|
Item 1.
|
Financial Statements.
|
Stellar Biotechnologies, Inc.
Condensed Interim Consolidated Balance Sheets
(Unaudited)
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,369,671
|
|
|
$
|
4,570,951
|
|
Accounts receivable
|
|
|
10,977
|
|
|
|
1,287
|
|
Short-term investments
|
|
|
998,575
|
|
|
|
1,994,401
|
|
Inventory
|
|
|
118,540
|
|
|
|
68,114
|
|
Prepaid expenses
|
|
|
159,543
|
|
|
|
123,694
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,657,306
|
|
|
|
6,758,447
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment in joint venture
|
|
|
66,695
|
|
|
|
66,695
|
|
Property, plant and equipment, net
|
|
|
854,053
|
|
|
|
879,523
|
|
Deposits
|
|
|
15,340
|
|
|
|
15,340
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
936,088
|
|
|
|
961,558
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
6,593,394
|
|
|
$
|
7,720,005
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
574,376
|
|
|
$
|
320,947
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
574,376
|
|
|
|
320,947
|
|
|
|
|
|
|
|
|
|
|
Commitments
(Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Common shares, unlimited common shares authorized,
no par value, 10,520,096 issued and outstanding
at December 31, 2017 and September 30, 2017
|
|
|
48,351,701
|
|
|
|
48,351,701
|
|
Accumulated share-based compensation
|
|
|
4,460,106
|
|
|
|
4,439,400
|
|
Accumulated deficit
|
|
|
(46,792,789
|
)
|
|
|
(45,392,043
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders' Equity
|
|
|
6,019,018
|
|
|
|
7,399,058
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
6,593,394
|
|
|
$
|
7,720,005
|
|
The accompanying notes are an integral part
of these condensed interim consolidated financial statements.
Stellar Biotechnologies, Inc.
Condensed Interim Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
20,487
|
|
|
$
|
141,856
|
|
|
|
|
20,487
|
|
|
|
141,856
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,801
|
|
|
|
78,565
|
|
Costs of aquaculture
|
|
|
98,050
|
|
|
|
84,835
|
|
Research and development
|
|
|
631,034
|
|
|
|
460,865
|
|
General and administrative
|
|
|
678,481
|
|
|
|
932,067
|
|
|
|
|
1,410,366
|
|
|
|
1,556,332
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(1,389,879
|
)
|
|
|
(1,414,476
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Loss)
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
|
(17,929
|
)
|
|
|
(77,390
|
)
|
Investment income
|
|
|
7,862
|
|
|
|
6,994
|
|
|
|
|
(10,067
|
)
|
|
|
(70,396
|
)
|
|
|
|
|
|
|
|
|
|
Loss Before Income Tax
|
|
|
(1,399,946
|
)
|
|
|
(1,484,872
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,400,746
|
)
|
|
$
|
(1,485,672
|
)
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.15
|
)
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
10,520,096
|
|
|
|
10,136,258
|
|
The accompanying notes are an integral part
of these condensed interim consolidated financial statements.
Stellar Biotechnologies, Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash Flows Used In Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,400,746
|
)
|
|
$
|
(1,485,672
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
49,309
|
|
|
|
45,470
|
|
Share-based compensation
|
|
|
20,706
|
|
|
|
36,442
|
|
Foreign exchange loss
|
|
|
17,929
|
|
|
|
77,390
|
|
Transfer equipment to research and development
|
|
|
10,835
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Changes in working capital items:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(9,712
|
)
|
|
|
72,666
|
|
Inventory
|
|
|
(50,426
|
)
|
|
|
(80,153
|
)
|
Prepaid expenses
|
|
|
(35,919
|
)
|
|
|
(9,885
|
)
|
Accounts payable and accrued liabilities
|
|
|
253,561
|
|
|
|
(21,292
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,144,463
|
)
|
|
|
(1,365,034
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(34,767
|
)
|
|
|
(84,424
|
)
|
Purchase of short-term investments
|
|
|
(4,174
|
)
|
|
|
(4,804
|
)
|
Proceeds on sales and maturities of short-term investments
|
|
|
1,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
961,059
|
|
|
|
(89,228
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(17,876
|
)
|
|
|
(77,233
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(201,280
|
)
|
|
|
(1,531,495
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - beginning of period
|
|
|
4,570,951
|
|
|
|
7,416,904
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period
|
|
$
|
4,369,671
|
|
|
$
|
5,885,409
|
|
|
|
|
|
|
|
|
|
|
Cash (demand deposits)
|
|
$
|
4,090,861
|
|
|
$
|
4,549,089
|
|
Cash equivalents
|
|
|
278,810
|
|
|
|
1,336,320
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,369,671
|
|
|
$
|
5,885,409
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for taxes
|
|
$
|
800
|
|
|
$
|
800
|
|
The accompanying notes are an integral part
of these condensed interim consolidated financial statements.
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
Stellar Biotechnologies, Inc.
(the Company) is organized under the laws of British Columbia, Canada. The Company’s business is the aquaculture, research
and development, manufacture and commercialization of Keyhole Limpet Hemocyanin (KLH). The Company markets and distributes its
KLH products to biotechnology and pharmaceutical companies, academic institutions, and clinical research organizations primarily
in Europe, Asia, and the United States. The Company’s common shares have been listed for trading on The Nasdaq Capital Market
in the United States under the symbol “SBOT” since November 5, 2015.
In April 2010, the Company changed
its name from CAG Capital, Inc. to Stellar Biotechnologies, Inc. and completed a reverse merger transaction with Stellar Biotechnologies,
Inc., a California corporation, which was founded in September 1999, and remains the Company’s wholly-owned subsidiary and
principal operating entity. In January 2017, the California subsidiary and the Company established a wholly-owned Mexican subsidiary
under the name BioEstelar, S.A. de C.V. in Ensenada, Baja California to perform aquaculture research and development activities
in Mexico. The Company’s executive offices are located at 332 E. Scott Street, Port Hueneme, California, 93041, USA, and
its registered and records office is Royal Centre, 1055 West Georgia Street, Suite 1500, Vancouver, BC, V6E 4N7, Canada.
Management Plans
Company operations have historically
been funded by the issuance of common shares, exercise of warrants, grant revenues, contract services revenue and product sales.
For the three months ended December 31, 2017 and 2016, the Company reported net losses of approximately $1.4 million and $1.5
million, respectively. As of December 31, 2017, the Company had an accumulated deficit of approximately $46.8 million and working
capital of approximately $5.1 million. While the Company plans to finance company operations for the next twelve months with cash
on hand and product sales, management expects to continue incurring losses for the foreseeable future and will need to raise additional
capital to pursue our business plan beyond February 2019. Management is taking action to ensure the Company will continue as a
going concern for at least one year beyond the date of the issuance of the Company’s financial statements. First, management
has flexibility to adjust planned expenditures based on a number of factors including the size and timing of capital expenditures,
staffing levels, inventory levels, and the status of customer clinical trials. Management also seeks to expand the customer base
for existing marketed products, and intends to secure additional financing through debt and/or equity financings, including transactions
with strategic customers and partners that may include debt and/or equity arrangements.
The accompanying unaudited condensed
interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q. They do not include all information
and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with
U.S. GAAP for complete financial statements. These condensed interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the
fiscal year ended September 30, 2017.
The accompanying condensed interim consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, Stellar Biotechnologies, Inc., a California corporation in the U.S. and BioEstelar, S.A. de C.V.
a Baja California corporation in Mexico. All significant intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for
a fair presentation of the results of operations for the period presented have been included in the interim period. Operating results
for the three months ended December 31, 2017 are not necessarily indicative of the results that may be expected for other interim
periods or the fiscal year ending September 30, 2018. The condensed interim consolidated financial data at September 30, 2017 is
derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2017, as filed on December 1, 2017 with the SEC.
The preparation of financial
statements in conformity with U.S. GAAP for interim financial information requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
Functional Currency
The condensed interim consolidated
financial statements of the Company are presented in U.S. dollars, unless otherwise stated, which is the Company’s functional
currency.
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
|
3.
|
Significant Accounting
Policies
|
Recent Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued guidance codified in Accounting Standards Codification (ASC) 606
Revenue Recognition – Revenue from Contracts with Customers
which amends the guidance in ASC 605,
Revenue Recognition
and adds a new Subtopic to the Codification, ASC 340-40,
Other Assets and Deferred Costs: Contracts with Customers
.
The
standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer; Step
2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price; Step 4: Allocate the transaction
price to the performance obligations in the contract; and Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation. ASC 606 permits two methods of adoption: retrospectively to each prior reporting
period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance
recognized at the date of initial application (the modified retrospective method). In August 2015, the FASB issued an accounting
update to defer the effective date by one year for public entities such that it is now
effective for public entities for
annual reporting periods beginning after December 15, 2017, including interim periods
within
those years
, with early application permitted by one year. Subsequently, the FASB issued supplemental adoption guidance
and clarification to ASC 606 related to principal vs. agent considerations, identifying performance obligations and licensing,
technical corrections and improvements, which must be adopted at the same time as ASC 606. These standards are effective for the
Company during the fiscal year ending September 30, 2019. Management is in the process of assessing the impact this guidance will
have on the Company’s consolidated financial statements.
We anticipate adoption of
ASC 606 using the modified retrospective method with a cumulative catch-up adjustment to the opening balance sheet of retained
earnings at the effective date, during the first quarter of fiscal 2019. The Company will continue to review separate performance
obligations, potential disclosures, and the method of adoption in order to complete the evaluation of the impact on the consolidated
financial statements
.
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities
, which
primarily affects the accounting for equity investments, financial liabilities
under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition,
ASU
2016-01
clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting
from unrealized losses on available-for-sale debt securities.
The guidance is effective for
public entities for fiscal years beginning after December 15, 2017, including interim periods within those years, with early adoption
permitted. These standards are effective for the Company during the fiscal year ending September 30, 2019.
Management is
in the process of assessing the impact of ASU 2016-01 on the Company’s consolidated financial statements
.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which establishes a new lease accounting model for lessees.
The updated guidance requires an entity to recognize assets and liabilities on the balance sheet arising from a lease for both
financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective
for public entities for fiscal years beginning after December 15, 2018, including interim periods within those years, with early
adoption permitted. These standards are effective for the Company during the fiscal year ending September 30, 2020.
Management
is in the process of assessing the impact of ASU 2016-02 on the Company’s consolidated financial statements.
We
anticipate adoption of ASU 2016-02, will result in lease liabilities and right-of-use assets on
the Company’s consolidated
financial statements for several long-term operating leases.
In
June 2016, the FASB issued ASU 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments
, which includes provisions that require financial assets measured at amortized cost basis to be presented at the
net amount expected to be collected and credit losses relating to available-for-sale debt securities to be recorded through an
allowance for credit losses, which requires recognition of an estimate of all current expected credit losses. The guidance is effective
for public entities for fiscal years beginning after December 15, 2019, including interim periods within those years, with early
adoption permitted for fiscal years beginning after December 15, 2018. These standards are effective for the Company during the
fiscal year ending September 30, 2021.
Management is in the process of assessing the impact of ASU 2016-13 on the Company’s
consolidated financial statements
.
In
May 2017, the FASB issued ASU 2017-09,
Scope of Modification Accounting
, which provides new guidance on changes
to the terms or conditions of share-based payment awards that would be required to apply modification accounting under ASC 718,
Compensation-Stock Compensation
. The amendments are effective for annual reporting periods beginning after December
15, 2017 with early adoption permitted. These standards are effective for the Company during the fiscal year ending September
30, 2019. Management is in the process of assessing the impact of ASU 2017-09 on the Company's consolidated
financial statements.
Short-term investments consisted
of U.S. Treasury Bills at December 31, 2017 and September 30, 2017.
U.S. Treasury Bills are carried
at amortized cost which approximates fair value and are classified as held-to-maturity investments.
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
Raw materials include inventory
of manufacturing supplies. Work in process includes manufacturing supplies, direct and indirect labor, contracted manufacturing
and testing, and allocated manufacturing overhead for inventory in process at the end of the period. Finished goods include products
that are complete and available for sale. At December 31, 2017 and September 30, 2017, the Company recorded work in process and
finished goods inventory only for those products with recent sales levels to evaluate net realizable value.
Inventory consisted of the following:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
30,628
|
|
|
$
|
21,761
|
|
Work in process
|
|
|
51,933
|
|
|
|
-
|
|
Finished goods
|
|
|
35,979
|
|
|
|
46,353
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,540
|
|
|
$
|
68,114
|
|
|
6.
|
Property, Plant and
Equipment, net
|
Property, plant and equipment,
net consisted of the following:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Aquaculture system
|
|
$
|
126,257
|
|
|
$
|
126,257
|
|
Laboratory facilities
|
|
|
62,033
|
|
|
|
62,033
|
|
Computer and office equipment
|
|
|
117,840
|
|
|
|
117,840
|
|
Tools and equipment
|
|
|
1,035,604
|
|
|
|
982,439
|
|
Vehicles
|
|
|
77,994
|
|
|
|
77,994
|
|
Leasehold improvements
|
|
|
342,935
|
|
|
|
337,060
|
|
|
|
|
1,762,663
|
|
|
|
1,703,623
|
|
Less: accumulated depreciation
|
|
|
(1,008,777
|
)
|
|
|
(969,418
|
)
|
|
|
|
|
|
|
|
|
|
Depreciable assets, net
|
|
|
753,886
|
|
|
|
734,205
|
|
Construction in progress
|
|
|
100,167
|
|
|
|
145,318
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
854,053
|
|
|
$
|
879,523
|
|
Depreciation and amortization expense amounted to approximately $49,000 and $45,000 for the three months
ended December 31, 2017 and 2016, respectively.
Operating leases
The Company leases buildings
and facilities used in its operations under two sublease agreements. In June 2015, the Company exercised its option to extend these
sublease agreements for an additional five-year term beginning in October and November 2015. The Company negotiated an option to
extend the leases for two additional five-year terms.
The Company leases facilities
used for executive offices and laboratories and pays a portion of the common area maintenance. In July 2016, the Company extended
this lease for a two-year term, with options to renew for three successive two-year terms.
The Company leases undeveloped
land in Baja California, Mexico to assess the potential development of an additional aquaculture locale and expansion of production.
The lease term is three years from June 2015 with options to extend the lease for 30 years. The Company may terminate early with
30 days’ notice. The rent has been prepaid through June 2018, and is not included in the future minimum lease payments below.
The Company has a related agreement with the lessor to collaborate on the design, expansion and development of marine aquaculture
resources and KLH production facilities on the leased property. Under that agreement, the Company was responsible for certain
leasehold improvements including construction of structures and a power-generating facility, which are owned by the Company. The
Company reimburses the lessor for local operational support. The collaboration agreement expires in June 2018, unless terminated
earlier.
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
Aggregate future minimum lease
payments at December 31, 2017 are as follows:
Nine Months Ending September 30, 2018
|
|
|
115,000
|
|
Year Ending September 30, 2019
|
|
|
106,000
|
|
Year Ending September 30, 2020
|
|
|
106,000
|
|
Year Ending September 30, 2021
|
|
|
6,000
|
|
|
|
|
|
|
|
|
$
|
333,000
|
|
Rent expense on these lease
agreements amounted to approximately $60,000 and $59,000 for the three months ended December 31, 2017 and 2016, respectively.
Purchase obligations
The Company has commitments
totaling approximately $133,000 at December 31, 2017 for signed agreements with contract research organizations, consultants, construction
contractors and equipment suppliers. All purchase obligations are expected to be fulfilled within the next 12 months.
Supply agreements
The Company has commitments
under supply agreements with customers for fixed prices per gram of KLH in connection with clinical trials on a non-exclusive basis
except within that customer’s field of use. The expiration dates of these supply agreements range from October 2019 to February
2022, and are generally renewable upon written request of the customer.
Joint venture agreement
In May 2016, the Company entered
into a joint venture agreement with another party for the formation of a joint venture company to manufacture and sell conjugated
therapeutic vaccines. The joint venture is organized as a French simplified corporation.
The Company holds a 30% equity interest in the joint venture in exchange for an initial capital contribution
of €120,000. One-half of the initial contribution, approximately $67,000, was paid during the year ended September 30, 2016
with the balance due upon the occurrence of certain defined future events. The Company will also provide the joint venture additional
financing as may be required, on a pro rata basis in line with our equity interest. According to the joint venture agreement, if
certain milestones are not achieved by December 31, 2017, the joint venture will be dissolved, unless (i) the parties mutually
agree to pursue the joint venture arrangement, or (ii) either party decides to purchase the equity interests of the other party.
This deadline has passed and the parties have expressed their mutual desire to renew and amend the agreement to extend the timeline.
Each of the parties is entitled, upon the occurrence of certain defined events, to acquire the interest of the other party. Except
as described herein, the joint venture has an initial ten-year term, renewable for successive five-year terms. If either party
provides notice at least six months prior to the expiration date of an applicable term that it does not wish to continue its participation
in the joint venture, the other party will have a right to acquire all of such terminating party’s equity interests in the
joint venture.
In connection with the formation
of the joint venture and the execution of its strategy, the parties intend over time to enter into an exclusive supply agreement
within a limited field of use for Stellar to supply KLH to the joint venture, a supply agreement designating the joint venture
as the exclusive manufacturer and supplier of the other party’s vaccines, and services agreements for the provision of various
knowledge and expertise by each of the parties.
Licensing agreement and technology
transfer agreement
In July 2013, the Company acquired
the exclusive, worldwide license to certain patented technology for the development of human immunotherapies against
Clostridium
difficile
infection (C. diff) under a written agreement (the License Agreement) with a University (the Licensor) which required
payments of license fees, patent cost reimbursements and other contingent fees. In March 2017, (i) the Company entered into an
agreement to terminate the License Agreement, (ii) the Company concurrently entered into a technology transfer and purchase agreement
(the Transfer Agreement) with a vaccine biotechnology company (the Transferee), and (iii) the Licensor and Transferee entered into
a direct licensing arrangement relating to the patented C. diff technology. Under the Transfer Agreement, the Company transferred
to the Transferee its proprietary rights and know-how of immunogens and vaccine technology for C. diff, in exchange for an upfront
payment and a percentage of future fees, milestone payments, sublicensing income and royalties, if any, paid by the Transferee
or its assigns to the Licensor.
As a result of the termination
of the License Agreement, there are no early termination penalties and no further annual licensing fees, contingent milestone payments,
royalties, sub-licensing fees or other financial obligations payable by the Company to the Licensor.
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
Retirement savings plan 401(k)
contributions
The Company sponsors a 401(k)
retirement savings plan that requires an annual non-elective safe harbor employer contribution of 3% of eligible employee wages.
All employees over 21 years of age are eligible beginning the first payroll after 3 consecutive months of employment. Employees
are 100% vested in employer contributions and in any voluntary employee contributions. Contributions to the 401(k) plan were approximately
$19,000 and $18,000 for each of the three months ended December 31, 2017 and 2016, respectively.
Related party commitments
On August 14, 2002, through
its California subsidiary, the Company entered into a patent royalty agreement with a director and officer of the Company, whereby
he would receive royalty payments in exchange for assignment of his patent rights to the Company. The royalty is 5% of gross receipts
from products using this invention in excess of $500,000 annually. The Company’s current operations utilize this invention.
There was no royalty expense incurred during the three months ended December 31, 2017 and 2016.
The Company had the following
transactions in share capital:
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
$
|
20,706
|
|
|
$
|
36,442
|
|
Black-Scholes option valuation
model
The Company uses the Black-Scholes
option valuation model to determine the fair value of warrants and share options. Option valuation models require the input of
highly subjective assumptions including the expected price volatility. The Company has used historical volatility to estimate the
volatility of the share price. Changes in the subjective input assumptions can materially affect the fair value estimates, and
therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s warrants
and share options.
Warrants
There were 1,265,626 warrants outstanding at December 31, 2017 with an exercise price of $4.50 and expiry
date of January 6, 2022. There were no warrants granted or exercised during the period from September 30, 2016 to December 31,
2017.
The weighted average contractual
life remaining on the outstanding warrants at December 31, 2017 is 33 months.
Share Options
The Company has an incentive
compensation plan adopted in 2017 (the Incentive Plan) administered by the Board of Directors, which amended and restated the 2013
fixed share option plan. Options, restricted shares and restricted share units are eligible for grants under the Incentive Plan.
The number of shares available for issuance under the Incentive Plan is 1,597,000, including shares available for the exercise
of outstanding options under the 2013 fixed share option plan. No restricted shares or restricted share units have been granted
as of December 31, 2017.
The exercise price of an option
is set at the closing price of the Company’s common shares on the date of grant. Share options granted to directors, officers,
employees and certain individual consultants for past service are subject to the following vesting schedule: (a) one-third shall
vest immediately, (b) one-third shall vest at 12 months from the date of grant and (c) one-third shall vest at 18 months from the
date of grant.
Share options granted to directors,
officers, employees and certain individual consultants for future service are subject to the following vesting schedule: (x) one-third
shall vest at 12 months from the date of grant, (y) one-third shall vest at 24 months from the date of grant and (z) one-third
shall vest at 36 months from the date of grant.
Share options granted to certain
individual investor relations consultants are subject to the following vesting schedule: (aa) 25% shall vest at 3 months from the
date of grant, (bb) 25% shall vest at 6 months from the date of grant, (cc) 25% shall vest at 12 months from the date of grant
and (dd) 25% shall vest at 15 months from the date of grant.
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
Options have been granted under
the Incentive Plan allowing the holders to purchase common shares of the Company as follows:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2016
|
|
|
539,103
|
|
|
$
|
5.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
71,600
|
|
|
|
1.89
|
|
|
|
Expired
|
|
|
(28,233
|
)
|
|
|
11.14
|
|
|
|
Expired
|
|
|
(171,500
|
)
|
|
|
2.90
|
|
|
CDN $
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2017
|
|
|
410,970
|
|
|
$
|
5.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(10,667
|
)
|
|
|
17.29
|
|
|
|
Expired
|
|
|
(35,250
|
)
|
|
|
4.57
|
|
|
CDN $
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2017
|
|
|
365,053
|
|
|
$
|
5.58
|
|
|
|
The weighted average contractual
life remaining on the outstanding options is 33 months.
The following table summarizes
information about the options under the Incentive Plan outstanding and exercisable at December 31, 2017:
Number of
Options
|
|
|
Exercisable at
December 31, 2017
|
|
|
Range of exercise prices
|
|
Expiry Dates
|
|
94,360
|
|
|
|
94,360
|
|
|
CDN$0.01 - 5.00
|
|
Apr 2017-Dec 2019
|
|
69,233
|
|
|
|
32,533
|
|
|
$0.01 - 5.00
|
|
Sep 2023-Mar 2024
|
|
125,360
|
|
|
|
125,360
|
|
|
CDN$5.01 - 10.00
|
|
Oct 2017-Jun 2022
|
|
15,100
|
|
|
|
15,100
|
|
|
$5.01 - 10.00
|
|
Dec 2022
|
|
21,500
|
|
|
|
21,500
|
|
|
CDN$15.01 - 20.00
|
|
Nov 2018-Nov 2021
|
|
39,500
|
|
|
|
29,500
|
|
|
$15.01 - 20.00
|
|
Nov 2020
|
|
365,053
|
|
|
|
318,353
|
|
|
|
|
|
The estimated fair value of
the share options granted during the three months ended December 31, 2016 was determined using a Black-Scholes option valuation
model with the following weighted average assumptions:
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
Risk free interest rate
|
|
|
1.49
|
%
|
Expected life (years)
|
|
|
7.00
|
|
Expected share price volatility
|
|
|
166
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
There were no share options
granted during the three months ended December 31, 2017.
The weighted average fair value
of share options granted during the three months ended December 31, 2016 was $1.98.
As of December 31, 2017, the
Company had approximately $40,000 of unrecognized share-based compensation expense, which is expected to be recognized over a period
of 27 months.
There were no options exercised
during the three months ended December 31, 2017 and 2016. There was no intrinsic value of the vested options at December 31, 2017.
|
9.
|
Fair Value of Financial
Instruments
|
The Company uses the fair value
measurement framework for valuing financial assets and liabilities measured on a recurring basis in situations where other accounting
pronouncements either permit or require fair value measurements.
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
Fair value of a financial instrument
is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The carrying value of certain financial instruments such as accounts receivable, accounts payable, accrued
liabilities, and deferred revenue approximates fair value due to the short-term nature of such instruments. Short-term investments
in U.S. Treasury Bills are recorded at amortized cost, which approximates fair value.
The Company follows the fair
value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. There are three levels of inputs that may be used to measure fair value:
|
Level 1:
|
Quoted prices in active markets for identical or similar assets and liabilities.
|
|
Level 2:
|
Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and 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.
|
The Company reports its short-term
investments in U.S. Treasury Bills at fair value using Level 1 inputs in the fair value hierarchy.
The following table summarizes
fair values for those assets and liabilities with fair value measured on a recurring basis.
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total Fair Value
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments in U.S.
Treasury Bills
|
|
$
|
998,575
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
998,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments in
U.S. Treasury Bills
|
|
$
|
1,994,401
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,994,401
|
|
|
10.
|
Concentrations of Credit
Risk
|
Credit risk is the risk of an
unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Financial instruments
that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, U.S Treasury
Bills, and accounts receivable. The Company estimates its maximum credit risk at the amount recorded on the balance sheet.
Management’s assessment
of the Company’s credit risk for cash and cash equivalents is low as they are held in major financial institutions believed
to be credit worthy or U.S. Treasury Bills with maturities of 90 days or less. The Company limits its exposure to credit loss for
short-term investments by holding U.S. Treasury Bills with maturities of 1 year or less. Based on credit monitoring and history,
the Company considers the risk of credit losses due to customer non-performance on accounts receivable to be low.
The Company had the following
concentrations of revenues by customers, each of which accounted for more than 10% of revenues in the applicable period:
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Product sales and contract services revenue
|
|
|
98% from
3 customers
|
|
|
|
92% from
1 customer
|
|
The Company had the following
concentrations of revenues by geographic areas:
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Europe
|
|
|
73
|
%
|
|
|
94
|
%
|
North America
|
|
|
27
|
%
|
|
|
6
|
%
|
Stellar Biotechnologies, Inc.
|
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
|
The Company had the following
concentrations of accounts receivable from its customers, each of which accounted for more than 10% in the applicable period:
|
|
December 31,
|
|
|
|
2017
|
|
|
|
|
|
|
Accounts receivable
|
|
|
49% from
1 customer
|
|
There were no customer accounts receivable at September 30,
2017.
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The following management’s discussion
and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed interim
consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q as of December
31, 2017 and our audited consolidated financial statements for the year ended September 30, 2017 included in our Annual Report
on Form 10-K, filed with the Securities and Exchange Commission on December 1, 2017.
This Quarterly Report on Form 10-Q contains
forward-looking statements. When used in this report, the words “expects,” “anticipates,” “suggests,”
“believes,” “intends,” “estimates,” “plans,” “projects,” “continue,”
“ongoing,” “potential,” “expect,” “predict,” “believe,” “intend,”
“may,” “will,” “should,” “could,” “would” and similar expressions are
intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks
described in our Annual Report on Form 10-K for the year ended September 30, 2017 and other reports we file with the Securities
and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements
after the date of this report to conform these statements to actual results or to changes in our expectations, except as required
by law.
The discussion and analysis of our financial
condition and results of operations are based on our unaudited condensed interim consolidated financial statements as of December
31, 2017 and September 30, 2017, and for the three months ended December 31, 2017 and 2016 included in Part I, Item 1 of this Quarterly
Report on Form 10-Q, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of
these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues
and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described
in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
Overview
Stellar Biotechnologies, Inc. is a biotechnology
company engaged in the aquaculture, research and development, manufacture and commercialization of Keyhole Limpet Hemocyanin (KLH).
KLH is an immune-stimulating protein with an extensive history of safe and effective use in immunological applications. Today,
multiple companies and institutions are developing drugs that combine disease-targeting agents with KLH. These disease-targeting
agents do not evoke a robust immune response by themselves and thus require a carrier molecule like KLH. The versatility of the
KLH molecule and its use in multiple drug development pipelines provide numerous commercial opportunities for us.
We extract and manufacture KLH from the
hemolymph of a scarce ocean mollusk, the Giant Keyhole Limpet. Based upon our specialized knowledge of aquaculture science and
KLH, we have built unique land-based aquaculture, laboratory and production facilities in Port Hueneme, California, and developed
production and manufacturing processes to produce medical-grade KLH using Current Good Manufacturing Practices (GMP).
We market and sell our KLH products under
the brand Stellar KLH. Our customers and partners include multinational biotechnology and pharmaceutical companies, academic institutions,
clinical research organizations and research centers. We have multiple agreements to license and supply Stellar KLH and other technology
in exchange for fees, revenues or royalties. Our customers manage and fund all product development and regulatory submissions for
their respective drug products that utilize our KLH protein.
Recent Developments
Neostell Joint Venture
In May 2016, we entered into a joint venture agreement with Neovacs S.A, a Paris-based biotechnology company,
for the formation of a joint venture company to manufacture and sell conjugated therapeutic vaccines. In July 2016, Neostell
S.A.S., a French simplified stock corporation (Neostell), was formed to carry out the business of the joint venture. Neostell
is expected to produce Neovacs’ product candidates that utilize Stellar KLH as a carrier molecule and may also manufacture
and sell other KLH-based immunotherapy products for third-party customers. We hold a 30% equity interest in the joint venture in
exchange for an initial capital contribution of €120,000. One-half of the initial contribution, approximately $67,000, was
paid in June 2016 with the balance due upon the occurrence of certain defined future events. We will also provide additional financing
to Neostell, as may be required, on a pro rata basis in line with our equity interest. According to the joint venture agreement,
if certain milestones are not achieved by December 31, 2017, Neostell will be dissolved, unless the parties mutually agree to pursue
the joint venture arrangement, or either party decides to purchase the equity interests of the other party. This deadline has passed
and the parties have expressed their mutual desire to renew and amend the agreement to extend the timeline.
Significant Accounting Policies and Estimates
For a discussion of our significant accounting
policies and estimates, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, as filed with the Securities
and Exchange Commission (SEC) on December 1, 2017. There are no material changes in our significant accounting policies and estimates
from the disclosure provided in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.
Results of Operations
Comparison of Three Months Ended December 31, 2017 and 2016
Our total revenues decreased by $.12 million
to $.02 million for the three months ended December 31, 2017 compared to $.14 million for the three months ended December 31, 2016
due to a decrease in our product sales. While our customer base has not changed significantly, product sales volumes are subject
to variability associated with the rate of development and progression of clinical studies of third-party products that utilize
Stellar KLH. The rate of progression toward later stage studies is expected to continue to affect the timing and volume of future
product sales. During both periods, product mix was similar, consisting of various grades of KLH for clinical and pre-clinical
studies and immune system assays.
Our total expenses decreased by $.15 million
to $1.41 for the three months ended December 31, 2017 compared to $1.56 million for the same period last year:
|
·
|
Our cost of sales decreased by $.08 million to less than $.01 million for the three months ended December 31, 2017 compared to $.08 million for the same period last year primarily due to decreased product sales volume as well as reduced expenses related to sales of KLH that was produced as a byproduct of our research and development activities.
|
|
·
|
Our research and development expenses increased by $.17 million to $.63 million for the three months ended December 31, 2017 compared to $.46 million for the same period last year. The increase was primarily due to research and development activities intended to increase the scalability and throughput capacity of existing manufacturing systems, including engineering lots of KLH produced under our optimization initiative. Additional research and development in aquaculture as well as process, analytical and product formulation development also contributed to the increase.
|
|
·
|
Our general and administrative expenses decreased by $.25 million to $.68 million for the three months ended December 31, 2017 compared to $.93 million for the same period last year
primarily due to management’s continued actions to reduce corporate expenses, including salaries, professional fees and travel, as well as lower legal fees and public company expenses
.
|
Our total other income (loss) decreased
by $.06 million to an overall loss of $.01 million for the three months ended December 31, 2017 compared to an overall loss of
$.07 million for the same period last year. Foreign exchange loss was $.02 million for the three months ended December 31, 2017
compared to a loss of $.08 million for the same period last year due to fluctuations in exchange rates and decreased amounts held
in Canadian cash and cash equivalents.
Our net loss for the three months ended
December 31, 2017 was $1.40 million, or $0.13 per basic share, compared to a net loss of $1.49 million, or $0.15 per basic share,
for the three months ended December 31, 2016.
Capital Expenditures
Our capital expenditures, which primarily consist of scientific, manufacturing, and aquaculture equipment,
and facility leasehold improvements were $34,767 and $84,424 for the three months ended December 31, 2017 and 2016, respectively.
Liquidity and Capital Resources
Company operations have historically been
funded by the issuance of common shares, exercise of warrants, grant revenues, contract services revenue and product sales. For
the three months ended December 31, 2017 and 2016, the Company reported net losses of approximately $1.4 million and $1.5 million,
respectively. As of December 31, 2017, the Company had an accumulated deficit of approximately $46.8 million and working capital
of approximately $5.1 million. While the Company plans to finance company operations for the next twelve months with cash on hand
and product sales, management expects to continue incurring losses for the foreseeable future and will need to raise additional
capital to pursue our business plan beyond February 2019. Management is taking action to ensure the Company will continue as a
going concern for at least one year beyond the date of the issuance of the Company’s financial statements. First, management
has flexibility to adjust planned expenditures based on a number of factors including the size and timing of capital expenditures,
staffing levels, inventory levels, and the status of customer clinical trials. Management also seeks to expand the customer base
for existing marketed products, and is currently evaluating opportunities to secure additional financing through debt and/or equity
financings, including transactions with strategic customers and partners that may include debt and/or equity arrangements. We have
not secured any commitment for new financing at this time, nor can we provide any assurance that new financing will be available
on commercially acceptable terms, if needed.
We have filed with the Securities and Exchange
Commission, and the Securities and Exchange Commission declared effective, a universal shelf registration statement of up to $100
million worth of registered equity securities, of which we utilized approximately $6.75 million in our July 2016 offering. Under
this effective registration statement, we may issue registered securities, from time to time, in one or more separate offerings
or other transactions with the size, price and terms to be determined at the time of issuance. Pursuant to General Instruction
I.B.6 of Form S-3, in no event will we sell securities in a public primary offering with a value of more than one-third of the
aggregate market value of our common shares held by non-affiliates in any twelve-month period, so long as the aggregate market
value of our common shares held by non-affiliates remains below $75 million. Registered securities issued using our existing shelf
may be used to raise additional capital to fund our working capital, R&D and other corporate needs.
Geographic Concentrations
We primarily market and distribute our
products directly to biotechnology and pharmaceutical companies, academic institutions, clinical research organizations and research
centers. Products are shipped to our customers from our facilities in Port Hueneme, California using a common carrier chosen by
the customer. The geographic markets of our customers are principally Europe, Asia and North America. We had the following concentrations
of revenues by geographic areas:
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Three Months Ended
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December 31,
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December 31,
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2017
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2016
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|
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Europe
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73
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%
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94
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%
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North America
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27
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%
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6
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%
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The geographic concentration of our product
sales revenue fluctuates quarter over quarter, sometimes significantly, depending on the volume of sales from our customers in
each of our principal geographic markets.
Research and Development
Our core business is developing and commercializing
Keyhole Limpet Hemocyanin for use in immunotherapy and immunodiagnostic applications. Our internal research has included, among
other activities, continual improvement of methods for the culture and growth of Giant Keyhole Limpet, innovations in aquaculture
systems and infrastructure, biophysical and biochemical characterization of the KLH molecule, analytical processes to enhance performance
of our products, KLH manufacturing process improvements, new KLH formulations, and early development of potential new KLH-based
immunotherapies.
Research and development costs, including
materials, KLH designated for internal research use only and salaries of employees directly involved in research and development
efforts, are expensed as incurred. From time to time, we produce saleable KLH as a byproduct of our research and development activities.
The cost of this KLH is not assigned to inventory.
Our research and development costs were $631,034 and $460,865 for the three months ended December 31,
2017 and 2016, respectively.
The increase from the comparable period
was primarily due to research and development activities intended to increase the scalability and throughput capacity of existing
manufacturing systems, including engineering lots of KLH produced under our optimization initiative.
Disclosure of Contractual Obligations
We currently lease 4,300 square feet of
executive office and laboratory space in Port Hueneme, California under a lease which was renewed in July 2016 for a two-year term,
with options to renew for three successive two-year terms.
Our aquaculture and KLH manufacturing operations
are located on approximately 37,000 square feet of oceanfront land in the Port Hueneme Aquaculture Business Park. Our facilities
here include specialized aquaculture infrastructure, seawater supply and discharge systems, laboratories, manufacturing and administrative
offices. We have two sublease agreements which expire in September and October 2020, respectively, with options to extend the leases
for two additional five-year terms.
We also currently lease undeveloped land
in Baja California, Mexico under a lease agreement which we entered into in June 2015, with a three-year term, which lease agreement
may be terminated at will at any time with 30 days prior notice by either party. We are utilizing the undeveloped land to conduct
suitability studies for the potential development of an additional aquaculture locale and future expansion of production. We also
have a short-term lease for office space in a business center located in Ensenada, Baja California. This office serves as the administrative
headquarters of our BioEstelar subsidiary.
We have purchase commitments for contract
research organizations, consultants, construction contractors and equipment suppliers.
There have been no material changes in
our contractual obligations previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017,
as filed with the SEC on December 1, 2017.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.