TIDMDDDD

RNS Number : 1156C

4d Pharma PLC

18 February 2022

4D pharma to Restate Unaudited Interim Financial Statements for the Six-Month Period Ended June 30, 2021 to Correct Accounting for Warrants

Non-cash adjustment with no effect on cash position or operating results of 4D Pharma's business

Audited financial statements for Fiscal Year 2020 are not affected

Leeds, UK, February 18, 2022 - 4D pharma plc (AIM: DDDD, NASDAQ: LBPS) , a pharmaceutical Company leading the development of Live Biotherapeutic products (LBPs), a novel class of drug derived from the microbiome, today announced that the Company has determined that the warrants and units assumed by the Company in connection with its March 2021 merger with Longevity Acquisition Corporation should not be recorded as equity instruments, and in accordance with IFRS and US GAAP, should be recorded as derivative liabilities. While the issues identified are non-cash, and do not impact the cash and cash equivalents, the Company has restated the unaudited interim consolidated financial statements for the six months period ending June 30, 2021.

The issues disclosed in this release are an accounting technicality and were identified by the Company during the ongoing preparation of its audited financial statements for the year ended December 31, 2021. The restatements do not impact the Company's cash and cash equivalents, revenues, operating expenses, operating loss, assets, or liquidity for the affected period.

This restatement will apply to the Company's International Financial Reporting Standards "IFRS" and US Generally Accepted Accounting Principles "GAAP" financial statements for the six months period ending June 30, 2021.The Company's audited financial statements for the year ended December 31, 2020 are not affected.

IFRS Statements

As previously reported under IFRS, the Company had concluded that the warrants and units were determined to be equity instruments and accounted for under IFRS 2. During the re-assessment and in line with the IFRIC discussion paper dated February 1, 2022 ('Special purpose acquisition companies (SPAC); accounting for warrants at acquisition'), the Company has reviewed its warrant accounting policies and determined that the rules outlined in IAS 32 may provide a more appropriate treatment than that of IFRS 2. IAS 32 states that equity linked financial instruments must meet a "fixed for fixed" criteria to be accounted for as equity based. As a result of the variation in the strike price currency (USD$) and the Company's functional currency (GBPGBP) together with the cashless exercise features, the warrants and units are to be determined as liabilities. Therefore, the Company has decided to reassess its accounting policy, changing the reporting of the warrants and units to liabilities in its restated financials. The restated IFRS financial statements are set out below. The effect on IFRS reporting are as follows:

-- Income Statement: Restated comprehensive loss of (GBP49.2) million compared to (GBP56.1) million as previously reported. This is a reduction in comprehensive loss of GBP6.9 million due to the change in fair value of the warrants as of June 30, 2021

-- Balance Sheet: Reduction in equity and net assets of GBP11.5 million, offset by an increase in liabilities of GBP11.5 million

GAAP Statements

As previously reported under GAAP, the Company had concluded that the warrants and units were indexed to its own stock and were equity based. According to Accounting Standards Codification "ASC" 815-40-15-71, equity linked financial instruments issued with a strike price denominated in a currency (USD$) different than the Company's functional currency (GBPGBP) incurs an exposure to changes in currency exchange rates and thus cannot be indexed to the Company's stock. Therefore, the Company has corrected this issue and will report the warrants and units as derivative liabilities in the Form 6-K to be furnished with the US Securities and Exchange Commission. The effect on GAAP reporting are as follows:

-- Income Statement: Restated comprehensive loss of ($24.2) million compared to ($18.5) million as previously reported. This is an increase in comprehensive loss of $5.8 million, due to $11.0 million loss on issuance of securities, partially offset by $5.2 million in the change in fair value of the warrants as of June 30, 2021

-- Balance Sheet: Reduction of $5.8 million in stockholder's equity, offset by an increase in liabilities of $5.8 million

About 4D pharma

4D pharma is a world leader in the development of Live Biotherapeutics, a novel and emerging class of drugs, defined by the FDA as biological products that contain a live organism, such as a bacterium, that is applicable to the prevention, treatment or cure of a disease. 4D pharma has developed a proprietary platform, MicroRx(R), that rationally identifies Live Biotherapeutics based on a deep understanding of function and mechanism.

4D pharma's Live Biotherapeutic products (LBPs) are orally delivered single strains of bacteria that are naturally found in the healthy human gut. The Company has five clinical programs, namely a Phase I/II study of MRx0518 in combination with KEYTRUDA(R) (pembrolizumab) in solid tumors, a Phase I study of MRx0518 in a neoadjuvant setting for patients with solid tumors, a Phase I study of MRx0518 in patients with pancreatic cancer, a Phase I/II study of MRx-4DP0004 in asthma, and Blautix(R) in irritable bowel syndrome (IBS) which has completed a successful Phase II trial. Preclinical-stage programs include candidates for CNS disease such as Parkinson's disease and other neurodegenerative conditions. The Company has a research collaboration with MSD, a tradename of Merck & Co., Inc., Kenilworth, NJ, USA, to discover and develop Live Biotherapeutics for vaccines.

For more information, refer to https://www.4dpharmaplc.com .

Contact Information:

4D

Duncan Peyton, Chief Executive Officer +44 (0)113 895 0130

Investor Relations ir@4dpharmaplc.com

Singer Capital Markets - Nominated Adviser and Joint Broker +44 (0)20 7496 3000

Philip Davies / James Fischer (Corporate Finance)

Tom Salvesen (Corporate Broking)

Bryan Garnier & Co. Limited - Joint Broker +44 (0)20 7332 2500

Dominic Wilson

Stern Investor Relations

Julie Seidel +1-212-362-1200

Julie.seidel@sternir.com

IFRS Group Statement of Total Comprehensive Income

For the six months to 30 June 2021 (restated)

 
                                         Unaudited    Unaudited    Unaudited    Unaudited 
                                        six months   six months   six months   six months       Audited 
                                             ended        ended        ended        ended       Year to 
                                           30 June      30 June      30 June      30 June   31 December 
                                              2021         2021         2021         2020          2020 
                                          Reported   Adjustment     Restated     Reported      Reported 
                                            GBP000       GBP000       GBP000       GBP000        GBP000 
------------------------------------   -----------  -----------  -----------  -----------  ------------ 
Revenue                                        231            -          231          275           534 
Research and development 
 costs                                     (9,873)            -      (9,873)     (12,418)      (22,041) 
Administrative expenses                    (3,346)            -      (3,346)      (3,839)       (5,969) 
Foreign currency gains                         229            -        (229)          920           363 
Other operating income                          18            -         (18)           21            45 
-------------------------------------  -----------  -----------  -----------  -----------  ------------ 
Operating loss before non-recurring 
 costs                                    (12,741)            -     (12,741)     (15,041)      (27,068) 
Non-recurring costs                       (44,160)            -     (44,160)        (565)       (3,110) 
-------------------------------------  -----------  -----------  -----------  -----------  ------------ 
Operating loss after non-recuring 
 costs                                    (56,901)            -     (56,901)     (15,606)      (30,178) 
Finance income 
- Fair value adjustment 
 of warrants 
 and Options                                     -        6,927        6,927            -             - 
- Other                                          2            -            2            5             5 
Finance expense                               (83)            -         (83)         (88)         (173) 
-------------------------------------  -----------  -----------  -----------  -----------  ------------ 
Loss before taxation                      (56,982)        6,927     (50,055)     (15,689)      (30,346) 
Taxation                                     1,532            -        1,532        1,963         4,383 
-------------------------------------  -----------  -----------  -----------  -----------  ------------ 
Loss for the period                       (55,450)        6,927     (48,523)     (13,726)      (25,963) 
Other comprehensive income: 
Exchange differences on 
 translating foreign operations              (665)            -        (665)          165           110 
-------------------------------------  -----------  -----------  -----------  -----------  ------------ 
Loss and total comprehensive 
 income for the period                    (56,115)        6,927     (49,188)     (13,561)      (25,853) 
-------------------------------------  -----------  -----------  -----------  -----------  ------------ 
Loss per share 
Basic and diluted for the 
 period                                   (34.97)p        4.37p     (30.60)p     (14.06)p      (22.80)p 
-------------------------------------  -----------  -----------  -----------  -----------  ------------ 
 
 

IFRS Group Statement of Financial Position

At 30 June 2021 (restated)

 
                                      At          At         At         At            At 
                                 30 June     30 June    30 June    30 June   31 December 
                                    2021        2021       2021       2020          2020 
                                Reported  Adjustment   Restated   Reported      Reported 
                                  GBP000      GBP000     GBP000     GBP000        GBP000 
----------------------------   ---------  ----------  ---------  ---------  ------------ 
Assets 
Non-current assets 
Property, plant and 
 equipment 
- Owned assets                     3,229           -      3,229      4,150         3,659 
- Right-of-use assets                752           -        752        911           835 
Intangible assets                 13,780           -     13,780     14,181        14,025 
Taxation receivables                 180           -        180        191           177 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
                                  17,941           -     17,941     19,433        18,696 
 ----------------------------  ---------  ----------  ---------  ---------  ------------ 
Current assets 
Inventories                          305           -        305        212           291 
Trade and other receivables        2,980           -      2,980      2,046         3,223 
Taxation receivables               5,675           -      5,675      8,228         4,436 
Cash and cash equivalents         20,746           -     20,746     20,746         8,775 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
                                  29,706           -     29,706     20,513        16,725 
 ----------------------------  ---------  ----------  ---------  ---------  ------------ 
Total assets                      47,647           -     47,647     39,946        35,421 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
Liabilities 
Current liabilities 
Trade and other payables           6,962           -      6,962      6,423         6,379 
Lease liabilities                     74           -         74         73            73 
                                   7,036           -      7,036      6,496         6,452 
 ----------------------------  ---------  ----------  ---------  ---------  ------------ 
Non-current liabilities 
Lease liabilities                    936           -        936      1,027           986 
Liabilities on warrants 
 and options                           -      11,503     11,503          -             - 
Deferred tax                          12           -         12        966            13 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
                                     948      11,503     12,451      1,993           999 
 ----------------------------  ---------  ----------  ---------  ---------  ------------ 
Total liabilities                  7,984      11,503     19,487      8,489         7,451 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
Net assets                        39,663    (11,503)     28,160     31,457        27,970 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
Capital and reserves 
Share capital                        451           -        451        274           329 
Share premium                    159,937      25,734    185,671    130,186       136,278 
Merger reserve                       958           -        958        958           958 
Translation reserve                (110)           -      (110)        611           555 
Other reserve                      (864)           -      (864)      (864)         (864) 
Share-based payment 
 reserve                          47,488    (44,164)      3,324      1,010         3,497 
Retained earnings              (168,197)       6,927  (161,270)  (100,718)     (112,783) 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
Total equity                      39,663    (11,503)     28,160     31,457        27,970 
-----------------------------  ---------  ----------  ---------  ---------  ------------ 
 

IFRS Group Cash Flow Statement

For the six months to 30 June 2021 (restated)

 
                                      Unaudited    Unaudited    Unaudited    Unaudited 
                                     six months   six months   six months   six months       Audited 
                                          ended        ended        ended        ended       Year to 
                                        30 June      30 June      30 June      30 June   31 December 
                                           2021         2021         2021         2020          2020 
                                       Reported   Adjustment     Restated     Reported      Reported 
                                         GBP000       GBP000       GBP000       GBP000        GBP000 
---------------------------------   -----------  -----------  -----------  -----------  ------------ 
Loss after taxation                    (55,450)       6 ,927     (48,523)     (13,726)      (25,963) 
Adjustments for: 
Depreciation of property, 
 plant and equipment                        446            -          446          508         1,003 
Amortization of intangible 
 assets                                      74            -           74          110           203 
Loss on disposal of property, 
 plant and equipment                         40            -           40            -             - 
Lease liabilities included 
 in the Income Statement                      -            -            -           68           135 
Finance income 
- Other                                     (2)            -          (2)          (5)           (5) 
- Fair value adjustment of 
 warrants and options                         -      (6,927)      (6,927)            -             - 
Finance expense                              83            -           83           88           173 
Expense on issue of shares                    -            -            -        1,498             - 
Share based compensation                 44,121            -       44,121          675         3,334 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Cash flows from operations 
 before movements in working 
 capital                               (10,688)            -     (10,688)     (10,784)      (21,120) 
Changes in working capital: 
Increase in inventories                    (14)            -         (14)         (14)          (93) 
Decrease/(increase) in trade 
 and other receivables                      243            -          243      (1,037)       (2,106) 
(Increase)/decrease in taxation 
 receivables                            (1,238)            -      (1,238)      (2,111)         1,697 
Increase/(decrease) in trade 
 and other payables                         216            -          216           19       (1,052) 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Cash outflow from operating 
 activities                            (11,481)            -     (11,481)     (13,927)      (22,674) 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Cash flows from investing 
 activities 
Purchases of property, plant 
 and equipment                            (117)            -        (117)        (160)         (163) 
Purchase of software and other 
 intangibles                                  -            -            -         (15)          (15) 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Net cash outflow from investing 
 activities                               (117)            -        (117)        (175)         (178) 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Cash flows from financing 
 activities 
Proceeds from issues of ordinary 
 share capital                           27,904            -       27,904       22,000        29,741 
Expenses on issue of shares             (4,217)            -      (4,217)      (1,498)       (1,594) 
Lease liability payments                   (37)            -         (37)        (126)         (188) 
Interest received                             2            -            2            5             5 
Interest paid                              (83)            -         (83)         (88)         (173) 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Net cash inflow from financing 
 activities                              23,569            -       23,569       20,293        27,791 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Increase in cash and cash 
 equivalents                             11,971            -       11,971        6,191         4,939 
Cash and cash equivalents 
 at the start of the year                 8,775            -        8,775        3,836         3,836 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
Cash and cash equivalents 
 at the end of the period                20,746            -       20,746       10,027         8,775 
----------------------------------  -----------  -----------  -----------  -----------  ------------ 
 
 
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