Exhibit 99.1
INFLARX N.V.
UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS – JUNE 30, 2019
These unaudited condensed financial statements are consolidated financial statements for the group consisting of InflaRx N.V. and its wholly-owned subsidiaries InflaRx GmbH, and InflaRx Pharmaceutical Inc., Ann Arbor, Michigan, United States (together, the “Group”). The financial statements are presented in Euro (€).
InflaRx N.V. is a company limited by shares, incorporated and domiciled in Amsterdam, The Netherlands.
Its registered office and principal place of business is in Germany, Jena, Winzerlaer Str. 2.
All press releases, financial reports and other information are available in the investor’s register on our website: www.inflarx.de
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2019
Unaudited Condensed Consolidated Financial Statements | |
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018, | 3 |
Unaudited Condensed Consolidated Statements of Financial Position as of June 30, 2019 and December 31, 2018 | 4 |
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2019 and 2018 | 5 |
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 | 6 |
Notes to the Unaudited Condensed Consolidated Financial Statements | 7 |
1. Net Financial Result | 7 |
2. Other non-financial assets | 7 |
3. Financial assets and financial liabilities | 8 |
4. Cash and cash equivalents information | 8 |
5. Related party transactions | 8 |
6. Share-based payments | 9 |
7. Protective foundation | 12 |
8. Summary of significant accounting policies | 12 |
(a) Reporting entity and Group’s structure | 12 |
(b) Basis of preparation | 12 |
(c) New and amended standards adopted by the Group | 13 |
(d) Summary of new accounting policies | 14 |
(e) Events after the reporting period | 15 |
InflaRx N.V. and subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Loss
for the three and six months ended June 30, 2019 and 2018,
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||
Note | 2019 (unaudited) | 2018 (unaudited) | 2019 (unaudited) | 2018 (unaudited) | ||||||||||||||||
(in thousands of €, except for per share data) | ||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||
Research and development expenses | (12,497 | ) | (5,031 | ) | (20,192 | ) | (10,505 | ) | ||||||||||||
General and administrative expenses | (3,648 | ) | (3,161 | ) | (6,949 | ) | (6,158 | ) | ||||||||||||
Total Operating Expenses | (16,145 | ) | (8,192 | ) | (27,141 | ) | (16,663 | ) | ||||||||||||
Other income | 3 | 65 | 68 | 150 | ||||||||||||||||
Other expenses | (79 | ) | (21 | ) | (83 | ) | (33 | ) | ||||||||||||
Operating Result | (16,221 | ) | (8,148 | ) | (27,157 | ) | (16,545 | ) | ||||||||||||
Finance income | 1,339 | 5,742 | 2,498 | 6,007 | ||||||||||||||||
Finance expenses | (388 | ) | (37 | ) | (450 | ) | (2,226 | ) | ||||||||||||
Net financial Result | 1 | 950 | 5,705 | 2,048 | 3,781 | |||||||||||||||
Loss for the period | (15,271 | ) | (2,443 | ) | (25,109 | ) | (12,764 | ) | ||||||||||||
Share information | ||||||||||||||||||||
Weighted average number of shares outstanding | 25,964 | 24,890 | 25,964 | 24,357 | ||||||||||||||||
Loss per share in Euro (basic/diluted) | € | (0.59 | ) | € | (0.10 | ) | € | (0.97 | ) | € | (0.52 | ) | ||||||||
Loss for the period | (15,271 | ) | (2,443 | ) | (25,109 | ) | (12,764 | ) | ||||||||||||
Other comprehensive income that may be re-clas-si-fied to profit or loss in subsequent periods: | ||||||||||||||||||||
Exchange differences on translation of foreign currency | (1,622 | ) | (17 | ) | 695 | (16 | ) | |||||||||||||
Total comprehensive loss | (16,893 | ) | (2,460 | ) | (24,413 | ) | (12,780 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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InflaRx N.V. and subsidiaries
Unaudited Condensed Consolidated Statements of Financial Position
as of June 30, 2019 and December 31, 2018
Note | 2019 (unaudited) | 2018 | ||||||||||
(in thousands of €) | ||||||||||||
ASSETS | ||||||||||||
Non-current assets | ||||||||||||
Property, plant and equipment | 1,643 | 625 | ||||||||||
Intangible assets | 453 | 223 | ||||||||||
Non-current financial assets | 3 | 290 | 207 | |||||||||
Total non-current assets | 2,385 | 1,055 | ||||||||||
Current assets | ||||||||||||
Current other assets | 2 | 3,652 | 1,589 | |||||||||
Current financial assets | 3 | 84,818 | 101,184 | |||||||||
Cash and cash equivalents | 4 | 54,063 | 55,386 | |||||||||
Total current assets | 142,534 | 158,159 | ||||||||||
TOTAL ASSETS | 144,919 | 159,214 | ||||||||||
EQUITY AND LIABILITIES | ||||||||||||
Equity | ||||||||||||
Issued capital | 3,116 | 3,116 | ||||||||||
Share premium | 211,022 | 211,022 | ||||||||||
Other capital reserves | 22,200 | 18,310 | ||||||||||
Accumulated deficit | (106,216 | ) | (81,107 | ) | ||||||||
Other components of equity | 746 | 50 | ||||||||||
Total equity | 130,867 | 151,391 | ||||||||||
Non-current liabilities | ||||||||||||
Lease liabilities | 647 | — | ||||||||||
Provisions | 42 | 57 | ||||||||||
Government grants | 9 | 11 | ||||||||||
Total non-current liabilities | 698 | 68 | ||||||||||
Current liabilities | ||||||||||||
Lease liabilities | 339 | — | ||||||||||
Employee Benefits | 705 | 788 | ||||||||||
Social securities and current other tax liabilities | 126 | 310 | ||||||||||
Trade and other payables | 3 | 12,184 | 6,657 | |||||||||
Total current liabilities | 13,354 | 7,756 | ||||||||||
Total Liabilities | 14,052 | 7,824 | ||||||||||
TOTAL EQUITY AND LIABILITIES | 144,919 | 159,214 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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InflaRx N.V. and subsidiaries
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
for the six months ended June 30, 2019 and 2018
Note | Shares out- standing | Issued capital | Share pre-mium | Other capital reserves | Accumu- lated deficit | Other compo- nents of equity | Total equity | |||||||||||||||||||||||||
(in thousands of €, except for share data) | ||||||||||||||||||||||||||||||||
Balance as of January 1, 2019 | 25,964,379 | 3,116 | 211,022 | 18,310 | (81,107 | ) | 50 | 151,391 | ||||||||||||||||||||||||
Loss for the period | — | — | — | — | (25,109 | ) | — | (25,109 | ) | |||||||||||||||||||||||
Exchange differences on translation of foreign currency | — | — | — | — | - | 695 | 695 | |||||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | (25,109 | ) | 695 | (24,414 | ) | |||||||||||||||||||||||
Transactions with owners of the Company | ||||||||||||||||||||||||||||||||
Contributions | ||||||||||||||||||||||||||||||||
Equity-settled share-based pay-ment | 6 | — | — | — | 3,890 | — | — | 3,890 | ||||||||||||||||||||||||
Total Contributions | — | — | — | 3,890 | — | — | 3,890 | |||||||||||||||||||||||||
Total transactions with own-ers of the Company | — | — | — | 3,890 | — | — | 3,890 | |||||||||||||||||||||||||
Balance as of June 30, 2019* | 25,964,379 | 3,116 | 211,022 | 22,200 | (106,216 | ) | 746 | 130,867 | ||||||||||||||||||||||||
Balance as of January 1, 2018 | 23,812,100 | 2,858 | 161,639 | 6,225 | (51,293 | ) | — | 119,429 | ||||||||||||||||||||||||
Loss for the period | — | — | — | — | (12,764 | ) | — | (12,764 | ) | |||||||||||||||||||||||
Exchange differences on trans-la-tion of foreign currency | — | — | — | — | — | (16 | ) | (16 | ) | |||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | (12,764 | ) | (16 | ) | (12,780 | ) | ||||||||||||||||||||||
Transactions with owners of the Company | ||||||||||||||||||||||||||||||||
Contributions | ||||||||||||||||||||||||||||||||
Issued shares | 1,850,000 | 222 | 52,769 | — | — | — | 52,991 | |||||||||||||||||||||||||
Transaction costs | — | — | (3,801 | ) | — | — | — | (3,801 | ) | |||||||||||||||||||||||
Equity-settled share-based pay-ment | 6 | — | — | — | 5,938 | — | — | 5,938 | ||||||||||||||||||||||||
Total Contributions | 1,850,000 | 222 | 48,967 | 5,938 | — | — | 55,128 | |||||||||||||||||||||||||
Total transactions with own-ers of the Company | 1,850,000 | 222 | 48,967 | 5,938 | — | — | 55,128 | |||||||||||||||||||||||||
Balance as of June 30, 2018* | 25,662,100 | 3,080 | 210,606 | 12,163 | (64,056 | ) | (16 | ) | 161,776 |
* unaudited
The accompanying notes are an integral part of these condensed consolidated financial statements.
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InflaRx N.V. and subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2019 and 2018
Note | 2019 (unaudited) | 2018 (unaudited) | ||||||||||
(in thousands of €) | ||||||||||||
Operating activities | ||||||||||||
Loss for the period | (25,109 | ) | (12,764 | ) | ||||||||
Adjustments for: | ||||||||||||
Depreciation & Amortization | 308 | 50 | ||||||||||
Net financial result | 1 | (2,048 | ) | (3,781 | ) | |||||||
Share based payment expense | 7 | 3,890 | 5,938 | |||||||||
other non-cash adjustments | (205 | ) | (58 | ) | ||||||||
Changes in: | ||||||||||||
Current other assets | 2 | (2,063 | ) | (248 | ) | |||||||
Provisions | (15 | ) | 52 | |||||||||
Employee benefits | (84 | ) | 173 | |||||||||
Social securities and current other tax liabilities | (185 | ) | (2 | ) | ||||||||
Trade and other payables | 5,527 | (1,189 | ) | |||||||||
Interest received | 1,270 | 681 | ||||||||||
Interest paid | (15 | ) | 0 | |||||||||
Net cash from operating activities | (18,730 | ) | (11,148 | ) | ||||||||
Investing activities | ||||||||||||
Cash outflow from the purchase of intangible assets, laboratory and office equipment | (504 | ) | (362 | ) | ||||||||
Cash outflow for the investment in non-current other financial assets | (76 | ) | (33 | ) | ||||||||
Proceeds from the disposal of non-current other financial assets | 4 | 13 | ||||||||||
Proceeds from the disposal of current financial assets | 17,709 | — | ||||||||||
Purchase of current financial assets | — | (8,014 | ) | |||||||||
Net cash used in investing activities | 17,133 | (8,396 | ) | |||||||||
Financing activities | ||||||||||||
Proceeds from issuance of share capital | — | �� | 52,991 | |||||||||
Transaction cost from issuance of share capital | — | (3,801 | ) | |||||||||
Repayment of leasing debt | (125 | ) | — | |||||||||
Net cash from financing activities | (125 | ) | 49,189 | |||||||||
Effect of exchange rate changes | 399 | 3,142 | ||||||||||
Change in cash and cash equivalents | (1,323 | ) | 32,787 | |||||||||
Cash and cash equivalents at beginning of period | 55,386 | 123,282 | ||||||||||
Cash and cash equivalents at end of period | 4 | 54,063 | 156,069 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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InflaRx N.V. and subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Net Financial Result
The net financial result is comprised of the following items for the three and six months ended June 30:
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2019 (unaudited) | 2018 (unaudited) | 2019 (unaudited) | 2018 (unaudited) | |||||||||||||
(in thousands of €) | ||||||||||||||||
Finance income | ||||||||||||||||
Interest income | 1,067 | 438 | 1,870 | 703 | ||||||||||||
Foreign exchange income | 272 | 5,304 | 628 | 5,304 | ||||||||||||
Total | 1,339 | 5,742 | 2,498 | 6,007 | ||||||||||||
Finance costs | ||||||||||||||||
Foreign exchange expense | (381 | ) | — | (435 | ) | (2,163 | ) | |||||||||
Other | (8 | ) | (37 | ) | (15 | ) | (63 | ) | ||||||||
Total | (389 | ) | (37 | ) | (450 | ) | (2,226 | ) | ||||||||
Net financial result | 950 | 5,705 | 2,048 | 3,781 |
On the reporting date, assets and liabilities are translated at the closing rate. Any foreign exchange rate differences derived from these translations are recognized in the consolidated statement of profit or loss as part of finance income.
Interest income results from marketable securities held by the Company and short-term deposits in U.S. Dollar held by the Company and its subsidiary InflaRx GmbH.
Foreign exchange income and expense is mainly derived from the translation of the U.S. Dollar cash and cash equivalents held by InflaRx GmbH. These funds are translated at the exchange rates prevailing on the reporting date. Any resulting translation differences are recognized in profit or loss. U.S. Dollar denominated funds of the Company do not materially impact foreign exchange results, as the Company has changed its functional currency from Euro to U.S. Dollar.
2. Other non-financial assets
As of June 30, 2019 (unaudited) | As of December 31, 2018 | |||||||
(in thousands of €) | ||||||||
Current other assets | ||||||||
Prepaid expense | 2,471 | 1,047 | ||||||
Current tax assets | 1,065 | 444 | ||||||
Other | 116 | 98 | ||||||
Total | 3,652 | 1,589 |
Prepaid expense mainly consists of accrued insurance expense for Directors and Officers and insurance expenses together with the placement of shares in May 2018. The increase is also reflected in our higher insurance expenses. Current tax assets in 2019 include tax reclaims because of capital gains tax deductions on securities interest payments. The increase is due to the securities purchased in the third quarter of 2018.
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3. Financial assets and financial liabilities
Set out below is an overview of financial assets and liabilities, other than cash and short-term deposits, held by the Group as at June 30, 2019 and December 31, 2018:
As of June 30, 2019 (unaudited) | As of December 31, 2018 | |||||||
(in thousands of €) | ||||||||
Financial assets at amortized cost | ||||||||
Non-current financial assets | 290 | 207 | ||||||
Current financial assets | 84,818 | 101,184 | ||||||
Financial liabilities at amortized cost | ||||||||
Trade and other payables | 12,184 | 6,657 |
The fair value of current and non-current financial assets (primarily quoted debt securities with, credit ratings ranging from AA- to AAA) amounted to €84,164 thousand (level 1). The Group’s debt instruments at amortized cost consist solely of quoted securities that are graded in the top investment category (AA- to AAA) by credit rating agencies such as S&P Global and, therefore, are considered low credit risk investments. Based on statistical historical probabilities of default, adjusted for forward-looking factors specific to the debtors and the economic environment, the Group believes that the expected credit losses for these debt instruments are immaterial. Furthermore, since the acquisition of these debt securities, their credit ratings have remained stable.
4. Cash and cash equivalents information
As of June 30, 2019 (unaudited) | As of December 31, 2018 | |||||||
(in thousands of €) | ||||||||
Short-term deposits | ||||||||
Deposits held in U.S. Dollars | 44,981 | 32,919 | ||||||
Deposits held in Euro | 4,620 | — | ||||||
Total | 49,601 | 32,919 | ||||||
Cash at banks | ||||||||
Cash held in Euro | 3,912 | 21,720 | ||||||
Cash held in U.S. Dollars | 550 | 748 | ||||||
Total | 4,462 | 22,468 | ||||||
Total cash and cash equivalents | 54,063 | 55,386 |
5. Related party transactions
The Group’s executive management comprises the following persons:
Professor Niels C. Riedemann, Chief Executive Officer (CEO)
Professor Renfeng Guo, Chief Scientific Officer (CSO)
Arnd Christ, Chief Financial Officer (CFO)
Jason Marks, Chief Legal Officer, General Counsel (CLO)
Othmar Zenker, Chief Medical Officer (CMO)
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The Group’s board of directors comprises the following persons:
Executive Directors
Professor Niels C. Riedemann, CEO
Professor Renfeng Guo, CSO
Non-executive Directors
Nicolas Fulpius, Chairman of the board of directors and Chairman of the Audit Committee
Jens Holstein, Member of the Audit Committee
Anthony Gibney, Member of the Audit Committee, until June 11, 2019
Katrin Uschmann
Lina Ma
Mark Kübler
Richard Brudnick, since May 23, 2019.
The compensation of the Group’s executive management comprises the following for the three and six months ended June 30:
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2019 (unaudited) | 2018 (unaudited) | 2019 (unaudited) | 2018 (unaudited) | |||||||||||||
(in thousands of €) | ||||||||||||||||
Executive Management | ||||||||||||||||
Short-term employee benefits | 767 | 573 | 1,532 | 1,181 | ||||||||||||
Share-based payments | 1,064 | 2,475 | 2,671 | 4,949 | ||||||||||||
Total | 1,831 | 3,048 | 4,203 | 6.130 | ||||||||||||
Non-executive Board of Directors | ||||||||||||||||
Short-term employee benefits | 71 | 58 | 142 | 113 | ||||||||||||
Share-based payments | 214 | 267 | 441 | 513 | ||||||||||||
Total | 285 | 326 | 583 | 627 | ||||||||||||
Total Compensation | 2,116 | 3,374 | 4,786 | 6,757 |
Remuneration of InflaRx’s executive management consists of fixed and variable components and share-based payment awards. In addition, the executive management receives supplementary benefits and allowances.
We entered into indemnification agreements with our directors and senior management. The indemnification agreements and our articles of association require us to indemnify our directors and certain officers and employees as designated by our board of directors to the fullest extent permitted by law.
6. Share-based payments
1. Equity settled share-based payment arrangements
In the course of its historical financing rounds, InflaRx GmbH established equity-settled share-based payment programs. Under these programs, the Company granted its managing directors and senior executives options to acquire InflaRx GmbH’s common shares. In total, options covering 6,088 common shares have been granted. All of the options have vested. The InflaRx GmbH options were converted into options covering 511,392 common shares of InflaRx N.V. at the initial public offering in November 2017. The exercise prices for each outstanding award is 0.01 € per share or less.
Under the terms and conditions of the 2016 stock option plan (the “2016 Stock Option Plan”), InflaRx GmbH granted rights to subscribe for InflaRx GmbH’s common shares to directors, senior management and key employees. Prior to the initial public offering, the outstanding awards under the 2016 plan covered an aggregate of 1,239,252 common shares and the exercise price for each outstanding award was €7.81 per share (in each case after giving effect to the corporate reorganization in November 2017). Any additional awards available under the 2016 plan lapsed upon the closing of the Series D financing in October 2017. In 2016, InflaRx also established a share-based payment plan for its non-executive board members and granted options covering 484 shares. Grants under this plan were not subject to service or performance conditions.
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In conjunction with the closing of its initial public offering, InflaRx N.V. established a new incentive plan (the “2017 Long-Term Incentive Plan”). The initial maximum number of common shares available for issuance under equity incentive awards granted pursuant to the 2017 Long Term Incentive Plan equals 2,341,097 common shares. The number of share options under the plan was as follows:
2019 | ||||
Number of stock options: | ||||
Outstanding as of January 1, 2019 | 2,051,009 | |||
Granted in 2019 | 54,450 | |||
Forfeited in 2019 | — | |||
Outstanding as of June 30, 2019 | 2,105,459 | |||
thereof vested | 994,879 | |||
thereof exercised | — |
In the fourth quarter of 2018 75,000 stock options were awarded subject to a specified condition, which was satisfied in the first quarter of 2019. Therefore, the expense for these stock options occurred in 2019.
On January 1, 2021 and on January 1 of each calendar year thereafter, an additional number of shares equal to 3% of the total outstanding common shares on December 31 of the immediately preceding year (or any lower number of shares as determined by the board of directors) will become available for issuance under equity incentive awards granted pursuant to the 2017 Long-Term Incentive Plan.
2. Stock options exercised
In 2018, 302,279 shares were issued following the exercise of stock options, resulting in proceeds to the Company in the amount of €452.0 thousand. All stock options exercised were granted under the 2016 Stock Option Plan. In the first two quarters of 2019, no stock options were exercised.
3. Measurement of fair values of stock options granted
The fair value of options granted in the six months ended June 30, 2019 under the 2017 Long-Term Incentive Plan was determined using the Black-Scholes valuation model. Since the Company’s common shares are listed on the Nasdaq Global Select Market, the closing price of the common shares at grant date was used.
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Other significant inputs into the model are as follows (weighted average):
Grants effective in Q1-2019 | Grants effective in Q2-2019 | |||||||||||
Parameters | ||||||||||||
Fair value at grant date | ||||||||||||
Per option (USD) | 14.45 | 18.17 | 22.54 | |||||||||
FX rate as of grant date | 0.88 | 0.87 | 0.89 | |||||||||
Per option (EUR) | 12.69 | 15.87 | 20.08 | |||||||||
Share price at grant date (USD) | 26.02 | 32.63 | 41.39 | |||||||||
Exercise price (USD) | 26.02 | 32.63 | 41.39 | |||||||||
Expected volatility | 0.65 | 0.65 | 0.65 | |||||||||
Expected life (midpoint based) | 4.8 | 4.9 | 4.7 | |||||||||
Expected dividends | — | — | — | |||||||||
Risk-free rate (interpolated, U.S. sovereign strips curve) | 3.0 | % | 2.6 | % | 2.3 | % |
Expected volatility has been based on an evaluation of the historical and implied volatility of a peer group of companies. The range of outcomes for the expected life of the instruments has been based on expectations on option holder behavior in the scenarios considered.
The dividend yield has no impact due to the anti-dilution clause as defined in the LTI.
Expenses are determined based on the number of stock options granted within a tranche and the vesting period of a tranche. This implies two effects:
the more options are granted within a tranche, the higher the expense of a tranche is, and
the shorter the vesting period of a tranche is, the higher the expense of a tranche is.
For example, 33.33% of all stock options granted are allocated to the first tranche which vests over 1 year after the grant date, whereas 8.33% of all stock options granted are allocated to the ninth tranche which vests over three years. Therefore, the expenses recognized from the granted share options under the 2017 Long-Term Incentive plan were €0 in 2016, €0.6 million in 2017, €12.1 million for 2018 and are anticipated to be €6.2 million for 2019, €2 million for 2020, €0.2 million for 2021 and €0 million for 2022 (anticipated expenses were converted with the exchange rate as of June 30, 2019, 1 Euro = US dollar 1.1380).
In the three-months period ended June 30, 2019 and 2018, compensation expense was recognized from the following plans:
in 2019, €1.8 million resulted from the 2017 Long-Term Incentive Plan,
in 2018, €3.0 million resulted from the 2017 Long-Term Incentive Plan.
In the six-months period ended June 30, 2019 and 2018, compensation expense was recognized from the following plans:
in 2019, €3.9 million resulted from the 2017 Long-Term Incentive Plan,
in 2018, €5.9 million resulted from the 2017 Long-Term Incentive Plan.
None of the share-based payments awards were dilutive in determining earnings per share due to the Group’s loss position.
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7. Protective foundation
According to the articles of association of the Company, up to 55,000,000 common shares and up to 55,000,000 preferred shares with a nominal value of €0.12 per share are authorized to be issued. All shares are registered shares. No share certificates have been issued.
The Company`s general meeting of shareholders approved the right of an independent foundation under Dutch law, or protective foundation, to acquire up to 100% of the Company`s issued share capital held by others than the protective foundation, minus one share, pursuant to a call option agreement entered into between us and such foundation, in order to deter acquisition bids. The protective foundation is expected to enter into a finance arrangement with a bank or, subject to applicable restrictions under Dutch law, the protective foundation may request us to provide, or cause the Company`s subsidiaries to provide, sufficient funding to the protective foundation to enable it to satisfy its payment obligation under the call option agreement.
These preferred shares will have both a liquidation and dividend preference over the Company’s common shares and will accrue cash dividends at a pre-determined rate. The protective foundation would be expected to require us to cancel its preferred shares once the perceived threat to the Company and its stakeholders has been removed or sufficiently mitigated or neutralized. We are of the opinion that the call option does not represent a significant fair value based on a level 3 valuation, due to the fact that the preferred shares are restricted in use and can be cancelled by us as stated above.
In the quarter ended June 30, 2019, the Company expensed €20 thousand of ongoing costs to reimburse expenses incurred by the protective foundation. In the six months period ended June 30, 2019, the Company expensed €35 thousand respectively.
8. Summary of significant accounting policies
(a) | Reporting entity and Group’s structure |
InflaRx N.V. is a Dutch public company with limited liability (naamloze vennootschap) with its corporate seat in Amsterdam, The Netherlands, and is registered in the Commercial Register of The Netherlands Chamber of Commerce Business Register under CCI number 68904312. The Company’s registered office is at Winzerlaer Straße 2 in 07745 Jena, Germany. Since November 10, 2017, InflaRx N.V.’s common shares have been listed on The NASDAQ Global Select Market under the symbol IFRX.
InflaRx is a clinical-stage biopharmaceutical Group focused on applying its proprietary anti-C5a technology to discover and develop first-in-class, potent and specific inhibitors of the complement activation factor known as C5a.
These consolidated financial statements of InflaRx comprise the Company and its wholly-owned subsidiaries InflaRx GmbH and InflaRx Pharmaceutical Inc., Ann Arbor, Michigan, United States.
InflaRx GmbH is a clinical-stage biopharmaceutical company founded in 2008. In 2017, InflaRx N.V. became the sole shareholder of InflaRx GmbH through the contribution of the subsidiary’s shares to InflaRx N.V. by its existing shareholders in exchange of new shares issued by InflaRx N.V.
These consolidated financial statements of InflaRx N.V. comprise the Group.
(b) Basis of preparation
These condensed consolidated interim financial statements for the three- and six-month reporting period ended June 30, 2019 have been prepared in accordance with Accounting Standard IAS 34 Interim Financial Reporting. The interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended December 31, 2018 and any public announcements made by InflaRx N.V. during the interim reporting period.
The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards effective as of January 1, 2019 as set out below.
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This is the first set of the Group’s financial statements where IFRS 16 has been applied, as described in section (d).
The financial statements have been prepared on a historical cost basis except for share-based payments which are measured at fair value.
The financial statements are presented in Euro (€). Euro is the functional currency of InflaRx GmbH. The functional currency of InflaRx N.V. and InflaRx Pharmaceutical Inc. is U.S. Dollars. Since January 1, 2019, the functional currency of InflaRx N.V. has changed to U.S. Dollars from Euro, as the majority of income and expenses of InflaRx N.V. occurs in U.S. Dollar. From the date of change the functional currency is used prospectively. Because the presentation currency of the Group did not change and continues to be Euro, comparative financial information had not to be restated.
All financial information presented in Euro has been rounded to the nearest thousand. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them or may deviate from other tables by one thousand Euros at a maximum.
We recently reported top-line results of the international SHINE Phase IIb study, investigating the safety and efficacy of IFX-1 in HS. The results of the SHINE study had no impact on the presentation in our financial statements (e.g. no impairments of assets and no additional provisions).
The condensed consolidated financial statements were authorized for issue by the board of directors on August 14, 2019.
(c) | New and amended standards adopted by the Group |
The Group has applied the following standards and amendments for the first time for its annual reporting period commencing January 1, 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Most of the amendments listed below did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect the current or future periods, except for IFRS 16 Leases:
• | IFRS 16 Leases |
• | IFRIC 23 Uncertainty over Tax Treatments. |
• | Prepayment Features with Negative Compensation (Amendments to IFRS 9). |
• | Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28). |
• | Plan Amendment, Curtailment or Settlement (Amendments to IAS 19). |
• | Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards. |
• | Amendments to References to Conceptual Framework in IFRS Standards. |
• | IFRS 17 Insurance Contracts. |
The Group applies IFRS 16 Leases for the first time in its financial statements. The Group has lease contracts for various items of property, vehicles and other equipment. Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Before the adoption of IFRS 16, the Group did not identify any finance leases. For an operating lease, the leased property was not capitalized, and the lease payments were recognized as rent expense in profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognized under prepayments and trade and other payables, respectively.
Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which have been applied by the Group.
The Group recognized right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets were recognized based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Group also applied the available practical expedients wherein it:
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• | Applied the short-term leases exemptions to leases with a lease term that ends within 12 months at the date of initial application |
• | Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application |
2019 | ||||
Operating lease commitments disclosed as of December 31, 2018 | 575 | |||
short-term leases recognized on a straight-line basis as expense | (18 | ) | ||
low-value leases recognized on a straight-line basis as expense | (6 | ) | ||
adjustments as a result of a different treatment of extension and termination options | 196 | |||
Total | 748 | |||
Discount using the lessee’s incremental borrowing rate of at the date of initial application | (16 | ) | ||
Lease liability recognized as of January 1, 2019 | 732 | |||
thereof current lease liability | 215 | |||
thereof non-current lease liabilities | 517 |
The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 1.8%. Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period:
Right-of-use assets | ||||||||||||||||||||
Property | Motor vehicles | Foreign exchange difference | Total | Lease liabilities | ||||||||||||||||
(in thousands of €) | ||||||||||||||||||||
As of January 1, 2019 | 696 | 35 | 1 | 732 | 732 | |||||||||||||||
Additions | 608 | — | (1 | ) | 607 | 607 | ||||||||||||||
Depreciation expense | (117 | ) | (10 | ) | — | (127 | ) | — | ||||||||||||
Derecognition | (229 | ) | — | — | (229 | ) | (229 | ) | ||||||||||||
Interest expense | — | — | — | — | (7 | ) | ||||||||||||||
Payments (incl. interest) | — | — | — | — | (119 | ) | ||||||||||||||
As of June 30, 2019 | 959 | 25 | 0 | 984 | 985 |
(d) | Summary of new accounting policies |
Set forth below are the new accounting policies of the Group upon adoption of IFRS 16, which have been applied from the date of initial application:
Right-of-use assets
The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
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Lease liabilities
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below $5,000). Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
(e) | Events after the reporting period |
On July 3, 2019 the board approved an amendment of the 2016 Stock Option Plan and the 2017 Long-Term Incentive Plan. Following the amendment, the strike price of all vested and unvested options, other than those held by persons who were not employees or directors at the time of the amendment, was reduced to USD 3.35 per share.
The repricing decision on July 3, 2019 affected the 2016 Plan and the 2017 Long-Term Incentive Plan. Since the repricing no new grants occurred. The valuation of past grants with the new strike price of USD 3.35 did not result in increased fair values of the outstanding options, i.e. no additional compensation expense had to be recognized.
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