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Verseon Corporation (VERS)

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Monday 30 September, 2019

Verseon Corporation

Interim Results

RNS Number : 0941O
Verseon Corporation
30 September 2019
 

For immediate release

September 30, 2019

 

Verseon Corporation

 

("Verseon" or the "Company")

 

Interim Results

 

Fremont, Calif.-Verseon (AIM:VERS), the clinical-stage pharmaceutical company developing disruptive life-science technologies to advance global health, today announces its Interim Results for the six months ended June 30, 2019. The report and accounts are available for download from the Company's website (www.verseon.com).

Drug program highlights

Anticoagulation

·  We are developing precision oral anticoagulants (PROACs) for long-term anticoagulant-antiplatelet therapy.

·   Dosing in the phase 1 clinical trial of our first PROAC, VE-1902, began in early 2019 and is expected to continue through 2019.

·    VE-2851, our second PROAC clinical candidate, is targeted to enter clinical trials in 2020.

Clinical trial update

To assess VE-1902's safety, tolerability, and pharmacokinetic/pharmacodynamic profile, healthy adult volunteers have been assigned to single ascending dose (SAD), food effect, or multiple ascending dose (MAD) arms of this double-blind, randomized, placebo-controlled first-in-human phase 1 trial. To date, six SAD, one MAD, and the food effect cohort have been completed and no serious adverse events have been observed. The study report is expected in late Q1 2020.

Diabetic macular edema

·    We are developing oral drugs for diabetic eye disease to replace or complement current eye injections.

·    Presentations on our oral DME candidates at multiple scientific conferences were well received.

·    VE-4839, our first candidate for clinical trials in this program, is expected to enter phase 1 clinical trials in mid-2020.

Hereditary angioedema

·   We are developing oral drugs for this rare, potentially life-threatening disease that is currently only treated with injections.

·     Our oral drug candidates continue to show good potency and pharmacokinetics in preclinical testing.

Oncology

·   We are developing next-generation chemotherapy agents targeted at the treatment of multidrug resistant cancers.

·   In preclinical testing, our drug candidates appear largely unaffected by common modes of drug resistance.

Conferences

·    International Stroke Conference 2019 (PROACs)

·    Association for Research in Vision and Ophthalmology 2019 annual meeting (Diabetic macular edema)

·    BIO 2019 International Convention (Diabetic macular edema)

 

Business review

During the first half of 2019 and the months leading up to this report, market events outside of the Company's control impacting various third parties and Verseon shareholders have put Verseon's common share price under extreme pressure and delayed the Company's attempts to implement its growth strategy outlined in previous reports.

The Company is currently pursuing alternate efforts to raise working capital, including a refinancing or sale-leaseback of its headquarters in Fremont, CA, a bridge debt facility, as well as the previously announced preferred share offering. The Company's current focus is on a bridge debt facility and it expects to make a further announcement in the near future.  

 

 

Finance review

During the first six months of 2019, Verseon has continued to fund its drug programs in anticoagulation, diabetic macular edema, hereditary angioedema, metabolic disorders, and oncology.

Results for the six months ended June 30, 2019:

·    Total assets on the balance sheet stood at $57.6 million, compared to $56.4 million as of December 31, 2018.

·    Cash, cash equivalents, and short-term investments stood at $2.3 million, compared to $3.6 million as of December 31, 2018.

·    Property, equipment, buildings and land totaled $52.3 million, compared to $51.3 million as of December 31, 2018.

·   Research and development expenses were $6.5 million for the six months ended June 30, 2019, compared to $7.0 million for the six months ended June 30, 2018.

·   General and administrative expenses were $6.0 million, compared to $3.2 million for the six months ended June 30, 2018.

·    Non-cash expenses include stock-based compensation of $0.9 million, compared to $0.6 million for the six months ended June 30, 2018, and also a currency exchange loss of $4 thousand, compared to a loss of $4 thousand for the six months ended June 30, 2018.

·    Net loss was $12.6 million or $0.08 per basic share, compared to a net loss of $10.2 million or $0.07 per basic share for the first six months of 2018.

·    On March 19, 2019, the Company closed a common share subscription raising $10.7 million from existing shareholders.

Capital structure

At June 30, 2019, Verseon's issued share capital consisted of 159,686,512 shares of common stock and the Company held 42,917 shares in treasury, as compared to 151,640,732 shares of common stock outstanding with 42,917 shares in treasury at December 31, 2018. 

 

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 (Equity Sales)

+44 (0) 20 7614 5900

 

 

Cantor Fitzgerald Europe (Joint Broker)

 

Phil Davies

+44 (0) 20 7894 7000

 

 

For trade and pharma media enquiries, please contact:

Vane Percy & Roberts

 

Simon Vane Percy

+44 (0) 1737 821 890

 

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. 

 

 

 

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 fluctuations.

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.

 

 

Consolidated balance sheets

As of June 30, 2019 and December 31, 2018

 

(US $'000, except share amounts and par values)

Note

June 30,
 2019

December
31, 2018

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents

1

2,262

3,640

Short-term investments

1

2

3

Prepaid expenses and other current assets

2

754

417

Total current assets

 

3,018

4,060

Buildings and land, net

3

51,186

49,850

Property and equipment, net

3

1,112

1,402

Software

4

1,807

497

Right to use asset

5

493

550

Total assets

 

57,616

56,359

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

Current liabilities

 

 

 

Accounts payable

     

4,657

2,923

Accrued liabilities

7

1,402

1,422

Lease liability

5

220

214

Short term debts

8

160

160

Total current liabilities

 

6,439

4,719

Long term liabilities

 

 

 

Lease liability

5

113

226

Long term debts

8

27,088

26,218

Total long-term liabilities

 

27,201

26,444

Total liabilities

 

 

33,640

31,163

Commitments and contingencies

 

 

 

Stockholders' equity

14

 

 

Common stock-$0.001 par value, 300,000,000 shares authorized as of June 30, 2019 and December 31, 2018, respectively, 159,686,512 and 151,640,732 shares issued and outstanding (exclusive of stock held in Treasury of 42,917 and 42,917) as of June 30, 2019 and December 31, 2018, respectively.

 

160

152

Additional paid-in capital

 

150,813

139,283

Additional paid-in capital - Treasury

 

(11)

(11)

Loan receivable from stockholders

 

(15,439)

(15,282)

Accumulated deficit

 

(115,263)

(102,670)

Total stockholders' equity

 

20,260

21,472

Non-controlling interests in subsidiaries

6

3,716

3,724

Total equity

 

23,976

25,196

Total liabilities and stockholders' equity

 

57,616

56,359

See accompanying notes to consolidated financial statements.

 

 

 

Consolidated statements of operations and comprehensive loss

For the six months ended June 30, 2019 and 2018

 

(US $'000, except share and per share amounts)

Note

June 30,

2019

June 30,

2018

 

Operating expenses

 

 

 

 

Research and development expenses

 

6,470

6,973

 

General and administrative expenses

 

6,032

3,246

 

Total operating expenses

 

12,452

10,219

 

Operating loss

 

(12,452)

(10,219)

 

Interest expense

 

(498)

(92)

 

Interest income

 

162

165

 

Other income

 

246

-

 

Currency exchange (loss)/gain

 

(4)

(4)

 

Loss before income taxes

 

(12,596)

(10,150)

 

Income taxes

9

-

-

 

Net loss

 

(12,596)

(10,150)

 

Net loss attributable to non-controlling interests

 

3

1

 

Net loss attributable to Verseon Corporation

 

(12,593)

(10,149)

 

 

Net loss

 

(12,596)

(10,150)

 

Unrealized gains on available-for-sale securities

 

0

5

 

Total comprehensive loss

 

(12,596)

(10,145)

 

Comprehensive loss attributable to non-controlling interests

 

(3)

(1)

 

Comprehensive loss attributable to Verseon Corporation

 

(12,593)

(10,144)

 

 

 

 

 

 

 

Net loss attributable to Verseon Corporation common stockholders per share-basic and diluted

10

(0.08)

(0.07)

 

Weighted-average shares of stock outstanding used in computing net loss per share-basic and diluted

 

155,550,806

151,539,063

 

See accompanying notes to consolidated financial statements.

 

 

  

           

 

Consolidated statements of cash flows

For the six months ended June 30, 2019 and June 30, 2018

 

(US $'000)

June 30,
2019

June 30,
2018

Cash flows from operating activities

 

 

Net loss

(12,596)

(10,150)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

Depreciation

1,079

402

Amortization of loan expense

530

-

Currency exchange loss (gain) from re-measurement

4

4

Stock-based compensation expense

891

643

Interest earned from loan receivable from stockholders

(157)

(155)

Changes in assets and liabilities

 

 

Decrease/(Increase) in prepaid expenses and other current assets

(337)

113

Increase in accounts payable

1,490

1,411

(Decrease)/Increase in accrued liabilities

(20)

(524)

Net cash used in operating activities

(9,117)

(8,256)

 

Cash flows from investing activities

 

 

Purchases of property and equipment

(1,731)

(7,606)

Capitalized expenses

(1,410)

-

Purchases of available-for-sale securities investments

1

-

Maturities of available-for-sale securities investments

-

1,249

Sales of available-for-sale securities investments

-

7,081

Net cash used in investing activities

(3,140)

724

Cash flows from financing activities

 

 

Proceeds from exercise of stock options and warrants

-

4

Proceeds from issuance of common stock

10,648

-

Proceeds from PACE financing

340

2,578

Proceeds from loan

-

21,022

Payment on lease finance

(105)

(110)

(Purchase)/Proceeds from issuance of equity in Nirog

-

(6)

Net cash provided by financing activities

10,883

23,488

 

Net increase/(decrease) in cash and cash equivalents

(1,374)

15,956

 

Effect of currency exchange rate changes

(4)

(4)

 

Cash and cash equivalents at the beginning of the year

3,640

3,290

 

Cash and cash equivalents at the end of the period

2,262

19,242

 

(US $'000)

Note

June 30,

2019

June 30,

 2018

Supplemental disclosure of non-cash investing and financing activities

 

 

 

Finance lease

 

-

440

Purchases of property and equipment under accounts payable and accrued

liabilities

 

979

1,517

Interest payment was $498 thousand in 2019 and $92 thousand in 2018.

No income taxes were paid in 2019 and 2018.

See accompanying notes to consolidated financial statements.

 

 

                                                                                                              

 

Consolidated statements of stockholders' equity

For the six months ended June 30, 2019, and the year ended December 31, 2018

 

(US $'000)

Common

Stock
at par value

Additional
paid-in
capital

Treasury Stock

APIC

Loan receivable

from stock-holders

Accumulated

deficit

Other comprehensive

gain (loss)

Stock-
holders' equity (deficit)

Non- controlling interest

Total stock-holders' equity (deficit)

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

*

4

-

-

-

-

4

-

4

Issuance of shares from Restricted Stock Units

*

*

-

-

-

-

-

-

-

Loans to stockholders

-

-

-

(155)

-

-

(155)

11

(144)

Stock-based compensation

-

643

-

-

-

-

643

-

643

Investment in Nirog

-

(17)

-

-

-

-

(17)

-

(17)

Net loss

-

-

-

-

(10,150)

5

(10,145)

-

(10,145)

Net loss attributable to non-controlling interests

-

-

-

-

1

-

1

(1)

-

Balance at June 30, 2018

152

138,190

(11)

(15,242)

(91,263)

-

31,826

3,730

35,556

Exercise of stock options and warrants-Common Stock

-

27

-

-

-

-

27

-

27

Issuance of shares from Restricted Stock Units

-

-

-

-

-

-

-

-

-

Loans to stockholders

-

-

-

(40)

-

-

(40)

2

(38)

Stock-based compensation

-

1,066

-

-

-

-

1,066

 

1,066

Net loss

-

-

-

-

(11,415)

-

(11,415)

-

(11,415)

Net loss attributable to non-controlling interests

-

-

-

-

8

-

8

(8)

-

Balance at December 31, 2018

152

139,283

(11)

(15,282)

(102,670)

-

21,472

3,724

25,196

Exercise of stock options and warrants-Common Stock

*

-

-

-

-

-

-

-

-

Issuance of shares from Restricted Stock Units

*

*

-

-

-

-

-

-

-

Issuance of new shares

8

10,639

-

-

-

-

10,647

-

10,647

Loans to stockholders

-

-

-

(157)

-

-

(157)

(5)

(162)

Stock-based compensation

-

891

-

-

-

-

891

-

891

Investment in Nirog

-

-

-

-

-

-

-

-

-

Net loss

-

-

-

-

(12,596)

-

(12,596)

-

(12,596)

Net loss attributable to non-controlling interests

-

-

-

-

3

-

3

(3)

-

Balance at June 30, 2019

160

150,813

(11)

(15,439)

(115,263)

-

20,260

3,716

23,976

* Amount less than $1,000 and insignificant after rounding.

See accompanying notes to consolidated financial statements.

 

 

Consolidated statements of stockholders' equity

For the six months ended June 30, 2019 and year ended December 31, 2018 (continued)

 

(Shares)

Common
Stock

Total shares outstanding

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

Exercise of stock options and warrants-Common Stock

5,542

5,542

Issuance of shares from Restricted Stock Units

26,738

26,738

Issuance of shares from Restricted Stock Award

313,500

313,500

Issuance of new shares

7,700,000

7,700,000

Balance at June 30, 2019

159,686,512

159,686,512

 

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, 2018.

 

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 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 81.9% and 81.2% of Nirog as of June 30, 2019 and December 31, 2018, 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 redeveloped facility 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 "VIATTM," 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 edema, 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.

 

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.    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 on 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.

 

c.    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 six months ended June 30, 2019 and 2018, research and development expenses were $6.5 million and $7.0 million, respectively.

 

d.    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. For the six months ended June 30, 2019 and 2018, the Company recognized $0.2 million and $0 million respectively, as other income from the Australian government for a research and development credit refund.

 

e.    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. For the six months ended June 30, 2019 and 2018, the Company recorded a loss of $4 thousand and $4 thousand, respectively.

f.    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.

 

g.    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.

 

h.    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.

 

i.     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

Building

20 years

j.    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.

k.    Leased assets: Under ASC 842, the Company as a lessee recognizes a "right-of-use" asset and lease liabilities in the balance sheet measured at the present value of the unavoidable future lease payments. The "right-of-use" asset is amortized and interest on lease liabilities is recognized over the lease term. 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.

l.     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.

m.   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 U.S., Australia 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.

 

 

n.    Property Assessed Clean Energy ("PACE") program: Under the terms of the PACE agreement, the amount is repayable through annual property tax assessment over 25 years. The annual property tax liability arises once the annual assessment is received and will be treated as property tax expense. The PACE outstanding balance will be reduced by the property tax expense recognized.

 

o.    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:

 

 

Six months ended June 30,

2019

2018

Options to purchase Common Stock

5,073,202

3,140,457

Warrants to purchase Common Stock

2,292,523

 

2,295,523

Restricted Stock Units

5,000

50,745

Total

7,373,725

5,486,725

 

p.    Stock-based compensation: The Company accounts for stock-based compensation using the Black-Scholes 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:

(US $'000)

Six months ended June 30,

2019

2018

Research and development

298

307

General and administrative

592

336

Total

890

643

 

q.    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.

 

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments- Credit Losses (Topic 326): 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 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 June 30, 2019 and December 31, 2018 were as follows:

(US $'000)

June 30, 2019

Amortized

cost

Gross unrealized

Losses

 

Fair value

Certificate of deposits

3

-

3

Total available-for-sale securities

3

-

3

 

Classified as:

 

 

 

Cash equivalents *

1

Short-term investments

2

Total available-for-sale securities

 

 

3

 

(US $'000)

December 31, 2018

Amortized
cost

Gross unrealized
losses

Fair value

Certificate of deposits

3

-

3

Total available-for-sale securities

3

-

3

 

Classified as:

 

 

 

Cash equivalents *

-

Short-term investments

3

Total available-for-sale securities

 

 

3

* Cash and cash equivalents at June 30, 2019 of $2,264 thousand comprises cash of $2,261 thousand and cash equivalents of $1 thousand, as compared to cash and cash equivalents of $3,640 thousand at December 31, 2018, which comprised cash of $3,640 thousand and cash equivalents of $0 thousand.

All available-for-sale securities held as of June 30, 2019 and December 31, 2018 had contractual maturities of less than two years and high-quality investment grade ratings. Realized gains on available-for-sale securities for the six months ended June 30, 2019 were $0, as compared to the realized gains on available-for-sale securities of $4 thousand for the year ended December 31, 2018 and were recorded as interest income.

 

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 June 30, 2019 and December 31, 2018:

 

(US $'000)

Description

June 30, 2019

Level 1

Level 2

Level 3

Total

Certificate of deposits

-

3

-

3

Total

-

3

-

3

 

(US $'000)

Description

December 31, 2018

Level 1

Level 2

Level 3

Total

Certificate of deposits

-

3

-

3

Total

-

3

-

3

 

2.   Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of:

 

(US $'000)

June 30,
2019

December 31, 2018

Prepaid expenses and other current assets:

 

 

Equipment related deposits

 

17

15

Equipment maintenances and software licenses

75

92

Insurance premium

38

44

Prepaid interest

133

105

Research and development credit

353

109

Other

138

52

Prepaid expenses and other current assets

754

417

 

3.   Fixed Assets

(US $'000)

June 30,
2019

December 31, 2018

Land and building

 

 

Land and building

52,371

50,292

Less: Accumulated depreciation

(1,185)

(442)

Land and building net

51,186

49,850

 

 

 

Other property and equipment

 

 

Lab equipment

2,029

2,029

Office equipment

-

4

Computer and peripherals

886

876

Furniture and fittings

-

226

Total

2,915

3,135

Less: Accumulated depreciation

(1,803)

(1,733)

Property and equipment, net

1,112

1,402

 

Depreciation expense was $1.3 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

 

 

4.   Software

 

(US $'000)

June 30,
2019

December 31, 2018

 

 

 

Purchased software

112

100

Internally developed software

1,695

397

Total

1,807

497

 

In 2019, $1,298 thousand and in 2018 $397 thousand of initial development costs 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.

 

(US $'000)

Gross amounts payable

Within 1 year

233

Within 1-2 years

117

Impact of discounting

(17)

 

Total

333

6.   Nirog

The consolidated financial statements presented include 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 81.9% and 81.2% of the outstanding equity of Nirog as of June 30, 2019 and December 31, 2018, respectively.

 

7.   Accrued liabilities

Accrued liabilities consist of:

 

(US $'000)

June 30,
2019

December 31, 2018

Professional services-audit

11

102

Professional services-Other

9

11

Facility buildout

249

249

Legal services

277

245

Vacation accrual

722

665

Various operating accruals

134

150

Total accrued liabilities

1,402

1,422

 

8.   Debts

In September 2017, VRH1, a wholly owned subsidiary of Verseon, 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 June 30, 2019 based on milestones achieved to date, the Company had received a payment of $6.3 million, which is net of charges incurred of $0.4 million to be amortized over the life of the loan. As of December 31, 2018, based on milestones achieved to date, the Company had received a payment of $5.6million, which is net of charges incurred of $0.4 million to 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 that 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:

 

(US $'000)

June 30,
2019

December 31, 2018

 

 

 

PACE financing

6,283

5,591

Money 360

21,700

21,700

Total Debt

27,983

27,291

Less: Unamortized debt issuance costs

(735)

(913)

Total

27,248

26,378

Less: Current portion of long-term debt

(160)

(160)

Total

27,088

26,218

 

9.   Income taxes

The Company did not record a federal or state current or deferred income tax provision or benefit for the six months ended June 30, 2019 and year ended December 31, 2018 due to the losses incurred in the corresponding periods, as well as the Company's continued maintenance of 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 $246 thousand relating to research and development refund for VCR1.

At June 30, 2019, the Company had federal and state Net Operating Loss ("NOL") carry forwards of approximately $84.1 million and $85.9 million, respectively, of which $52.4 million and $85.9 million expire at various dates through 2038 if not utilized. At June 30, 2019 the Company had federal and state research credit carry forwards that totaled $2.9 million and $2.6 million, respectively, which expire at various dates through 2038 if not utilized.

 

During the six months ended June 30, 2019, the only change in the balance of gross uncertain tax benefits was an increase of $0.2 million related to current year and prior year tax positions. At June 30, 2019, the balance of gross uncertain tax benefits was $1.6 million as compared to $1.6 million as of December 31, 2018. 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 both 2019 and 2018, respectively. 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 $0.9 million (2018: $0.6 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:

 

(US $'000)

June 30,
2019

December 31, 2018

Deferred tax assets:

 

 

Net operating loss carry forwards

22,307

20,541

R&D credit carry forwards

3,855

3,304

Depreciation and amortization

230

181

Accruals and reserves

194

186

Total deferred tax assets

26,586

24,212

Less valuation allowance

(26,586)

(24,212)

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 June 30, 2019 and December 31, 2018.

 

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 net deferred tax asset of $4.2 million.

10. Net loss per share

Basic net loss per share is computed by dividing net loss 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:

 

June 30, 2019

June 30,2018

Weighted average shares-basic

155,550,806

151,539,063

     

 

The components of basic and diluted earnings per share were as follows:

 

 

June 30,
 2019

June 30,
2018

Net loss attributable to Verseon Corporation

$(12,596,000)

$(10,149,000)

Average outstanding shares

 

 

Basic

155,550,806

151,539,063

Diluted *

155,550,806

151,539,063

Net loss per share

 

 

Basic

$(0.08)

$(0.07)

Diluted *

$(0.08)

$(0.07)

* 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 they have 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, and short- 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 June 30, 2019 and December 31, 2018. All marketable securities investments as of June 30, 2019 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 June 30, 2019 and December 31, 2018 were $15.4 million and $15.3 million, respectively.

 

14. Stockholder's equity

 

As of June 30, 2019 and December 31, 2018, the Company had 159,686,512 shares and 151,640,732 shares of Common Stock outstanding, not including 42,917 shares and 42,917 shares in treasury, for the respective periods, 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 21,789,761 and 18,876,776 shares were available for grant under the 2015 Plan as of six months ended June 30, 2019 and December 31, 2018, 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 June 30, 2019 and December 31, 2018 were $15.4 million and $15.3 million, respectively.

15. 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 six months ended June 30, 2019 and year ended December 31, 2018 is summarized as follows:

 

 

Shares

Weighted average grant date fair value per share ($)

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

Granted in 2019

Vested in 2019

(35,213) **

2.22

Awarded and unvested at June 30, 2019

5,000

3.36

 

A total of $0.05 million and $0.05 million was recorded as stock-based compensation expenses in for the six months ended June 30, 2019 and 2018 respectively for RSU granted. As of June 30, 2019, there was $0.01 million of unrecognized compensation expense associated with unvested RSUs, which is expected to be recognized over a weighted-average period of 0.5 years as compared to $0.1 million of unrecognized compensation expense associated with unvested RSU with a weighted-average period of 1.2 years in 2018.

 

* Includes 11,049 shares vested in 2018 that were admitted to AIM in January 2019

** Includes 8,476 shares vested in June 2019 that were admitted to AIM in July 2019

 

16. Restricted Stock Awards (RSA)

In 2019, the Company began issuing RSA to certain Directors 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 six months ended June 30, 2019 and year ended December 31, 2018 is summarized as follows:

 

 

Shares

Weighted average grant date fair value per share ($)

Awarded and unvested at December 31, 2018

Granted in 2019

313,500

0.88

Vested in 2019

(313,500)

0.88

Awarded and unvested at June 30, 2019

 

A total of $0.3 million and $0 million was recorded as stock-based compensation expenses in for the six months ended June 30, 2019 and 2018 respectively for RSA granted. As of June 30, 2019, there was $0 million of unrecognized compensation expense associated with unvested RSAs.

 

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 $0.06 million and $0.06 million was recorded as stock-based compensation expenses in six months ended June 30, 2019 and 2018 for warrants.

A total of 21,052 Preferred A Warrants was outstanding and exercisable at June 30, 2019 at a weighted-average exercise price of $0.95 per share and with weighted-average remaining life of 2.7 years. There was no Preferred A Warrant activity in 2019 and 2018. A total of 71,302 Preferred B Warrants were outstanding and exercisable at June 30, 2019 at a weighted-average exercise price of $2.54 per share and with weighted-average remaining life of 0.7 years. There was no Preferred B Warrant activity in 2019 and 2018.

The following is a summary of the status of the Company's outstanding stock warrants as of June 30, 2019 and December 31, 2018 and changes that occurred during each time period:

 

Number of Common Warrants

Weighted- average exercise price

($)

Weighted- average remaining life

(Years)

Outstanding at December 31, 2017

1,884,200

3.62

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

Exercised in 2019

Outstanding at June 30, 2019

1,818,315

3.74

0.9

Exercisable at June 30, 2019

1,780,815

3.74

0.9

 

 

Number of Common Z Warrants

Weighted-average exercise price

($)

Weighted- average remaining life

(Years)

Outstanding at December 31, 2017

262,500

0.22

2.0

Exercised in 2018

Transferred from Common Warrants

30,000

0.25

1.0

Outstanding and exercisable at December 31, 2018

292,500

0.22

1.0

Exercised in 2019

Outstanding and exercisable at June 30, 2018

292,500

0.22

0.5

 

Nirog

Nirog did not issue any warrants during the six months ended June 30, 2019. There were no Common Z Warrants or Preferred A Warrants outstanding as of June 30, 2019 and December 31, 2018.

 

A total of 47,447 Preferred B2 Warrants was outstanding and exercisable at June 30, 2019 at a weighted-average exercise price of $0.80 per share and with weighted-average remaining life of 0.65 years. In 2019 and 2018 there was no Preferred B2 Warrant activity. A total of 102,128 Preferred C1 Warrants was outstanding and exercisable at June 30, 2019 at a weighted-average price of $0.90 per share and with weighted-average remaining life of 0.6 years. There was no Preferred C1 Warrant activity in 2018 and 2019. A total of 5,250 Preferred C2 Warrants was outstanding and exercisable at June 30, 2019 at a weighted-average exercise price of $1.00 per share and with weighted-average remaining life of 0.85 years. There was no Preferred C2 Warrant activity in 2019 and 2018.

18. Stock options and stock grants

Verseon

The activity in the Company's option grants during the six months ended June 30, 2019 and year ended on December 31, 2018 are set out in the table below:

 

 

 

Number of

options

Weighted- average exercise price

($)

Weighted- average remaining life

(Years)

Outstanding at December 31, 2017

3,111,019

2.13

9.07

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

 

 

 

 

Granted in 2019

4,893,500

0.67

9.62

Exercised in 2019

(5,542)

0.25

Cancelled in 2019

(4,767,813)

5.54

Outstanding at June 30, 2019

5,073,202

2.90

9.22

Exercisable at June 30, 2019

680,707

1.04

9.03

 

In the six months ended June 30, 2019 and 2018, stock-based compensation expense for stock options was $0.5 million and $0.5 million, respectively. The weighted average grant date fair value of the Common Stock options granted in 2019 was $0.67 per share, as compared to $0.83 per share in 2018.

 

For details of the variables used by the Company in the Black-Scholes option pricing model for the six months ended on June 30, 2019 and the year ended on December 31, 2018, see the following table:

 

 

Six months ended June 30, 2019

Year ended December 31, 2018

Expected volatility

50%

50%

Expected dividend yields

0%

0%

Expected risk-free interest rate

1.83%-2.8%

2.6%-2.8%

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 June 30, 2019
and December 31 2018, there were 5,130,667 unit options available for grant.

 

19. Issuance of new shares

In 2019 the Company issued 7,700,000 common shares which were acquired by the existing shareholders.

20. Subsequent events

As at September 30, 2019, the date the accounts were available to be issued, there were no reportable subsequent events.

 

 

 

-- Ends --

 

 

 

 

 

 

 


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