10-Q 1 alt-10q_20190630.htm ALT Q2 2019 10Q alt-10q_20190630.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number 001-32587

 

Altimmune, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

20-2726770

State or Other Jurisdiction of

Incorporation or Organization

 

I.R.S. Employer

Identification No.

 

910 Clopper Road Suite 201S, Gaithersburg, Maryland

 

20878

Address of Principal Executive Offices

 

Zip Code

 

(240) 654-1450

Registrant’s Telephone Number, Including Area Code

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

ALT

The NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: as of August 13, 2019 there were 15,338,001 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

 

 

 


 

 

 

ALTIMMUNE, INC.

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

     Consolidated Balance Sheets

 

1

 

     Consolidated Statements of Operations and Comprehensive Loss

 

2

 

     Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

 

3

 

     Consolidated Statements of Cash Flows

 

5

 

     Notes to Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

17

 

 

 

 

 

Item 4. Controls and Procedures

 

17

 

 

 

 

PART II — OTHER INFORMATION

 

18

 

 

 

 

 

Item 1. Legal Proceedings

 

18

 

 

 

 

 

Item 1A. Risk Factors

 

18

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

18

 

 

 

 

 

Item 3. Defaults Upon Senior Securities

 

18

 

 

 

 

 

Item 4. Mine Safety Disclosures

 

18

 

 

 

 

 

Item 5. Other Information

 

18

 

 

 

 

 

Item 6. Exhibits

 

19

 

 

 

i


 

 

Part I—FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (Unaudited).

ALTIMMUNE, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,671,738

 

 

$

33,718,713

 

Restricted cash

 

 

34,174

 

 

 

634,416

 

Total cash, cash equivalents and restricted cash

 

 

41,705,912

 

 

 

34,353,129

 

Accounts receivable

 

 

2,629,840

 

 

 

3,461,938

 

Tax refund receivable

 

 

1,080,559

 

 

 

1,008,973

 

Prepaid expenses and other current assets

 

 

688,862

 

 

 

548,094

 

Total current assets

 

 

46,105,173

 

 

 

39,372,134

 

Property and equipment, net

 

 

1,222,130

 

 

 

1,342,802

 

Right of use asset

 

 

732,380

 

 

 

 

Intangible assets, net

 

 

13,760,216

 

 

 

13,851,924

 

Other assets

 

 

156,115

 

 

 

183,682

 

Total assets

 

$

61,976,014

 

 

$

54,750,542

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

163,724

 

 

$

71,596

 

Accounts payable

 

 

270,097

 

 

 

372,860

 

Accrued expenses and other current liabilities

 

 

3,046,567

 

 

 

4,082,949

 

Total current liabilities

 

 

3,480,388

 

 

 

4,527,405

 

Deferred income taxes

 

 

58,500

 

 

 

58,500

 

Other long-term liabilities

 

 

2,212,104

 

 

 

1,852,071

 

Total liabilities

 

 

5,750,992

 

 

 

6,437,976

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized;

   13,451,106 and 9,078,735 shares issued; 13,450,751 and 9,078,238 shares

  outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

1,313

 

 

 

876

 

Additional paid-in capital

 

 

183,604,057

 

 

 

170,207,844

 

Accumulated deficit

 

 

(122,340,185

)

 

 

(116,855,991

)

Accumulated other comprehensive loss – foreign currency translation

   adjustments

 

 

(5,040,163

)

 

 

(5,040,163

)

Total stockholders’ equity

 

 

56,225,022

 

 

 

48,312,566

 

Total liabilities and stockholders’ equity

 

$

61,976,014

 

 

$

54,750,542

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

1


 

 

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

 

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,626,029

 

 

$

2,417,140

 

 

$

4,581,622

 

 

$

5,108,121

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,945,096

 

 

 

4,918,961

 

 

 

6,162,768

 

 

 

10,665,890

 

General and administrative

 

 

2,231,817

 

 

 

2,933,982

 

 

 

4,298,299

 

 

 

5,381,917

 

Impairment charges

 

 

 

 

 

 

 

 

 

 

 

490,676

 

Total operating expenses

 

 

5,176,913

 

 

 

7,852,943

 

 

 

10,461,067

 

 

 

16,538,483

 

Loss from operations

 

 

(3,550,884

)

 

 

(5,435,803

)

 

 

(5,879,445

)

 

 

(11,430,362

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value of warrant liability

 

 

(46,000

)

 

 

(5,228,691

)

 

 

(46,000

)

 

 

(3,680,709

)

Changes in fair value of embedded derivatives

 

 

 

 

 

4,912

 

 

 

 

 

 

(2,130

)

Interest expense

 

 

(748

)

 

 

(1,921

)

 

 

(1,488

)

 

 

(2,791

)

Interest income

 

 

239,964

 

 

 

25,617

 

 

 

425,211

 

 

 

57,206

 

Other income (expense)

 

 

(29,220

)

 

 

(49

)

 

 

17,528

 

 

 

257,675

 

Total other income (expense)

 

 

163,996

 

 

 

(5,200,132

)

 

 

395,251

 

 

 

(3,370,749

)

Net loss before income tax benefit

 

 

(3,386,888

)

 

 

(10,635,935

)

 

 

(5,484,194

)

 

 

(14,801,111

)

Income tax benefit

 

 

 

 

 

1,497,093

 

 

 

 

 

 

2,488,731

 

Net loss

 

 

(3,386,888

)

 

 

(9,138,842

)

 

 

(5,484,194

)

 

 

(12,312,380

)

Other comprehensive income (loss) – foreign currency translation adjustments

 

 

 

 

 

(1,078,648

)

 

 

 

 

 

(463,177

)

Comprehensive loss

 

$

(3,386,888

)

 

$

(10,217,490

)

 

$

(5,484,194

)

 

$

(12,775,557

)

Net loss

 

$

(3,386,888

)

 

$

(9,138,842

)

 

$

(5,484,194

)

 

$

(12,312,380

)

Preferred stock accretion and other deemed dividends

 

 

 

 

 

(700,093

)

 

 

(452,925

)

 

 

(2,591,414

)

Net loss attributed to common stockholders

 

$

(3,386,888

)

 

$

(9,838,935

)

 

$

(5,937,119

)

 

$

(14,903,794

)

Weighted-average common shares outstanding, basic and diluted

 

 

13,127,773

 

 

 

956,057

 

 

 

11,318,819

 

 

 

817,077

 

Net loss per share attributed to common stockholders, basic and diluted

 

$

(0.26

)

 

$

(10.29

)

 

$

(0.52

)

 

$

(18.24

)

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 

2


 

 

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(unaudited)

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance, January 1, 2019

 

 

 

 

 

 

9,078,239

 

 

$

876

 

 

$

170,207,844

 

 

$

(116,855,991

)

 

$

(5,040,163

)

 

$

48,312,566

 

Stock based compensation and vesting of restricted stock

 

 

 

 

 

 

71

 

 

 

 

 

 

 

407,742

 

 

 

 

 

 

 

 

 

 

 

407,742

 

Issuance of common stock in registered direct offering,

   net of offering costs

 

 

 

 

 

 

4,361,370

 

 

 

436

 

 

 

12,668,348

 

 

 

 

 

 

 

 

 

 

 

12,668,784

 

Issuance of common stock upon exercise of warrants

 

 

 

 

 

 

11,000

 

 

 

1

 

 

 

30,323

 

 

 

 

 

 

 

 

 

 

 

30,324

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,097,306

)

 

 

 

 

 

 

(2,097,306

)

Balance, March 31, 2019

 

 

 

 

 

 

13,450,680

 

 

$

1,313

 

 

$

183,314,257

 

 

$

(118,953,297

)

 

$

(5,040,163

)

 

$

59,322,110

 

Stock based compensation and vesting of restricted stock

 

 

 

 

 

 

71

 

 

 

 

 

 

 

289,800

 

 

 

 

 

 

 

 

 

 

 

289,800

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,386,888

)

 

 

 

 

 

 

(3,386,888

)

Balance, June 30, 2019

 

 

 

 

 

 

13,450,751

 

 

$

1,313

 

 

$

183,604,057

 

 

$

(122,340,185

)

 

$

(5,040,163

)

 

$

56,225,022

 

 


3


 

 

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(unaudited)

 

 

 

Series B Redeemable

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance, January 1, 2018

 

 

12,177

 

 

$

9,281,767

 

 

 

608,499

 

 

$

61

 

 

$

121,657,587

 

 

$

(77,684,839

)

 

$

(4,576,986

)

 

$

39,395,823

 

Stock based compensation and vesting of restricted stock

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

 

356,737

 

 

 

 

 

 

 

 

 

 

 

356,737

 

Exercises of stock options

 

 

 

 

 

 

 

 

 

 

7,703

 

 

 

1

 

 

 

18,487

 

 

 

 

 

 

 

 

 

 

 

18,488

 

Conversion of Series B redeemable convertible preferred

   stock into common stock

 

 

(5,219

)

 

 

(5,218,572

)

 

 

130,447

 

 

 

13

 

 

 

5,218,559

 

 

 

 

 

 

 

 

 

 

 

5,218,572

 

Accretion of Series B Redeemable convertible preferred

   stock

 

 

 

 

 

 

1,891,321

 

 

 

 

 

 

 

 

 

 

 

(1,891,321

)

 

 

 

 

 

 

 

 

 

 

(1,891,321

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

615,471

 

 

 

615,471

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,173,538

)

 

 

 

 

 

 

(3,173,538

)

Balance, March 31, 2018

 

 

6,958

 

 

$

5,954,516

 

 

 

746,720

 

 

$

75

 

 

$

125,360,049

 

 

$

(80,858,377

)

 

$

(3,961,515

)

 

$

40,540,232

 

Stock based compensation and vesting of restricted stock

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

 

 

252,156

 

 

 

 

 

 

 

 

 

 

 

252,156

 

Exercises of stock options

 

 

 

 

 

 

 

 

 

 

1,837

 

 

 

-

 

 

 

4,410

 

 

 

 

 

 

 

 

 

 

 

4,410

 

Accretion of Series B redeemable convertible preferred stock

 

 

 

 

 

 

956,150

 

 

 

 

 

 

 

 

 

 

 

(956,150

)

 

 

 

 

 

 

 

 

 

 

(956,150

)

Conversion of Series B redeemable convertible preferred

  stock into common stock

 

 

(4,036

)

 

 

(4,036,539

)

 

 

334,180

 

 

 

33

 

 

 

4,036,506

 

 

 

 

 

 

 

 

 

 

 

4,036,539

 

Redemption of Series B redeemable convertible

  preferred stock for cash and release of embedded

  derivative

 

 

(2,364

)

 

 

(2,364,044

)

 

 

 

 

 

 

 

 

 

 

23,292

 

 

 

 

 

 

 

 

 

 

 

23,292

 

Issuance of common stock for the exchange of warrants

 

 

 

 

 

 

 

 

 

 

167,700

 

 

 

17

 

 

 

2,126,983

 

 

 

 

 

 

 

 

 

 

 

2,127,000

 

Foreign currency translation

   adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,078,648

)

 

 

(1,078,648

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,138,842

)

 

 

 

 

 

 

(9,138,842

)

Balance, June 30, 2018

 

 

558

 

 

$

510,083

 

 

 

1,250,508

 

 

$

125

 

 

$

130,847,246

 

 

$

(89,997,219

)

 

$

(5,040,163

)

 

$

35,809,989

 

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 

 

4


 

 

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

For the Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,484,194

)

 

$

(12,312,380

)

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

 

 

 

 

 

 

 

 

Impairment charge

 

 

 

 

 

490,676

 

Stock-based compensation

 

 

697,486

 

 

 

608,893

 

Depreciation

 

 

121,899

 

 

 

77,528

 

Amortization

 

 

107,580

 

 

 

29,446

 

Unrealized gains on foreign currency exchange

 

 

(24,943

)

 

 

 

Changes in fair value of warrant liability

 

 

46,000

 

 

 

3,680,709

 

Changes in fair value of embedded derivatives

 

 

 

 

 

2,130

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

832,098

 

 

 

951,727

 

Prepaid expenses and other current assets

 

 

(113,200

)

 

 

479,600

 

Accounts payable

 

 

(102,763

)

 

 

115,452

 

Accrued expenses and other current liabilities

 

 

(1,094,831

)

 

 

1,160,415

 

Deferred revenue

 

 

2,802

 

 

 

2,614

 

Lease obligation

 

 

(89,428

)

 

 

765,239

 

Tax refund receivable

 

 

(71,586

)

 

 

2,244,751

 

Deferred taxes

 

 

 

 

 

(1,507,358

)

Net cash used in operating activities

 

 

(5,173,080

)

 

 

(3,210,558

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,226

)

 

 

(811,646

)

Additions to intangible assets

 

 

(15,874

)

 

 

(27,505

)

Net cash used in investing activities

 

 

(17,100

)

 

 

(839,151

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Redemption of preferred stock

 

 

 

 

 

(2,364,044

)

Cash paid in conjunction with warrant exchange

 

 

 

 

 

(1,100,000

)

Proceeds from issuance of common units, net of issuance costs

 

 

12,668,784

 

 

 

 

Proceeds from exercise of warrants

 

 

30,324

 

 

 

 

Payments of notes payable

 

 

(156,145

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

22,898

 

Net cash provided by (used in) financing activities

 

 

12,542,963

 

 

 

(3,441,146

)

EFFECT OF EXCHANGE RATES ON CASH

 

 

 

 

 

(50,365

)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

7,352,783

 

 

 

(7,541,220

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

34,353,129

 

 

 

12,303,639

 

Cash, cash equivalents and restricted cash, end of period

 

$

41,705,912

 

 

$

4,762,419

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

1,791

 

SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Conversion of Series B redeemable convertible preferred stock into

   common stock

 

$

 

 

$

9,255,111

 

Accretion of Series B redeemable convertible preferred stock

 

$

 

 

$

2,847,471

 

Notes payable issued in conjunction with the exchange of warrants

 

$

 

 

$

1,500,000

 

Addition of property and equipment not yet paid

 

$

 

 

$

139,349

 

Addition of intangible assets not yet paid

 

$

 

 

$

5,763

 

Lease incentive billed but not yet received

 

$

 

 

$

139,349

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

5


 

 

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.Nature of Business and Basis of Presentation

Nature of Business

Altimmune, Inc., headquartered in Gaithersburg, Maryland, together with its subsidiaries (collectively, the “Company” or “Altimmune”) is a clinical stage biopharmaceutical company incorporated under the laws of the State of Delaware. The Company is focused on discovering and developing immunotherapies and vaccines to address significant unmet medical needs. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of common and preferred stock, long-term debt, and proceeds from research grants and government contracts. The Company has not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.

The accompanying unaudited consolidated financial statements are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 included in the annual report on Form 10-K which was filed with the SEC on April 1, 2019. In the opinion of management, the Company has prepared the accompanying unaudited consolidated financial statements on the same basis as the audited consolidated financial statements, and these consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2019 or any future years or periods.

Basis of presentation

The unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern.

On September 13, 2018, the Company filed Certificates of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to increase the number of authorized shares of the Company’s common stock, par value $0.0001 per share, from 100,000,000 to 200,000,000 shares and to effect a reverse stock split of the Company’s common stock at a ratio of 1-for-30 (the “Reverse Stock Split”). All references set forth in this quarterly report to number of shares or per share data have been presented retroactively on a post Reverse Stock Split basis.

2.Summary of Significant Accounting Policies

During the six months ended June 30, 2019, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual report on Form 10-K for the year ended December 31, 2018 as filed with the SEC, except for the recently adopted accounting standard for leases.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are recorded as a current and long-term lease obligation, with a corresponding right of use lease assets.

The lease obligations represent the Company’s obligation to make lease payments arising from the lease. The right of use lease assets represent the Company’s right to use an underlying asset for the lease term. The lease obligations and the operating right of use lease assets are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

6


 

 

Recently Issued Accounting Pronouncements - Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. The standard requires a modified retrospective approach or an optional transition to apply the new guidance in the year of transition rather than at the beginning of the earliest period presented. The Company adopted ASU 2016-02 in the first quarter of 2019 under the optional transition method. The Company’s current operating leases will be accounted for as operating lease liabilities and right of use assets upon adoption. The Company has elected the package of practical expedients permitted. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease, (b) whether classification of the operating leases would be different in accordance, or (c) whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs at lease commencement. In addition, the Company does not allocate the consideration between lease and non-lease components. On January 1, 2019, the Company recorded a lease liability and a corresponding right of use asset. The adjustment resulted in an increase of $756,347 to total assets and total liabilities on the January 1, 2019 consolidated balance sheet. The adoption will not have a material impact on the consolidated statement of operations or consolidated statement of cash flows.

In June 2018, FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted ASU 2018-07 in the first quarter of 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements - Pending Adoption

In August 2018, FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, was issued to modify and enhance the disclosure requirements for fair value measurements. This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and early adoption is permitted. The Company is still completing its assessment of the impacts and anticipated adoption date of this guidance.

3.Acquisitions

Subsequent to the quarter ended June 30, 2019, the Company entered into a definitive agreement to acquire all of the equity interests of Spitfire Pharma, Inc. (“Spitfire”) on July 8, 2019. Spitfire was a privately held, preclinical pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist for the treatment of non-alcoholic steatohepatitis.  

The transaction closed on July 12, 2019. The Company issued 1,887,250 unregistered shares of its common stock (the “Shares”) as upfront consideration to certain former securityholders of Spitfire (collectively, the “Spitfire Equityholders”), representing an amount equal to $5,000,000 less working capital and transaction expense adjustment amounts as defined in the agreement (the “Closing Consideration”). The number of Shares issued as payment of the Closing Consideration was determined based on the average of the closing prices of the Company’s common stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days prior to and including July 8, 2019, the date on which the parties entered into the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”).

The Merger Agreement includes $88,000,000 in future contingent payments for regulatory, clinical and sales milestones using the acquired intellectual property. The Company will record the contingent consideration when and if the milestones are achieved and the milestone payments become payable.

The Company determined that the acquisition of Spitfire should be accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset is not considered a business. The Company plans to expense the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses. The Company expects to record an in-process research and development expense for the up-front consideration during the third quarter of 2019. Transaction costs of $618,417 are recorded within research and development expense on the Consolidated Statements of Operations and Comprehensive Loss during the three and six months ended June 30, 2019

4.Net Loss Per Share

Because the Company has reported a net loss attributable to common stockholders for all periods presented, basic and diluted net loss per share attributable to common stockholders are the same for all periods presented. For periods presented, all preferred stock, unvested restricted stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.

 

7


 

 

Potential common shares issuable upon conversion, vesting or exercise of preferred stock, unvested restricted stock, common stock warrants, and stock options that are excluded from the computation of diluted weighted-average shares outstanding are as follows:

 

 

 

As of June 30,

 

 

 

2019

 

 

2018

 

Redeemable preferred stock

 

 

-

 

 

 

6,966

 

Common stock warrants

 

 

10,386,256

 

 

 

25,211

 

Common stock options

 

 

873,066

 

 

 

53,846

 

Restricted stock

 

 

323,262

 

 

 

639

 

 

5.Goodwill and Intangible Assets

Goodwill

In May 2017, the Company closed on a business combination and recorded an initial purchase price allocation including goodwill. During the six months ended June 30, 2018 and prior to the end of the measurement period for accounting for the business combination, the Company recorded adjustments to the purchase price allocation resulting in a net decrease in tax refunds receivable, with a corresponding net increase in goodwill, of $490,676. As goodwill related to this transaction had previously been determined to be fully impaired, the Company recognized an impairment charge of $490,676 as a result of these purchase price allocation adjustments during the six months ended June 30, 2018. The purchase price allocation was considered final in May 2018, and no further adjustments were recorded.

 

Intangibles assets

The Company’s intangible assets consisted of the following:

 

 

 

June 30, 2019

 

 

 

Estimated

Useful

Lives

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Internally developed patents

 

6-10 years

 

$

734,432

 

 

$

(416,857

)

 

$

317,575

 

Acquired licenses

 

16-20 years

 

 

285,000

 

 

 

(261,326

)

 

 

23,674

 

Total intangible assets subject to amortization

 

 

 

 

1,019,432

 

 

 

(678,183

)

 

 

341,249

 

IPR&D assets

 

Indefinite

 

 

13,418,967

 

 

 

 

 

 

13,418,967

 

Total

 

 

 

$

14,438,399

 

 

$

(678,183

)

 

$

13,760,216

 

 

 

 

December 31, 2018

 

 

 

Estimated

Useful

Lives

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Impairment

 

 

Net Book

Value

 

Internally developed patents

 

6-10 years

 

$

718,559

 

 

$

(317,172

)

 

$

 

 

$

401,387

 

Acquired licenses

 

16-20 years

 

 

285,000

 

 

 

(253,430

)

 

 

 

 

 

31,570

 

Total intangible assets subject to amortization

 

 

 

$

1,003,559

 

 

$

(570,602

)

 

$

 

 

$

432,957

 

IPR&D assets

 

Indefinite

 

 

37,868,978

 

 

 

 

 

 

(24,450,011

)

 

 

13,418,967

 

Total

 

 

 

$

38,872,537

 

 

$

(570,602

)

 

$

(24,450,011

)

 

$

13,851,924

 

Amortization expense of intangible assets subject to amortization was $14,836 and $14,972 for the three months ended June 30, 2019 and 2018, and $107,580 and $29,446 for the six months ended June 30, 2019 and 2018, respectively. Amortization expense was classified as research and development expenses in the accompanying unaudited consolidated statements of operations and comprehensive loss.

As of June 30, 2019, future estimated amortization expense was as follows:

 

Years ending December 31,

 

 

 

 

The remainder of 2019

 

$

29,690

 

2020

 

 

45,933

 

2021

 

 

25,375

 

2022

 

 

25,375

 

2023

 

 

25,375

 

2024 and thereafter

 

 

189,501

 

Total

 

$

341,249

 

 

8


 

 

6.Accrued Expenses

Accrued expenses and other current liabilities consist of the following:

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Accrued professional services

 

$

417,618

 

 

$

552,619

 

Accrued payroll and employee benefits

 

 

808,585