TIDMVERS
RNS Number : 7451D
Verseon Corporation
28 June 2019
For immediate release June 28, 2019
Verseon Corporation
("Verseon" or the "Company")
Final Results
Fremont, Calif.-Verseon (AIM:VERS), the clinical-stage
pharmaceutical company developing disruptive life-science
technologies to advance global health, today announces its Final
Results for the year ended December 31, 2018. The report and
accounts are available for download from the Company's website
(www.verseon.com).
Adityo Prakash, CEO of Verseon Corporation, commented: "In 2018,
we reached a major milestone with our first drug program entering
clinical trials. The phase 1 study of VE-1902, our lead precision
oral anticoagulant (PROAC), is ongoing with first results expected
in Q4 2019. We have also nominated our first development candidate
for the oral treatment and prevention of diabetic macular edema,
and launched a new discovery program focusing on the treatment of
metabolic disorders."
"Heading into 2019, we remain committed to advancing drug
development and improving patients' lives through our active
clinical trials program, growing number of novel drug candidates,
and our robust and diversified pipeline."
Highlights
Finance
Results for the year ended December 31, 2018:
-- Total assets on the balance sheet stood at $56.4 million,
compared to $54.2 million at the end of 2017.
-- Cash, cash equivalents, and short-term investments stood at
$3.6 million, compared to $11.6 million at the end of 2017.
-- Property, equipment, buildings, and land totaled $51.3
million, compared to $40.7 million at the end of 2017.
-- Research and development expenses were $13.8 million, compared to $15.1 million in 2017.
-- General and administrative expenses were $8.0 million, compared to $6.3 million in 2017.
-- Non-cash expenses include stock-based compensation of $1.7
million, compared to $0.9 million in 2017 and also a currency
exchange loss of $4 thousand, compared to a gain of $0.6 million in
2017.
-- Net loss was $21.6 million or $0.14 per basic share, compared
to a net loss of $20.4 million or $0.13 per basic share in
2017.
Going concern
-- The Company's financials have been prepared on a going
concern basis, and the rationale for this is discussed in the
footnotes to the financial statements under Note D, Summary of
Significant Accounting Policies.
Anticoagulation
-- VE-1902, our first precision oral anticoagulant (PROAC) for
long-term anticoagulant-antiplatelet combination therapy, entered
phase 1 clinical trials.
-- A second PROAC, VE-2851, is also advancing toward clinical trials in 2020.
Diabetic macular edema
-- We nominated the first development candidate for clinical
trials in our oral diabetic macular edema program.
-- The development candidate VE-4839 is expected to enter phase 1 in H1 2020.
Hereditary angioedema
-- Our oral drugs for this rare, potentially life-threatening
disease, continue to show good potency and pharmacokinetics.
Oncology
-- In preclinical testing, our new anticancer agents for the
treatment of multidrug resistant cancers show improved potency and
are largely unaffected by common modes of drug resistance.
Pipeline development
-- We initiated a new discovery program targeting metabolic disorders.
Fintech
-- We founded a wholly owned fintech subsidiary, BlockRules,
that is developing transformative blockchain technology to power
our preferred share offering on the blockchain (see post-period
events).
Post-period events
-- Changed London Stock Exchange ticker to VERS.
-- Closed common share subscription raising $10.7 million from existing shareholders.
-- On March 18, 2019, announced intention to undertake a
preferred share offering in 2019, backed by a prospectus and with
transactions recorded on the blockchain (a security token
offering). Once live, this global offering will enable us to
accelerate the development of our diverse drug pipeline.
About Verseon
Verseon Corporation (www.verseon.com, AIM: VERS) is developing
disruptive life-science technology to advance global health. The
clinical-stage company is using its proprietary, computational drug
discovery platform paired with a comprehensive in-house chemistry
and biology workflow to build a growing drug development pipeline.
The company is applying its platform to a growing drug pipeline and
currently has active drug programs in anticoagulation, diabetic
macular edema, hereditary angioedema, metabolic disorders, and
oncology.
For further information, please contact:
Verseon Corporation www.verseon.com
Sebastian Wykeham / Tina Schlafly +1 (510) 225 9000
Arden Partners (NOMAD and Joint Broker)
Ruari McGirr / Ciaran Walsh / Dan Gee-Summons
(Corporate Finance) / Fraser Marshall +44 (0) 20 7614
(Equity Sales) 5900
Cantor Fitzgerald Europe (Joint Broker)
+44 (0) 20 7894
Phil Davies 7000
For financial and business media enquiries, please contact:
Buchanan Communications Ltd (PR Advisers)
+44 (0) 20 7466
Henry Harrison-Topham / Jamie Hooper 5000
For trade and pharma media enquiries, please contact:
Vane Percy & Roberts
+44 (0) 1737 821
Simon Vane Percy 890
Cautionary Note on Forward-Looking Statements
This press release contains forward-looking statements, which
are generally statements that are not historical facts.
Forward-looking statements can be identified by the words
"expects," "anticipates," "believes," "intends, " "estimates,"
"plans," "will," "outlook," and similar expressions.
Forward-looking statements are based on management's current plans,
estimates, assumptions, and projections, and speak only as of the
date they are made. We undertake no obligation to update any
forward-looking statement in light of new information or future
events, except as otherwise required by law. Forward-looking
statements involve inherent risks and uncertainties, most of which
are difficult to predict and are generally beyond our control.
Actual results or outcomes may differ materially from those implied
by the forward-looking statements as a result of the impact of a
number of factors.
Chairman's statement
In 2018, Verseon remained focused on growing and advancing their
diverse drug pipeline. The Company reached a significant milestone
when the first candidate from their new class of precision oral
anticoagulants entered phase 1 clinical trials in Q3. Verseon now
also has a promising first development candidate in their diabetic
eye disease program and initiated a new discovery program. As
Verseon enters 2019, the Company's diverse drug pipeline continues
to grow, as does its team of 60+ exceptionally talented scientists
and engineers.
Throughout the year, the Board has monitored Verseon's strategic
focus, which centers around discovering new drug candidates with
unique profiles using proprietary, computer-driven technology.
While Verseon's platform can be applied to a great number of
diseases, the Company is highly selective in choosing new drug
programs with unmet medical needs, well-defined clinical endpoints,
and large market potential.
One of the greatest challenges for an early clinical-stage
company of Verseon's size is financing the discovery and
development process until the first drugs are approved and
marketed. To support and accelerate the development of its growing
drug pipeline, the Board has endorsed the intention to undertake an
offering of preferred shares recorded on the blockchain in 2019.
Once approved, these preferred shares are expected to grant holders
non-discretionary dividend rights up to a fixed percentage of
Verseon's future drug program revenues.
Through this proposed fundraise, the Company aims to build value
for all shareholders, both current and future ones. Leveraging
blockchain technology to provide more direct access to the
investment opportunity, the offering has the potential to attract
investors across many countries. Over the next few months, Verseon
is also considering further funding either through debt financing
or a sale-leaseback of their property in Fremont, CA.
The Board remains confident in the Company's ability to capture
the increasing value of its drug pipeline. Thank you for your
investment in Verseon and your continued support.
Thomas A. Hecht, PhD
Chairman of the Board
Chief Executive's statement
I am pleased to present our annual report, which documents a
time of growth for Verseon. In 2018, we reached a major milestone
with our first drug program entering clinical trials. The phase 1
study of VE-1902, our lead precision oral anticoagulant (PROAC), is
ongoing with first results expected in Q4 2019. We also continue to
advance a second, chemically distinct PROAC candidate to increase
our odds of success.
Throughout the year, we have made a number of other notable
advances across our drug pipeline. We have nominated our first
development candidate for the oral treatment and prevention of
diabetic macular edema. In our oncology program, we have developed
multiple compounds showing promising anti-cancer effects in the
laboratory against multidrug resistant tumor cells, and we have
also launched a new program focusing on the treatment of metabolic
disorders.
The positive developments across our pipeline are testament to
the power of our innovative approach to drug discovery as well as
the talent and dedication of our interdisciplinary team. What
fundamentally distinguishes Verseon's drug discovery process from
pharma competitors is our computationally driven platform that
allows us to explore a vast, novel chemical space of potential drug
candidates. This technology enables us to efficiently identify many
structurally diverse drug candidates, all before putting a single
molecule into a test tube. Our model is then to advance multiple
compounds for each disease program into clinical trials, increasing
our chances of developing new treatments that improve patient
care.
As part of our mission to develop disruptive technologies and
therapeutic products that advance global health, we are rethinking
the entire pharmaceutical R&D process, including how drug
development is funded. To continue and accelerate the growth of our
drug pipeline, in 2019 we intend to pioneer a preferred share
offering that is expected to engage a global base of investors
using blockchain technology. This offering is expected to allow us
to stay committed to our vision of becoming a major source of
future medicines and build value for our shareholders.
To make this a reality, we founded a wholly owned fintech
subsidiary, BlockRules, that is building technology to power
regulations-compliant global securities issuances. This work is not
only paving the way for Verseon's offering, but is defining a new
model for funding innovation that we plan to open up to other
companies as well.
Heading into 2019, we remain committed to advancing drug
development and improving patients' lives through our active
clinical trials program, growing number of novel drug candidates,
and our robust and diversified pipeline.
Adityo Prakash
Chief Executive Officer
Business review
Drug pipeline highlights
-- Built out our clinical program with lead PROAC VE-1902 in
phase 1, PROAC VE-2851 slated to enter phase 1 in 2020, and a first
DME development candidate, VE-4839, nominated.
-- Expanded our diverse drug pipeline with a new discovery program in metabolic disorders.
IP update
-- Continued to solidify the global patent protection for our
computational platform and drug programs. In 2018, twelve patents
were issued worldwide.
-- Strengthened our IP protection in North America with two
medicinal-chemistry-related subject matter patents issued in Mexico
and Canada.
-- Strengthened IP rights in the location of the PROAC phase 1
trial with four new issuances in Australia.
-- Established IP protection for our drug programs in 30 countries with Verseon's first medicinal-chemistry-related patent issued in Europe.
Conferences
-- Biotech Showcase, San Francisco (hereditary angioedema)
-- American Association for Cancer Research 2018 annual meeting, Chicago (oncology)
-- Association for Research in Vision and Ophthalmology (ARVO)
2018 annual meeting, Honolulu (diabetic macular edema)
-- BIO International Convention, Boston (PROACs)
Entering the fintech arena
-- To power our proposed preferred share offering to investors
around the globe, we founded a wholly owned subsidiary,
BlockRules.
-- BlockRules technology will support the sale, launch, and
trading of securities on a public blockchain.
-- In contrast to existing platforms, BlockRules technology can
reliably enforce regulatory compliance across multiple
jurisdictions directly on the blockchain.
-- BlockRules plans to make its technology available to other
companies looking to raise funds from a global investor base.
The Verseon process
-- Select target protein
Any protein with known 3D structure is a potential target.
-- Break synthesis bottleneck
For each target, we generate tens of millions of new, virtual,
drug-like molecules on the computer, almost all of which have never
before been synthesized.
-- Identify potential drug candidates
We replace trial-and-error methods with advanced physics-based
modeling to efficiently and reliably find promising molecules that
bind to the target protein.
-- Synthesize promising molecules
The output of our computational engines represents multiple
chemically diverse compound families that are ready for
synthesis.
-- Test & optimize best candidates
We efficiently prioritize drug candidates based on comprehensive
lab tests and optimize candidates further using the computational
platform.
-- Send multiple candidates into clinical trials
For each program, our process generates multiple chemically
distinct candidates for clinical trials, which significantly
increases our chances of success.
Precision oral anticoagulants (PROACs)
"Verseon's PROACs have the potential to open up safer long-term
co-dosing with antiplatelet agents for cardiac patients, a need
that current antithrombotic combinations have failed to meet. I
look forward to the results of their phase 1 trial later this
year."
- Prof. Keith Fox, British Heart Foundation and Duke of
Edinburgh Professor of Cardiology
at the University of Edinburgh, Member of Verseon's
Cardiovascular Clinical Advisory Board
Millions of patients worldwide could benefit from safe long-term
therapy combining an oral anticoagulant with antiplatelet drugs
(i.e., aspirin, Plavix(TM) ) to prevent stroke or heart attack.
This includes patients suffering from acute coronary syndrome (ACS)
and those with both non-valvular atrial fibrillation and coronary
artery disease (NVAF+CAD). With standard anticoagulants, however,
such combination treatment is generally limited in duration because
of an increased risk of major bleeding.
We have developed a new class of precision oral anticoagulants
(PROACs) that show significantly reduced bleeding in preclinical
studies. Importantly, PROACs do not disrupt platelet function while
effectively inhibiting thrombosis, a unique combination that makes
them promising therapeutic candidates for patients needing
long-term anticoagulant-antiplatelet combination therapy. In
addition, PROACs could also provide a safer treatment option for
traditional anticoagulation patients (e.g., NVAF or venous
thromboembolism). Our first PROAC clinical candidate, VE-1902, is
currently in a phase 1 clinical trial.
PROACs show novel pharmacology in preclinical testing
Our laboratory studies have demonstrated that PROACs modulate
the coagulation cascade more precisely and with less bleeding than
novel oral anticoagulants (NOACs), the current standard of care.
Additionally, in vivo models showed that PROACs effectively inhibit
blood clots.
Underlying this novel profile is the distinct mechanism of how
the PROACs inhibit thrombin, the therapeutic target. In the
thrombin generation assay, a well-established measure of clotting,
a delay in peak thrombin production signals the inability of the
body to mount a hemostatic response in case of injury and an
increased risk of bleeding. In contrast to current anticoagulants,
PROACs do not introduce a delay before peak thrombin production at
therapeutic levels.
Flow cytometry studies of thrombin-mediated platelet activation,
another key ingredient in blood clotting, have revealed another
distinguishing feature: PROACs inhibit platelet function
significantly less than NOACs at their respective efficacious
doses. This provides a biological explanation for the significantly
reduced bleeding of PROACs compared to NOACs. In addition, lack of
disruption of platelet function allows PROACs to more precisely
influence the coagulation cascade, making them more suitable for
co-administration with antiplatelet drugs.
Lead PROAC VE-1902 is in clinical trials
Our lead PROAC, VE-1902, is characterized by a broad therapeutic
window with high no observed adverse effect level (NOAEL, at least
300 mg/kg) in regulatory toxicology studies, no signs of
genotoxicity, and lower renal clearance than NOACs in preclinical
models. The latter finding is especially important for elderly
patients and those with impaired kidney function-two patient groups
with currently limited treatment options.
Its novel preclinical profile makes VE-1902 a promising
anticoagulation candidate for patients with a high risk of major
bleeding. In late 2018, we began a phase 1 clinical trial to assess
the safety and tolerability of VE-1902 in human subjects.
First-in-human dosing started in Q1 2019.
The study, based in Melbourne, Australia, is a single-center,
double-blinded, randomized, placebo-controlled study designed to
assess safety and tolerability in single ascending dose (SAD) and
multiple ascending dose (MAD) study arms.
Patient blood samples will also be collected to assess thrombin
generation, a clinical marker of coagulation, platelet count, and
platelet function. The trial will also include a study of food
effect to test whether diet affects drug absorption.
VE-2851-A second PROAC candidate for clinical trials
Our second PROAC development candidate, VE-2851, has a different
chemotype but shares the same distinctive pharmacological profile
as VE-1902. Notably, this candidate is significantly more potent
than VE-1902, which may allow for lower dosing in the clinic.
Looking ahead
Participant dosing in the VE-1902 clinical trial is expected to
continue through Q3 2019, with results in Q4 2019. VE-2851 has been
scaled up to kilogram quantities and is currently in preliminary
toxicology studies. The second development candidate is targeted to
enter phase 1 clinical trials in H1 2020.
Oral drugs for diabetic macular edema
"An oral treatment for DME, which is one of the leading causes
of blindness, would be a huge step forward for patients. Regular
injections into the eye are not acceptable to many patients due to
the degree of invasiveness, potential trauma, and risk of infection
from such a surgical procedure. There is a clear need for new, oral
drugs that could also be used prophylactically."
- Julian Jackson, founder of VisionBridge, a leading
organization supporting advocacy for new preventative treatments in
ophthalmology and the promotion of innovation in eye research
DME: A leading cause of adult blindness
Diabetic macular edema (DME) is a major cause of vision loss in
patients with chronic diabetes. High blood sugar weakens the blood
vessels in the eye, leading to fluid accumulating in the macula,
the central region of the retina, and ultimately central vision
loss.
Researchers estimate that about one third of long-term diabetic
patients are at risk of developing DME, a group that is expected to
grow significantly as the global diabetic population escalates from
roughly 425 million to over 600 million over the next 25 years([1])
. With the prevalence of diabetes on the rise, preventing
complications like DME is becoming increasingly urgent.
Current treatments aren't suitable for prophylaxis
Approved DME treatments today are anti-VEGF agents and
corticosteroids, which are administered through recurring
injections directly into the eye or implants.
Eye injections are associated with numerous side effects
including inflammation, infection, and cataracts, and anti-VEGF
injections work poorly or not at all in about half of patients([2])
. Recent studies have also shown that 25% of patients fail to
follow up with their eye injections, leaving them at risk of
eventual vision loss.([3]) As a result, current treatments are
poorly suited for long-term preventative treatment.
Verseon addresses this need
At Verseon, we are developing a new class of oral small-molecule
plasma kallikrein inhibitors for the treatment of DME. In addition
to providing a more convenient treatment option for the more than
20 million DME patients worldwide, our drug candidates have the
potential to be used for long-term prevention of DME.
Development candidate nominated
In Q4 2018, we nominated the first development candidate for
clinical trials in this program. VE-4839 (see box) is characterized
by high potency for plasma kallikrein and selectivity over related
serine proteases. The candidate also shows pharmacokinetics
suitable for oral dosing as a prodrug and effectively reduces
retinal thickening in an in vivo preclinical model using activated
human plasma kallikrein.
Preliminary genotoxicity studies for the development candidate
were very promising. VE-4839 was clean in hERG, Ames, and in vitro
micronucleus studies. In addition, a Safety44 panel, an in vitro
test that can identify potential in vivo adverse drug reactions,
revealed no off-target liabilities.
We have completed an intermediate scale-up of prodrug VE-4840
for further efficacy studies. This material will also be used for
preliminary toxicology, including dose-range finding studies, which
immediately precede regulatory toxicology studies.
Outlook
We have initiated a larger, multi-kg scale-up of the development
candidate. This material will be used for regulatory toxicology and
safety pharmacology studies slated to start later in 2019. A part
of the synthesis intermediate from this scale-up will be used in
GMP synthesis of the drug substance for the phase 1 clinical trial
anticipated to start in 2020.
In addition to development candidate VE-4839, we continue to
optimize a number of other promising compounds with the goal to
nominate additional development candidates with different
chemotypes for clinical trials.
Oral drugs for hereditary angioedema (HAE)
HAE: A rare, potentially life-threatening disease
Hereditary angioedema (HAE) is a rare genetic disease
characterized by recurring episodes of severe swelling. In this
autosomal-dominant disorder, a mutation of the C1 inhibitor leads
to an overactivity of several serine proteases, including plasma
kallikrein. This can result in dangerous episodes of acute edema of
the face, limbs, or abdomen. If the airways are affected, such
attacks can even be life-threatening.
This orphan disease affects about one in 10,000-50,000 people
worldwide. However, the actual HAE population might be
significantly larger as only an estimated 40% of HAE patients are
diagnosed correctly due to missing disease awareness.([4])
Injectable treatments are falling short
Current treatment regimens aimed at preventing attacks involve
regular intravenous or subcutaneous injections, which presents a
significant burden for patients and carries risk of infection. Oral
drugs, in contrast, are expected to have a significant positive
impact on the lives of HAE patients, especially for ongoing disease
prophylaxis.
Current treatment landscape
Current HAE treatments target different mediators in the disease
pathway and can be divided into two categories with chronic
treatments focusing on replacing the missing C1-esterase inhibitor
for patients with frequent attacks and acute treatments aiming to
inhibit downstream protease activation that leads to edema.
The serine protease plasma kallikrein in particular has emerged
as a promising target over recent years. The success of Shire's
subcutaneous polypeptide plasma kallikrein inhibitor Kalbitor(TM)
as well as the recent approval of Takhzyro(TM) , Takeda's (formerly
Shire) subcutaneous monoclonal antibody plasma kallikrein
inhibitor, provide strong evidence that plasma kallikrein is an
important target central to the HAE disease pathway.
Plasma kallikrein plays a key role in inflammation, blood
pressure control, coagulation, and pain, with C1 inhibitor
responsible for down-regulating activated factor XII and plasma
kallikrein within the kallikrein-kinin system (KKS). Insufficient
levels or improperly functioning C1 inhibitor associated with HAE
can result in an overactivation of the KKS, which results in
inflammation and vasodilation, and eventually to edema or
swelling.
Providing an oral alternative to injections
We are developing a class of small-molecule plasma kallikrein
inhibitors that are suitable for convenient, oral dosing. Our drug
candidates are characterized by excellent potency and selectivity
for plasma kallikrein and pharmacokinetics allowing for oral
administration (see box). Several drug candidates also effectively
reduce swelling in a preclinical efficacy model and are clean in
genotoxicity studies, a CYP inhibition panel, and hERG inhibition
studies.
Outlook
We are continuing to optimize the pharmacokinetic profiles of
several series of compounds and test a number of candidates in
efficacy models.
Next-generation chemotherapy agents
Chemotherapy remains the first line of treatment for most
cancers. However, for many cancer diagnoses, a favorable treatment
response over time remains difficult because cancer cells develop
resistance to standard treatments.
What causes multidrug resistance
A common way for cancer cells to render drugs ineffective is by
overproducing transporter proteins (efflux pumps) that expel
certain compounds, including chemotherapy agents. As cancer cells
increase expression of these pumps, they decrease the concentration
of available drug, leading to resistance.
Another common way for cancer cells to become resistant to
treatment is by upregulating <BETA>-III tubulin. This can
inhibit apoptosis, the primary mechanism of chemotherapy-induced
cell death, while also enhancing invasion of local tissues and
metastasis.
Chemo agents that evade common modes of drug resistance
We have developed a novel class of small-molecule anticancer
drug candidates that show promising preclinical effects against
multidrug-resistant cancers. These compounds potently disrupt
tubulin polymerization in vitro, thereby inhibiting cancer cell
replication. Importantly, our preclinical data show that a range of
cancer cell lines remain sensitive to our drugs despite
overexpression of efflux pumps and <BETA>-III tubulin, two
common modes of acquired cancer-drug resistance.
While standard chemotherapies such as doxorubicin, paclitaxel,
and vincristine can show up to 2,000-fold reduced potency when cell
lines overexpress major efflux pumps (MDR1, MRP1, and BCRP), our
preclinical studies show that Verseon's drug candidates are only
weakly affected by these transporters.
Likewise, in vitro data show that our drug candidates are able
to maintain potency in cancer cells overexpressing
<BETA>--III tubulin, indicating that they are also unaffected
by this common mechanism of acquired treatment resistance. These
results suggest that Verseon's chemotherapy agents could be
effective in treating multidrug resistant cancers.
Pharmacokinetics suitable for use in common chemotherapy
regimens
We have developed a number of compound series with distinct
chemotypes and robust, double-digit nanomolar activity against
established cancer cell lines in vitro. Select candidates have
shown favorable pharmacokinetics for intravenous infusion, a
standard mode of administering chemotherapy agents.
Preclinical repeat-dosing over five days with intraperitoneal
injections with one of the candidates was well tolerated at doses
that are expected to be above therapeutic concentrations.
Next steps
We continue to optimize our leading candidate compounds for
potency and pharmacokinetic profiles and are planning to conduct in
vivo tolerability and efficacy studies using xenograft models for
the most promising compounds.
VIAT(TM) : A planned global preferred share offering
As part of our mission to develop disruptive technologies and
products that advance global health, we are rethinking the
pharmaceutical R&D process, including how drug development is
funded. In March of 2019, we announced our intention to undertake a
preferred share offering to accelerate the development of our
diverse drug pipeline.
Sharing our successes with a global investor base
We are planning to offer a form of preferred share with
transactions recorded on a global distributed ledger, a security
token that we are calling VIAT(TM) . Holders of VIAT(TM) , a
proposed regulated transferrable security, are expected to have
rights to non-discretionary dividends up to a fixed percentage of
Verseon's future drug program revenues([5]) .
We plan for the VIAT(TM) offering to be one of the first global
offerings of its kind and are working with advisors and legal
counsel on an EU prospectus. Once approved, we expect our preferred
share offering to be available to retail investors in the UK and EU
and to investors in certain other jurisdictions, subject to
additional approval from local regulators. VIAT(TM) is expected to
also be available to accredited investors, including those in the
US.
We intend to conduct the VIAT(TM) offering as a private sale
followed by a public sale upon approval of a prospectus. While the
VIAT(TM) offering is expected to take place in 2019, investors
should note that this remains subject to approvals from the
corresponding regulatory bodies and investor demand.
Powered by BlockRules
We plan to use the technology and services of our wholly owned
fintech subsidiary BlockRules to facilitate regulations compliance
across various global jurisdictions for each VIAT(TM) transaction,
on both primary and secondary markets. BlockRules' blockchain
technology has the potential to revolutionize fundraising by
bringing greater efficiency, cost savings, and additional liquidity
to capital markets.
Until recently, no comprehensive solution was available that
could enforce the complex regulations governing a securities
offering across multiple countries in a reliable and transparent
manner. BlockRules is targeting a solution for this key issue with
the BlockRules Compliance Engine that operates completely on the
blockchain for maximum security and transparency. The Compliance
Engine is designed to support the regulatory-compliant sale,
issuance, and trading of VIAT(TM) to an international investor
base.
The VIAT(TM) offering may serve as a model for connecting
companies with investors around the globe. To realize this new mode
of public offering, BlockRules plans to open up its secure
end-to-end platform to other companies looking to launch their own
regulated securities recorded on the blockchain.
BlockRules intends to engage third-party companies who will
serve as the interface between issuing companies and BlockRules
technology, and who are expected to provide advisory services to
issuers. BlockRules has already partnered with a first such
company, Swiss financial services firm Neuseren S.A.
VIAT(TM) combines security and utility values
Through its ties to Verseon's future drug program revenue,
VIAT(TM) is expected to have intrinsic value for its holders. Each
share will represent non-discretionary dividend rights up to a
fixed percentage of revenues from our drug programs.
Other companies using the BlockRules platform to issue their own
securities on the blockchain are expected to pay some of their fees
in VIAT(TM) purchased from the open market, thus giving VIAT(TM) a
potential utility value.
Finance review
In 2018, Verseon has continued to fund its drug programs in
anticoagulation, diabetic macular edema, hereditary angioedema, and
oncology and initiated an additional discovery program in metabolic
disorders. In addition, the Company has founded BlockRules, a
wholly owned blockchain fintech subsidiary.
Results for the year ended December 31, 2018:
-- Total assets on the balance sheet stood at $56.4 million,
compared to $54.2 million at the end of 2017.
-- Cash, cash equivalents, and short-term investments stood at
$3.6 million, compared to $11.6 million at the end of 2017.
-- Property, equipment, buildings and land totaled $51.3
million, compared to $40.7 million at the end of 2017.
-- Research and development expenses were $13.8 million, compared to $15.1 million in 2017.
-- General and administrative expenses were $8.0 million, compared to $6.3 million in 2017.
-- Non-cash expenses include stock-based compensation of $1.7
million, compared to $0.9 million in 2017, and also a currency
exchange loss of $4.0 thousand, compared to a gain of $0.6 million
in 2017.
-- Net loss was $21.6 million or $0.14 per basic share, compared
to a net loss of $20.4 million or $0.13 per basic share in
2017.
Capital structure
At December 31, 2018, Verseon's issued share capital consisted
of 151,640,732 shares of common stock and the Company held 42,917
shares in treasury, as compared to 151,489,789 shares of common
stock outstanding with 42,917 shares in treasury at December 31,
2017.
Risks and uncertainties
Research and development risks
Drug development projects are subject to numerous external
influences, including economic and regulatory environments, that
are outside our control.
We cannot be certain that our current or future drug development
efforts will result in drug candidates that progress into human
trials and subsequently into the marketplace.
The market for pharmaceuticals is highly competitive and our
drug candidates may not become adopted by the medical community and
may not become profitable.
Risks related to operations
We may not be able to find, attract, and retain personnel.
Unfavorable global economic conditions, natural disasters, and
other factors outside our control may adversely affect us.
We rely on third parties for a portion of our scientific work as
well as for manufacturing of drugs and other supplies for our
clinical trials. If this work does not meet sufficient quality
standards or if one of those third parties fails to live up to
their obligations, operations might be negatively impacted.
Our growth may require significant capital expenditures and can
experience unexpected delays that could impact various aspects of
operations.
Risks related to intellectual property
Competitors may infringe upon our patents and other intellectual
property and force us to defend our intellectual property by legal
means.
Other companies could develop or market drug candidates with
comparable treatment capabilities, reducing the market potential of
our drugs.
Financial risks
Our Common Stock is settled in pound sterling, but our
operations are in the United States, and, to date, we use US
dollars to fund our operations. We hold funds in both currencies
and are susceptible to currency uctuations.
We have initiated clinical operations in Australia, which
requires payment of vendors and contractors in Australian dollars.
Currency fluctuations relating to the Australian dollar may also
affect our net operating losses.
The net losses we incur may fluctuate significantly from
half-year to half-year and year to year. In any particular
reporting period, our operating results could be below the
expectations of securities analysts or investors, which could cause
the stock price to decline.
To date, we have financed our operations primarily through the
sale of equity securities, convertible debt, and the mortgage loan
on our freehold building signed in June 2018. The amount of our
future net losses and sustainability will depend, in part, on the
rate of our future expenditures and our ability to obtain funding
through equity or debt financing, strategic collaborations, or
out-licensing of one or more of our product candidates to potential
partners.
We have not yet generated revenue and cannot be certain of
securing revenue-generating agreements and profits in the
future.
Risks related to securities
Even though our Common Stock is listed on AIM, a liquid market
for it may not develop or be sustained.
Company operations are based in the United States, and we are
incorporated under the laws of the State of Delaware, United
States. Accordingly, some of the legislation in England and Wales
regulating the operation of companies may not apply to us.
Board of Directors
Thomas A. Hecht, PhD
Non-Executive Chairman
Dr. Hecht has forty years of experience in business development,
strategic planning, process engineering, quality management, and
environmental policy. During his more than thirty years at Chevron
Corporation, he served in senior positions in the United States,
Australia, and South Korea. His final positions were Executive Vice
President of Strategy for NWS Australia LNG and Vice President of
LNG Procurement for GS Caltex in Korea. Dr. Hecht received his PhD
from the California Institute of Technology.
Sangtae Kim, PhD
Non-Executive Director
Dr. Kim has a distinguished career in chemical engineering with
senior roles in both industry and academia. A former VP at Lilly
Research Laboratories and Parke-Davis Pharmaceutical Research, he
is currently Distinguished Professor of Chemical Engineering at
Purdue University. Dr. Kim is a member of the National Academy of
Engineering and a fellow of the American Institute of Medical and
Biological Engineers. He received concurrent BSc and MSc degrees
from California Institute of Technology and his PhD from
Princeton.
Adityo Prakash
Chief Executive Officer
Mr. Prakash is experienced in bringing breakthrough technologies
to market. Prior to founding Verseon, Mr. Prakash was co-founder
and CEO of Pulsent Corporation. He grew the company over five years
and was instrumental in bringing Pulsent's video compression and
signal processing technology to the marketplace. He is also an
inventor on 38 patents. Mr. Prakash received his BS in Mathematics
and Physics from the California Institute of Technology.
Eniko Fodor
Chief Operating & Chief Financial Officer
Ms. Fodor is experienced in building cutting-edge technology
organizations with highly effective operating, marketing, and IP
strategies. Prior to founding Verseon, Ms. Fodor co-founded Pulsent
Corporation where she was the Chief Operating Officer. She played a
pivotal role in growing the company and developing highly effective
operating, marketing, and intellectual property strategies. She is
also an inventor on 23 patents. Ms. Fodor received her BS in
Physics from Universitatea Babes-Bolyai in Romania.
Directors' report
The Directors of the Company present their report and audited
financial statements for the year ended December 31, 2018.
Principal activity
Verseon is an emerging pharmaceutical company. Its proprietary
platform is capable of modeling interactions between a protein and
a drug molecule with precision sufficient for designing new drug
candidates. Verseon has been leveraging its drug discovery
technology to develop a growing portfolio of programs targeting
diverse disease areas, currently consisting of anticoagulation,
diabetic macular edema, hereditary angioedema, oncology, and
metabolic disorders.
Verseon plans to expand its pipeline of drug discovery programs
to a multitude of disease areas.
Going concern
Subsequent to the Balance Sheet date, on March 19, 2019, $10.7m
was raised through the issue of 7.7m new common shares.
Over the next few months, further funding will be sought through
additional debt funding against the property or through a
sale-leaseback of the property. Furthermore, during the next 12
months, the Company intends to seek additional funding through the
launch of VIAT(TM) preferred shares using the BlockRules platform.
Backed by a prospectus and with transactions recorded on the
blockchain, this offering, once live, is expected to allow the
Company to raise funds from a global investor base to accelerate
the development of its diverse drug pipeline. However, the
Directors consider the achievement of this funding as a material
uncertainty that may cast significant and substantial doubt on the
Company's ability to continue as a going concern within one year
after the date of the approval of the financial statements, and
therefore it may be unable to realize its assets and discharge its
liabilities in the normal course of business. The material
uncertainty is due to the fact that future funding through the
raising of further finance is inherently uncertain as it requires
third parties to invest money in the future which is not committed
at the date of the accounts, and therefore this represents a
material uncertainty. Notwithstanding this, the Directors continue
to adopt the going concern basis in preparing the financial
statements as they believe that this fundraising will be
successful. The financial statements do not include any adjustments
that would result if the going concern basis of preparation were no
longer appropriate.
Dividends
The Directors do not recommend the payment of a dividend in the
current year. No dividends were paid in prior years.
Employee involvement
The Company's policy is to encourage employee involvement at all
levels, as it believes that this is essential for the success of
the business.
Directors and their interests
The Directors during the year and up to the date of this report
are as follows:
Executive
-- Adityo Prakash
-- Eniko Fodor
Non-executive
-- Thomas Hecht, PhD
-- Robert Karr, PhD (resigned as of November 5(th) , 2018)
-- Grover Wickersham (resigned as of November 5(th) , 2018)
-- Xavier Rolet (appointed on November 5(th) , 2018 and resigned
as of February 23(rd) , 2019)
-- Sangtae Kim (appointed on November 5(th) , 2018)
Directors' interests in shares are shown in the Compensation
Committee report.
Advisers
Nominated adviser and joint broker
-- Arden Partners plc
125 Old Broad Street
London EC2N 1AR
United Kingdom
Joint brokers
-- Cantor Fitzgerald Europe
One Churchill Place
Canary Wharf
London E14 5RB
United Kingdom
Auditor
-- Deloitte LLP
Abbots House
Abbey St
Reading RG1 3BD
United Kingdom
Deloitte LLP has expressed willingness to continue in office as
auditor.
Registrars
-- Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier JE1 1ES
Jersey
This report was approved by the Board on June 28, 2019.
Eniko Fodor
Executive Director
Governance report
Principles of good corporate governance
Verseon is committed to high standards of corporate governance.
The Directors recognize the importance of good governance and
comply with the provisions of the Corporate Governance Code for
Small to Mid-Sized Quoted Companies, published from time to time by
the Quoted Companies Alliance, to the extent that they believe it
is appropriate in light of the size, stage of development, and
resources of the Company. Further details on how Verseon has
complied with the Quoted Companies Alliance Corporate Governance
Code for Small to Mid-Sized Quoted Companies can be found on our
website under the Governance section.
As the Company grows, it will regularly review the extent of its
corporate governance practices and procedures.
Application of principles
Board of Directors
The Board consists of a Non-Executive Chairman, two Executive
Directors, and a Non-Executive Director.
The Board is responsible for overall Company strategy,
acquisition and divestment policy, approval of the budget, approval
of major commercial contracts and capital expenditure projects, and
consideration of significant operational and financial matters. The
Board monitors the exposure to key business risks and reviews the
progress of the Company toward achievement of its budgets and
forecasts. This is achieved by the close involvement of the
Executive Directors in the day-to-day running of the business and
by regular reports submitted to and considered at meetings of the
Board and subcommittees. The Board also considers employee issues,
key appointments, and compliance with relevant legislation.
The Board has both an Audit Committee and a Compensation
Committee. The Board does not consider it necessary to constitute a
separate Nominations Committee, and all members of the Board are
consulted on the potential appointment of a new Director or a
company secretary.
All Directors are able to take independent professional advice
in relation to their duties, if necessary, at the Company's
expense.
The Board is divided into two classes, as nearly equal in number
as possible, designated Class I and Class III. Class I Director
Thomas Hecht was reelected at the 2016 annual general meeting to a
three-year term expiring at the Company's annual general meeting in
2019. Director Sangtae Kim has been elected as a Class I Director
at the 2018 annual general meeting and his term will expire at the
Company's annual general meeting in 2019. Class III Directors
Adityo Prakash and Eniko Fodor were reelected at the 2018 annual
general meeting to a three-year term expiring at the Company's
annual general meeting in 2021.
Board and committee meetings
In 2018, Verseon's Board of Directors met six times before the
Board change of November 5, 2018, and once thereafter. Of the six
meetings, Mr. Prakash, Ms. Fodor, Dr. Hecht, and Dr. Karr attended
all and Mr. Wickersham attended four. The final meeting was
attended by all Directors at the time. There were two meetings of
the Audit Committee and one of the Compensation Committee, all with
full attendance.
Relationship with shareholders
The Board attaches high importance to maintaining good
relationships with all shareholders. The Company intends to have
regular meetings and communications with shareholders to keep them
updated on the Company's performance, strategy, management, and
Board membership.
Culture
Verseon's mission is to develop disruptive life-science
technology to advance global health. In order to achieve this,
Verseon promotes a culture of innovation and development to drive
its research forward and to remain at the forefront of disruptive
technology. The Board monitors and assesses the culture in the
Company through regular reviews, updates, and board meetings.
Approved on behalf of the Board
Thomas Hecht, PhD
Chairman
June 28, 2019
Compensation report
Compensation Committee
Along with the Board, the Compensation Committee is responsible
for monitoring and providing advice on the framework and broad
policy for compensation of executive management, including any
compensation benefits and payments, taking into account all factors
it deems necessary; determining the compensation of Executive
Directors, including compensation benefits and payments; reviewing
the design of all share incentive plans for approval by the Board
and Stockholders; and ensuring that all provisions regarding
disclosure of compensation are clear and transparent.
The Compensation Committee comprises Thomas Hecht, who acts as
the Chairman of the committee, and Sangtae Kim. The Compensation
Committee meets as and when necessary but at least once a year.
Compensation policy
The Company's policy on executive compensation is intended to
attract and retain high-quality executives by paying competitive
compensation packages relevant to each executive's role,
experience, and the external market. The packages include a basic
salary, benefits, and stock options.
Directors' compensation
Directors' compensation for the years of 2018 and 2017 are
summarized below.
2017
--------------------------------------------------
RSU Cash
-------------------------------------------------- --------------
Number of
vested shares
Number of Number of registered US $'000 cash
shares granted shares vested in 2018 compensation
---------------- --------------- --------------- --------------
Dr Hecht 36,144 32,091 18,072 11
Dr. Karr 36,144 6,024 6,024 -
Mr. Wickersham - 15,463 - 30
Dr. Kim - - - -
2018
-------------------------------------------------- --------------
RSU Cash
-------------------------------------------------- --------------
Number of
vested shares
Number of Number of registered US $'000 cash
shares granted shares vested in 2019 compensation
---------------- --------------- --------------- --------------
Dr Hecht 33,898 35,020 8,037 -
Dr. Karr - 30,120 3,012 -
Mr. Wickersham - - - 50
Dr. Kim - - - -
Dr. Sangtae Kim received a Restricted Stock Award (RSA) of
150,000 shares in 2019 that carries a repurchase option by Verseon.
Verseon's right to repurchase the shares lapses by a twelfth each
quarter Dr. Kim serves as a board member.
The employment agreements with Mr. Prakash and Ms. Fodor provide
each of them an annual salary of $0.3 million and, at the
discretion of the Board, a performance bonus. The agreements
contain provisions setting forth severance benefits upon
termination depending on whether employment is terminated with or
without cause, with or without good reason, or upon death or
disability. The agreements include a proprietary information and
inventions agreement relating to confidentiality of the Company's
proprietary information and the assignment of inventions and
intellectual property. In 2018, Mr. Prakash and Ms. Fodor were each
granted 300,000 options that vest over three years. In 2017, Mr.
Prakash and Ms. Fodor were each granted 400,000 options that vest
over three years. These options were re-priced on May 28, 2019
pursuant to a company-wide re-pricing of options approved by the
Board (Footnote 19). For the years ended December 31, 2018 and
2017, total annual salary earned by Mr. Prakash and Ms. Fodor were
$0.3 million each.
Directors' interests
The Directors who held office at the date of this report had the
following beneficial interests in the Common Stock of the Company
at the date of this report:
Name Number of Shares
---------------- -----------------
Eniko Fodor 31,008,486
Thomas Hecht 106,894
Sangtae Kim 150,000
Adityo Prakash 31,528,281
---------------- -----------------
Approved on behalf of the Compensation Committee
Thomas Hecht, PhD
Chairman, Compensation Committee
June 28, 2019
Audit Committee report
Role and responsibilities
The Audit Committee (the "Committee") is responsible for
ensuring that the financial performance of the Company is properly
monitored and reported. The Committee reviews the independence and
objectivity of the external auditor each year. The Committee also
reviews the adequacy of the Company's internal controls, accounting
policies, and financial reporting, and provides a forum through
which the Company's external auditor reports to the Non-Executive
Directors.
Membership and meetings
The Committee comprises Thomas Hecht, who acts as the Committee
Chairman, and Sangtae Kim. The Committee has specific terms of
reference that deal with its authority and duties. It meets at
least three times a year, with the Executive Directors and the
external auditor attending by invitation.
The Board has decided that the size of the Company does not
justify a dedicated internal audit function. This position will be
reviewed as the Company's activities increase.
Financial reporting
The Committee shall monitor the integrity of the financial
statements of the Company, including its annual and interim
reports, interim management statements, preliminary results
announcements, and any other formal announcement relating to the
Company's financial performance. It will review significant
financial reporting issues and judgments they may contain. The
Committee shall also review summary financial statements and any
financial information contained in certain other documents, such as
announcements of a price-sensitive nature.
The Committee shall review and challenge where necessary:
-- The Company's accounting standards and the consistency of,
and any changes to, accounting policies both on a year-to-year
basis and across the Company.
-- The methods used to account for significant or unusual
transactions where different approaches are possible.
-- The appropriateness of any estimates and judgments in the
Company's financial reporting, while taking into account the views
of the independent auditor.
-- The clarity of disclosure in the Company's financial reports
and the context in which statements are made.
-- All material information presented with the financial
statements, such as the operating and financial review and the
corporate governance statement (insofar as they relate to the audit
and risk management).
Internal control and risk management
The Board has overall responsibility for ensuring that the
Company has processes to identify, evaluate, and manage key risks.
The system is designed to manage and minimize risk of failure to
achieve the Company's strategic objectives and can only provide
reasonable, and not absolute, assurance against material
misstatement or loss.
The Directors consider that the present system of internal
control is sufficient for the needs of the Company and adequately
addresses the risks to which the Company is perceived to be
exposed.
Approved on behalf of the Audit Committee
Thomas Hecht, PhD
Chairman, Audit Committee
June 28, 2019
Directors' responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
The AIM Rules require the Directors to prepare financial
statements for each financial year. Under those rules, the
Directors have elected to prepare the financial statements in
accordance with generally accepted accounting principles in the
United States of America ("US GAAP").
The Directors believe that the accounts should not be approved
unless the Directors are satisfied that the accounts present fairly
the state of affairs of the Company and of the profit or loss of
the Company for that period. In preparing these financial
statements, the Directors are required to:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable, and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in US GAAP are insufficient to enable users
to understand the impact of particular transactions, other events,
and conditions on the Company's financial position and financial
performance; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with US GAAP and the AIM Rules.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge the
financial statements, prepared in accordance with US GAAP, present
fairly the assets, liabilities, financial position, and profit or
loss of the Company.
Independent auditor's report to the Directors of Verseon
Corporation
Report on the audit of the non-statutory financial
statements
Opinion
In our opinion the non-statutory financial statements of Verseon
Corporation (the 'company') and its subsidiaries (together the
'group'):
-- present fairly, in all material respects, the state of the
group's affairs as of December 31, 2018 and of its loss for the
period then ended; and
-- have been properly prepared in accordance with accounting
principles generally accepted in the United States of America.
We have audited the non-statutory financial statements of which
comprise:
-- the Consolidated balance sheets;
-- the Consolidated statements of operations and comprehensive loss;
-- the Consolidated statements of cash flows;
-- the Consolidated statements of stockholders' equity;
-- the Summary of significant accounting policies; and
-- the related notes 1 to 19.
The financial reporting framework that has been applied in their
preparation is accounting principles generally accepted in the
United States of America ("US GAAP").
Basis for opinion
We conducted our non-statutory 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
non-statutory financial statements section of our report.
We are independent of the group and company in accordance with
the ethical requirements that are relevant to our audit of the
non-statutory financial statements in the UK, including the
Financial Reporting Council's (the 'FRC's') Ethical Standard as
applied to 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.
Material uncertainty relating to going concern
The accompanying financial statements have been prepared
assuming that the group and company will continue as a going
concern. As discussed in the summary of significant accounting
policies part D.b in the financial statements, due to the current
cash position and the material uncertainty over the future funding
position, there is a material uncertainty which may cast
significant and substantial doubt over the group's and company's
ability to continue as a going concern. The directors are
considering options for raising further finance through lending
facilities and the issuance of preference shares, however this
funding is not committed at the date of approval and issuance of
the financial statements. This therefore raises an inherent
uncertainty as it requires third parties to invest money in the
future which is not committed.
In response to this, we have:
-- Evaluated the design and implementation of relevant controls
over the budgeting approval process.
-- Considered the current facilities in place along with the repayment terms and covenants.
-- Considered the current financing plans and options under consideration by management.
-- Reviewed the forecasts and budgets for at least the next 12
months from the date of the approval of the financial
statements.
As stated in part b of the summary of significant accounting
policies, these conditions, along with the other matters as set
forth in part b, indicate that a material uncertainty exists that
may cast significant and substantial doubt on the group's and
company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty. Our opinion is not modified in
respect of this matter.
Summary of our audit approach
The key audit matters that we identified in the current period
were related to the going concern of the group and company (see
Material uncertainty relating to going concern section) and
allocation of costs relating to the new premises within the VRH1
LLC subsidiary.
The materiality that we used in the current period was $0.8m
which was determined based on a blend of benchmarks including total
expenses, total assets and net assets.
We have performed full scope audits on all significant entities
within the group; Verseon Corporation, Nirog Therapeutics LLC and
VRH1 LLC. We have performed limited procedures on VCR1 PTY Ltd and
BlockRules Ltd. There have been no significant changes in our audit
approach to that performed in the prior period.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
non-statutory financial statements of the current period and
include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified.
These matters included 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
non-statutory financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters. In addition to the matter described in the Material
Uncertainty Related to Going Concern section, we have determined
the matters described below to be the key audit matters to be
communicated in our report.
In our report on the financial statements for the year ended 31
December 2017, we included two other key audit matters which are
not included in our report this year: The classification of the
PACE loan and the volatility assumption in the Black Scholes fair
value model.
The classification of the PACE loan is not considered a key
audit matter in the current year as this risk around classification
was concluded in the prior year and not expected to change year on
year. The volatility assumption in the Black Scholes fair value
model is not considered a key audit matter in the current year.
This is due to the number of grants in the year being low and
therefore a significant change in the volatility rate would be
required to give rise to a material misstatement.
Key audit matter How the scope of our audit Key observations
responded to the key audit
matter
Allocation of costs relating Our work in respect of assessing From our work
to the new premises the allocation of costs capitalised performed, we
on the new premises included: are satisfied
Within the company's that the costs
subsidiary, * Evaluated the design and implementation of controls capitalised
VRH1 LLC, the construction surrounding management's review of costs capitalised; relating to
of the new building and the new premises
premises was substantially are appropriate
completed during the period. under US GAAP.
Costs capitalised in the * Tested a sample of costs capitalised into Property
period amounted to $11.0m and equipment, assessing their nature against the
taking the total construction specific capitalisation criteria set out in US GAAP;
costs capitalised to date
to $49.9m as set out in
footnotes E 3 to the financial
statements. * Tested the depreciation expense by forming an
independent assessment of the building's completion
Due to the amounts incurred and the costs associated with the completed portion
in the period we consider of the building;
the valuation and allocation
of costs to represent
a potential area of material
risk of misstatement, * Tested a sample of costs expensed to the Consolidated
resulting from non-adherence statement of operations to assess whether these were
to the capitalisation allocated correctly; and
criteria under US GAAP.
* Made inquiries and obtained evidence from management
over constructor contract changes in the period to
assess the reasonableness of capitalised costs.
----------------------------------------------------------------- ------------------
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality to be $0.8m for the group, which is
determined based on a blend of multiple of benchmarks including
total expenses, total assets and net assets.
Total expenses and asset related benchmarks have been chosen as
the basis for materiality as this is the measure by which
stakeholders and the market assess the progress of the group in its
research activities.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of $0.04m, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing
the overall presentation of the financial statements.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the group
and its environment and assessing the risks of material
misstatement at the group level. All subsidiaries are managed from
the company's head office in Fremont, California and subject to a
common control environment. All audit work was performed by the
group engagement team, which included visiting the group's US
headquarters.
Based on that assessment, we have performed full scope audits
for all Verseon Corporation, Nirog Therapeutics LLC and VRH LLC,
which represents 99.4% of expenses, 99.5% of total assets and 99.1%
of total liabilities. Our audit work on these entities was executed
at levels of materiality applicable to each individual company
ranging from $0.44m to $0.79m, which were lower than group
materiality. For VCR1 PTY Ltd and BlockRules Ltd we performed an
audit of specified balances at group materiality. At the parent
entity level we also tested the consolidation process including
assessment of all entries posted at that stage.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the non-statutory financial statements and our
auditor's report thereon.
Our opinion on the non-statutory 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 non-statutory financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the non-statutory 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 non-statutory 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 respect of these matters.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
non-statutory 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 non-statutory financial statements, the
directors are responsible for assessing the group'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 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 non-statutory 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
non-statutory financial statements.
A further description of our responsibilities for the audit of
the non-statutory financial statements is located on the FRC's
website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's Directors, as a
body, in accordance with our engagement letter dated 29 January
2019, and to comply with the AIM Rules for Companies. Our audit
work has been undertaken so that we might state to the company's
Directors 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 Directors as a
body, for our audit work, for this report, or for the opinions we
have formed.
The engagement partner on the audit resulting in this
independent auditor's report is Simon Olsen.
Deloitte LLP--
Reading, United Kingdom
28 June 2019
Consolidated balance sheets
As of December 31, 2018 and 2017
(US $'000, except share amounts and par December December
values) Note 31, 2018 31, 2017
------------------------------------------------ ---- --------- ---------
Assets
------------------------------------------------ ---- --------- ---------
Current assets
Cash and cash equivalents 1 3,640 3,290
Short-term investments 1 3 8,327
Prepaid expenses and other current assets 2 417 1,810
------------------------------------------------ ---- --------- ---------
Total current assets 4,060 13,427
Buildings and land, net 3 49,850 38,314
Property and equipment, net 3 1,402 2,414
Software 4 497 -
Right to use asset 5 550 -
Total assets 56,359 54,155
Liabilities and stockholders' equity
------------------------------------------------ ---- --------- ---------
Current liabilities
Accounts payable 2,923 4,466
Accrued liabilities 7 1,422 1,902
Lease liability 5 214 -
Short-term debts 8 160 -
Total current liabilities 4,719 6,368
---- ---------
Long-term liabilities
Lease liability 5 226 -
Long-term debts 8 26,218 2,572
------------------------------------------------ ---- --------- ---------
Total long-term liabilities 26,444 2,572
------------------------------------------------ ---- --------- ---------
Total liabilities 31,163 8,940
------------------------------------------------ ---- --------- ---------
Commitments and contingencies 14
------------------------------------------------ ---- --------- ---------
Stockholders' equity 15
------------------------------------------------ ---- --------- ---------
Common stock-$0.001 par value, 300,000,000
shares authorized as of December 31,
2018 and 2017, respectively, 151,640,732
and 151,489,789 shares issued and outstanding
(exclusive of stock held in Treasury
of 42,917 and 42,917) as of December
31, 2018 and 2017, respectively. 152 152
Additional paid-in capital 139,283 137,560
Additional paid-in capital - Treasury (11) (11)
Loan receivable from stockholders (15,282) (15,087)
Accumulated deficit (102,670) (81,114)
Accumulated other comprehensive loss - (5)
================================================ ==== ========= =========
Total stockholders' equity 21,472 41,495
------------------------------------------------ ---- --------- ---------
Non-controlling interests in subsidiaries 6 3,724 3,720
------------------------------------------------ ---- --------- ---------
Total equity 25,196 45,215
------------------------------------------------ ---- --------- ---------
Total liabilities and stockholders' equity 56,359 54,155
------------------------------------------------ ---- --------- ---------
See accompanying notes to consolidated financial statements.
These financial statements were approved by the Board of
Directors June 28, 2019 and signed on its behalf by:
Adityo Prakash
Chief Executive Officer
Consolidated statements of operations and comprehensive loss
For the years ended December 31, 2018 and 2017
For the year ended
December 31,
------------------------
(US $'000, except share and per share Note 2018 2017
amounts)
============================================== ==== =========== ===========
Operating expenses
Research and development expenses 13,830 15,104
General and administrative expenses 7,997 6,329
============================================== ==== =========== ===========
Total operating expenses 21,827 21,433
============================================== ==== =========== ===========
Operating loss (21,827) (21,433)
Interest expense (267) -
Interest income 417 483
Other income 116 -
Currency exchange (loss)/gain (4) 562
============================================== ==== =========== ===========
Loss before income taxes (21,565) (20,388)
Income taxes 9 - -
============================================== ==== =========== ===========
Net loss (21,565) (20,388)
Net loss attributable to non-controlling
interests 9 2
============================================== ==== =========== ===========
Net loss attributable to Verseon Corporation (21, 556) (20, 386)
Net loss (21,565) (20,388)
Unrealized gains on available-for-sale
securities 5 -
============================================== ==== =========== ===========
Total comprehensive loss (21,560) (20,388)
Comprehensive loss attributable to
non-controlling interests (9) (2)
============================================== ==== =========== ===========
Comprehensive loss attributable to
Verseon Corporation (21,551) (20,386)
============================================== ==== =========== ===========
Net loss attributable to Verseon Corporation
common stockholders per share-basic
and diluted 10 (0.14) (0.13)
Weighted-average shares of stock outstanding
used in computing net loss per share-basic
and diluted 151,569,699 151,436,635
See accompanying notes to consolidated
financial statements.
Consolidated statements of cash flows
For the years ended December 31, 2018 and 2017
For the year ended
December 31,
(US $'000) 2018 2017
Cash flows from operating activities
Net loss (21,565) (20,388)
Adjustments to reconcile net loss to net cash
used in operating activities
======================================================== ================== ==========
Depreciation 1,074 506
Amortization of loan expense 206 -
Currency exchange loss (gain) from re-measurement 4 (562)
Stock-based compensation expense 1,709 897
Interest earned from loan receivable from
stockholders (314) (313)
======================================================== ================== ==========
Changes in assets and liabilities
======================================================== ================== ==========
Decrease/(Increase) in prepaid expenses and
other current assets 1,393 (1,438)
Increase in accounts payable 356 1,311
(Decrease)/Increase in accrued liabilities (493) 690
======================================================== ================== ==========
Net cash used in operating activities (17,630) (19,297)
)
======================================================== ================== ==========
Cash flows from investing activities
======================================================== ================== ==========
Purchases of property and equipment (13,583) (19,159)
Payment of internally developed software costs (397) -
Purchases of available-for-sale securities
investments - (21,545)
Maturities of available-for-sale securities
investments 1,253 26,729
Sales of available-for-sale securities investments 7,076 4,133
======================================================== ================== ==========
Net cash used in investing activities (5,651) (9,842)
======================================================== ================== ==========
Cash flows from financing activities
-------------------------------------------------------- ------------------ ----------
Proceeds from exercise of stock options and
warrants 31 17
Proceeds from PACE financing - 2,578 2,572
Proceeds from loan 21,022 -
Payment on lease finance (110) -
(Purchase)/Proceeds from issuance of equity
in Nirog (17) 9
Repayment of promissory note from stockholders 131 44
Net cash provided by financing activities 23,635 2,642
======================================================== ================== ==========
Net Increase/(decrease) in cash and cash equivalents 354 (26,497)
======================================================== ================== ==========
Effect of currency exchange rate changes (4) 562
======================================================== ================== ==========
Cash and cash equivalents at the beginning
of the year 3,290 29,225
======================================================== ================== ==========
Cash and cash equivalents at the end of the
year 3,640 3,290
======================================================== ================== ==========
For the year
ended
December 31,
===============
(US $'000) Note 2018 2017
==================================================== ===== ====== =======
Supplemental disclosure of non-cash investing
and financing activities
==================================================== ===== ====== =======
Purchases of property and equipment under accounts
payable and accrued
liabilities 755 2,641
----------------------------------------------------------- ------ -------
Interest payment was $267 thousand in 2018 and $0 thousand in
2017.
No income taxes were paid in 2018 and 2017.
See accompanying notes to consolidated financial statements.
Consolidated statements of stockholders' equity
For the years ended December 31, 2018 and 2017
Common Loan
Stock Additional Treasury receivable Other Stock- Non- Total
at par paid-in Stock from Accumulated comprehensive holders' controlling stock-holders'
(US $'000) value capital APIC stock-holders deficit loss equity interest equity
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Balance at
December 31,
2016 151 136,646 - (14,830) (60,728) (5) 61,234 3,713 64,947
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Exercise of
stock options
and
warrants-Common
Stock * 17 - - - - 17 - 17
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Issuance of
shares from
Restricted
Stock Units 1 - - - - - 1 - 1
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Loans to
stockholders - - (11) (257) - - (268) - (268)
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Stock-based
compensation - 897 - - - - 897 - 897
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Investment in
Nirog - - - - - - - 9 9
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Net loss - - - - (20,388) - (20,388) - (20,388)
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Net loss
attributable to
non-controlling
interests - - - - 2 - 2 (2) -
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Balance at
December 31,
2017 152 137,560 (11) (15,087) (81,114) (5) 41,495 3,720 45,215
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Exercise of
stock options
and
warrants-Common
Stock * 31 - - - - 31 - 31
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Issuance of
shares from
Restricted Stock
Units * - - - - - - - -
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Loans to
stockholders - - - (195) - - (195) 13 (182)
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Stock-based
compensation - 1,709 - - - - 1,709 - 1,709
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Investment in
Nirog - (17) - - - - (17) - (17)
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Total
comprehensive
loss - - - - (21,565) 5 (21,560) - (21,560)
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Net loss
attributable to
non-controlling
interests - - - - 9 - 9 (9) -
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
Balance at
December 31,
2018 152 139,283 (11) (15,282) (102,670) - 21,472 3,724 25,196
---------------- ------ ---------- -------- ------------- ----------- ------------- -------- ----------- --------------
* Amount less than $1,000 and insignificant after rounding.
See accompanying notes to consolidated financial statements.
Consolidated statements of stockholders' equity
For the years ended December 31, 2018 and 2017 (continued)
Common Total shares
(Shares) Stock outstanding
----------------------------------------------- ------------ -------------
Balance at December 31, 2016 151,414,659 151,414,659
Exercise of stock options and warrants-Common
Stock 71,065 71,065
Issuance of shares from Restricted Stock
Units 46,982 46,982
Treasury Stock (42,917) (42,917)
Balance at December 31, 2017 151,489,789 151,489,789
----------------------------------------------- ------------ -------------
Exercise of stock options and warrants-Common
Stock 55,596 55,596
Issuance of shares from Restricted Stock
Units 95,347 95,347
Balance at December 31, 2018 151,640,732 151,640,732
----------------------------------------------- ------------ ------------
See accompanying notes to consolidated financial statements.
Notes to consolidated financial statements
A. Basis of presentation
The consolidated financial statements of the Company are
prepared in accordance with accounting principles generally
accepted in the United States of America ("US GAAP"). The financial
information is presented in United States Dollars ("$"). All
intercompany accounts and transactions have been eliminated in
consolidation.
The accounting policies applied are consistent with those that
were applied to the consolidated financial statements for the year
ended December 31, 2017, except for Leases note l.
B. History and organization of the Company
The Company was established as Verseon LLC on July 18, 2002 in
the state of Delaware. In August 2007, the Company incorporated as
a general corporation in the state of Delaware. The Company is
headquartered in Fremont, California. It completed its initial
public offering ("IPO") on May 7, 2015 on the Alternative
Investment Market ("AIM") of the London Stock Exchange.
The Company has formed Verseon India Private Limited ("VIPL")
together with a Mauritius based private equity investor. VIPL was
incorporated in Andhra Pradesh, India in March 2006 to manage and
maintain the Company's supercomputing cluster. The Company has
since closed this operation in 2009 and is in the process of
dissolving the legal entity.
Nirog Therapeutics LLC ("Nirog") was formed on September 23,
2009 as a Delaware limited liability company. Nirog was established
as a vehicle to fund the research and development of the Company's
anticoagulation program and the Company owned 81.2% and 79.9% of
Nirog as of December 31, 2018 and 2017, respectively.
In August 2015, the Company acquired a property in Fremont,
California with approximately 85,000 square feet of office and
laboratory space for $8.7 million through its wholly owned
subsidiary, VRH1 LLC, in the state of California. The property is
nearly redeveloped and accommodates the Company's drug discovery
and development operations as well as the corporate
headquarters.
On October 13, 2017, VCR1, a wholly owned subsidiary of Verseon,
was incorporated in Australia. VCR1 conducts clinical trials on
behalf of Verseon.
On September 14, 2018, BlockRules Limited, a wholly owned
subsidiary of Verseon, was incorporated in the United Kingdom.
BlockRules will develop innovative technology and services to
enable international companies to issue regulated securities on
public blockchains, including "VIAT(TM) ," Verseon's preferred
share.
On October 22, 2018, VDP1 LLC ("VDP1"), a wholly owned
subsidiary of Verseon, was incorporated in the state of California.
VDP1 was formed to conduct research and development in the field of
use of diagnosis, treatment, and prevention of diabetic macular
oedema, hereditary angioedema, and related issues.
On October 22, 2018, VDP2 LLC ("VDP2"), a wholly owned
subsidiary of Verseon, was incorporated in the state of California.
VDP2 was formed to conduct research and development in the field of
use of diagnosis, treatment, and prevention of cancer.
These consolidated financial statements do not include any
adjustments to the carrying value or classification of recorded
asset amounts and carrying value or classification of liabilities
that might be necessary, should the Company be unable to continue
as a going concern.
C. Description of business
Verseon is an emerging pharmaceutical company that uses a
proprietary platform to design and develop new drug candidates.
Verseon has created a proprietary computational platform that can
model molecular interactions with sufficient accuracy to drive the
drug discovery process. For any disease program, the platform first
generates vast numbers of novel drug-like, synthesizable compounds
which are then computationally tested against a disease-causing
protein to identify the best binders, i.e., drug candidates that
could potentially treat the disease. These computationally designed
candidates are synthesized and sent through a series of disease
specific in vitro and in vivo tests to identify the best candidates
for clinical testing in humans. The Verseon process is disease
agnostic and can systematically yield drug candidates that cannot
be found with other current methods.
D. Summary of significant accounting policies
a. Basis of preparation and principles of consolidation: The
accompanying consolidated financial statements include the accounts
of the Company, consolidated with the accounts of all of its
subsidiaries and affiliates in which the Company holds a
controlling financial interest as of the financial statement date.
These consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States
of America ("US GAAP"). The financial information is presented in
United States Dollars ("$"). All intercompany amounts have been
eliminated.
b. Going concern:
These consolidated financial statements have been prepared on a
going concern basis, which assumes the realization of assets and
settlement of liabilities in the normal course of business.
The Company's net assets for the years ended December 31, 2018
and 2017 were $25.2m and $45.2m respectively, of which $3.6m and
$3.3m was represented by cash. The Company has net current
liabilities of $4.7m compared to $6.4m in 2017. As at May 31, 2019,
the cash position was $3.4m.
The Company has total borrowings of $27.3m which constitute
$21.7m for the asset-backed lending facility which has $1m left to
draw and $5.6m for the PACE financing which has $3.1m left to draw
subject to building completion milestones. The $21.7m is repayable
on July 1, 2020 and the PACE financing is payable over a 25-year
period.
The asset-backed lending facility was obtained on June 13, 2018
when the Company received additional financing in the amount of
$22.7 million secured on the Company's custom-built research,
development, and operations facility in Fremont, California (the
"Facility"). Of the total amount of the financing, $21.7 million
was received with an additional $1 million available to be drawn at
a future date for facilities-related expenses.
The financing is an interest-only asset-backed lending facility
and is repayable after 24 months on July 1, 2020, with an option to
extend for up to a further 12 months subject to both parties
agreeing. The facility carries an annual interest rate of 8.0%,
which is paid in monthly instalments. The agreement requires the
Company to comply with certain financial covenants, which are
forecast to be met for the duration of the agreement.
Subsequent to the Balance Sheet date, on March 19, 2019, $10.7m
was raised through the issue of 7.7m new common shares.
The Directors have reviewed the forecasts and the current
position along with the current funding plan of both committed and
uncommitted facilities. The business forecast requires additional
funding to be secured above the level of committed facilities for
the business to continue in operation for a period of at least 12
months.
Over the next few months, further funding will be sought through
additional debt funding against the property or through a
sale-leaseback of the property. Furthermore, over the next 12
months the Company intends to seek additional funding through the
launch of VIAT(TM) preferred shares using the BlockRules platform.
Backed by a prospectus and with transactions recorded on the
blockchain, this offering, once live, is expected to allow the
Company to raise funds from a global investor base to accelerate
the development of its diverse drug pipeline. However, the
Directors consider the achievement of this funding as a material
uncertainty that casts significant and substantial doubt on the
Company's ability to continue as a going concern within one year
after the approval of the financial statements. Therefore, it may
be unable to realize its assets and discharge its liabilities in
the normal course of business. The material uncertainty is due to
the fact that future funding through the raising of further finance
is inherently uncertain as it requires third parties to invest
money in the future, which is not committed at the date of the
accounts, and therefore this represents a material uncertainty.
Notwithstanding this, the Directors continue to adopt the going
concern basis in preparing the financial statements as they believe
that this fundraising will be successful. The financial statements
do not include any adjustments that would result if the going
concern basis of preparation were no longer appropriate.
c. Use of estimates: The preparation of the financial statements
in conformity with US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities as of the date
of the financial statements and the reported amount of revenues and
expenses during the reported period. Actual results could differ
materially from those estimates.
d. Research and development expenses: The Company's research and
development expenses include, but are not limited to, wages and
related benefits, including stock-based compensation, facilities,
supplies, external services, and other expenses that are directly
related to its research and development activities. Research and
development costs are expensed as they occur. When payments for
research and development services are made prior to the services
being rendered, those amounts are recorded as prepaid assets on the
consolidated balance sheet and are expensed as the services are
provided. For the years ended December 31, 2018 and 2017, research
and development expenses were $13.8 million and $15.1 million,
respectively.
e. Government grants: The Company recognizes government grants
as other income as receivable in the Consolidated Statements of
Operations and Comprehensive Loss, with the cash flows recognized
in line with the research and development expenditures as an
operating activity. The Company recognized $0.1m as other income in
2018 from the Australian government for a research and development
credit refund.
f. Foreign currency: The Company records foreign currency
transaction gains and losses, realized and unrealized, and foreign
exchange gains and losses due to re-measurement of monetary assets
and liabilities denominated in foreign currency as currency
exchange gains or losses in the consolidated statements of
operations and comprehensive loss. The Company recorded a loss of
$4 thousand in 2018 as compared to a gain of $0.6 million in
2017.
g. Cash equivalents and investments: The Company considers
investments in highly liquid instruments that are purchased with
original maturities of three months or less to be cash equivalents.
The Company limits its concentration of risk by diversifying its
investments among a variety of issuers. All investments are
classified as available for sale and are recorded at fair value
based on quoted prices in active markets or based upon other
observable inputs, with unrealized gains and losses excluded from
earnings and reported in other comprehensive loss. Purchase
premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Realized gains
and losses and declines in fair value that are deemed to be other
than temporary are reflected in the consolidated statement of
operations. The cost of securities sold is based on the
specific-identification method.
h. Fair value of financial instruments: The carrying amounts of
certain of the Company's financial instruments, including cash
equivalents and short-term investments, approximate their fair
value. Fair value is considered to be the price at which an asset
could be exchanged or a liability transferred in an orderly
transaction between knowledgeable, willing parties in the principal
or most advantageous market for the asset or liability. Where
available, fair value is based on or derived from observable market
prices or other observable inputs. Where observable prices or
inputs are not available, valuation models are applied. The
valuation techniques involve estimation and judgment, the degree of
which is dependent on the price transparency for the instruments or
market and the instruments' complexity.
i. Concentration of credit risk: The Company invests in a
variety of financial instruments and, by its policy, limits the
amount of credit exposure with any one issuer, industry, or
geographic area.
j. Property and equipment, net: Property and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful
lives. The estimated useful lives of assets are as follows:
Estimated useful life
------------------------- ---------------------
Computer and peripherals 2 years
Lab equipment 5 years
Office equipment 5 years
Furniture and fittings 5 years
Buildings 20 years
------------------------- ---------------------
k. Impairment of long-lived assets: The Company reviews
long-lived assets, including property and equipment, for impairment
whenever events or changes in business circumstances indicate that
the carrying amount of the assets may not be fully recoverable. An
impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of an asset are
less than its carrying amount. The impairment loss would be based
on the excess of the carrying value of the impaired asset over its
respective fair value. To date, the Company has not recorded any
impairment losses.
l. Leased assets: Under ASC 842, the Company as a lessee
recognizes a "right-of-use" asset and lease liabilities in the
balance sheet. The right-of-use asset is measured as the lease
liability plus any payments made and costs incurred by the lessee.
The lease liability is measured at the present value of the lease
payments not yet paid. For a lease classified as a finance lease
the "right-of-use" asset is generally depreciated on a
straight-line basis over the lease term and the interest expense is
recognized on an effective interest expense method, which results
in the aggregate income statement charge being front-loaded. For a
lease classified as an operating lease the total lease expense is
recognized on a straight-line basis so that as the interest expense
declines over the lease term the amortization of the right-of-use
asset increases in order to provide a constant expense profile.
The Company has elected to not apply ASC 842 to short-term
leases defined as one with a term of 12 months or less that does
not include a purchase option that the Company is reasonably likely
to exercise. For such short-term leases the Company recognizes the
lease payments on a straight-line basis over the lease term.
m. Loans: The Company capitalizes the issuance costs incurred
and amortizes them over the term of the loan. The loan balances are
presented net of unamortized issuance costs.
n. Capitalization of internally developed software costs: The
Company commences to capitalize internally developed software costs
once the preliminary stage has been completed, management commits
to funding the project, it is probable the project will be
completed, and the software will be used for its intended
function.
o. Research and development credit refund: The Company has an
Australian subsidiary, VCR1, which conducts clinical trials. VCR1
under Australian income tax rules is able to claim research and
development credit refund. The refundable credit is treated as a
form of government grant and in accordance with our accounting
policy is included as other income in the consolidated statements
of operations.
p. Income taxes: Income taxes are accounted for under the asset and liability method.
i. Current income taxes: The Company assesses its current income
tax expense based upon the taxes due in each of its operating tax
jurisdictions, which are comprised of the US, Australia, the UK,
and India. The Company has its Indian subsidiary, VIPL, which is
dormant and not incurring any taxes. The Company is located in the
United States with all of its operating expenses occurring within
this tax jurisdiction. Payments of advance taxes and income taxes
payable in the same tax jurisdictions are offset.
ii. Deferred income taxes: Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial information carrying amounts of
assets and liabilities and their respective tax basis, operating
loss carry forwards, and tax credits. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Valuation allowances are
recorded to reduce deferred tax assets when it is more likely than
not that a tax benefit will not be realized. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in the Consolidated Statements of Operations in the period of
change.
Uncertain tax positions are recognized using the
more-likely-than-not threshold determined solely based on technical
merits that the tax positions will be sustained upon examination by
a taxing authority that has full knowledge of all relevant
information. Tax positions that meet the recognition threshold are
measured as the largest amount of benefit that is greater than
fifty percent likely of being realized upon settlement.
q. Property Assessed Clean Energy ("PACE") program: Under the
terms of the PACE agreement, the amounts received are repayable as
property tax assessments are made over the 25-year term of the
agreement. In the event that the property is sold, the obligation
to pay such amounts transfers to the purchaser. The Company has
recorded the amount received as a liability.
r. Net loss per share: In accordance with the provisions of ASC
Topic 260, "Earnings per Share", basic loss per share is computed
by dividing the net loss attributable to stockholders of the
Company by the weighted average number of shares outstanding during
the period. Diluted earnings per share are computed on the basis of
the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Potentially
dilutive shares are excluded when the effect would be to increase
diluted earnings per share or reduce diluted losses per share. The
following potentially dilutive securities were excluded from the
calculation of diluted net loss per share due to their
anti-dilutive effect:
December 31,
=================================== ====================
2018 2017
=================================== ========= =========
Options to purchase Common Stock 4,953,057 3,111,109
Warrants to purchase Common Stock 2,265,523 2,331,408
Restricted Stock Units 40,213 101,663
=================================== ========= =========
Total 7,258,793 5,544,180
=================================== ========= =========
s. Stock-based compensation: The Company accounts for
stock-based compensation using the Black-Scholes option pricing
model to determine the fair value of stock option and warrant
grants. The stock-based compensation cost is generally recognized
over the vesting period of the equity grant. For grants to
employees, the cost is recognized over the requisite service
period.
The Black-Scholes option-pricing model requires the use of
highly subjective and complex assumptions, including the expected
stock-price volatility, the expected term of the grants, risk-free
interest rate, and expected dividends, which play a significant
role in determining the fair value of stock-based awards. As
sufficient trading history does not yet exist for our Common Stock,
our estimate of the expected stock-price volatility is based on
various factors including the volatility of the shares of
comparable publicly traded companies in the industry. The expected
term of the grants is based on the vesting date and the contractual
term. The risk-free interest rate is based on the U.S. Treasury
yield for a term consistent with the expected term of the grants.
The Company has no history or expectation of paying dividends on
its Common Stock.
Total stock-based compensation expense recognized associated
with stock options, warrants and restricted stock units was as
follows:
December 31,
===================================================== ====================================
(US $'000) 2018 2017
===================================================== ===================== =============
Research and development General and administrative 762 453
947 444
===================================================== ===================== =============
Total 1,709 897
===================================================== ===================== =============
t. Recently issued accounting standards: In May 2014, the
Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") 2014-09 "Revenue from Contracts with
Customers (Topic 606)." The standard's core principle is that a
reporting entity will recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. In August 2015, the FASB
decided to postpone the effective date of the new standard by one
year. The standard was effective for the Company in the first
quarter of 2018. Since the Company has yet to report revenue, the
adoption of this standard did not impact its consolidated financial
statements.
The FASB issued ASU No. 2016-02, ASU No. 2018-10 and ASU No.
2018-11 "Leases (Topic 842)", which establishes the principles to
report transparent and economically neutral information about the
assets and liabilities that arise from leases. It requires lessees
to recognize the lease assets and lease liabilities that arise from
leases in the statement of financial position and to disclose
qualitative and quantitative information about lease transactions,
such as information about variable lease payments and options to
renew and terminate leases. The new standard will be effective for
the fiscal year 2019 and annual periods and interim periods
thereafter, however the Company has elected to early adopt Topic
842, refer to Note 5.
In June 2016, the FASB issued ASU No. 2016-13, "Financial
Instruments- Credit Losses (Topic 326) and subsequent revisions
issued in November 2018 under ASU No. 2018-19: Measurement of
Credit Losses on Financial Instruments," which aims to provide
financial statement users with more decision-useful information
about the expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each
reporting date. It replaces the incurred loss impairment
methodology in current GAAP with a methodology that reflects
expected credit losses and requires consideration of a broader
range of reasonable and supportable information to inform credit
loss estimates. The standard is effective for the fiscal year 2020
and annual periods and interim periods thereafter. Early adoption
is permitted. The Company is currently evaluating the impact of
adopting this guidance on its consolidated financial
statements.
In May 2017, the FASB issued ASU No. 2017-09 (ASC Topic 718),
"Stock Compensation: Scope of Modification Accounting." The
amendments in this ASU provide guidance about which changes to the
terms or conditions of a share-based payment award require an
entity to apply modification accounting. The Company is required to
adopt the guidance in the first quarter of fiscal year 2019. Early
adoption is permitted. The Company is in the process of assessing
the impact of this ASU on its consolidated interim report.
On February 14, 2018, the FASB issued ASU No. 2018-02, "Income
Statement-Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income." The amendments in this ASU address a
narrow-scope financial reporting issue related to the tax effects
that may become "stranded" in accumulated other comprehensive
income (AOCI) as a result of the Tax Cuts and Jobs Act (TCJA). The
standard is effective for the fiscal year 2019 and annual periods
and interim periods thereafter.
On June 20, 2018, the FASB issued ASU No. 2018-07, which
simplifies the accounting for share-based payments granted to
nonemployees for goods and services. Under the ASU, most of the
guidance on such payments to nonemployees would be aligned with the
requirements for share-based payments granted to employees. The
standard is effective for the fiscal year 2019 and annual periods
and interim periods thereafter.
On August 29, 2018, the FASB issued ASU No. 2018-15, new
guidance on a customer's accounting for implementation, set-up, and
other upfront costs incurred in a cloud computing arrangement that
is hosted by the vendor, i.e., a service contract. Under the new
guidance, customers will apply the same criteria for capitalizing
implementation costs as they would for an arrangement that has a
software license. The standard is effective for the fiscal year
2020 and annual periods and interim periods thereafter.
Only the updates that the Company believes are relevant to its
operations have been included here.
E. Notes to financial information
1. Cash, cash equivalents, and short-term investments
The amortized cost and fair value of cash equivalents and
investments at December 31, 2018 and 2017 were as follows:
December 31, 2018
------------------------------------- -----------------------------------------------
Amortized Gross unrealized Fair value
(US $'000) cost Losses
------------------------------------- ----------- ---------------------- ----------
Certificate of deposits 3 - 3
Total available-for-sale securities 3 - 3
===================================== =========== ====================== ==========
Classified as:
Short-term investments 3
Total available-for-sale securities 3
===================================== =========== ====================== ==========
December 31, 2017
------------------------------------- --------------------------------------------
Amortized Gross unrealized Fair value
(US $'000) cost Losses
------------------------------------- ---------- -------------------- ----------
Certificate of deposits 4,080 - 4,080
Municipal securities 910 - 910
Government sponsored agencies 3,337 - 3,337
Total available-for-sale securities 8,327 - 8,327
===================================== ========== ==================== ==========
Classified as:
Short-term investments 8,327
Total available-for-sale securities 8,327
===================================== ========== ==================== ==========
Cash and cash equivalents at December 31, 2018 of $3,640
thousand comprises cash of $3,640 thousand and cash equivalents of
$0 thousand, as compared to cash and cash equivalents of $3,290
thousand at December 31, 2017, which comprises cash of $3,290
thousand and cash equivalents of $0 thousand.
All available-for-sale securities held as of December 31, 2018
and 2017 had contractual maturities of less than two years.
Realized gains on available-for-sale securities for the year ended
December 31, 2018 were $4 thousand and were recorded as interest
income, as compared to the realized gains on available-for-sale
securities of $163 thousand for the year ended December 31,
2017.
In accordance with the guidance of Accounting Standards
Codification ("ASC") Top 820, "Fair Value Measurement", fair value
is estimated by applying the following hierarchy, which prioritizes
the inputs used to measure fair value into three levels and bases
the categorization within the hierarchy upon the lowest level of
input that is available and significant to the fair value
measurement:
Level 1-Quoted prices in active markets for identical assets or
liabilities.
Level 2-Observable inputs other than quoted prices in active
markets for identical assets and liabilities, quoted prices for
identical or similar assets or liabilities in inactive markets, or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities.
Level 3-Inputs that are generally unobservable and typically
reflect management's estimate of assumptions that market
participants would use in pricing the asset or liability.
The Company's financial assets and liabilities subject to fair
value measurements on a recurring basis and the level of inputs
used in such measurements are as follows as of December 31, 2018
and 2017:
(US $'000) December 31, 2018
Description
=============================== ==========================================================
Level 1 Level 2 Level 3 Total
=============================== ====================== =========== =========== ========
Certificate of deposits - 3 - 3
Total - 3 - 3
=============================== ====================== =========== =========== ========
(US $'000) December 31, 2017
Description
=============================== ==========================================================
Level 1 Level 2 Level 3 Total
=============================== ====================== =========== =========== ========
Certificate of deposits - 4,080 - 4,080
Municipal bonds - 910 - 910
Government sponsored agencies - 3,337 - 3,337
Total - 8,327 - 8,327
=============================== ====================== =========== =========== ========
2. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of:
December 31,
================================================ ============================
(US $'000) 2018 2017
================================================ ============ ==============
Prepaid expenses and other current assets:
Equipment related deposits 15 928
Facilities related deposits - 418
Operating lease(s) related deposits - 56
Equipment maintenances and software licenses 92 91
Insurance premium 44 42
Prepaid interest 105 -
Research and development credit 109 -
Other 52 275
================================================ ============ ==============
Prepaid expenses and other current assets 417 1,810
================================================ ============ ==============
3. Fixed assets
December 31,
================================ ============================
(US $'000) 2018 2017
================================ ============= =============
Land and buildings
Land and buildings 50,292 38,314
Less: Accumulated depreciation (442) -
-------------------------------- ------------- -------------
Land and buildings, net 49,850 38,314
-------------------------------- ------------- -------------
Property and equipment
Lab equipment 2,029 2,328
Office equipment 4 4
Computer and peripherals 876 867
Furniture and fittings 226 226
Total 3,135 3,425
Less: Accumulated depreciation (1,733) (1,011)
================================ ============= =============
Property and equipment, net 1,402 2,414
================================ ============= =============
Depreciation expense was $1.2 million and $0.5 million for the
years ended December 31, 2018 and 2017, respectively.
4. Software
December 31,
=============================== ============================
(US $'000) 2018 2017
=============================== ============= =============
Purchased Software 100 -
Internally developed software 397 -
------------------------------- ------------- -------------
Total 497 -
------------------------------- ------------- -------------
During 2018 initial development costs of $397 thousand for the
BlockRules platform were capitalized as internally developed
software.
5. Lease
In March 2018, the Company entered into a finance lease
agreement with a vendor in respect of laboratory equipment. The
agreement entails financing of equipment costing $0.55 million,
with a 20% deposit (the right of use asset). The financing carries
a fixed 5.8% interest for 2 years, with an option to purchase the
equipment for $1 at the end of the lease period. The lease is
determined to be a finance lease under ASC 842.
Gross amounts payable (US $'000)
----------------------- --------------------------------
Within 1 year 234
Within 1-2 years 233
Impact of discounting (27)
----------------------- --------------------------------
Total 440
----------------------- --------------------------------
6. Nirog
The consolidated financial statements presented include the
financial position and performance of Nirog Therapeutics LLC
("Nirog"), a Delaware limited liability company. Nirog was
established in September 2009 as a vehicle to fund the research and
development of the Company's anticoagulation program. The Company
has been investing in Nirog and as a consequence owned 81.2% and
79.9% of the outstanding equity of Nirog as of December 31, 2018
and 2017, respectively.
7. Accrued liabilities
Accrued liabilities consist of:
December 31,
============================= ============================
(US $'000) 2018 2017
============================= ============= =============
Professional services-audit 102 91
Professional services-other 11 402
Facility buildout 249 668
Legal services 245 84
Vacation accrual 665 534
Various operating accruals 150 123
Total accrued liabilities 1,422 1,902
============================= ============= =============
8. Debts
In September 2017, VRH1 secured financing for energy-related
upgrades to its property via the Property Assessed Clean Energy
(PACE) program in the amount of up to $8.65 million subject to
achievement of certain milestones. PACE is a state-legislated
framework providing long-term financing for energy efficiency,
renewable energy, and water conservation projects that is repaid
through property assessments. PACE is non-recourse financing that
is also non-accelerating and transferable upon property sale. The
financing carries a fixed 6.50% interest for 25 years and the term
of the property assessment is 25 years. These funds will be used
for building and installation of a natural gas plant and solar
power panels along with other energy efficiency upgrades, all of
which will allow the Company to significantly reduce its ongoing
power-related operational costs. As of December 31, 2018, based on
milestones achieved to date, the Company had received a payment of
$5.6 million, which is net of charges incurred of $0.4 million,
which will be amortized over the life of the loan. As of December
31, 2017, based on milestones achieved to date, the Company had
received a payment of $2.6 million, which is net of charges
incurred of $0.4 million, which will be amortized over the life of
the loan.
On June 13, 2018, VRH1 closed a $22.7 million financing (the
"financing") with MCREIF SubREIT LLC (t/a Money 360) secured on the
Company's custom-built research, development, and operations
facility in Fremont, California (the "Facility"). Of the total
amount of the financing, $21.7 million has been received on
closing, with an additional $1 million available to be drawn at a
future date for facilities-related expenses. Charges incurred of
$0.7 million have been netted against the loan and will be
amortized over the life of the loan.
The financing is an interest-only mortgage facility, which
carries an annual interest rate of 8.0 percent and is repayable
after 24 months with an option to extend for up to a further 12
months. The documentation entered into in relation to the financing
contains customary financial covenants and is based on a
loan-to-value of approximately 50 percent. The proceeds of the
financing will be used for Verseon's drug programs and
operations.
The components of the debt are as follows:
December 31,
=========================================== ============================
(US $'000) 2018 2017
=========================================== =============== ===========
PACE financing 5,591 3,013
Money 360 21,700 -
--------------- -----------
Total debt 27,291 3,013
Less: Unamortized debt issuance costs (913) (441)
=========================================== =============== ===========
Total 26,378 2,572
Less: Current portion of long-term debt (160) -
=========================================== =============== ===========
Total 26,218 2,572
=========================================== =============== ===========
9. Income taxes
The Company did not record a federal or state current or
deferred income tax provision or benefit for the years ended
December 31, 2018 and 2017 due to the losses incurred in the
corresponding periods, as well as the Company's continued
maintenance of a full valuation allowance against its net deferred
tax assets. The Company's income tax provision of $nil in said
periods represents an effective tax rate of 0%. The consolidated
financial statements include in other income a grant of $116
thousand relating to research and development refund for VCR1.
At December 31, 2018, the Company had federal and state Net
Operating Loss ("NOL") carry forwards of approximately $72.9
million and $74.7 million, respectively, of which $53.3 million and
$74.7 million, respectively, expire at various dates through 2038
if not utilized. At December 31, 2018 the Company had federal and
state research credit carry forwards that totaled $2.6 million and
$2.3 million, respectively, which expire at various dates through
2038 if not utilized. At December 31, 2017 the Company had federal
and state research credit carry forwards that totaled $2.0 million
and $1.6 million, respectively
During the year ended December 31, 2018, the only change in the
balance of gross uncertain tax benefits was an increase of $0.4
million related to current year and prior year tax positions. At
December 31, 2018, the balance of gross uncertain tax benefits was
$1.6 million as compared to $1.2 million as of December 31, 2017.
All of the unrecognized tax benefits would, if recognized, reduce
the Company's annual effective tax rate. The Company currently has
a full valuation allowance against its net deferred tax assets
which would impact the timing of the effective tax benefit should
any of the uncertain tax positions be favorably settled in the
future.
The components of the Deferred Tax Assets were calculated using
the federal statutory income tax rate of 21% and the state
statutory income tax rate of 7% for 2018 and 2017. The Company's
deferred tax assets differ from deferred income tax assets computed
by applying the federal statutory income tax rate of 21% to the
loss before income taxes principally due to the effect of: (i)
stock-based compensation expenses of $1.7 million (2017: $0.9
million) for which there is no associated income tax deduction;
(ii) losses in Nirog not attributable to the Company; and (iii) the
effect of losses incurred by the Company for which the potential
deferred tax asset has a full valuation allowance.
The components of the deferred tax assets are as follows:
December 31,
====================================================== ============================
(US $'000) 2018 2017
====================================================== ============= =============
Deferred tax assets:
Net operating loss carry forwards 20,541 15,129
R&D credit carry forwards 3,304 2,507
Depreciation and amortization-property and equipment 181 127
Accruals and reserves 186 150
====================================================== ============= =============
Total deferred tax assets 24,212 17,913
Less: Valuation allowance (24,212) (17,913)
====================================================== ============= =============
Total - -
====================================================== ============= =============
Based on available objective evidence, management believes it is
likely that the deferred tax assets will not be realized.
Accordingly, the Company has provided a full valuation allowance
against its net deferred tax assets at December 31, 2018 and
2017.
The Tax Reform Act of 1986 limits the use of net operating loss
carry forwards in certain situations where changes occur in the
stock ownership of the Company. In the event that the Company has
had a change in ownership, utilization of net operating loss carry
forwards would be limited.
The tax years 2007 to 2018 remain open to regular examination of
their income tax returns and other related tax-fillings by the
Internal Revenue Service and state tax authorities. There are no
prior or current year tax returns under audit by tax authorities,
and management is not aware of any impending audits.
The net impact of the corporate tax rate reduction resulting
from the Tax Cuts and Jobs Act of 2017 was a reduction in gross
deferred tax asset and associated valuation allowance of $4.2
million.
10. Net loss per share
Basic net loss per share is computed by dividing net loss
attributable to Verseon Corporation by the average number of shares
outstanding each period. The Company calculates the dilutive
effects of both the warrants and stock options utilizing the
treasury stock method. All warrants and options were anti-dilutive
in all the periods presented. The weighted average shares for basic
earnings per share calculation consists of the following:
2018 2017
=================================================================================== ===========
Weighted average shares-basic 151,569,699 151,436,635
=============================== ================================================== ===========
The components of basic and diluted earnings per share were as
follows:
2018 2017
============================================================= =============
Net loss attributable to Verseon Corporation $(21,556,000) $(20,386,000)
Average outstanding shares
Basic 151,569,699 151,436,635
Diluted * 151,569,699 151,436,635
Net loss per share
Basic $(0.14) $(0.13)
Diluted * $(0.14) $(0.13)
============================================== ============= =============
* Diluted earnings per share are the same as basic earnings per
share since the impact of the dilutive instruments on earnings per
share is antidilutive.
11. Segment reporting
ASC Topic 280 "Segment reporting" establishes standards for the
way that public business enterprises report information about
business segments and related disclosures about products and
services, geographical areas, and major customers.
The Chief Executive Officer ("CEO") of the Company has been
identified as the Chief Operating Decision Maker as defined by ASC
Topic 280. The CEO of the Company allocates resources based upon
information related to its one operating segment, pharmaceutical
research based in the United States. Accordingly, the Company has
concluded it has one reportable segment.
12. Concentration of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk principally consist of cash, cash
equivalents, short-term and long-term investments.
All cash, cash equivalents, and marketable securities
investments are held in the United States, Australia, and the
United Kingdom as of December 31, 2018 and in the United States and
United Kingdom as of December 31, 2017. All marketable securities
investments as of December 31, 2018 had high quality investment
grade ratings. At times, cash balances may exceed federally insured
amounts and potentially subject the Company to a concentration of
credit risk. To limit the credit risk, the Company invests its
excess cash primarily in high quality securities such as money
market funds. Management believes that no significant concentration
of credit risk exists with respect to these cash and marketable
securities investment balances because of its assessment of the
credit worthiness and financial viability of the respective
financial institutions.
13. Related-party transactions
"Loan receivable from stockholders" refers to employees and
consultants of the Company who purchased their shares through the
issuance of promissory notes by the Company. Total loan receivable
from stockholders at December 31, 2018 and 2017 were $15.3 million
and $15.1 million, respectively.
One of Nirog Therapeutics' Board members, Ronald Kass, exercised
the following shares:
2018 2017
----------------------------------------- ---- ------
Nirog Preferred B2 Warrants (previously
granted before January) 2017) - 7,812
Verseon Common Warrants - 6,513
Verseon Class Z Warrants - 14,044
----------------------------------------- ---- ------
14. Commitments and contingencies
Rental expense for operating leases amounted to $0.2 million and
$0.9 million for the years ended December 31, 2018 and 2017,
respectively.
The table sets out the Company's non-cancellable operating lease
commitments at each of the balance sheet dates stated, which are
due within one year:
(US $'000) 2018 2017
------------------------ ---- ----
Lease for laboratories - 52
------------------------ ---- ----
Total obligation - 52
======================== ==== ====
Legal proceedings
The Company has no ongoing material legal proceedings, nor is it
aware of any potential legal proceedings.
15. Stockholders' equity
As of December 31, 2018 and 2017, the Company had 151,640,732
shares and 151,489,789 shares of Common Stock outstanding, not
including 42,917 shares and 42,917 shares in treasury, for the
respective years, and no shares of Preferred Stock outstanding.
2015 Equity incentive plan
In April 2015, the Company adopted the Verseon Corporation 2015
Equity Incentive Plan (the "2015 Plan"). The 2015 Plan provides for
the grant of stock options, stock appreciation rights, restricted
stock, restricted stock units, performance units, performance
shares, cash-based awards, and other stock-based awards to
non-employee directors, officers, employees, advisors, consultants,
and independent contractors. An aggregate of 15,000,000 shares of
Common Stock was initially available for grant pursuant to awards
under the 2015 Plan. The 2015 Plan contains a provision that
provides annual increases in the number of Common Stock available
for delivery pursuant to awards on each January 1st beginning
January 1, 2016 and ending on (and including) January 1, 2025. Such
annual increase equals to 2% of the total shares of Common Stock
outstanding on December 31st of the preceding calendar year,
provided that the Board decides, prior to the first day of any
calendar year, that there will be no increase or a lesser increase
for such calendar year. In September 2015, the plan was amended to
limit the annual increase of incentive stock option shares
available for grant to a maximum of 3,000,000 shares. A total of
18,876,776 shares and 17,760,825 shares were available for grant
under the 2015 Plan as of December 31, 2018 and 2017,
respectively.
Loan receivable from stockholders
The Company issued promissory notes to employees and consultants
to purchase shares of the Company's stock and recorded them as
"Loan receivable from stockholders." Total loan receivable from
stockholders at December 31, 2018 and 2017 were $15.3 million and
$15.1 million, respectively.
16. Restricted Stock Units (RSU)
In 2015, the Company began issuing RSU to certain employees and
consultants under the 2015 Plan. The RSU are valued at the closing
price of the Company's Common Stock on the date of grant. The
restricted stock unit activity for the year ended December 31, 2018
and 2017 is summarized as follows:
Weighted average
grant date
Shares fair value
per share
($)
========================================================= ==========================
Awarded and unvested at December 31, 2016 76,357 2.87
Granted in 2017 72,288 1.66
Vested in 2017 (71,078) (*) 2.25
=========================================== ============ ==========================
Awarded and unvested at December 31, 2017 77,567 2.32
=========================================== ============ ==========================
Granted in 2018 33,897 1.77
Vested in 2018 (71,251) (*) 2.09
=========================================== ============ ====
Awarded and unvested at December 31, 2018 40,213 2.24
=========================================== ============ ====
A total of $0.1 million and $0.1 million was recorded as
stock-based compensation expenses in 2018 and 2017 respectively for
RSU granted. As of December 31, 2018, there was $0.1 million of
unrecognized compensation expense associated with unvested RSUs,
which is expected to be recognized over a weighted-average period
of 0.46 years as compared to $0.2 million of unrecognized
compensation expense associated with unvested RSU with a
weighted-average period of 1.4 years in 2017.
*Includes 11,049 shares vested in 2018 that were admitted to AIM
in January 2019 and 24,096 shares vested in 2017 that were admitted
to AIM in January 2018.
17. Warrants
In April 2015, all outstanding warrants were amended to be
exercisable for shares of the Company's Common Stock from Class A,
Class B Preferred Stock, and Class Z Common Stock. There was no
Class C Preferred Stock outstanding. Common Warrants and Common Z
Warrants are exercisable into one share of Common Stock. Preferred
A Warrants and Preferred B Warrants are exercisable into two shares
of Common Stock.
A total of $0.1 million was recorded as stock-based compensation
expenses in each of 2018 and 2017 for warrants.
A total of 21,052 Preferred A Warrants was outstanding and
exercisable at December 31, 2018 at a weighted-average exercise
price of $0.95 per share and with weighted-average remaining life
of 3.21 years. There was no Preferred A Warrant activity in 2017
and 2018. A total of 71,302 Preferred B Warrants was outstanding
and exercisable at December 31, 2018 at a weighted-average exercise
price of $2.54 per share and with weighted-average remaining life
of 1 years. There was no Preferred B Warrant activity in 2017 and
2018.
The following is a summary of the status of the Company's
outstanding stock warrants as of December 31, 2018 and 2017 and
changes that occurred during each time period:
Weighted- Weighted-
Number of average exercise average remaining
Common price life
Warrants ($) (Years)
============================================================================================================== ======================= ========================
Outstanding at December 31, 2016 1,890,713 3.59 3.3
------------------------------------------------------------- ----------------------------------------------- ----------------------- ------------------------
Exercised in 2017 (6,513) _ _
Outstanding at December 31, 2017 1,884,200 3.59 2.3
Exercised in 2018 (16,346) 0.25 _
Cancelled in 2018 (19,539) 0.25 _
Transferred to Common Z Warrants
in 2018 (30,000) 0.25 1.0
============================================================= =============================================== ======================= ========================
Outstanding at December 31, 2018 1,818,315 3.74 1.4
============================================================= =============================================== ======================= ========================
Exercisable at December 31, 2018 1,780,815 3.73 1.4
============================================================= =============================================== ======================= ========================
Weighted- Weighted-
Number of average exercise average remaining
Common Z price life
Warrants ($) (Years)
================================================================================================================ ======================== =========================
Outstanding at December 31, 2016 276,544 0.22 2.9
Exercised in 2017 (14,044) 0.23 _
Outstanding and exercisable at December
31, 2017 262,500 0.22 2.0
================================================================== ============================================ ======================== =========================
Transferred from Common Warrants 30,000 0.25 1.0
Exercised in 2018 _ _ _
Outstanding and exercisable at December
31, 2018 292,500 0.22 1.0
================================================================== ============================================ ======================== =========================
Nirog
Nirog did not issue any warrants during the years ended December
31, 2018 and 2017. There were no Common Z Warrants or Preferred A
Warrants outstanding as of December 31, 2018 and 2017.
A total of 47,447 Preferred B2 Warrants was outstanding and
exercisable at December 31, 2018 at a weighted-average exercise
price of $0.80 per share and with weighted-average remaining life
of 0.3 years. There was no Preferred B2 Warrant activity in 2018.
In 2017, 7,812 Preferred B2 Warrants were exercised with a
weighted-average exercise price of $0.80, respectively. In 2017,
2,468 Preferred B2 Warrants were cancelled. A total of 102,128
Preferred C1 Warrants was outstanding and exercisable at December
31, 2018 at a weighted-average exercise price of $0.90 per share
and with weighted-average remaining life of 0.3 years. There was no
Preferred C1 Warrant activity in 2018 and 2017. A total of 5,250
Preferred C2 Warrants was outstanding and exercisable at December
31, 2018 at a weighted-average exercise price of $1.00 per share
and with weighted-average remaining life of 0.4 years. There was no
Preferred C2 Warrant activity in 2018 and 2017.
On December 31, 2017, Nirog appointed Ronald Kass as a Director.
Nirog did not issue any warrants during the years ended December
31, 2018 and 2017. There were no Common Z Warrants or Preferred A
Warrants outstanding as of December 31, 2018 and 2017. For the year
2018, Ronald Kass will be paid a fee of $40,000 as a Director.
18. Stock options and stock grants
Verseon
The activity in the Company's option grants during the years
2017 and 2018 are set out in the table below:
Weighted- average Weighted- average
Number of exercise price remaining life
options ($) (Years)
=============================================== ======================== ========================
Outstanding at December 31, 2016 1,990,825 2.31 8.7
Granted in 2017 2,269,665 1.90 9.62
Exercised in 2017 (50,508) 0.25 _
Cancelled in 2017 (1,098,963) 2.00 _
================================== =========== ======================== ========================
Outstanding at December 31, 2017 3,111,019 2.13 9.07
================================== =========== ======================== ========================
Exercisable at December 31, 2017 1,042,829 2.30 8.8
================================== =========== ======================== ========================
Granted in 2018 2,206,850 1.75 9.62
Exercised in 2018 (39,250) 0.69 _
Cancelled in 2018 (325,562) 2.01 _
================================== ========= ==== ====
Outstanding at December 31, 2018 4,953,057 2.32 8.8
================================== ========= ==== ====
Exercisable at December 31, 2018 2,221,556 2.12 8.4
================================== ========= ==== ====
In 2018 and 2017, stock-based compensation expense for stock
options was $1.4 million and $0.4 million, respectively. The
weighted average grant date fair value of the Common Stock options
granted in 2018 was $0.84 per share, as compared to $0.89 per share
in 2017.
For details of the variables used by the Company in the
Black-Scholes option pricing model for the years December 31, 2018
and 2017, see the following table:
Year ended December
31,
================================== ==========================
2018 2017
================================== ============ ============
Expected volatility 50% 50%
Expected dividend yields 0% 0%
Expected risk-free interest rate 2.6%-3.05% 1.95%-2.1%
Expected life of options 5-6 years 5-6 years
================================== ============ ============
Nirog
The Nirog Unit Option Plan provides for both incentive and
non-qualified unit options. Unit option grants generally vest over
a two-year period from the unit option grant date. In December
2017, Nirog adopted a new Stock Option Plan and 5,000,000 shares
were allocated. No options were issued in 2018 and 2017.
As of December 31, 2018, there were 5,154,090 unit options
available for grant. As of December 31, 2017, there were 5,130,667
unit options available for grant.
19. Subsequent events
On March 19, 2019 $10.7m was raised through the issue of 7.7m
new common shares.
On May 28, 2019 the Company repriced options granted to the
employees under the 2015 equity incentive plan. Those employees who
consented to repricing, shall have their previously vested options
re-vest monthly over the first six months after issuance. Then, the
unvested options will continue vesting quarterly as they did
before. The new options were granted at the Fair Market Value (FMV)
as of the date of the grant or at 110% of FMV as required by
law.
On June 10, 2019 the Company received $770 thousand from PACE
upon completion of a milestone. This is subject to the same terms
and conditions of repayment as prior amounts received from
PACE.
Subsequent to year end Additional Listing & Total Voting
Rights have been announced with the total number of shares in
circulation as at June 28, 2019 of 159,686,512.
- Ends -
[1] https://www.diabetesatlas.org/, June 2019
[2] M. A. Singer et al., F1000 Faculty Rev. (2016)
[3]
https://www.healio.com/ophthalmology/retina-vitreous/news/online/%7B6a28aca5-32fc-4742-900c-fb7f8633a14f%7D/one-in-four-anti-vegf-therapy-patients-with-dme-lost-to-follow-up,
May 2019
[4] Transparency Market Research (2018)
[5] The preferred shares is expected to confer rights to the
Verseon's cash available for distribution capped at 10(-8) % of the
company's drug program revenue in perpetuity per circulating
share.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKODQNBKBAAB
(END) Dow Jones Newswires
June 28, 2019 02:01 ET (06:01 GMT)
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