UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) For the quarterly period ended OR From the transition period from to . Commission File Number 001-35798 Humanigen, Inc. (Exact name of registrant as specified in its charter) 533 Airport Boulevard, Suite (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code:(650) 243-3100 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 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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:☒xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SeptemberJune 30, 2017☐oTRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934 HUMANIGEN, INC.Delaware Delaware 77-0557236 (State or other jurisdiction of (IRS Employer incorporation) Identification No.) 1000 Marina Blvd.,250, Brisbane,400 Burlingame, CA 94005☒xNo ☐o☒x No ☐o
| Large accelerated filer | Accelerated filer | |
Non-accelerated filer (Do not check if a smaller reporting company) | 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 Exchange Act). Yes ☐o No ☒x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of November 10, 2017,August 7, 2018, there were 14,986,712109,696,119 shares of common stock of the issuer outstanding.
TABLE OF CONTENTS HUMANIGEN, INC. FORM 10-Q
| Page | ||||
| PART I. FINANCIAL INFORMATION | 3 | |||
| Item 1. | 3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. | ||||
| Item 4. | ||||
| PART II. OTHER INFORMATION | ||||
| Item 1. | ||||
| Item | ||||
| SIGNATURES | ||||
Humanigen, Inc.
(in thousands, except share data)
(Unaudited)
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,095 | $ | 2,906 | ||||
| Prepaid expenses and other current assets | 1,213 | 1,643 | ||||||
| Total current assets | 2,308 | 4,549 | ||||||
| Property and equipment, net | 30 | 68 | ||||||
| Restricted cash | 101 | 101 | ||||||
| Other assets | 128 | - | ||||||
| Total assets | $ | 2,567 | $ | 4,718 | ||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4,177 | $ | 4,072 | ||||
| Accrued expenses | 2,990 | 736 | ||||||
| Term loans payable | 15,656 | 3,016 | ||||||
| Total current liabilities | 22,823 | 7,824 | ||||||
| Notes payable to vendors | 1,322 | 1,273 | ||||||
| Total liabilities | 24,145 | 9,097 | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $0.001 par value: 85,000,000 shares authorized at September 30, | ||||||||
| 2017 and December 31, 2016; 14,986,712 and 14,977,397 shares issued and outstanding | ||||||||
| at September 30, 2017 and December 31, 2016, respectively | 15 | 15 | ||||||
| Additional paid-in capital | 237,904 | 236,216 | ||||||
| Accumulated deficit | (259,497 | ) | (240,610 | ) | ||||
| Total stockholders’ deficit | (21,578 | ) | (4,379 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 2,567 | $ | 4,718 | ||||
| June 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 267 | $ | 737 | ||||
| Prepaid expenses and other current assets | 665 | 813 | ||||||
| Total current assets | 932 | 1,550 | ||||||
| Property and equipment, net | - | 19 | ||||||
| Restricted cash | 71 | 101 | ||||||
| Total assets | $ | 1,003 | $ | 1,670 | ||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,242 | $ | 3,330 | ||||
| Accrued expenses | 3,020 | 3,307 | ||||||
| Advance notes | 400 | - | ||||||
| Term loans payable | - | 18,018 | ||||||
| Notes payable to vendors | 1,410 | - | ||||||
| Total current liabilities | 8,072 | 24,655 | ||||||
| Notes payable to vendors | - | 1,351 | ||||||
| Total liabilities | 8,072 | 26,006 | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $0.001 par value: 225,000,000 and 85,000,000 shares | ||||||||
authorized at June 30, 2018 and December 31, 2017, respectively; 109,696,119 and 14,946,712 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively | 110 | 15 | ||||||
| Additional paid-in capital | 263,173 | 238,246 | ||||||
| Accumulated deficit | (270,352 | ) | (262,597 | ) | ||||
| Total stockholders’ deficit | (7,069 | ) | (24,336 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 1,003 | $ | 1,670 | ||||
See accompanying notes.
| 3 |
Humanigen, Inc.
(in thousands, except share and per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 3,807 | $ | 1,741 | $ | 10,328 | $ | 7,805 | ||||||||
| General and administrative | 1,993 | 2,453 | 5,987 | 6,169 | ||||||||||||
| Total operating expenses | 5,800 | 4,194 | 16,315 | 13,974 | ||||||||||||
| Loss from operations | (5,800 | ) | (4,194 | ) | (16,315 | ) | (13,974 | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest expense | (1,269 | ) | (30 | ) | (2,245 | ) | (76 | ) | ||||||||
| Other income (expense), net | (14 | ) | 128 | (38 | ) | 128 | ||||||||||
| Reorganization items, net | (102 | ) | (427 | ) | (289 | ) | (8,039 | ) | ||||||||
| Net loss | (7,185 | ) | (4,523 | ) | (18,887 | ) | (21,961 | ) | ||||||||
| Other comprehensive income | - | - | - | - | ||||||||||||
| Comprehensive loss | $ | (7,185 | ) | $ | (4,523 | ) | $ | (18,887 | ) | $ | (21,961 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.48 | ) | $ | (0.30 | ) | (1.26 | ) | $ | (2.76 | ) | |||||
| Weighted average common shares outstanding used to | ||||||||||||||||
| calculate basic and diluted net loss per common share | 14,981,346 | 14,879,519 | 14,978,728 | 7,950,826 | ||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 577 | $ | 3,852 | $ | 1,273 | $ | 6,521 | ||||||||
| General and administrative | 2,032 | 1,545 | 5,989 | 3,994 | ||||||||||||
| Total operating expenses | 2,609 | 5,397 | 7,262 | 10,515 | ||||||||||||
| Loss from operations | (2,609 | ) | (5,397 | ) | (7,262 | ) | (10,515 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (32 | ) | (685 | ) | (426 | ) | (976 | ) | ||||||||
| Other income (expense), net | 2 | (9 | ) | (1 | ) | (24 | ) | |||||||||
| Reorganization items, net | (29 | ) | (63 | ) | (66 | ) | (187 | ) | ||||||||
| Net loss | (2,668 | ) | (6,154 | ) | (7,755 | ) | (11,702 | ) | ||||||||
| Other comprehensive income | - | - | - | - | ||||||||||||
| Comprehensive loss | $ | (2,668 | ) | $ | (6,154 | ) | $ | (7,755 | ) | $ | (11,702 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.02 | ) | $ | (0.41 | ) | $ | (0.10 | ) | $ | (0.78 | ) | ||||
| Weighted average common shares outstanding used to | ||||||||||||||||
| calculate basic and diluted net loss per common share | 109,377,584 | 14,977,397 | 79,517,510 | 14,977,397 | ||||||||||||
See accompanying notes.
| 4 |
Humanigen, Inc.
(in thousands)
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (18,887 | ) | $ | (21,961 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 38 | 81 | ||||||
| Gain on lease termination | - | (227 | ) | |||||
| Noncash interest expense | 2,226 | 46 | ||||||
| Reorganization items related to debtor-in-possession financing | - | 1,627 | ||||||
| Stock based compensation expense | 1,773 | 317 | ||||||
| Issuance of common stock for services | 12 | - | ||||||
| Issuance of warrants in connection with acquisition of licenses | - | 272 | ||||||
| Change in fair value of warrants issued in connection with acquisition of licenses | (97 | ) | - | |||||
| Issuance of common stock to officer and directors | - | 1,452 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 303 | 428 | ||||||
| Accounts payable | 327 | 3,537 | ||||||
| Accrued expenses | 2,253 | (367 | ) | |||||
| Liabilities subject to compromise | (259 | ) | (3,153 | ) | ||||
| Net cash used in operating activities | (12,311 | ) | (17,948 | ) | ||||
| Investing activities: | ||||||||
| Changes in restricted cash | - | 92 | ||||||
| Net cash provided by investing activities | - | 92 | ||||||
| Financing activities: | ||||||||
| Net proceeds from issuance of common stock | - | 10,132 | ||||||
| Net proceeds from term loan | 10,500 | - | ||||||
| Net proceeds from convertible notes payable | - | 2,198 | ||||||
| Net cash provided by financing activities | 10,500 | 12,330 | ||||||
| Net increase (decrease) in cash and cash equivalents | (1,811 | ) | (5,526 | ) | ||||
| Cash and cash equivalents, beginning of period | 2,906 | 8,431 | ||||||
| Cash and cash equivalents, end of period | $ | 1,095 | $ | 2,905 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of notes payable and related accrued interest and fees to common stock | $ | - | $ | 3,387 | ||||
| Change in fair value of warrants issued in connection with acquisition of licenses | $ | (97 | ) | $ | - | |||
| Issuance of common stock for services | $ | 12 | $ | - | ||||
| Issuance of warrants in connection with acquisition of licenses | $ | - | $ | 272 | ||||
| Issuance of common stock to officer and directors | $ | - | $ | 1,452 | ||||
| Issuance of notes payable to vendors | $ | - | $ | 1,212 | ||||
| Six Months Ended June 30, | ||||||||
| 2018 | 2017 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (7,755 | ) | $ | (11,702 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 19 | 27 | ||||||
| Noncash interest expense | 422 | 971 | ||||||
| Stock based compensation expense | 3,455 | 1,428 | ||||||
| Change in fair value of warrants issued in connection with acquisition of licenses | - | (38 | ) | |||||
| Issuance of common stock in exchange for services | 51 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 149 | (33 | ) | |||||
| Accounts payable | (88 | ) | (434 | ) | ||||
| Accrued expenses | 16 | 1,733 | ||||||
| Liabilities subject to compromise | - | (255 | ) | |||||
| Net cash used in operating activities | (3,731 | ) | (8,303 | ) | ||||
| Investing activities: | ||||||||
| Changes in restricted cash | 30 | - | ||||||
| Net cash provided by investing activities | 30 | - | ||||||
| Financing activities: | ||||||||
| Net proceeds from issuance of common stock | 2,781 | - | ||||||
| Net proceeds from term loan | 50 | 5,500 | ||||||
| Net proceeds from issuance of advance notes | 400 | - | ||||||
| Net cash provided by financing activities | 3,231 | 5,500 | ||||||
| Net decrease in cash and cash equivalents | (470 | ) | (2,803 | ) | ||||
| Cash and cash equivalents, beginning of period | 737 | 2,906 | ||||||
| Cash and cash equivalents, end of period | $ | 267 | $ | 103 | ||||
| Supplemental cash flow disclosure: | ||||||||
| Cash paid for interest | $ | 3 | $ | 2 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of notes payable and related accrued interest and fees to common stock | $ | 18,432 | $ | - | ||||
| Change in fair value of warrants issued in connection with acquisition of licenses | $ | - | $ | (38 | ) | |||
| Issuance of stock options in lieu of cash compensation | $ | 303 | $ | - | ||||
| Issuance of common stock in exchange for services | $ | 31 | $ | - | ||||
See accompanying notes.
| 5 |
Humanigen, Inc.
(Unaudited)
1. Nature of Operations
Description of the Business
Humanigen, Inc. (the “Company”) was incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. The Company completed its initial public offering in January 2013. Effective August 7, 2017, the Company changed its legal name to Humanigen, Inc.
As a result of challenges facing it at the time, on December 29, 2015, the Company filed a voluntary petition for bankruptcy protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. On June 30, 2016,disclosed in the Company’s Second Amended Plan of Reorganization, dated May 9, 2016, as amended (the ��Plan”), became effective and the Company emerged from its Chapter 11 bankruptcy proceedings. Refer to Note 2 for additional details regarding the Company’s bankruptcy proceedings.
Lenzilumab is currently being developeda recombinant monoclonal antibody, or mAb, that neutralizes soluble granulocyte-macrophage colony-stimulating factor, or GM-CSF, a critical cytokine in the inflammatory cascade associated with serious and potentially life-threatening CAR-T-related side effects and in the growth of certain hematologic malignancies, solid tumors and other serious conditions.The Company expects to study lenzilumab’s potential to reduce the side effects associated with CAR-T therapy and potentially improve efficacy. Pre-clinical work has been completed to explore lenzilumab’s effectiveness in preventing or ameliorating neurotoxicity and cytokine release syndrome (“CRS”) associated with CAR-T therapy. Pre-clinical animal data shows that there may be an increase in CAR-T cell expansion when CAR-T is combined with lenzilumab, which potentially could translate into improved CAR-T efficacy. This is likely to be an area of further study. In addition, the Company has completed enrollment of patients in a Phase 1 clinical trial for the treatment of chronic myelomonocytic leukemia (“CMML”), a rare hematologic cancer with high unmet medical need. The Company has enrolled a totalto identify the maximum tolerated dose, (“MTD”), or recommended Phase 2 dose (“RPTD”) of ninelenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity. Fifteen patients in the 200, 400 and 600 mg dose cohorts in itsof the CMML trial have been enrolled, and the Company is currently evaluating subjects in the highest dose cohort of 600 mg for continuing accrual.accrual of up to 18 patients. The Company also plans to review preliminary safety and potential efficacy results and anticipates completionmay use interim data from the lenzilumab CMML Phase 1 study to determine the feasibility of the ad hoc interim analysiscommencing a Phase 1 study in the first half of 2018. Additionally, the Company is exploring lenzilumab’s potential to neutralize circulating Granulocyte-Macrophage Colony-Stimulating Factor (GM-CSF) which could lead to developing it as a possible treatment for a range of conditions including juvenile myelomonocytic leukemia (“JMML”) and the toxicities and adverse eventspatients, or to explore a Phase 2 CMML study. JMML is a rare pediatric cancer, is associated with chimeric antigenpoor outcomes and a very high unmet medical need, for which there are no Unites States Food and Drug Administration (“FDA”) -approved therapies.
Ifabotuzumab is an anti-Eph Type-A receptor T-cell (“CAR-T”) therapy.
HGEN005 is a pre-clinical stage anti-human epidermal growth factor-like module containing mucin-like hormone receptor 1, or EMR1, mAb. EMR1 is a therapeutic target for eosinophilic disorders. Eosinophils are a type of white blood cell. If too many are produced in the treatmentbody, chronic inflammation and tissue and organ damage may result. Analysis of certain rare solidblood and hematologic cancers.
| 6 |
The Company’s monoclonal antibody portfolio was developed with its proprietary, patent-protected Humaneered® technology, which consists of methods for converting antibodies (typically murine) into engineered, high-affinity antibodies designed for human therapeutic use.
Liquidity and Going Concern
The Company has incurred significant losses since its inception in March 2000 and had an accumulated deficit of $259.5$270.4 million as of SeptemberJune 30, 2017. The2018.At June 30, 2018, the Company has financed its operations primarily throughhad a working capital deficit of $7.1 million. On February 27, 2018, the saleCompany issued 91,815,517 shares of equity securities, debt financings,common stock in exchange for the extinguishment of all term loans, related fees and accrued interest income earned onand received $1.5 million in cash proceeds. See Note 8 for a more detailed discussion of these restructuring transactions. On March 12, 2018 the Company issued 2,445,557 shares of common stock for proceeds of $1.1 million to accredited investors. On June 4, 2018, the Company issued 400,000 shares of common stock for proceeds of $0.2 million to an accredited investor. On June 29, 2018 the Company received aggregate proceeds of $0.4 million from advances made to the Company (the “Advance Notes”) by Dr. Cameron Durrant, the Company’s Chairman and cash equivalents, grantsChief Executive Officer; Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder; and Ronald Barliant, a director of the payments received under its agreements with Novartis Pharma AG and Sanofi Pasteur S.A. (“Sanofi”).Company. See Note 6 for further description of the Advance Notes. To date, none of the Company’s product candidates havehas been approved for sale and therefore the Company has not generated any revenue from product sales. Management expects operating losses to continue for the foreseeable future. The Company will require additional financing in order to meet its anticipated cash flow needs during the next twelve months. As a result, the Company will continue to require additional capital through equity offerings, debt financing and/or payments under new or existing licensing or collaboration agreements. If sufficient funds are not available on acceptable terms when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, could materially harm its business, financial condition and results of operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. See Note 12 – “Subsequent Events.”
The Condensed Consolidated Financial Statements for the threesix months ended SeptemberJune 30, 20172018 were prepared on the basis of a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. The ability of the Company to meet its total liabilities of $24.1$8.1 million at SeptemberJune 30, 20172018 and to continue as a going concern is dependent upon the availability of future funding. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. See Note 12 – “Subsequent Events.”
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements and include all adjustments necessary for the presentation of the Company’s condensed consolidated financial position, results of operations and cash flows for the periods presented. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. These financial statements have been prepared on a basis that assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The December 31, 20162017 Condensed Consolidated Balance Sheet was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP. These interim financial results are not necessarily indicative of the results to be expected for the year ending December 31, 2017,2018, or for any other future annual or interim period. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s 2016 Annual Report on2017 Form 10-K (the “2016 Annual Report”).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The Company believes judgment is involved in determining the valuation of the financing derivative, the fair value-based measurement of stock-based compensation, accruals and warrant valuations. The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the Condensed Consolidated Financial Statements.
| 7 |
2. Chapter 11 Filing
On December 29, 2015, the Company filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The filing was made in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 15-12628 (LSS) (the “Bankruptcy Case”).
Plan of Reorganization
On May 9, 2016, the Company filed with the Bankruptcy Court thea Plan of Reorganization and related amended disclosure statement (the “Plan”) pursuant to Chapter 11 of the Bankruptcy Code. On June 16, 2016, the Bankruptcy Court entered an order confirming the Plan.
The Plan became effective on June 30, 2016 (the “Effective Date”) and the Company emerged from its Chapter 11 bankruptcy proceedings. In connection with such emergence, the Company consummated the transactions and other items described below.
Bankruptcy Claims Administration
The reconciliation of certain proofs of claim filed against the Company in the Bankruptcy Case, including certain General Unsecured Claims, Convenience Class Claims and Other Subordinated Claims, is ongoing.substantially complete. As a result of its examination of the claims, the Company may askhas asked the Bankruptcy Court to disallow, reduce, reclassify, subordinate or otherwise adjudicate certain claims the Company believes are subject to objection or otherwise improper. Under the terms of the Plan, the Company had until December 27, 2016 to file additional objections to disputed claims, subject to the Company’s right to seek an extension of this deadline from the Bankruptcy Court. ByThe deadline has been extended by the Bankruptcy Court, most recently by Order dated February 6, 2017,July 13, 2018, under which the Bankruptcy Court extended the claims objection deadline through September 24, 2018. On July 11, 2018, the Company filed an objection to June 26, 2017.the remaining claims. By Order dated July 10, 2017,objection, the Company seeks to disallow in their entirety the remaining claims totaling approximately $0.5 million. The Bankruptcy Court extendedhas scheduled a hearing on the claims objection deadline to September 25, 2017. By Order dated October 23, 2017, the Bankruptcy Court extended the claims objection deadline to December 26, 2017.The Company may compromise certain claims with or without specific prior approval of the Bankruptcy Court as set forth in the Plan and may identify additional liabilities that will need to be recorded or reclassified to liabilities subject to compromise.for August 10, 2018. The resolution of such claims could result in material adjustments to the Company’s financial statements.
Although the Bankruptcy Case remains open, other than with respect to certain matters relating to the implementation of the Plan, the administration of certain claims, or over which the Bankruptcy Court may have otherwise retained jurisdiction, the Company is no longer operating under the direct supervision of the Bankruptcy Court. The Company anticipates that the Bankruptcy Case will be closed following the completion of the claims reconciliation process.
| Nine Months ended | ||||
| (in thousands) | September 30, 2016 | |||
| Upfront fee | $ | 191 | ||
| Commitment fee | 150 | |||
| Beneficial conversion feature | 484 | |||
| Legal fees | 802 | |||
| Total Credit Agreement expense | $ | 1,627 | ||
Financial Reporting in Reorganization
The Company applied Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852,Reorganizations, which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of key financial statement line items. It requires that the financial statements for periods subsequent to the Chapter 11 filing distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be subject to a plan of reorganization must be reported at the amounts expected to be allowed in the Company’s Chapter 11 case, even if they may be settled for lesser amounts as a result of the plan of reorganization or negotiations with creditors.
As of December 31, 2015, the Company had approximately $5.4 million recorded as Liabilities subject to compromise. In conjunction with the Company’s exit from bankruptcy, the Company reclassified remaining Liabilities subject to compromise as of June 30, 2016 totaling2018, approximately $2.8$0.06 million $0.8 million and $1.2 million toof pre-petition liabilities remain in Accounts payable Accrued expenses and Notes payable to vendors, respectively.vendors. For the year ended December 31, 2016, the Company paid approximately $3.4 million related to Liabilities subject to compromise, issued $1.2 million in promissory notes to vendors and wrote off approximately $0.3 million in deferred rent liabilities related to its lease termination and reversed approximately $0.1 million in accrued expenses related to a claim that has been denied by the court, which as discussed above, were previously included in Liabilities subject to compromise. For the ninesix months ended SeptemberJune 30, 2017, the Company wrote off approximately $0.2 million in claims that had been reduced or for which a settlement had been reached at a lower amount than what had been previously accrued and also paid approximately $0.1 million in claims. As of September 30, 2017, approximately $0.1 million and $1.3 million remain in Accounts payable and Notes payable to vendors, respectively.accrued. Remaining amounts will be paid based on terms of the Plan.
| 8 |
For the three and six months ended SeptemberJune 30, 20172018 and 2016,2017, Reorganization items, net consisted of the following charges:
| Three months ended | Three months ended | |||||||
| (in thousands) | September 30, 2017 | September 30, 2016 | ||||||
| Legal fees | $ | 97 | $ | 224 | ||||
| Professional fees | 5 | 203 | ||||||
| Total reorganization items, net | $ | 102 | $ | 427 | ||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Legal fees | $ | 23 | $ | 53 | $ | 53 | $ | 166 | ||||||||
| Professional fees | 6 | 10 | 13 | 21 | ||||||||||||
| Total reorganization items, net | $ | 29 | $ | 63 | $ | 66 | $ | 187 | ||||||||
Cash payments for reorganization items totaled $190,000$0.07 million and $1,824,000$0.09 million for the three and six months ended SeptemberJune 30, 2017 and 2016,2018, respectively.
| Nine months ended | Nine months ended | |||||||
| (in thousands) | September 30, 2017 | September 30, 2016 | ||||||
| Legal fees | $ | 263 | $ | 4,780 | ||||
| Professional fees | 26 | 1,159 | ||||||
| Debtor-in-possession financing costs | - | 1,143 | ||||||
| Beneficial conversion on debtor-in-possession financing | - | 484 | ||||||
| Fair value of shares issued to officer and directors for service in bankruptcy | - | 700 | ||||||
| Gain on lease termination | - | (227 | ) | |||||
| Total reorganization items, net | $ | 289 | $ | 8,039 | ||||
3. Summary of Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies tosince those previously disclosed in the 20162017 Annual Report.
4. Potentially Dilutive Securities
The Company’s potentialpotentially dilutive securities, which include stock options, restricted stock units and warrants, have been excluded from the computation of diluted net loss per common share as the effect of including those securities would be to reduce the net loss per common share and be antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in each period presented.
The following outstanding potentially dilutive securities have been excluded from the computations of diluted net loss per common share:
| As of September 30, | ||||||||
| 2017 | 2016 | |||||||
| Options to purchase common stock | 2,578,948 | 2,036,177 | ||||||
| Restricted stock units | — | 3,750 | ||||||
| Warrants to purchase common stock | 356,193 | 331,193 | ||||||
| 2,935,141 | 2,371,060 | |||||||
| As of June 30, | ||||||||
| 2018 | 2017 | |||||||
| Options to purchase common stock | 15,651,023 | 2,428,948 | ||||||
| Warrants to purchase common stock | 331,193 | 356,193 | ||||||
| 15,982,216 | 2,785,141 | |||||||
5. Investments
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total investments | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Reported as: | ||||||||||||||||
| Cash and cash equivalents | $ | — | ||||||||||||||
| Restricted cash, long-term | 101 | |||||||||||||||
| Total investments | $ | 101 | ||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total investments | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Reported as: | ||||||||||||||||
| Cash and cash equivalents | $ | — | ||||||||||||||
| Restricted cash, long-term | 101 | |||||||||||||||
| Total investments | $ | 101 | ||||||||||||||
Cash, accounts payable term loans and accrued liabilities are carried at cost, which approximates fair value given their short-term nature. Marketable securities and cash equivalents are carried at fair value.
The fair value of financial instruments reflects the amounts that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable, and the third is considered unobservable, as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than those included in Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; 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 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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The Company measures the fair value of financial assets and liabilities using the highest level of inputs that are reasonably available as of the measurement date. The following tables summarize the fair value of financial assets that are measured at fair value and the classification by level of input within the fair value hierarchy:
Fair Value Measurements as of September 30, 2017 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments: | ||||||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total assets measured at fair value | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
Fair Value Measurements as of December 31, 2016 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments: | ||||||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total assets measured at fair value | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Fair Value Measurements as of | ||||||||||||||||
| June 30, 2018 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments: | ||||||||||||||||
| Money market funds | $ | 71 | $ | — | $ | — | $ | 71 | ||||||||
| Total assets measured at fair value | $ | 71 | $ | — | $ | — | $ | 71 | ||||||||
| Fair Value Measurements as of | ||||||||||||||||
| December 31, 2017 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments: | ||||||||||||||||
| Money market funds | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
| Total assets measured at fair value | $ | 101 | $ | — | $ | — | $ | 101 | ||||||||
6. Debt and Equity Financing
Notes Payable to Vendors
On June 30, 2016, the Company issued promissory notes in an aggregate principal amount of approximately $1.2 million to certain claimants in accordance with the Plan. The notes are unsecured, bear interest at 10% per annum and are due and payable in full, including principal and accrued interest on June 30, 2019. As of SeptemberJune 30, 2018 and 2017, the Company has accrued a total of $148,000 of$0.2 million and $0.1 million in interest expense related to these promissory notes, inrespectively.
Term Loans
Term Loans consisted of the accompanying Condensed Consolidated Balance Sheet with a charge to Interest expense of $87,000 for the nine months ending September 30, 2017 in the accompanying Statements of Operations and Comprehensive Loss.
| As of December 31, 2017 | ||||||||||||||||||||
Original Principal Amount | Accrued Interest | Loan Balance | Fees | Balance Due | ||||||||||||||||
| December 2016 Loan | $ | 3,315 | $ | 324 | $ | 3,639 | $ | 153 | $ | 3,792 | ||||||||||
| March 2017 Loan | 5,978 | 452 | 6,430 | 275 | 6,705 | |||||||||||||||
| July 2017 Loan | 5,435 | 249 | 5,684 | 250 | 5,934 | |||||||||||||||
| Bridge Loan | 1,500 | 6 | 1,506 | - | 1,506 | |||||||||||||||
| Claims Advances Loan | 80 | 1 | 81 | - | 81 | |||||||||||||||
| Totals | $ | 16,308 | $ | 1,032 | $ | 17,340 | $ | 678 | $ | 18,018 | ||||||||||
On December 21, 2016, the Company entered into a Credit and Security Agreement, (theas amended on March 21, 2017 and on July 8, 2017 (as amended, the “Term Loan Credit Agreement”), with BHCMF,Black Horse Capital Master Fund (“BHCMF”) as administrative agent and lender, and lenders Black Horse Capital (“BHC”), Cheval Holdings, Ltd. (“Cheval” and collectively with BHCMF and BHC, as a lender, Cheval, as a lender,the “Black Horse Entities”) and Nomis as a lenderBay LTD (“Nomis Bay”) (collectively the “Term Loan Lenders”“Lenders”). The Term Loan Credit Agreement providesprovided for a credit facility in the original principal amount of $3,315,000, provides an original discount equal to $265,000December 2016 Loan, the March 2017 Loan and the July 2017 Loan (the “Upfront Fee”“Term Loans”) and requires the payment by the Company to the Term Loan Lenders of a commitment fee equal to $153,000. .
In accordance with the terms of the Term Loan Credit Agreement, the Company used the proceeds of the term loan (the “December 2016 Term Loan”)Loans for general working capital, the payment of certain fees and expenses owed to BHCMF and the Term Loan Lenders and other costs incurred in the ordinary course of business. Dr. Dale Chappell, one of the Company’s former directors, is an affiliate of each of BHCMF, BHC and Cheval.
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The Term Loans (as defined below) bearbore interest at 9.00% and arewere subject to certain customary representations, warranties and covenants, as set forth in the Term Loan Credit Agreement.
On December 1, 2017 the Term Loans plus accrued interestmatured and fees, are due on the earlier of acceleration after an event of default under the Term Loan Credit Agreement, or October 31, 2017. However, to the extent the Company raises capital through any SEC-registered stock offering, 50% of such offering’s proceeds (net of costs) must be used to pay down the Term Loans.
On December 2016 Term Loan reduced by the Upfront Fee and costs incurred in putting the loan in place for a net principal amount of $2,993,000.
On July 8, 2017, the Company entered into a second amendment (the “Second Amendment”) toFebruary 27, 2018 the Term Loan Credit Agreement to obtain an additional term loan (the “July 2017 Term Loan” and, together withLoans, the December 2016 TermBridge Loan and the March 2017 TermClaims Advances Loan the “Term Loans”). The Second Amendment provides for additional loans that may be drawn by the Company on a bi-monthly basis from time to time (the “Grid Advances”) in an aggregate principal amount of up to $5,434,783, less an upfront fee equal to $435,000 and requires the payment at maturity by the Company to the Term Loan Lenders a commitment fee of $263,000. In accordancealong with the terms of the Term Loan Credit Agreement, the Company used the proceeds from the Grid Advances for general working capital, the payment of certainall related fees and expenses owed to the Agent and the Term Loan Lendersaccrued interest, were extinguished in connection with the Term Loan Credit Agreement and other costs incurredRestructuring Transactions described in Note 8.
Advance Notes
On June 29, 2018the ordinary courseCompany received an aggregate of business. Aside$0.4 million of proceeds from the increase in the principal amount extended, the Second Amendment did not modify any of the terms under the Term Loan Credit Agreement, all of which will be applicable to the Grid Advances extendedadvances made to the Company (the “Advance Notes”) by Dr. Cameron Durrant, the Company’s Chairman and Chief Executive Officer; Cheval Holdings, Ltd., an affiliate of Black Horse Capital, L.P., the Company’s controlling stockholder; and Ronald Barliant, a director of the Company (collectively the “Lenders”). The Advance Notes will accrue interest at a rate of 7% per year, compounded annually.
The intention of the parties is that the amounts due under the Advance Notes will be converted automatically into the same type and class of securities as may be sold by the Term Loan Lenders.
The Advance Notes generally are not convertible at the entire amount provided by the Second Amendment of $5,000,000 (net of an Upfront Fee of $435,000)option of the July 2017 Term Loan has been received bylender into the Company. Accordingly, as of September 30, 2017,Company’s common stock until June 21, 2019 (the “Expiration Date”); however, if prior to completing a Qualifying Financing, the Company has received the entire amount available under the Term Loans totaling $14.7 million.
7. Commitments and Contingencies
Contractual Obligations and Commitments
As of SeptemberJune 30, 2017,2018, other than the Restructuring Transactions described in Note 6, there were no material changes to the Company’s contractual obligations from those set forth in the 20162017 Annual Report.
Guarantees and Indemnifications
The Company has certain agreements with service providers with which it does business that contain indemnification provisions pursuant to which the Company typically agrees to indemnify the party against certain types of third-party claims. The Company accrues for known indemnification issues when a loss is probable and can be reasonably estimated. The Company would also accrue for estimated incurred but unidentified indemnification issues based on historical activity. As the Company has not incurred any indemnification losses to date, there were no accruals for or expenses related to indemnification issues for any period presented.
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8. Stockholders’ Equity
This summarizes the activity in Stockholders’ Equity discussed below:
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balances at December 31, 2017 | 14,946,712 | $ | 15 | $ | 238,246 | $ | (262,597 | ) | $ | (24,336 | ) | |||||||||
Conversion of notes payable and related accrued interest and fees to common stock | 76,007,754 | 76 | 18,356 | - | 18,432 | |||||||||||||||
| Issuance of common stock | 18,653,320 | 19 | 2,762 | - | 2,781 | |||||||||||||||
| Issuance of stock options in lieu of cash compensation | - | - | 303 | - | 303 | |||||||||||||||
| Stock-based compensation expense | - | - | 3,455 | - | 3,455 | |||||||||||||||
| Issuance of common stock in exchange for services | 88,333 | - | 51 | - | 51 | |||||||||||||||
| Comprehensive loss | - | - | - | (7,755 | ) | (7,755 | ) | |||||||||||||
| Balances at June 30, 2018 | 109,696,119 | $ | 110 | $ | 263,173 | $ | (270,352 | ) | $ | (7,069 | ) | |||||||||
Restructuring Transactions
On December 21, 2017, the Company entered into a Securities Purchase and Loan Satisfaction Agreement (the “Purchase Agreement”) and a Forbearance and Loan Modification Agreement (the “Forbearance Agreement” and, together with the Purchase Agreement, the “Agreements”), each with the Lenders. The Agreements provided for a series of transactions (the “Restructuring Transactions”) pursuant to which, at the closing of the Restructuring Transactions (the “Transaction Closing”), which occurred on February 27, 2018, the Company would: (i) in exchange for the satisfaction and extinguishment of the entire balance of the Term Loans, (a) issue to the Lenders an aggregate of 59,786,848 shares of Common Stock (the “New Lender Shares”), and (b) transfer and assign to Madison Joint Venture LLC (“Madison”), an affiliate of Nomis Bay, all of the assets of the Company related to benznidazole (the “Benz Assets”), the Company’s former drug candidate; and (ii) issue to Cheval an aggregate of 32,028,669 shares of Common Stock (the “New Black Horse Shares” and, collectively with the New Lender Shares, the “New Common Shares”) for total consideration of $3.0 million.
Issuance of the New Lender Shares
Under the Purchase Agreement, at the Transaction Closing, the Company issued to the Lenders the New Lender Shares, of which 29,893,424 shares of Common Stock were issued to the Black Horse Entities and 29,893,424 shares of Common Stock were issued to Nomis Bay. The issuance of the New Lender Shares to the Lenders and the assignment of the Benz Assets to Madison resulted in the satisfaction and extinguishment of the Company’s outstanding obligations under the Credit Agreement and the cancellation of the Term Loans, including the Bridge Loan and the Claims Advances Loan, described below and all security interests of the Lenders in the Company’s assets were released. The conversion of the Term Loans, Bridge Loan and Claims Advances Loan was accounted for as a decrease to Long-term debt and an increase to Common stock and Additional paid-in capital in the amount of the liabilities outstanding at the time of conversion.
Transfer of the Benz Assets; Claims Advances
Under the Purchase Agreement, at the Transaction Closing, the Company transferred and assigned the Benz Assets to Madison. The Company also agreed to retain, but provide Madison the benefits of, any Benz Assets which are not permitted to be assigned absent receipt of third-party consents. Madison (at the election of Nomis Bay, which controls Madison) has 180 days from the Transaction Closing to decide, in its sole discretion, whether to elect to keep the Benz Assets (a “Positive Election”). The Benz Assets will revert back to the Company in the event that Madison (at the election of Nomis Bay) elects not to make a Positive Election.
In connection with the transfer of the Benz Assets to Madison, Nomis Bay paid certain amounts incurred by the Company and Madison after December 21, 2017 and prior to the Transaction Closing in investigating certain causes of action and claims related to or in connection with the Benz Assets (the “Claims Advances Loan”), including the right to pursue causes of action and claims related to potential misappropriation of the Company’s trade secrets by a competitor in connection with such competitor’s submissions to the U.S. Food and Drug Administration (the “Claims”). In addition, if Madison (at the election of Nomis Bay) makes a Positive Election: (i) Nomis Bay will assume certain legal fees and expenses owed by the Company to its litigation counsel, and (ii) the Company will be entitled to receive 30% of any amounts realized from the successful prosecution of the Claims or otherwise from the Benz Assets, after Nomis Bay is reimbursed for certain expenses in connection with funding the Claims Advances Loan and after giving effect to any payments that Madison may be required to make to any third parties.
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Nomis Bay will have full control, in its sole discretion, over the management of Madison, any development of or realization on the Benz Assets and the prosecution of the Claims. Since the Benz Assets had no carrying value on the Company’s Condensed Consolidated Balance Sheet, the initial investment in Madison was recorded at $0.
Issuance of the New Black Horse Shares; Bridge Loan
Under the Purchase Agreement, at the Transaction Closing, the Company issued to Cheval the New Black Horse Shares for total consideration of $3.0 million, including extinguishment of the Bridge Loan. The Company used the proceeds from the issuance of the New Black Horse Shares for working capital and other costs incurred in the ordinary course of business. At the Transaction Closing, the entire amount of the Bridge Loan was credited to Cheval’s $3.0 million payment obligation and was converted into New Black Horse Shares and all security interests of Cheval in the non-benznidazole assets was released.
Equity Financings
On March 12, 2018, the Company issued 2,445,557 shares of its common stock for total proceeds of $1.1 million to accredited investors.
On June 4, 2018, the Company issued 400,000 shares of its common stock for total proceeds of $0.2 million to an accredited investor.
Amendments to Articles of Incorporation
Effective February 26, 2018, the Company amended its Amended and Restated Certificate of Incorporation, as amended (the “Charter”), to amend Article IV of the Charter to (i) increase the number of authorized shares of Common Stock from 85,000,000 to 225,000,000, and (ii) authorize the issuance of 25,000,000 shares of preferred stock of the Company, par value $0.001 (the “Preferred Stock”), with such powers, rights, terms and conditions as may be designated by the Company’s board of directors upon the issuance of shares of Preferred Stock at one or more times in the future (the “Charter Amendment”). The Charter Amendment was approved and adopted by the written consent of a majority of the stockholders of the Company in accordance with the applicable provisions of the Delaware General Corporation Law, the Charter, and the Company’s Second Amended and Restated Bylaws.
Termination of Equity Financing Facility
On August 24, 2017, the Company entered into a Common Stock Purchase Agreement, dated as of August 23, 2017 (the “ELOC Purchase Agreement”), with Aperture Healthcare Ventures Ltd. (“Aperture”) pursuant to which the Company may, subject to certain conditions and limitations set forth in the ELOC Purchase Agreement, require Aperture to purchase up to $15 million worth of newly issued shares (the “Put Shares”) of the Company’s common stock, over the 36-month term.
The Company terminated the ELOC Purchase Agreement on March 12, 2018. No Put Shares were issued pursuant to the ELOC Purchase Agreement prior to such termination.
2012 Equity Incentive Plan
Under the Company’s 2012 Equity Incentive Plan, the Company may grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees, directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market value of a Company common share on the date of grant. Awards generally vest and become exercisable over three to four years and expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant.
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On September 13, 2016,March 9, 2018, the Board of Directors of the Company approved an amendment to the Company’s 2012 Equity Incentive Plan (the “Equity Plan”) to increase the number of shares of the Company’s common stock availableauthorized for issuance under the Equity Plan by 3,000,00016,050,000 shares, and to increase the annual maximum aggregate number of shares subject to stock option awards that may be granted to any one person under the Equity Plan from 125,000during a calendar year to 1,100,000.
A summary of stock option activity for the three and ninesix months ended SeptemberJune 30, 20172018 under all of the Company’s options plans is as follows:
| Options | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2016 | 1,835,835 | $ | 4.15 | |||||
| Granted | 615,000 | 2.92 | ||||||
| Exercised | - | - | ||||||
| Cancelled (forfeited) | (17,905 | ) | 3.29 | |||||
| Cancelled (expired) | (87 | ) | 4.24 | |||||
| Outstanding at March 31, 2017 | 2,432,843 | $ | 3.85 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled (forfeited) | (3,895 | ) | 3.20 | |||||
| Cancelled (expired) | - | - | ||||||
| Outstanding at June 30, 2017 | 2,428,948 | $ | 3.85 | |||||
| Granted | 150,000 | 0.33 | ||||||
| Exercised | - | - | ||||||
| Cancelled (forfeited) | - | - | ||||||
| Cancelled (expired) | - | - | ||||||
| Outstanding at September 30, 2017 | 2,578,948 | $ | 3.65 | |||||
| Options | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2017 | 2,448,383 | $ | 3.67 | |||||
| Granted | 13,575,038 | 0.66 | ||||||
| Cancelled (forfeited) | (331,269 | ) | 3.21 | |||||
| Cancelled (expired) | (41,129 | ) | 37.82 | |||||
| Outstanding at June 30, 2018 | 15,651,023 | $ | 0.98 | |||||
The weighted average fair value of options granted during the three and ninesix months ended SeptemberJune 30, 20172018 was $0.22 and $1.49$0.51 per share, respectively.
The Company valued the options granted using the Black-Scholes options pricing model and the following weighted-average assumption terms for the ninesix months ended SeptemberJune 30, 2017:
Nine months Ended September 30, 2017 | ||||
| Exercise price | $ | 2.41 | ||
| Market value | $ | 2.41 | ||
| Risk-free rate | 1.78% to 2.09%% | |||
| Expected term | 5.0 to 6.0 years | |||
| Expected volatility | 83.2% to 87.9% | |||
| Dividend yield | - | |||
Six months ended June 30, 2018 | |
| Exercise price | $0.45 - $0.67 |
| Market value | $0.45 - $0.67 |
| Risk-free rate | 2.74% - 2.80% |
| Expected term | 6 years |
| Expected volatility | 92.6% - 96.9% |
| Dividend yield | - |
Stock-Based Compensation
The Company recorded stock-based compensation expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:
| Three Months | Nine Months | |||||||||||
| Ended September 30, | Ended September 30, | |||||||||||
| (in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||
| General and administrative | $ | 278 | $ | 273 | $ | 1,477 | $ | 275 | ||||
| Research and development | 67 | 40 | 296 | 42 | ||||||||
| $ | 345 | $ | 313 | $ | 1,773 | $ | 317 | |||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| General and administrative | $ | 780 | $ | 276 | $ | 3,254 | $ | 1,199 | ||||||||
| Research and development | - | 66 | 201 | 229 | ||||||||||||
| Total stock-based compensation | $ | 780 | $ | 342 | $ | 3,455 | $ | 1,428 | ||||||||
At SeptemberJune 30, 2017,2018, the Company had $2.5$4.2 million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a weighted-average period of 1.91.3 years.
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9. Savant Arrangements
On February 29, 2016, the Company entered into a binding letter of intent (the “LOI”) with Savant Neglected Diseases, LLC (“Savant”). The LOI provided that the Company would acquire certain worldwide rights relating to benznidazole (the “Compound”) from Savant. Under the LOI, the Company made a non-refundable deposit to Savant of $500,000, which was credited towards the Initial Payment (as defined below), and agreed to make monthly payments to Savant equal to $87,500 for development services performed by Savant relating to the Compound.
On the Effective Date, as authorized by the Plan and the Confirmation Order, the Company and Savant entered into an Agreement for the Manufacture, Development and Commercialization of Benznidazole for Human Use (the “MDC Agreement”), pursuant to which the Company acquired certain worldwide rights relating to the Compound. The MDC Agreement consummates the transactions contemplated by the LOI.
In addition, on the Effective Date the Company and Savant also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company granted Savant a continuing senior security interest in the assets and rights acquired by the Company pursuant to the MDC Agreement and certain future assets developed from those acquired assets.
On the Effective Date, the Company issued to Savant a five year warrant (the “Warrant”) to purchase 200,000 shares of the Company’s Common Stock, at an exercise price of $2.25 per share, subject to adjustment. The Warrant is exercisable for 25% of the shares immediately and exercisable for the remaining shares upon reaching certain regulatory related milestones. In addition, pursuant toAs of June 30, 2018 the MDC Agreement, the Company has granted Savant certain “piggyback” registration rightsnumber of shares for the shares issuable under the Warrant.
The Company reevaluated the performance conditions and expected vesting of the Warrant as of SeptemberJune 30, 2017 and recorded a reduction in expense of approximately $59,000$0.01 and $0.04 million during the three and six months ended SeptemberJune 30, 2017, and a reduction of expense of approximately $97,000 during the nine months ended September 30, 2017respectively, due to a decline in the fair value, which reduction is included in Research and development expensesexpense in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss. Specifically, asAs a result of the FDA granting accelerated and conditional approval of a benznidazole therapy manufactured by Chemoa competitor for the treatment of Chagas disease and awarding Chemosuch competitor a neglected tropical disease PRV in August 2017, the Company re-evaluated the final two vesting milestones and concluded that the probability of achievement of these milestones had decreased to 0%.The Company will continue to reevaluate the performance conditions and expected vesting of the Warrant on a quarterly basis until all performance conditions have been met.
Before a compound receives regulatory approval, the Company records upfront and milestone payments made to third parties under licensing arrangements as expense. Upfront payments are recorded when incurred and milestone payments are recorded when the specific milestone has been achieved.
On May 26, 2017, the Company submitted its benznidazole IND to FDA which became effective on June 26, 2017. The Company recorded expense of $1,000,000$1.0 million during the three monthsyear ended June 30,December 31, 2017 as a Research and development expense related to the milestone achievement associated with the IND being declared effective.
On July 10, 2017 FDA notified the Company that it granted Orphan Drug Designation to benznidazole for the treatment of Chagas disease. The Company recorded an expense of $1,000,000$1.0 million during the three monthsyear ended September 30,December 31, 2017 as a Research and development expense related to the milestone achievement associated with Orphan Drug Designation.
In July 2017, the Company commenced litigation against Savant alleging that Savant breached the MDC Agreement and seeking a declaratory judgement. Savant has asserted counterclaims for breaches of contract under the MDC Agreement and the Security Agreement. The dispute primarily concerns the Company’s right under the MDC Agreement to offset certain costs incurred by the Company in excess of the agreed upon budget against payments due Savant. See Note 10, below, for more information regarding the Savant litigation. The aggregate cost overages as of SeptemberJune 30, 2017 that the Company asserts are Savant’s responsibility total approximately $3.4 million, net of a $500,000$0.5 million deductible. The Company asserts that it is entitled to offset $2$2.0 million in milestone payments due Savant against the cost overages, such that as of June 30, 2017, Savant owed the Company approximately $1.4 million. As of SeptemberJune 30, 2017,2018, the cost overages totaled $4.1 million such that Savant owed the Company approximately $2.1 million in cost overages. Such cost overages have been charged to Research and development expense as incurred. Recovery of such cost overages, if any, will be recorded as a reduction of Research and development expense in the period received. See Part II, Item 1
The $2.0 million in milestone payments due Savant are included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of this Form 10-Q for more information about this pending matter.June 30, 2018 and December 31, 2017
��
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10. Litigation
Bankruptcy Proceeding
The Company filed for protection under Chapter 11 of Title 11 of the United States Bankruptcy Code on December 29, 2015. See Note 2 for additional information related to the bankruptcy.
Savant Litigation
On December 18, 2015,July 10, 2017, the Company filed a putative class action lawsuit (captioned Li v. complaint against Savant Neglected Diseases, LLC (“Savant”) in the Superior Court for the State of Delaware, New Castle County (the “Delaware Court”).KaloBios Pharmaceuticals, Inc. et al.v. Savant Neglected Diseases, LLC, 5:15-cv-05841-EJD)No. N17C-07-068 PRW-CCLD. The Company asserted breach of contract and declaratory judgment claims against Savant arising under the MDC Agreement. See Note 9 - “Savant Arrangements” for more information about the MDC Agreement. The Company alleges that Savant has breached its MDC Agreement obligations to pay cost overages that exceed a budgetary threshold as well as other related MDC Agreement representations and obligations. In the litigation, the Company has alleged that as of June 30, 2017, Savant was filedresponsible for aggregate cost overages of approximately $3.4 million, net of a $0.5 million deductible under the MDC. The Company asserts that it is entitled to offset $2.0 million in milestone payments due Savant against the cost overages, such that as of June 30, 2017 Savant owed the Company approximately $1.4 million.
On July 12, 2017, Savant removed the case to the Bankruptcy Court, claiming that the action is related to or arises under the Bankruptcy Case from which we emerged in July 2016. On July 27, 2017, Savant filed an Answer and Counterclaims. Savant’s filing alleges breaches of contracts under the MDC Agreement and the Security Agreement, claiming that the Company breached its obligations to pay the milestone payments and other related representations and obligations.
On August 1, 2017, the Company moved to remand the case back to the Delaware Court (the “Motion to Remand”).
On August 2, 2017, Savant sent a foreclosure notice to the Company, demanding that it provide the Collateral as defined in the United States DistrictSecurity Agreement for inspection and possession on August 9, 2017, with a public sale to be held on September 1, 2017. The Company moved for a Temporary Restraining Order (the “TRO”) and Preliminary Injunction in the Bankruptcy Court on August 4, 2017. Savant responded on August 7, 2017. On August 7, 2017, the Bankruptcy Court granted the Company’s motion for a TRO, entering an order prohibiting Savant from collecting on or selling the Northern District of California (the “Class Action Court”), alleging violationsCollateral, entering our premises, issuing any default notices to us, or attempting to exercise any other remedies under the MDC Agreement or the Security Agreement. The parties have stipulated to continue the provisions of the federal securities laws by the Company, Herb CrossTRO in full force and Martin Shkreli, the Company’s former Chairman and Chief Executive Officer. On December 23, 2015, a putative class action lawsuit was filed against the Company in the Class Action Court (captioned Sciabacucchi v. KaloBios Pharmaceuticals, Inc. et al., 3:15-cv-05992-CRB), similarly alleging violationseffect until further order of the federal securities lawsappropriate court.
On January 22, 2018, Savant wrote to the Bankruptcy Court requesting dissolution of the TRO. On January 29, 2018, the Bankruptcy Court granted the Motion to Remand and denied Savant’s request to dissolve the TRO, ordering that any request to dissolve the TRO be made to the Delaware Court.
On February 13, 2018 Savant made a letter request to the Delaware Superior Court to dissolve the TRO. Also on February 13, 2018, Humanigen filed its Answer and Affirmative defenses to Savant’s Counterclaims. On February 15, 2018 Humanigen filed a letter opposition to Savant’s request to dissolve the TRO and requesting a status conference. A hearing on Savant’s request to dissolve the TRO was held before the Delaware Superior Court on March 19, 2018. The Delaware Superior Court denied Savant’s request to dissolve the TRO and the TRO remains in effect.
On April 11, 2018, Humanigen advised the Delaware Superior Court that it would meet and confer with Savant regarding a proposed case management order and date for trial. On April 26, 2018 the Delaware Superior Court so-ordered a proposed case management order submitted by the Company and Mr. Shkreli. On December 31, 2015, a putative class action lawsuit was filed against the CompanySavant.
There have been no further proceedings in the Class Action Court (captioned Isensee v. KaloBios Pharmaceuticals, Inc. et al., Case No. 15-cv-06331-EJD) also alleging violation of the federal securities laws by the Company, a former officer and Mr. Shkreli. On April 18, 2016, an amended complaint was filed in the Isensee suit, adding Herb Cross and Ronald Martell as defendants. On April 28, 2016, the Class Action Court consolidated these cases (the “Securities Class Action Litigation”) and appointed certain plaintiffs as the lead plaintiffs. The lead plaintiffs in the Securities Class Action Litigation were seeking damages of $20.0 million on behalf of all the affected members of the class represented in the Securities Class Action Litigation, (the “Securities Class Action Members”).this matter to date.
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You should read the following discussion and analysis together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10‑Q10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. This Quarterly Report on Form 10-Q contains statements that discuss future events or expectations, projections of results of operations or financial condition, trends in our business, business prospects and strategies and other “forward-looking” information. In some cases, you can identify “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or “continue” or the negative of those words and other comparable words. These statements may relate to, among other things, our expectations regarding the scope, progress, expansion, and costs of researching, developing and commercializing our product candidates; our intent to in-license or acquire additional product candidates; our opportunity to benefit from various regulatory incentives; expectations for our financial results, revenue, operating expenses and other financial measures in future periods; and the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements. Actual events or results may differ materially due to known and unknown risks, uncertainties and other factors such as:
| · | our lack of revenues, history of operating losses, bankruptcy, limited cash reserves and ability to obtain additional capital to develop and commercialize our product candidates, including the additional capital which will be necessary to complete the clinical trials that we have initiated or plan to initiate, and continue as a going concern; |
| · |
| the effect on our stock price and the significant dilution to the share ownership of our existing stockholders that |
| · | our ability to execute our new strategy and business plan focused on developing our proprietary monoclonal antibody portfolio; |
| · | our ability to preserve our stock quotation on the OTCQB Venture Market or, in the future, to list our common stock on a national securities exchange, whether through a new listing or by completing a reverse merger or other strategic transaction; |
| · | the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the best interests of our stockholders; |
| · |
| the potential timing and outcomes of pre-clinical and clinical studies of lenzilumab, ifabotuzumab, HGEN005 or any other product candidates and the uncertainties inherent in pre-clinical and clinical testing; |
| · | our ability to timely source adequate supply of our development products from third-party manufacturers on which we depend; |
| · | the potential, if any, for future development of any of our present or future products; |
| · | our ability to successfully progress, partner or complete further development of our programs; |
| · | our ability to identify and develop additional products; |
| · | our ability to attain market exclusivity or to protect our intellectual property; |
| · | our ability to reach agreement with a partner to effect a successful commercialization of any of our product candidates; |
| · | the outcome of pending or future litigation; |
| · |
| · | competition; and |
| · | changes in the regulatory landscape that may prevent us from pursuing or realizing any of the expected benefits from the various regulatory incentives, |
These are only some of the factors that may affect the forward-looking statements contained in this Form 10-Q. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see “Risk Factors” discussed in Part II, Item 1A of this
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Overview
We were incorporated on March 15, 2000 in California and reincorporated as a Delaware corporation in September 2001 under the name KaloBios Pharmaceuticals, Inc. We completed our initial public offering in January 2013. Effective August 7, 2017, we changed our legal name to Humanigen, Inc.
As disclosed in our 2017 Form 10-K, since December 2015. As a result of challenges facing us at the time, on December 29, 2015, we filed a voluntary petition for bankruptcy protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. On June 30, 2016, our Second Amended Plan of Reorganization, dated May 9, 2016, as amended, or the Plan, became effective and we emerged from our Chapter 11 bankruptcy proceedings. For further information on our bankruptcy and emergence from bankruptcy, see Note 2 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Lenzilumab is a recombinant monoclonal antibody, or mAb that neutralizes soluble granulocyte-macrophage colony-stimulating factor, or GM-CSF, a critical cytokine forin the inflammatory cascade associated with serious and potentially life-threatening CAR-T-related side effects and in the growth of certain hematologic malignancies, and solid tumors and potentially involved in other serious conditions. We expect to study lenzilumab’s potential in reducing the side effects associated with CAR-T therapy and potentially improving efficacy. We have begun to explore lenzilumab’s effectiveness in preventing or ameliorating neurotoxicity and CRS associated with CAR-T therapy. Pre-clinical animal data suggests there may be an increase in CAR-T cell expansion when combined with lenzilumab, which potentially could translate into improved CAR-T efficacy and this is likely to be an area of further study. In July 2016,addition, we initiated dosinghave completed enrollment of patients in a Phase 1 clinical trial in patients with chronic myelomonocytic leukemia orfor CMML to identify the maximum tolerated dose,MTD, or recommended Phase 2 doseRPTD of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and clinical activity.
Ifabotuzumab is an anti-EphA3EphA3 mAb that has the potential to offer a novel approach to treating solid tumors and hematologic malignancies, and serious pulmonary conditions.conditions and as a CAR construct. EphA3 is aberrantly expressed on the surface of tumor cells and stromalstroma cells in certain cancers. We completed the Phase 1 dose escalation portion of a Phase 1/2 ifabotuzumab clinical trial for ifabotuzumab in multiple hematologic malignancies for which the preliminary results were published in the journalLeukemia Research in 2016. An Investigator-Sponsoredinvestigator-sponsored Phase 0/1 radiolabeledradio-labeled imaging trial of ifabotuzumab in glioblastoma multiforme, (aa particularly aggressive and deadly form of brain cancer) cancer, has begun at the Olivia-Newton John Cancer Institute in Melbourne, Australia. We are currently exploringalso in discussions with a leading center in the U.S. to develop a series of CAR constructs based on ifabotuzumab and may take these constructs, if developed, into pre-clinical testing for a range of cancer types. We will also continue to explore partnering opportunities to enable further development of ifabotuzumab.
HGEN005 is a pre-clinical stage anti-EMR1 mAb. EMR1 is a therapeutic target for eosinophilic disorders. Eosinophils are a type of white blood cell. If too many are produced in the body, chronic inflammation and ifabotuzumab were eachtissue and organ damage may result. Analysis of blood and bone marrow shows that surface expression of EMR1 is restricted to mature eosinophils and correlated with eosinophilia. Tissue eosinophils also express EMR1. In pre-clinical work, we demonstrated that eosinophil killing is enhanced in the presence of HGEN005 and immune effector cells. A major limitation of current eosinophil targeted therapies is incomplete depletion of tissue eosinophils and/or lack of cell selectivity, which may mean that HGEN005 could offer promise in a range of eosinophil-driven diseases, such as eosinophilic asthma, eosinophilic esophagitis and eosinophilic granulomatosis with polyangiitis. We are in discussion with a leading center in the U.S. to develop a series of CAR constructs based on HGEN005 and may take these constructs, if developed, into pre-clinical testing for eosinophilic leukemia, an orphan condition with significant unmet need.
Our monoclonal antibody portfolio was developed with our proprietary, patent-protected Humaneered®Humaneered® technology, which consists of methods for converting antibodies (typically murine) into engineered, high-affinity antibodies designed for human therapeutic use, typically for chronic conditions.use.
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We have incurred significant losses and had an accumulated deficit of $259.5$270.4 million as of SeptemberJune 30, 2017.2018. We expect to continue to incur net losses for the foreseeable future as we develop our drug candidates, expand pre-clinical and clinical trials for our drug candidates currently in clinical development, expand our development activities and seek regulatory approvals. Significant capital is required to continue to develop and to launch a product and many expenses are incurred before revenue is received, if any. We are unable to predict the extent of any future losses or when we will receive revenue or become profitable, if at all.
Despite completing the Restructuring Transactions, the common stock financings and the Advance Note financings (as discussed below), we will require substantial additional capital to continue as a going concern and to support our business efforts, including obtaining regulatory approvals for our product candidates, clinical trials and other studies, and, if approved, the commercialization of our product candidates.
If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital willis not expected to be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern. The Condensed Consolidated Financial Statements
The consolidated financial statements for the quarterthree and six months ended SeptemberJune 30, 2017,2018 were prepared on the basis of a going concern, which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business. Our ability to meet our liabilities and to continue as a going concern is dependent upon the availability of future funding. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Our management believes judgment is involved in determining revenue recognition, valuation of financing derivative, the fair value-based measurement of stock-based compensation, accruals and warrant valuations. Our management evaluates estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the Condensed Consolidated Financial Statements. If our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our statements of operations, liquidity and financial condition.
We are an emerging growth company under the JOBS Act. Emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
There were no significant and material changes in our critical accounting policies and use of estimates during the three and nine months ended SeptemberJune 30, 2017,2018, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates” in our 2016 Annual Report on2017 Form 10-K, (File No. 001-35798), filed with the SEC on March 9, 2017.27, 2018.
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Results of Operations
General
We have not generated net income from operations except for the year ended December 31, 2007 during which we recognized a one-time license payment from Novartis.any periods presented. At SeptemberJune 30, 20172018, we had an accumulated deficit of $259.5$270.4 million primarily as a result of research and development and general and administrative expenses. While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, and research and development payments in connection with strategic partnerships, our product candidates may never be successfully developed or commercialized and we may therefore never realize revenue from any product sales, particularly because most of our product candidates are at an early stage of development. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenue or profits.
Research and Development Expenses
Conducting research and development is central to our business model. We expense both internal and external research and development costs as incurred. We track external research and development costs incurred by project for each of our clinical programs. We began tracking our external costs by project beginning January 1, 2008, and we have continued to refine our systems and our methodology in tracking external research and development costs. Our external research and development costs consist primarily of:
| · | expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct our clinical trials and a substantial portion of our preclinical activities; |
| · | the cost of acquiring and manufacturing clinical trial and other materials; and |
| · | other costs associated with development activities, including additional studies. |
Other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees (such as workers compensation and health insurance premiums), stock‑basedstock-based compensation charges, travel costs, lab supplies, overhead expenses such as rent and utilities, and external costs not allocated to one of our clinical programs. Internal research and development costs generally benefit multiple projects and are not separately tracked per project.
The following table shows our total research and development expenses for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016:
| For the | For the | |||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| External Costs | ||||||||||||||||
| KB001 | $ | - | $ | 5 | $ | - | $ | 10 | ||||||||
| Lenzilumab | 528 | 99 | 1,713 | 215 | ||||||||||||
| Ifabotuzumab | 25 | 30 | 120 | 176 | ||||||||||||
| Benznidazole | 3,138 | 829 | 6,956 | 5,024 | ||||||||||||
| Internal costs | 116 | 778 | 1,539 | 2,380 | ||||||||||||
| Total research and development | $ | 3,807 | $ | 1,741 | $ | 10,328 | $ | 7,805 | ||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| External Costs | ||||||||||||||||
| Lenzilumab | $ | 476 | $ | 1,116 | $ | 937 | $ | 1,185 | ||||||||
| Ifabotuzumab | 25 | 31 | 50 | 95 | ||||||||||||
| Benznidazole | - | 1,936 | - | 3,816 | ||||||||||||
| Internal costs | 76 | 769 | 286 | 1,425 | ||||||||||||
| Total research and development | $ | 577 | $ | 3,852 | $ | 1,273 | $ | 6,521 | ||||||||
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not otherwise included in research and development.
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Comparison of Three Months Ended SeptemberJune 30, 20172018 and 2016
| Three Months Ended September 30, | Increase/(Decrease) | |||||||||||||||
| (in thousands) | 2017 | 2016 | $'s | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 3,807 | $ | 1,741 | $ | 2,066 | 119 | |||||||||
| General and administrative | 1,993 | 2,453 | (460 | ) | (19 | ) | ||||||||||
| Loss from operations | (5,800 | ) | (4,194 | ) | 1,606 | 38 | ||||||||||
| Interest expense | (1,269 | ) | (30 | ) | 1,239 | 4,130 | ||||||||||
| Other income (expense), net | (14 | ) | 128 | 142 | 111 | |||||||||||
| Reorganization items, net | (102 | ) | (427 | ) | (325 | ) | (76 | ) | ||||||||
| Net loss | $ | (7,185 | ) | $ | (4,523 | ) | $ | 2,662 | 59 | |||||||
| Three Months Ended June 30, | Increase/(Decrease) | |||||||||||||||
| (in thousands) | 2018 | 2017 | $'s | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 577 | $ | 3,852 | $ | (3,275 | ) | (85 | ) | |||||||
| General and administrative | 2,032 | 1,545 | 487 | 32 | ||||||||||||
| Loss from operations | (2,609 | ) | (5,397 | ) | (2,788 | ) | (52 | ) | ||||||||
| Interest expense | (32 | ) | (685 | ) | (653 | ) | (95 | ) | ||||||||
| Other income (expense), net | 2 | (9 | ) | (11 | ) | (122 | ) | |||||||||
| Reorganization items, net | (29 | ) | (63 | ) | (34 | ) | (54 | ) | ||||||||
| Net loss | $ | (2,668 | ) | $ | (6,154 | ) | $ | (3,486 | ) | (57 | ) | |||||
Research and development expenses increased $2.1decreased by $3.3 million, from $1.7$3.9 million for the three months ended SeptemberJune 30, 20162017 to $3.8$0.6 million for the three months ended SeptemberJune 30, 2017.2018. The increasedecrease is driven by increases in benznidazole and lenzilumab development costs as well as an increase in internal costs. The 2017 benznidazole costs include the $1 million milestone achieved in July 2017. See Note 10primarily due to the Condensed Consolidated Financial Statements includeddiscontinuation of the development of benznidazole in Item 1August 2017, lower internal costs, and lower spending on the development of this Quarterly Report on Form 10-Q for more information regardinglenzilumab, primarily in connection with the milestone achievement in July 2017.
General and administrative expenses decreasedincreased $0.5 million from $2.5$1.5 million for the three months ended SeptemberJune 30, 20162017 to $2.0 million for the three months ended SeptemberJune 30, 2017.2018. The decreaseincrease is primarily due to lower accounting and professional fees partially offset by ana $0.5 million increase in legal fees duestock-based compensation expense related to the litigation with Savant.
Reorganization items, net, decreased $0.3 million from $0.4$0.03 million for the three months ended SeptemberJune 30, 2016 to $0.1 million for2018 versus the three months ended SeptemberJune 30, 2017. The decrease is primarily related to athe decrease in legal and professional fees due to less bankruptcy related activities.
Interest expense of $1.3decreased $0.7 million from $0.7 million recognized for the three months ended SeptemberJune 30, 2017 relates to interest accrued on the Term Loans and interest accrued on the Notes payable to vendors. Interest expense of $30,000 recognized$0.03 million for the three months ended SeptemberJune 30, 20162018. The decrease in interest expense was related to the debtor-in-possession financing entered into on April 1, 2016.
Comparison of Nine monthsSix Months Ended SeptemberJune 30, 20172018 and 2016
| Nine Months Ended September 30, | Increase/(Decrease) | |||||||||||||||
| (in thousands) | 2017 | 2016 | $'s | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 10,328 | $ | 7,805 | $ | 2,523 | 32 | |||||||||
| General and administrative | 5,987 | 6,169 | (182 | ) | (3 | ) | ||||||||||
| Loss from operations | (16,315 | ) | (13,974 | ) | 2,341 | 17 | ||||||||||
| Interest expense | (2,245 | ) | (76 | ) | 2,169 | 2,854 | ||||||||||
| Other income (expense), net | (38 | ) | 128 | 166 | 130 | |||||||||||
| Reorganization items, net | (289 | ) | (8,039 | ) | $ | (7,750 | ) | (96 | ) | |||||||
| Net loss | $ | (18,887 | ) | $ | (21,961 | ) | $ | (3,074 | ) | (14 | ) | |||||
| Six Months Ended June 30, | Increase/(Decrease) | |||||||||||||||
| (in thousands) | 2018 | 2017 | $'s | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 1,273 | $ | 6,521 | $ | (5,248 | ) | (80 | ) | |||||||
| General and administrative | 5,989 | 3,994 | 1,995 | 50 | ||||||||||||
| Loss from operations | (7,262 | ) | (10,515 | ) | (3,253 | ) | (31 | ) | ||||||||
| Interest expense | (426 | ) | (976 | ) | (550 | ) | (56 | ) | ||||||||
| Other expense, net | (1 | ) | (24 | ) | (23 | ) | (96 | ) | ||||||||
| Reorganization items, net | (66 | ) | (187 | ) | (121 | ) | (65 | ) | ||||||||
| Net loss | $ | (7,755 | ) | $ | (11,702 | ) | $ | (3,947 | ) | (34 | ) | |||||
Research and development expenses increased $2.5decreased by $5.2 million, from $7.8$6.5 million for the ninesix months ended SeptemberJune 30, 20162017 to $10.3$1.3 million for the ninesix months ended SeptemberJune 30, 2017.2018. The increasedecrease is driven by an increase in benznidazole and lenzilumab development costs and internal development costs. The 2017 benznidazole costs include the cumulative $2.0 million in milestones achieved in June and July 2017. See Note 10primarily due to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for more information regarding these milestone achievements. The 2016 benznidazole costs included the costsdiscontinuation of the technology acquisition which occurred on June 30, 2016.
General and administrative expenses decreased $0.2increased $2.0 million from $6.2$4.0 million for the ninesix months ended SeptemberJune 30, 20162017 to $6.0 million for the ninesix months ended SeptemberJune 30, 20172018. The increase is primarily due to a decrease$2.0 million increase in accounting and auditing expenses during the nine months ended September 30, 2017 as comparedstock-based compensation expense related to the prior year.issuance of options to management, consultants and board members subsequent to the completion of the Restructuring Transactions.
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Reorganization items, net, decreased $7.7 million, from $8.0$0.1 million for the ninesix months ended SeptemberJune 30, 2016 to $0.3 million for2018 versus the ninesix months ended SeptemberJune 30, 2017 due to the amounts incurred during the nine months ended September 30, 20162017. The decrease is primarily related to the bankruptcy plan, including legal fees of $4.8 million, $1.1 million in professional fees, $0.7 million related to the fair value of common shares issued to our CEO and two directors for their service in bankruptcy, $1.1 million in legal and other costs related to the debtor-in-possession financing, $0.5 million related to the beneficial conversion expense recognized in connection with the debtor-in-possession financing, offset by a net gain on the termination of the South San Francisco lease of $0.2 million. The costs incurred during the nine months ended September 30, 2017 include $0.2 milliondecrease in legal and professional fees related to ongoing bankruptcy proceedings.
Interest expense of $2.2decreased $0.6 million from $1.0 million recognized for the ninesix months ended SeptemberJune 30, 2017 relates to $0.4 million for the six months ended June 30, 2018. The decrease in interest accrued onexpense was related to lower average Term Loans balances for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 as a result of the conversion of the Term Loans and interest accrued on the Notes payable to vendors. Interest expense of $76,000 recognized for the nine months ended September 30, 2016 wasin February 2018 related to the debtor-in-possession financing entered into on April 1, 2016.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through proceeds from the public offerings of our common stock, private placements of our preferred stock, debt financings, interest income earned on cash, and cash equivalents, and marketable securities, and borrowings against lines of credit, and receipts from agreements with Sanofi and Novartis.credit. At SeptemberJune 30, 2017,2018, we had cash and cash equivalents of $1.1$0.3 million. As of November 16, 2017,August 7, 2018, we had cash and cash equivalents of approximately $145,000.
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
| Nine Months Ended September 30, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (12,311 | ) | $ | (17,948 | ) | ||
| Investing activities | - | 92 | ||||||
| Financing activities | 10,500 | 12,330 | ||||||
| Net decrease in cash and cash equivalents | $ | (1,811 | ) | $ | (5,526 | ) | ||
| Six Months Ended June 30, | ||||||||
| (in thousands) | 2018 | 2017 | ||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (3,731 | ) | $ | (8,303 | ) | ||
| Investing activities | 30 | - | ||||||
| Financing activities | 3,231 | 5,500 | ||||||
| Net decrease in cash and cash equivalents | $ | (470 | ) | $ | (2,803 | ) | ||
Net cash used in operating activities was $12.3$3.7 million and $17.9$8.3 million for the ninesix months endedSeptemberJune 30, 20172018 and 2016,2017, respectively. The primary use of cash in 2017 was to fund our operations related to the development of our product candidates, whereas the primary use of cash in 2016 was to fund our operations related to the Plan. Cash used in operating activities of $12.3$3.7 million for the ninesix months ended SeptemberJune 30, 2018 primarily related to our net loss of $7.8 million, adjusted for non-cash items, such as $3.5 million in stock-based compensation, $0.4 million in noncash interest expense, and net decreases in working capital items of $0.1 million.
Cash used in operating activities of $8.3 million for the six months ended June 30, 2017 primarily related to our net loss of $18.9$11.7 million, adjusted for non-cash items, such as $1.8$1.4 million in stock basedstock-based compensation, $2.2$1.0 million in noncash interest expense, and net increases in working capital items, primarily $2.3 million of Accrued expenses.
Net cash provided by financing activities was $10.5$3.2 million for the ninesix months ended SeptemberJune 30, 20172018. This amount consists primarily of $1.5 million received from Cheval related to the Restructuring Transactions (see “Restructuring Transactions” below), $1.1 million from the issuance of 2,445,557 shares of our common stock to accredited investors on March 201712, 2018, $0.2 million received from the issuance of 400,000 shares of our common stock to an accredited investor on June 4, 2018 and July 2017 Term Loans.$0.4 million received from the issuance of the Advance Notes on June 29, 2018. Net cash provided by financing activities was $12.3$5.5 million for the ninesix months ended SeptemberJune 30, 20162017 related to the debtor-in-possession and equity bankruptcy financings.
Restructuring Transactions
On December 1, 2017, our emergence from bankruptcy in June 2016, we closed an $11 million financing that providedobligations matured under the funds required to enable our exit from Chapter 11, as well as to fund our current working capital needs. In December 2016, we entered into a Credit and Security Agreement (the “TermTerm Loan Credit Agreement”) providing for an original $3.0 million credit facility (the “December 2016Agreement with the Term Loan”), net of certain fees and expenses.Loan Lenders. On MarchDecember 21, 2017, we entered into an amendment tothe Restructuring Agreements, each with the Term Loan Lenders, in connection with a series of transactions providing for, among other things, the satisfaction and extinguishment of our outstanding obligations under the Term Loan Credit Agreement to obtain an additional $5.5 million (the “March 2017 Term Loan”), net of certain fees and expenses, providing additional working capital. On July 8, 2017, we entered into a second amendment to the Term Loan Credit Agreement to obtain an additional $5.0 million (the “July 2017 Term Loan” and together with the December 2016 Term Loan and the March 2017 Term Loan, the “Term Loans”), netinfusion of certain fees and expenses, providing additional working$3.0 million of new capital. As of September 30, 2017, we had receivedFebruary 27, 2018, the entiredate the Restructuring Transactions were completed, the aggregate amount available under the July 2017 Term Loan, bringing the total principal amount of the Term Loans to $14.7 million. The outstanding balance of $16.1 million under the Term Loans, including accrued interest and fees, became due on October 31, 2017. On October 31, 2017, we obtained a short-term extension from our Term Loan Lenders of the maturity of our obligations under the Term Loan Credit Agreement, until November 10, 2017. including the Bridge Loan, the Claims Advances Loan (each as discussed below) and all accrued interest and fees, approximated $18.4 million.
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On November 16, 2017, we obtained an additional short-term extensionFebruary 27, 2018 (the “Restructuring Effective Date”), the Restructuring Transactions were completed in accordance with the Restructuring Agreements. As a result, on the Restructuring Effective Date, we: (i) in exchange for the satisfaction and extinguishment of the maturityentire $18.4 million balance of our obligations under the Term Loans, including the Bridge Loan, Credit Agreement. The extension agreed withthe Claims Advances Loan and all accrued interest and fees, (a) issued to the Term Loan Lenders extends the maturity datean aggregate of 59,786,848 shares of our obligations undercommon stock (the “New Lender Shares”), and (b) transferred and assigned to Madison, an entity owned 70% by Nomis Bay and 30% by us, the Benz Assets, our former drug candidate, capable of being so assigned; and (ii) issued to Cheval an aggregate of 32,028,669 shares of our common stock (the “New Black Horse Shares” and, collectively with the New Lender Shares, the “New Common Shares”) for total consideration of $3.0 million (collectively, the “Restructuring Transactions”), $1.5 million of which we received on December 22, 2017 in the form of a bridge loan (the “Bridge Loan”).
On the Restructuring Effective Date, the aggregate amount of the Term Loans that were deemed to be satisfied and extinguished (i) previously owed to the Black Horse Entities, including the Bridge Loan and all accrued interest and fees, totaled $9.9 million, and (ii) previously owed to Nomis Bay, including the Claims Advances Loan totaling $0.1 million and all accrued interest and fees, totaled $8.5 million. In addition, on the Restructuring Effective Date, (i) each of the Term Loan Credit Agreement, toall promissory notes issued thereunder and the earlierIntellectual Property Security Agreement, dated as of (i) December 1, 2017, or (ii) the date that we consummate one or more alternative transactions with the Term Loan Lenders. Aside from the extension of the Maturity Date, the extensions did not modify any of the terms under the Term Loan Credit Agreement.
Upon completion of the Restructuring Transactions, the Black Horse Entities collectively held 66,870,851 shares of our common stock, or approximately 62.6% of our outstanding common stock. Accordingly, the completion of the Restructuring Transactions on the Restructuring Effective Date resulted in a change in control of our company, as the Black Horse Entities and their affiliates owning more than a majority of our outstanding common stock. Dr. Dale Chappell, a member of our board of directors from June 30, 2016 until November 10, 2017, controls the Black Horse Entities and accordingly, will be able to reach agreement with such Term Loan Lenders on the termsexert control over matters of any alternative transaction.
Despite completing the Term Loan Lenders,Restructuring Transactions, the March 12, 2018 and the June 4, 2018 common stock issuances and the June 29, 2018 Advance Notes, we would
| · | the type, number, timing, progress, costs, and results of the product candidate development programs that we are pursuing or may choose to pursue in the future; |
| · | the scope, progress, expansion, costs, and results of our pre-clinical and clinical trials; |
| · | the timing of and costs involved in obtaining regulatory approvals; |
| · | the success, progress, timing and costs of our efforts to evaluate or consummate various strategic alternatives if in the best interests of our stockholders; |
| · | our ability to |
| · | our ability to establish and maintain development partnering arrangements and any associated funding; |
| · | the emergence of competing products or technologies and other adverse market developments; |
| · | the costs of maintaining, expanding, and protecting our intellectual property portfolio, including potential litigation costs and liabilities; |
| · | the resources we devote to marketing, and, if approved, commercializing our product candidates; |
| · | the scope, progress, expansion and costs of manufacturing our product candidates; and |
| · | the costs associated with being a public company. |
We are pursuing efforts to raise additional capital from a number of sources, including, but not limited to, the sale of equity or debt securities and strategic collaborations, and licensing of our product candidates.collaborations. Additional funding may not be available to us on a timely basis or at acceptable terms, if at all. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, would materially harm our business, financial condition and results of operations. Any financing we may obtain may be dilutive to existing stockholders. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our development programs. We may also be required to sell or license to others our technologies, product candidates, or development programs that we would have preferred to develop and commercialize ourselves and on less than favorable terms, if at all. If in the best interests of our stockholders, we may also find it appropriate to enter into a strategic transaction that could result in, among other things, a sale, merger, consolidation or business combination.
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If management is unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital will not be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern.
Our common stock was suspended from the Nasdaq Global Market and began trading on the over-the-counter market under the ticker symbol KBIOQ. On January 26, 2016, NASDAQ filed a Form 25 with the Securities and Exchange Commission to complete the delisting of our common stock, and the delisting was effective on February 5, 2016. On June 30, 2016, upon emergence from bankruptcy, the ticker symbol for the trading of our common stock on the over-the-counter market reverted back to KBIO. On June 26, 2017 we began tradingcurrently trades on the OTCQB Venture Market under the same ticker symbol. On August 7, 2017, following the effectiveness of our previously reported name change, our common stock began trading on the OTCQB Venture Market under the new ticker symbol “HGEN”. Although our common stock is eligible to trade inlisted for quotation on the OTCQB Venture Market, trading is limited and an active market for our common stock may never develop in the future, which could harm our ability to raise capital to continue to fund operations.
On August 24, 2017,March 12, 2018, we entered into a Common Stock Purchase Agreement, dated asnotified Aperture of August 23, 2017 (the "ELOC Purchase Agreement"), with Aperture Healthcare Ventures Ltd. ("Aperture") pursuantour decision to which we may, subject to certain conditions and limitations set forth interminate the ELOC Purchase Agreement, require Aperture to purchase up to $15.0 million worth of newly issued shares of our common stock, over the 36-month term following the effectiveness of the initial resale registration statement described below (the “Investment Period”). From time to time over the Investment Period, and in our sole discretion, we may present Aperture with one or more notices requiring Aperture to purchase a specified dollar amount of shares of our common stock, based on the price per share per day over five consecutive trading days (the “Pricing Period”). In addition, in our sole discretion, but subject to certain limitations, we may require Aperture to purchase a percentage of the daily trading volume of our common stock for each trading day during the Pricing Period.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements, such as structured finance, special purpose entities or variable interest entities.
Management’s Evaluation of our Disclosure Controls and Procedures
“Disclosure controls and procedures,” as defined in Rules 13a‑15(e)13a-15(e) and 15d‑15(e)15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, those designed to ensure that this information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon the evaluation our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective as of SeptemberJune 30, 20172018 to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting duringas of June 30, 2018. In making this assessment, our Chief Executive Officer and Chief Financial Officer used the quarter ended Septembercriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, inInternal Control—Integrated Framework. Based on that assessment and using the COSO criteria, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2017, that has materially affected, or is reasonably likely to materially affect,2018, our internal control over financial reporting.reporting was not effective because of the material weaknesses described below.
A material weakness is defined as “a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.”
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The ineffectiveness of our internal control over financial reporting at June 30, 2018, was due to an insufficient degree of segregation of duties among our accounting and financial reporting personnel.
During 2018, we intend to work to remediate the material weaknesses identified above, which could include the addition of accounting and financial reporting personnel and/or the engagement of accounting and personnel consultants on a limited-time basis until we add a sufficient number of personnel. However, our current financial position could make it difficult for us to add the necessary resources.
Inherent Limitations of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost‑cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision‑decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost‑cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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Please
see Note† | Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. | |
| ** | The Certifications attached as Exhibits 32.1 and 32.2 that | |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HUMANIGEN, INC. | |||
| Date: | By: | /s/ Cameron Durrant | |
| Cameron Durrant | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Date: | By: | /s/ Greg Jester | |
| Greg Jester | |||
| Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||
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