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| Report of Independent Registered Public Accounting Firm | 2 | |
| Balance Sheets as of December 31, 2013 and 2012 | 3 | |
| Statements of Operations for the years ended December 31, 2013 and 2012 | 5 | |
| Statements of Comprehensive Income (Loss) for the years ended December 31, 2013 and 2012 | 6 | |
| Statements of Cash Flows for the years ended December 31, 2013 and 2012 | 7 | |
| Statements of Changes in Stockholders Equity for the years ended December 31, 2013 and 2012 | 8 | |
| Notes to Financial Statements | 9 |
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Report of Independent Registered Public Accounting Firm
The Supervisory Board and Stockholders of Pieris AG
audited the accompanying balance sheets of Pieris AG (the Company ) as of December 31, 2013 and 2012, and the related statements of operations, comprehensive income (loss), changes in stockholders equity, and cash flows for
each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pieris AG at December 31,
2013 and 2012, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
| /s/ Dr. Napolitano | /s/ Richter | |
| Wirtschaftspr fer | Wirtschaftspr fer | |
| [German Public Auditor] | [German Public Auditor] |
Wirtschaftspr fungsgesellschaft
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| December 31, | ||||||||
| 2013 | 2012 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,689,382 | $ | 6,327,078 | ||||
| Restricted cash | 72,497 | 183,311 | ||||||
| Trade accounts receivable | 481,810 | 126,641 | ||||||
| Other current assets | 449,733 | 1,120,114 | ||||||
| Prepaid expenses | 60,477 | 59,100 | ||||||
| Income tax receivable | 66,479 | 49,066 | ||||||
| Total current assets | 4,820,378 | 7,865,310 | ||||||
| Property and equipment, net | 2,437,677 | 2,673,682 | ||||||
| Deferred tax asset | 18,877 | 30,975 | ||||||
| Total assets | $ | 7,276,932 | $ | 10,569,967 |
The accompanying notes are an integral part of these financial statements.
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| December 31, | ||||||||
| 2013 | 2012 | |||||||
| LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 278,008 | $ | 813,667 | ||||
| Accrued expenses | 559,629 | 411,489 | ||||||
| Other current liabilities | 160,484 | 184,265 | ||||||
| Convertible stockholder loan, including accrued interest, current portion | 2,333,279 | |||||||
| Bank loan, including accrued interest, current portion | 206,490 | 1,488,984 | ||||||
| Deferred revenues, current portion | 544,562 | 3,990,784 | ||||||
| Deferred tax liabilities | 18,877 | 30,975 | ||||||
| Total current liabilities | 1,768,051 | 9,253,442 | ||||||
| Accrued expenses, non-current | 379,942 | 364,728 | ||||||
| Convertible stockholder loan, including accrued interest, net of current portion | 3,098,502 | |||||||
| Bank loan, including accrued interest, net of current portion | 1,445,430 | |||||||
| Deferred revenue, net of current portion | 456,094 | |||||||
| Total liabilities | 6,691,925 | 10,074,264 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders equity | ||||||||
| Common stock, 1 par value per share, 59,993 shares authorized and 59,993 shares issued and outstanding at December 31, 2013 and 2012 | 53,889 | 53,889 | ||||||
| Preferred stock, 1 par value per share, 919,708 shares authorized and 919,708 issued and outstanding at December 31, 2013 and 2012 | 1,214,914 | 1,214,914 | ||||||
| Additional paid-in capital | 56,351,363 | 56,351,363 | ||||||
| Receivable from issuance of shares | (121,801 | ) | (121,801 | ) | ||||
| Accumulated other comprehensive loss | (956,274 | ) | (979,383 | ) | ||||
| Accumulated deficit | (55,957,084 | ) | (56,023,280 | ) | ||||
| Total stockholders equity | 585,007 | 495,702 | ||||||
| Total liabilities and stockholders equity | $ | 7,276,932 | $ | 10,569,967 |
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF OPERATIONS
| Years ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| Revenues | $ | 12,427,292 | $ | 11,383,322 | ||||
| Operating costs and expenses | ||||||||
| Research and development | (9,411,856 | ) | (10,854,761 | ) | ||||
| General and administrative | (2,461,610 | ) | (2,708,583 | ) | ||||
| (11,873,466 | ) | (13,563,344 | ) | |||||
| Income (loss) from operations | 553,826 | (2,180,022 | ) | |||||
| Other income (expense) | ||||||||
| Interest expense | (493,937 | ) | (177,125 | ) | ||||
| Other income, net | 6,307 | 36,578 | ||||||
| (487,630 | ) | (140,547 | ) | |||||
| Income (loss) before income taxes | 66,196 | (2,320,569 | ) | |||||
| Income tax benefit | 22 | |||||||
| Net income (loss) | $ | 66,196 | $ | (2,320,546 | ) | |||
| Net income (loss) per share | ||||||||
| Basic and diluted | $ | 0.07 | $ | (2.37 | ) | |||
| Weighted average number of common shares outstanding | ||||||||
| Basic and diluted | 59,993 | 59,993 |
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Years ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| Net income (loss) | $ | 66,196 | $ | (2,320,546 | ) | |||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustments | 23,109 | (5,980 | ) | |||||
| Other comprehensive income (loss), before tax | 23,109 | (5,980 | ) | |||||
| Comprehensive income (loss) attributable to the owners of Pieris AG | $ | 89,305 | $ | (2,326,527 | ) |
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF CASH FLOWS
| Years ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 66,196 | $ | (2,320,546 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation | 384,677 | 378,322 | ||||||
| Non-cash interest expense | 414,269 | 100,394 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Restricted cash | 114,260 | 2,877,622 | ||||||
| Trade accounts receivable | (337,483 | ) | (123,241 | ) | ||||
| Prepaid expenses | 1,049 | (24,714 | ) | |||||
| Other assets | 691,681 | (553,881 | ) | |||||
| Trade accounts payable | (549,405 | ) | (730,237 | ) | ||||
| Accrued and other liabilities | (3,846,904 | ) | (8,735,103 | ) | ||||
| Income taxes | (14,822 | ) | 43,905 | |||||
| Net cash used in operations | (3,076,482 | ) | (9,087,479 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (49,471 | ) | (132,731 | ) | ||||
| Proceeds from sale of property and equipment | 90 | |||||||
| Net cash used in investing activities | (49,471 | ) | (132,641 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible stockholder loan | 327,210 | 2,317,308 | ||||||
| Net cash provided by financing activities | 327,210 | 2,317,308 | ||||||
| Effect of exchange rate change on cash and cash equivalents | 161,047 | 16,921 | ||||||
| Net decrease in cash and cash equivalents | (2,637,696 | ) | (6,885,892 | ) | ||||
| Cash and cash equivalents at beginning of year | 6,327,078 | 13,212,969 | ||||||
| Cash and cash equivalents at end of year | $ | 3,689,382 | $ | 6,327,078 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for interest | $ | 79,668 | $ | 77,160 | ||||
| Cash paid (received from) for income taxes | $ | 17,413 | $ | (43,196 | ) |
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
| Common shares | Preferred shares Series A | Preferred shares Series A-1 | Preferred shares Series B | Additional paid-in capital | Receivable from issuance of shares | Accumulated other comprehensive loss | Accumulated deficit | Total equity | ||||||||||||||||||||||||||||||||||||||||||||
| No. of shares | Share capital | No. of shares | Share capital | No. of shares | Share capital | No. of shares | Share capital | |||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 1, 2012 | 59,993 | $ | 53,889 | 324,313 | $ | 378,503 | 132,432 | $ | 173,896 | 462,963 | $ | 662,515 | $ | 56,400,054 | $ | (170,491 | ) | $ | (973,403 | ) | $ | (53,702,734 | ) | $ | 2,822,229 | |||||||||||||||||||||||||||
| Net income (loss) | (2,320,546 | ) | (2,320,546 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | (5,980 | ) | (5,980 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Waiver of receivable from issuance of shares | (48,690 | ) | 48,690 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2012 | 59,993 | 53,889 | 324,313 | 378,503 | 132,432 | 173,896 | 462,963 | 662,515 | 56,351,363 | (121,801 | ) | (979,383 | ) | (56,023,280 | ) | 495,702 | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | 66,196 | 66,196 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | 23,109 | 23,109 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2013 | 59,993 | $ | 53,889 | 324,313 | $ | 378,503 | 132,432 | $ | 173,896 | 462,963 | $ | 662,515 | $ | 56,351,363 | $ | (121,801 | ) | $ | (956,274 | ) | $ | (55,957,084 | ) | $ | 585,007 |
The accompanying notes are an integral part of these financial statements.
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NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
Company ) is an independent, clinical-stage biopharmaceutical company focused on the discovery and development of biotherapeutics incorporating its proprietary Anticalin
technology. The registered office of Pieris AG is in Freising-Weihenstephan, Germany.
Pieris AG was founded in 2001 by Prof. Dr. Arne Skerra,
Professor at the Technical University of Munich, Germany, and Claus Schalper. Through its Seed (2001), Series A (2002) and A1 (2006) financing rounds, Pieris AG received funding of $19,242,951 from international life science investors
Global Life Science Ventures (lead), Gilde Healthcare Partners (co-lead), Forbion Capital Partners, BayTech Venture Capital, Bio-M, TCB, KfW and BayernKapital. In this context, Pieris AG issued common as well as preferred shares. The Company issued
common shares in connection with the Seed financing round and preferred shares in the Series A and Series A1 financing rounds. In March 2008, Pieris AG closed its Series B financing round, raising $37,216,207 through the issuance of preferred
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial
statements were prepared in accordance with accounting principles generally accepted in the United States ( U.S. GAAP ).
The preparation of the financial statements in accordance with U.S. GAAP requires management to make estimates, judgments and assumptions that affect
the reported amounts of assets and liabilities, the reported amounts of revenues and expenses in the financial statements and disclosures in the accompanying notes. Actual results and outcomes could differ materially from management s
estimates, judgments and assumptions.
Foreign Currency Translation
Pieris AG s reporting currency is U.S. dollars. During the years ended December 31, 2013 and 2012, Pieris AG had operations in Germany with a
functional currency of the euro. All amounts in the financial statements where the functional currency is not the U.S. dollar are translated into U.S. dollar equivalents at exchange rates as follows:
Gains and losses from translation of the financial statements into
U.S. dollars are recorded in stockholders equity as a component of other comprehensive loss. Realized and unrealized gains and losses resulting from foreign currency transactions denominated in currencies other than the functional currency are
reflected as general and administrative expenses in the Statements of Operations.
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Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash on deposit in banks and other cash invested temporarily in money-market funds that are highly liquid and have an
original maturity of less than 90 days at the date of purchase.
Pieris AG held $72,497 and $183,311 in restricted cash as of December 31, 2013 and
2012, respectively. Such bank balances relate to prepayments received by Pieris AG pursuant to EU grants under the EUROCALIN program (see Note 3 Revenue). These amounts are restricted to cover future obligations to members of the EUROCALIN
consortium; they are not available for use by Pieris AG.
Fair Value of Financial Instruments
ASC Topic 820 Fair Value Measurement defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Pieris AG applies the following fair value 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 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at
the measurement date. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the
asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
equivalents consist of highly liquid money market funds and are measured at fair value on a recurring basis. These funds are classified as Level 1 in the fair value hierarchy because they are valued using quoted prices for the periods ended
December 31, 2013 and 2012. The carrying amounts of $3,307,520 and $3,651,949 as of December 31, 2013 and December 31, 2012, respectively, equal the fair value of the cash equivalents.
The Company s other financial instruments include debt instruments (convertible stockholder loan and bank loan) and are classified as Level 2 within the
fair value hierarchy. The fair value of these instruments was determined using the discounted cash flow method based on contractual cash flows and the current rate at which debt with similar terms could be issued. The fair values for these debt
instruments approximated carrying values as of December 31, 2013 and 2012.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that subject Pieris AG to concentrations of credit risk include cash and cash equivalents and trade accounts receivable. Pieris
AG maintains cash and cash equivalents with various major financial institutions. Pieris AG maintains deposits and owns money market funds only in highly rated financial institutions to minimize the credit risk from the financial institutions.
Management periodically reviews the credit standing of these financial institutions and believes that Pieris AG is not exposed to significant credit risk from the institutions in which those deposits are held and through which money-market funds are
owned at December 31, 2013 and 2012.
As of December 31, 2013, one collaboration partner accounted for all of Pieris AG s trade accounts
receivable. See Note 3 Revenue, for additional information regarding Pieris AG s collaboration agreements.
Pieris AG relies on third parties
to conduct preclinical and clinical studies. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, Pieris AG may not be able to obtain regulatory approval for Pieris AG s drug candidates and
Pieris AG s business could be substantially impacted. Furthermore, Pieris AG is exposed to the risks associated with third parties
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formulating and manufacturing its preclinical and clinical drug supplies and any approved product candidates. The development and commercialization of any of its drug candidates could be stopped,
delayed or made less profitable if those third parties fail to provide Pieris AG with sufficient quantities of such drug candidate or fail to do so at acceptable quality levels, including in accordance with applicable regulatory requirements and
In line with the third-party risk, Pieris AG depends significantly on the Research and Licensing Agreement (or the TUM License
Agreement ) with Technische Universit t M nchen (the TUM or Technical University Munich ), under which certain intellectual property rights are exclusively licensed to Pieris AG. In case the TUM License
Agreement is terminated by TUM, Pieris AG would be significantly hampered in its efforts to develop and commercialize, as well as to sub-license, the drug candidates covered by such exclusive license.
Trade Accounts Receivable
Trade accounts receivable are
recorded net of allowances for doubtful accounts and represent amounts due from third parties and collaboration partners. Management monitors and evaluates collectability of receivables on an ongoing basis and considers whether an allowance for
doubtful accounts is necessary. Management determined that no such reserve is needed as of December 31, 2013 and 2012. Historically, Pieris AG has not had collectability issues with third parties and collaboration partners.
Property and Equipment
Property and equipment are