consolidated Statement of Comprehensive Income for the year ended 31 December 2018
N4 Pharma Plc
Notes
Year ended 31
December 2018
£
Year ended 31
December 2017
£
Government grant income
72,832
109,913
Gross Profit
72,832
109,913
Research and development costs
General and administration costs
Reorganisation costs
(846,176)
(643,745)
-
(409,808)
(316,632)
(281,298)
Operating loss for the year
(1,417,089)
(897,825)
Deemed cost of acquisition
Finance expenditure
Gain on sale of investment
Loss for the year before tax
Taxation
6
4
5
-
(981)
27,693
(1,023,734)
(5,299)
-
(1,390,377)
(1,926,858)
205,534
89,874
Loss for the year after tax
(1,184,843)
(1,836,984)
Other comprehensive income net of
tax
Total comprehensive loss for the
year 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
All activities derive from continuing operations.
-
-
(1,184,843)
(1,836,984)
89,440,373
91,305,287
(1.32p)
(1.30p)
64,783,082
65,811,509
(1.26p)
(1.24p)
The notes on pages 26 to 44 are an integral part of the consolidated financial statements
19
N4 Pharma Plc
Consolidated Statement of Financial Position as at 31 December 2018
Notes
31 December 2018
£
31 December 2017
£
-
-
276,926
793,141
1,070,067
1,070,067
(159,666)
(30,457)
(190,123)
-
-
132,700
1,326,272
1,458,972
1,458,972
(143,788)
(35,430)
(179,218)
879,944
1,279,754
-
-
879,944
1,279,754
Assets
Non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
6
7
Total Assets
Liabilities
Current liabilities
Trade and other payables
Accruals and deferred income
8
Total assets less current
liabilities
Non-current liabilities
Amounts falling due after
more than one year
Net Assets
Equity
Share capital
Share premium
Share option reserve
Reverse acquisition reserve
Merger reserve
Retained earnings
Total Equity
10
10
10
8,634,675
9,328,848
81,909
(14,138,244)
279,347
(3,306,591)
879,944
8,579,396
8,513,670
147,635
(14,138,244)
299,045
(2,121,748)
1,279,754
The notes on pages 26 to 44 are an integral part of the consolidated financial statements.
The consolidated financial statements were approved by the board of directors on 13 May 2019 and
signed on its behalf:
Nigel Theobald
20
Company Statement of Financial Position as at 31 December 2018
N4 Pharma Plc
Notes
31 December 2018
£
31 December 2017
£
Assets
Non-current assets
Investments
Intercompany loan receivable
Current assets
Trade and other receivables
Cash and cash equivalents
6
13
7
Total Assets
Liabilities
Current liabilities
Trade and other payables
Accruals and deferred income
8
1,094,847
2,009,000
3,103,847
122,896
646,398
769,294
3,873,141
(5,244)
(18,907)
(24,151)
1,094,747
809,000
1,903,747
51,030
1,266,921
1,317,951
3,221,698
(4,125)
(16,400)
(20,525)
Total assets less current
liabilities
3,848,990
3,201,173
Net Assets
Equity
Share capital
Share premium
Share option reserve
Merger reserve
Retained earnings
Total Equity
3,848,990
3,201,173
10
10
10
8,634,675
9,328,848
81,909
279,347
(14,475,789)
8,579,396
8,513,670
147,635
299,045
(14,338,573)
3,848,990
3,201,173
The Company recorded a pre-tax loss of £137,216 for the year (31 December 2017: £15,652 loss).
The notes on pages 26 to 44 are an integral part of the consolidated financial statements.
The financial statements were approved by the board of directors on 13 May 2019 and signed on its
behalf:
Nigel Theobald
21
N4 Pharma Plc
Consolidated Statement of Changes in Equity for the year ended 31 December 2018
(i) Year ended 31 December 2018
Share
Capital
Share
Premium
£
£
Share
Option
Reserve
£
Reverse
Acquisition
Reserve
£
Merger
Reserve
Retained
Earnings
Total Equity
£
£
£
Balance at 1 January 2018
8,579,396
8,513,670
147,635
(14,138,244)
299,045
(2,121,748)
1,279,754
Total comprehensive loss for the year
Share issue
Share option reserve
-
55,279
-
-
815,178
-
-
-
(65,726)
-
-
-
-
(19,698)
-
(1,184,843)
-
-
(1,184,843)
850,759
(65,726)
At 31 December 2018
8,634,675
9,328,848
81,909
(14,138,244)
279,347
(3,306,591)
879,944
(ii) Year ended 31 December 2017
Share
Capital
Share
Premium
£
£
Share
Option
Reserve
£
Reverse
Acquisition
Reserve
Merger
Reserve
Retained
Earnings
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
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)
-
-
At 31 December 2017
8,579,396
8,513,670
147,635
(14,138,244)
299,045
(2,121,748)
1,279,754
The notes on pages 26 to 44 are an integral part of the consolidated financial statements.
22
Company Statement of Changes in Equity for the year ended 31 December 2018
N4 Pharma Plc
(i) Year ended 31 December 2018
Share Capital
Share
Premium
Share Option
Reserve
Merger
Reserve
Retained
Earnings
Total Equity
£
£
£
£
£
£
Balance at 1 January 2018
8,579,396
8,513,670
147,635
299,045
(14,338,573)
3,201,173
Total comprehensive loss for the year
Share issue
Share option reserve
- -
-
55,279
-
815,178
-
-
(65,726)
-
(19,698)
-
(137,216)
-
-
(137,216)
850,759
(65,726)
At 31 December 2018
8,634,675
9,328,848
81,909
279,347
(14,475,789)
3,848,990
(ii) 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
The notes on pages 26 to 44 are an integral part of the consolidated financial statements.
23
N4 Pharma Plc
Consolidated Statement of Cash Flow for the year ended 31 December 2018
Operating activities
Loss before tax
Interest
Deemed cost of acquisition
Share based payments to employees
Gain on sale of investments
Operating loss before changes in working
capital
Movements in working capital:
Increase in trade and other receivables
Increase in trade, other payables and
accruals
Taxation
Year ended 31
December 2018
£
Year ended 31
December 2017
£
(1,390,377)
981
-
629
(27,693)
(1,926,858)
5,299
1,023,734
-
-
(1,416,460)
(897,825)
(9,266)
10,905
70,574
(109,513)
56,538
-
Cash used in operations
(1,344,247)
(950,800)
Net cash flows used in operating activities
(1,344,247)
(950,800)
Investing activities
Cash acquired on reverse acquisition
Sale of investments
6
-
27,693
402,990
-
Net cash flows from investing activities
27,693
402,990
Financing activities
Interest paid
Net proceeds of ordinary share issue
Cost of share issue
(981)
784,404
-
(5,299)
1,988,970
(129,340)
Net cash flows from financing activities
783,423
1,854,331
Net (decrease)/ increase in cash and cash
equivalents
Cash and cash equivalents at beginning of
the year
(533,131)
1,306,521
1,326,272
19,751
Cash and cash equivalents at 31 December
793,141
1,326,272
The notes on pages 26 to 44 are an integral part of the consolidated financial statements
24
N4 Pharma Plc
Company Statement of Cash Flow for the year ended 31 December 2018
Operating activities
Loss before tax
Interest
Unrealised gain on investments
Realised gain on sale of investment
Share based payments to employees
Year ended 31
December 2018
£
Year ended 31
December 2017
£
(137,216)
(70,784)
-
(27,693)
629
(15,652)
(21,261)
(669)
-
-
Operating loss before changes in working capital
(235,064)
(37,582)
Movements in working capital:
Decrease in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash (used)/generated in operations
Net cash flows (used)/generated in operating
activities
Investing activities
Proceeds from sale of investments
Investment costs capitalised
Acquisition of investment
Loan receivable advancements
-
(71,867)
3,627
(303,304)
231,591
145,998
(56,738)
283,269
(303,304)
283,269
27,693
-
(100)
(1,200,000)
-
(71,013)
(404,605)
(594,051)
Net cash flows used investing activities
(1,172,407)
(1,069,669)
Financing activities
Interest received
Net proceeds of ordinary share issue
Cost of share issue
70,784
784,404
-
21,261
1,988,970
(129,340)
Net cash flows from financing activities
855,188
1,880,891
Net (decrease)/increase in cash and cash
equivalents
(620,523)
1,094,491
Cash and cash equivalents at beginning of the year
1,266,921
172,430
Cash and cash equivalents at 31 December
646,398
1,266,921
The notes on pages 26 to 44 are an integral part of the consolidated financial statements
25
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
1.
Accounting policies
1.1
Reporting entity
N4 Pharma Plc (the “Company”), is the holding company for N4 Pharma UK Limited (“N4 UK”), and N4
Biotech Limited (“N4 Biotech”), and together form the group (the “Group”). N4 UK is a specialist
pharmaceutical company engaged in the development of mesoparticulate silica delivery systems to
improve the cellular delivery and potency of vaccines. 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 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 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
consolidated 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 consolidated financial statements.
1.2
Measurement convention
The consolidated financial statements are prepared on the historical cost basis, except for the following
item in the consolidated statement of financial position and consolidated statement of comprehensive
income:
Share-based payments related to investment acquisition are measured at fair value shown in the
Merger Reserve.
Share-based payments related to employee costs are measured at fair value shown in the
Statement of Comprehensive Income.
Share Warrants and Options are measured at fair value using the Black Scholes model (see note
9).
Equity investments are measured at fair value.
The consolidated financial statements are presented in Great British Pounds (“GBP” or “£”).
1.3
Going concern
These consolidated 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 consolidated financial statements. For this reason, they continue to adopt the going
concern basis in preparing the consolidated 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 2018 of £1,344,247 (2017:
£950,800 outflow). At 31 December 2018, the Group had cash balances of £793,141 (2017: £1,326,272)
and a surplus in net working capital (current assets, including cash, less current liabilities) of £879,944
(2017: £1,279,754).
On 14 February 2019 the group raised £1,050,000 from a share placing before expenses.
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 consolidated financial statements. Close monitoring of current and forecast expenditure is
undertaken by the board and key executive decisions discussed at monthly board meetings.
26
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
1.
Accounting policies (Cont’d)
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 comparatives present the substance of the transaction in accordance with IFRS2.
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.
1.5
Revenue
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 recognised any revenue to date.
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.
Interest income and interest payable is recognised in the consolidated statement of comprehensive
income as it accrues, using the effective interest method. Foreign currency gains and losses are reported
on a net basis.
27
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
1.
Accounting policies (Cont’d)
1.7
Expenses (continued)
Research and development
Research costs are charged against the consolidated statement of comprehensive income 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 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 consolidated 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.
28
Notes to the consolidated financial statements for the year ended 31 December 2018
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 its delivery system called Nuvec®. 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 consolidated 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.
29
Notes to the consolidated financial statements for the year ended 31 December 2018
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”).
30
Notes to the consolidated financial statements for the year ended 31 December 2018
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 the consolidated statement of comprehensive income 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 the consolidated statement of comprehensive income.
31
Notes to the consolidated financial statements for the year ended 31 December 2018
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 2018 that are applicable to the Group have been applied in preparing
these consolidated financial statements.
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of
the consolidated financial statements are disclosed below. The Group intends to adopt these standards,
if applicable, when they become effective.
Standard
IAS 12 (Amendments)
IAS 23
IAS 28
IFRS 3 (Amendments)
IFRS 9 (Amendments)
IFRS 16
IAS 19 (Amendments)
IFRIC 23
N/A
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-Prepayment Features and Negative
Compensation
Leases
Plan amendment, Curtailment and Settlement
Uncertainty over Income Tax Treatments
Amendments
Framework in IFRS Standards
the Conceptual
to References
to
Effective date
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2020
The Directors are continuing to assess the potential impact that the adoption of the standards listed
above will have on the consolidated financial statements for the year ended 31 December 2019. It is not
anticipated that amendments to IFRS 16, Leases, will have an impact on the financial statements given
there are currently no lease agreements. Should any lease agreements arise the impact on the financial
statements will be assessed.
1.17 Use of estimates and judgements
The preparation of consolidated 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 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 consolidated statement of comprehensive income. The recognition
criteria include 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 these criteria are met, and it is probable that future economic
benefit attributable to the product will flow to the Group, then the expenditure will be capitalised.
32
Notes to the consolidated financial statements for the year ended 31 December 2018
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. See note 12 for further detail. 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 engaged in the development of
mesoparticulate silica delivery systems to improve the cellular delivery and potency of vaccines. 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.
33
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
2.
Risk management (Cont’d)
Operational risk (Cont’d)
The Group has a limited operational 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 licenced and owned patent applications for Nuvec®. 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 4 (2017: 5). 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.
Wages and Salaries
Social security costs
Pension costs
Year to 31
December 2018
£
Year to 31
December 2017
£
233,282
22,556
807
148,048
16,505
-
256,645
164,553
34
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
4.
Loss before tax
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
5.
Taxation
Current tax
Research and development tax credit receivable for the
current period
Adjustments in respect of prior periods
Deferred tax
Origination and reversal of temporary differences
Year to 31
December 2018
Year to 31
December 2017
£
-
20,600
-
1,000
3,550
£
1,023,734
18,000
42,000
3,350
7,875
2018
£
2017
£
(222,066)
16,532
(205,534)
(85,608)
(4,266)
(89,874)
-
-
Tax in income statement
(205,534)
(89,874)
The tax charge for the year can be reconciled to the loss in the Consolidated Statement of Comprehensive
Income as follows:
Loss before taxation
2018
£
2017
£
(1,390,377)
(1,926,858)
Tax at the UK corporation tax rate of 19% (2017: 19%)
(264,171)
(366,103)
Expenses not deductible
Deemed cost of acquisition
Net Research and development tax credits
Changes in unrecognized deferred tax
Prior year adjustment
Effect of change in corporation tax rate
Tax charge for the year
(5,320)
-
(96,406)
143,831
16,532
-
(205,534)
101,411
194,509
(89,874)
67,904
-
2,279
(89,874)
At the year end the Group had trading losses carried forward of £1,257,239 (2017: £585,624) for use
against future profits.
35
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
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 formed 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.
Management had taken the view at 31 December 2017 that the Alecto shares no longer held any value
and impaired the value of the shares to nil for the consolidated financial statements for the year ended
31 December 2017.
Subsequent to the year end 31 December 2017, 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 £27,693 from the sale.
As at 31 December 2018, the Company held 1,388,889 Ferring warrants (2017: 1,388,889 warrants) and
542,233 Valirx warrants (2017: 542,233 warrants) which have no value as at the year end. These are
legacy holdings from Onzima Plc prior to the RTO.
Investment in subsidiary
Company
Cost
Balance at 1 January
Additions
2018
£
2017
£
1,094,747
302,705
100
792,042
Balance at 31 December
1,094,847
1,094,747
Details of the Company’s subsidiaries at 31 December 2018 are as follows:
Place of
incorporation and
operation
Principal activity
Proportion of
ownership and
voting rights held
N4 Pharma UK Limited
England and Wales
N4 Biotech Limited
England and Wales
delivery of
vaccines and
therapeutics
Wholesale of
pharmaceutical
goods (dormant)
100%
100%
The accounting reference date of the subsidiaries are co-terminus with that of the Company. The
registered office of the subsidiaries are The Mills, Canal Street, Derby, DE1 2RJ.
36
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
7.
Trade and other receivables
Prepayments
VAT receivable
Corporation tax debtor
R&D expenditure credit
Loan interest receivable
Other debtors
8.
Trade and other payables
Trade creditors
Employee creditors
Loan due to directors
Other creditors
Group
2018
£
11,861
42,998
220,568
1,499
-
-
Group
2017
£
Company
2018
£
Company
2017
£
13,361
3,388
85,608
-
-
30,343
10,534
6,002
-
-
103,960
2,400
12,890
3,388
-
-
32,352
2,400
276,926
132,700
122,896
51,030
Group
2018
£
113,093
9,107
36,000
1,466
Group
2017
£
Company
2018
£
Company
2017
£
79,462
6,187
56,000
2,139
4,844
400
-
-
1,888
2,237
-
-
159,666
143,788
5,244
4,125
9. Share-based payments
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 unwound on a straight-line
basis over the vesting period based on the Group’s estimate of the number of shares that will vest and
recognised as share premium. 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:
37
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
9.
Share-based payments (Cont’d)
a) Options (Cont’d)
2017 Options
Share price
Exercise price
Expected volatility
Expected option life
Risk-free rate
6.375p
7p
27.2%
3 years
4.75%
2018 Options
Share price
Exercise price
Expected volatility
6.6p
6.6p
45.2%
Expected option life
6.5 years
Risk-free rate
5.00%
As at 31 December 2018, there were 7,249,084 (2017: 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
Andrew Leishman
Alan Hey
14.10.15
14.10.15
03.05.17
03.05.17
03.05.17
26.09.18
26.09.18
Ordinary Shares
under option
2,701,210
675,302
717,143
717,143
1,434,286
286,857
717,143
7,249,084
Expiry Date
Exercise Price £
14.10.25
14.10.25
03.05.20
03.05.20
14.10.25
26.09.28
26.09.28
0.028
0.028
0.07
0.07
0.07
0.066
0.066
The aggregate fair value of the share options issued on 14 October 2015 as at 31 December 2018 is
£20,910 (2017: £23,988).
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.
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 £6,040 (2017: £23,962).
On 26 September 2018 a further 1,004,000 options over ordinary shares were granted under the
Company’s share option scheme to Andrew Leishman and Alan Hey, and are exercisable at a price of
6.60p per share.
The share options granted to Andrew Leishman lapsed subsequent to the year end 31 December 2018 due
to his departure from the Company.
The total fair value of share options in issue and not yet exercised as at 31 December 2018 is £26,950
(2017: £47,950).
38
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
9.
Share-based payments (Cont’d)
b) Warrants
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.
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
03.05.2017
Warrant
balance at
1 January
2018
20,282,351
Expiry
Date
Exercise
Price £
Exercised
Warrants
Number of
Shares issued
(1:1)
03.05.2019 0.085
9,228,280
9,228,280
Date of Grant Warrants
issued at 3
May 2017
Expiry
Date
Exercise
Price £
Exercised
Warrants
Number of
Shares issued
(1:1)
03.05.2017
22,710,923
03.05.2019 0.085
2,428,572
2,428,572
Remaining
Warrants at
31 December
2018
11,054,071
Remaining
Warrants at
31 December
2017
20,282,351
During the year ended 31 December 2018 a total of 9,228,280, (2017: 2,428,572) of the warrants issued
on 3 May 2017 were exercised.
During the year, an amount of £792,846 (2017: £424,714), representing the exercised warrants, has been
recognised against share premium and £36,913 (2017: £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 2018 is £54,329 (2017: £99,685).
10.
Capital and reserves
90,962,537Ordinary Shares of 0.4p each (2017:
77,142,857 Ordinary Shares of 0.4p each)
137,674,431Deferred Shares of 0.4p each (2017:
137,674,431 Deferred Shares of 0.4p each)
279,176,540 Deferred Shares of 0.099p each (2017:
279,176,540 Deferred Shares of 0.099p each
2018
£
363,850
2017
£
308,571
5,506,977
5,506,977
2,763,848
2,763,848
8,634,675
8,579,396
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.
39
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
10.
Capital and reserves (Cont’d)
During the year a further 9,228,280 ordinary shares were issued as a result of the exercise of warrants
and 4,591,400 ordinary shares were issued as deferred consideration.
On his appointment to the board, and as part of the RTO, Nigel Theobald was issued with 4,591,400
deferred consideration shares. This formed part of the consideration to Mr Theobald as the remaining
shareholder of N4 UK for the remaining 51% share capital. These shares have been allotted in the year
to 31 December 2018 and as such increased the ordinary share capital.
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.
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.
11.
Earnings per share
The calculation of basic loss per share at 31 December 2018 was based on the loss of £1,184,843 (2017:
£1,836,984), and a weighted average number of ordinary shares outstanding of 89,440,373 (2017:
64,783,082), calculated as follows:
Loss attributable to ordinary shareholders
Deemed cost of listing
Adjusted losses attributable to ordinary shareholders
Weighted average number of ordinary shares
2018
£
2017
£
1,184,843
-
1,836,984
(1,023,734)
1,184,843
813,250
Issued ordinary shares at 1 January
Effect of shares issued during the year
64,783,082
24,657,291
100
64,782,982
Weighted average number of shares at 31 December
89,440,373
64,783,082
Basic loss per share
2018 pence
per share
2017 pence
per share
(1.32)
(1.26)
40
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
11.
Earnings per share (Cont’d)
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 2018 was based on the loss of £1,184,843 (31 December 2017: £1,836,984),
and a weighted average number of ordinary shares outstanding of 91,305,287 (2017: 65,811,509).
Diluted loss per share
12.
Financial instruments
(a) Fair values of financial instruments
2018 pence
per share
2017 pence
per share
(1.30)
(1.24)
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.
(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 of the Group was £276,926 (2017: £132,700),
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.
41
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
12.
Financial instruments (Cont’d)
(c) Liquidity risk
Group:
Financial liabilities
31 December 2018
Trade and other
payables
31 December 2017
Trade and other
payables
Company:
Financial liabilities
31 December 2018
Trade and other
payables
31 December 2017
Trade and other
payables
(d) Currency risk
Carrying
amount
£
Contractual
cash flows
£
6 months or
less
£
6-12
months
£
1 -2 years
£
159,666
159,666
159,666
143,788
143,788
143,788
-
-
-
-
Carrying
amount
£
Contractual
cash flows
£
6 months or
less
£
6-12
months
£
1 -2 years
£
5,244
5,244
5,244
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.
(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
42
Carrying amount
2018
£
2017
£
793,141
1,326,272
Carrying amount
2018
£
2017
£
646,398
1,266,921
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
12.
Financial instruments (Cont’d)
(e) Interest rate risk (Cont’d)
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 2017.
Group:
Variable rate instruments
Company:
Variable rate instruments
13.
Related parties
Key management personnel
2018
Profit or loss
2017
Profit or loss
100 bp
increase
7,931
100 bp
decrease
(7,931)
100 bp
increase
13,263
100 bp
decrease
(13,263)
2018
Profit or loss
2017
Profit or loss
100 bp
increase
6,464
100 bp
decrease
(6,464)
100 bp
increase
12,669
100 bp
decrease
(12,669)
As at the year end, there are no key management personnel employed by the Group in addition to the
Directors.
Directors’ remuneration and interests
2018
Director
Nigel Theobald (Chief
Executive Officer)
Paul Titley
David Templeton
Luke Cairns
Cash-based
payments
Remuneration
Share-based
payments
Totals
Interests
Shares
Options
£
£
£
No.
No.
70,000
40,000
24,000
24,000
158,000
-
-
-
-
-
70,000
16,846,633
-
40,000
24,000
24,000
142,857 1,434,286
717,143
142,857 1,392,445
-
158,000
17,132,347 3,543,874
The above remuneration relates to N4 Pharma Plc (and N4 Pharma UK Limited) directors.
An amount of £36,000 (2017: £56,000) is payable to Nigel Theobald by N4 UK Limited. This forms part of
the Trade and Other payables. Deferred consideration shares awarded to Nigel Theobald as part of the
RTO were allotted during the year. This resulted in the issue of an additional 4,591,400 ordinary shares
to Nigel Theobald.
No contributions are paid by the Group to a pension scheme on behalf of the Directors.
N4 Pharma PLC has a loan receivable from N4 Pharma UK Limited at 31 December 2018 of £2,009,000
(2017: £809,000). It is repayable in February 2020 and interest is receivable at 5%.
There are no further related parties identified.
43
Notes to the consolidated financial statements for the year ended 31 December 2018
N4 Pharma Plc
14.
Subsequent events
A total of 10,500,000 Placing Shares at a price of 10p per Ordinary share were admitted to the London
Stock Exchange on 14 February 2019. On admission, the Group’s issued ordinary share capital consisted
of 101,462,537 ordinary shares of 0.4p each with one vote per Ordinary Share. The placing of Shares
raised £1.050 million before expenses.
Following the year ended 31 December 2018, Andrew Leishman ceased employment with N4 Pharma. As
a result, the options issued to Mr Leishman in September 2018 as a result of his employment have now
lapsed.
44