N
otes
to Unaudited Condensed Consolidated Financial
Statements
1.
Nature
of Business and Basis of Presentation.
We are
a Delaware corporation, originally incorporated in 1988 under the
name “Terrapin Diagnostics, Inc.” in the State of
Delaware. In 1998, we changed our corporate name to “Telik,
Inc.” and changed our name again to “MabVax
Therapeutics Holdings, Inc.” in 2014. Unless the context
requires otherwise, references to “we,”
“our,” “us,” “MabVax” or the
“Company” in this Quarterly Report on Form 10-Q for the
quarter ended March 31, 2018 (this “Quarterly
Report”) mean MabVax Therapeutics Holdings, Inc. on a
condensed consolidated financial statement basis with our
wholly-owned subsidiary, MabVax Therapeutics, Inc.
Nature
of Business
MabVax
is a clinical stage biopharmaceutical company engaged in the
discovery, development and commercialization of proprietary human
monoclonal antibody products for the treatment of a variety of
cancers and other disease states. We have discovered a pipeline of
human monoclonal antibody product candidates based on the
protective immune responses generated by patients who have been
vaccinated against targeted cancers with our proprietary vaccines.
We have the exclusive license to these vaccines and blood samples
from vaccinated patients as antibody discovery materials from
Memorial Sloan Kettering Cancer Center (“MSK”). We
operate in only one business segment.
We have
incurred net losses since inception and expect to incur substantial
losses for the foreseeable future as we continue our research,
development and clinical activities. To date, we have funded
operations primarily through revenues earned from asset sale and
license agreements, proceeds from the sale of common and preferred
stock, government grants, the issuance of debt, the issuance of
common stock in lieu of cash for services, payments from
collaborators, and interest income. The process of developing
products will require significant additional research and
development, preclinical testing and clinical trials, as well as
regulatory approvals. We expect these activities, together with
general and administrative expenses, to result in substantial
operating losses for the foreseeable future. We will not receive
substantial revenue unless we or our collaborative partners
complete clinical trials, obtain regulatory approvals and
successfully commercialize one or more product candidates; or we
license our technology after achieving one or more milestones of
interest to a potential partner.
Reverse
Stock Splits
On
August 16, 2016, we filed a certificate of amendment to our Amended
and Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware to effectuate a reverse stock split
of our issued and outstanding common stock on a 1-for-7.4 basis,
effective on August 16, 2016 (the “2016 Reverse Stock
Split”). On February 14, 2018, we filed a certificate of
amendment to our Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware to effectuate
another reverse stock split of our issued and outstanding common
stock on a 1-for-3 basis, effective on February 16, 2018 (the
“2018 Reverse Stock Split”; collectively with the 2016
Reverse Stock Split, the “Reverse Stock Splits”). All
share and per share amounts, and number of shares of common stock
into which each share of preferred stock will convert, in the
financial statements and notes thereto have been retroactively
adjusted for all periods presented to give effect to the Reverse
Stock Splits, including rounding for fractional shares and
reclassifying any amount equal to the reduction in par value of
common stock to additional paid-in capital.
Delaware
Order Granting Petition for Relief
On
September 20, 2018, the Court of Chancery of the State of Delaware
(the “Court”) entered an order validating (i) issuances
of common stock upon conversions of the Company’s preferred
stock occurring between June 30, 2014 and February 12, 2018, and
(ii) stockholder approval of corporate actions presented to the
Company’s stockholders from June 30, 2014 to February 12,
2018. In so doing, the Court granted the Company’s Verified
Petition for Relief Under
8 Del.
C. § 205
(the “Delaware Petition”)
captioned
In re: MabVax
Therapeutics Holdings, Inc.
, filed on July 27, 2018, in
order to rectify the uncertainty regarding whether shares of our
common stock were validly issued upon conversion of our preferred
stock from June 30, 2014 to February 12, 2018. A copy of the
Court’s order granting the petition is filed herewith. The
Delaware Petition and the Court’s order granting the Delaware
Petition are discussed further in the Section below titled,
“Court Validation of Previously Issued Shares of Common Stock
upon Conversion of Preferred Stock.”
Basis
of Presentation
The
balance sheet data at December 31, 2017, was derived from audited
financial statements at that date. It does not include, however,
all the information and notes required by accounting principles
generally accepted in the United States of America
(“GAAP”) for complete financial
statements.
The
accompanying unaudited condensed consolidated financial statements
were prepared using GAAP for interim financial information and the
instructions to Regulation S-X. While these statements reflect all
normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results of the
interim period, they do not include all information or notes
required by GAAP for annual financial statements and should be read
in conjunction with the audited financial statements of MabVax
Therapeutics Holdings, Inc. for the year ended December 31,
2017, included in our Annual Report on Form 10-K filed with
the SEC on April 2, 2018, and amended on Form 10-K/A as filed with
the SEC on October 15, 2018. These quarterly results are not
necessarily indicative of future results.
The
preparation of condensed consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the condensed consolidated financial statements and the
reported amounts of expenses during the reporting period.
Management believes that these estimates are reasonable; however,
actual results may differ from these estimates.
Recent
Accounting Pronouncements
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued ASU 2014-09, “Revenue from Contracts with
Customers (Topic 606)”, which contains new accounting
literature relating to how and when a company recognizes revenue.
Under ASU 2014-09, 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 and services.
ASU 2014-09 is effective for the Company’s fiscal
year beginning January 1, 2018, which reflects a one-year deferral
approved by the FASB in July 2015 and was adopted by the Company on
January 1, 2018. The adoption of this new standard did not have a
material impact on our condensed consolidated financial
statements.
The
Company adopted the FASB Accounting Standards Codification
(“ASC”) Topic 606 - Revenue from Contracts with
Customers (“ASC 606”) at the time of its first license
agreement in the second quarter of 2018. The Company had no revenue
from license agreements prior to the first quarter of
2018.
Under
ASC 606, the Company recognizes licensing revenue when our customer
obtains control of the intellectual property (“IP”)
transferred, which occurs on delivery of specific items outlined in
the agreement. Revenue is recognized in an amount that reflects the
consideration that the Company expects to receive in exchange for
the IP delivered. To determine revenue recognition for IP with
customers within the scope of ASC 606, the Company determines which
of the different types of licenses exists and divides the IP into
two categories: Functional IP or Symbolic IP. Functional IP has
significant stand-alone functionality and derives a substantial
portion of its ability to provide benefit or value from its
significant stand-alone functionality. Symbolic IP does not have
significant stand-alone functionality, and therefore substantially
all the utility of Symbolic IP is derived from its association with
the licensor’s past or ongoing activities.
In
February 2016, the FASB issued ASU 2016-2, “Leases (Topic
842).” This update will increase transparency and
comparability by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing
arrangements. Under the new guidance, lessees will be required to
recognize the following for all leases (except for short-term
leases) at the commencement date: (i) a lease liability, which is a
lessee’s obligation to make lease payments arising from a
lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right
to use, or control the use of, a specified asset for the lease
term. Under the new guidance, lessor accounting is largely
unchanged, and it simplified the accounting for sale and leaseback
transactions. Lessees will no longer be provided with a source of
off-balance sheet financing. Lessees (for capital and operating
leases) and lessors (for sales-type, direct financing, and
operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered after, the beginning of
the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require
any transition accounting for leases that expired before the
earliest comparative period presented. Lessees and lessors may not
apply a full retrospective transition approach. The standard is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. We are
currently in the process of assessing what impact this new standard
may have on our condensed consolidated financial
statements.
In
March 2016, the FASB issued ASU 2016-09,
“Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting.”
This update includes multiple provisions intended to simplify
various aspects of the accounting for share-based payment
transactions including accounting for excess tax benefits and tax
deficiencies, classification of excess tax benefits in the
statement of cash flows and accounting for award forfeitures. This
update is effective for annual and interim reporting periods of
public entities beginning after December 15, 2016, with early
adoption permitted. The adoption of this new standard did not have
a material impact on our condensed consolidated financial
statements.
In
June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” This
ASU requires instruments measured at amortized cost to be presented
at the net amount expected to be collected. Entities are also
required to record allowances for available-for-sale debt
securities rather than reduce the carrying amount. This ASU is
effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. We expect the
adoption of this new standard will not have a material impact on
our condensed consolidated financial statements.
In
August 2016, the FASB issued ASU No. 2016-15 (“ASU
2016-15”), “Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments.”
The standard provides guidance on eight (8) cash flow issues: (1)
debt prepayment or debt extinguishment costs; (2) settlement of
zero-coupon bonds; (3) contingent consideration payments after a
business combination; (4) proceeds from the settlement of insurance
claims; (5) proceeds from the settlement of corporate-owned life
insurance policies; (6) distributions received from equity method
investees; (7) beneficial interests in securitization transactions;
and (8) separately identifiable cash flows and application of the
predominance principle. ASU 2016-15 addresses how certain cash
receipts and cash payments are presented and classified in the
statement of cash flows. ASU 2016-15 is effective for fiscal years,
and interim periods within those years, beginning after December
15, 2017 with early adoption permitted. The adoption of this new
standard did not have a material impact on our condensed
consolidated financial statements.
In
August 2016, the FASB issued ASU
No. 2016-16, “Income Taxes (Topic 740):
Intra-Entity Transfers of Assets Other Than Inventory
.
” This ASU requires the
recognition of the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs.
The amendments in this ASU should be applied on a modified
retrospective basis through a cumulative-effect adjustment directly
to retained earnings as of the beginning of the period of adoption.
The adoption of this new standard did have a material impact on our
condensed consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and
Investments—Equity Method and Joint Ventures (Topic
323).” This ASU amends the disclosure requirements for ASU
No. 2014-09, “Revenue from Contracts with Customers
(Topic 606);” ASU No. 2016-02, “Leases (Topic
842);” and ASU No. 2016-13, “Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” This ASU states that if a
registrant does not know or cannot reasonably estimate the impact
that the adoption of the above ASUs is expected to have on the
financial statements, then in addition to making a statement to
that effect, the registrant should consider additional qualitative
financial statement disclosures to assist the reader in assessing
the significance of the impact that the standard will have on the
financial statements of the registrant when adopted. This ASU was
effective upon issuance. The adoption of this new standard did not
have a material impact on our condensed consolidated financial
statements.
In
January 2017, the FASB issued ASU
No. 2017-04, “Intangibles—Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill
Impairment.” This ASU eliminates Step 2 from the
goodwill impairment test. Instead, an entity should recognize an
impairment charge for the amount by which the carrying value
exceeds the reporting unit’s fair value, not to exceed the
total amount of goodwill allocated to that reporting unit. This ASU
is effective for annual or any interim goodwill impairment tests in
fiscal years beginning after December 15, 2019. We expect the
adoption of this new standard will not have a material impact on
our condensed consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition
of a Business.” This ASU clarifies the definition of a
business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. This ASU is
effective for annual periods beginning after December 15,
2017, including interim periods within those periods. The adoption
of this new standard did not have a material impact on our
condensed consolidated financial statements.
Management believes
that any other recently issued, but not yet effective, accounting
standards if currently adopted would not have a material effect on
the accompanying condensed consolidated financial
statements.
2.
Liquidity
and Going Concern.
The
accompanying condensed consolidated financial statements have been
prepared on the going concern basis, which assumes that the Company
will continue to operate as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. As
reflected in the accompanying condensed consolidated financial
statements, the Company had a net loss of $3,620,751, net cash used
in operating activities of $2,096,779, net cash used in investing
activities of $0, and net cash provided by financing activities of
$2,267,272 for the three months ended March 31, 2018. As of March
31, 2018, the Company had $1,056,203 in cash and cash equivalents,
a working capital deficit of $5,196,766, an accumulated deficit of
$114,674,388, and stockholders’ equity of
$834,296.
Series
L Convertible Preferred Stock Conversions
Between
January 16 and January 26, 2018, holders of Series L Convertible
Preferred Stock (“Series L Preferred Stock”) converted
12,500 shares of Series L Preferred Stock into 694,445 shares of
common stock.
Series
I Convertible Preferred Stock Conversions
On
February 12, 2018, Grander Holdings, Inc. 401K, a holder of Series
I Convertible Preferred Stock (“Series I Preferred
Stock”), converted 152,820 shares of Series I Preferred Stock
into 50,940 shares of common stock.
Overview
of 2018 Private Placements
Between
February 2 and February 10, 2018, the Company entered into separate
purchase agreements with investors pursuant to which the Company
sold (i) shares of its common stock, (ii) shares of its convertible
preferred stock
,
and
(iii) warrants to purchase shares of common (the “February
2018 Private Placements”). From April 30 to May 2, 2018, the
Company entered into separate purchase agreements with investors
pursuant to which it agreed to sell shares of its common stock and
convertible preferred stock
(the “May 2018 Private
Placements”)
. No financial advisor was used in
connection with the February 2018 Private Placements nor the May
2018 Private Placements.
The
securities issued in connection with the February 2018 Private
Placements and the May 2018 Private Placements were offered and
sold solely to accredited investors in reliance on the exemption
from registration afforded by Rule 506 of Regulation D and Section
4(a)(2) of the Securities Act. The Company entered into separate
registration rights agreements with each of the investors in the
February 2018 Private Placements and the May 2018 Private
Placements, pursuant to which the Company agreed to undertake to
file a registration statement to register the resale of the shares
of common stock and the shares of common stock underlying the
warrants and preferred stock. The Company also agreed to use
reasonable best efforts to cause such registration statement to be
declared effective and to maintain the effectiveness of the
registration statement until all of such shares of common stock
have been sold or are otherwise able to be sold pursuant to Rule
144 under the Securities Act, without any
restrictions.
February
2018 Private Placements
In
connection with the February 2018 Private Placements, the Company
sold (i) an aggregate of 555,557 shares of its common stock for an
aggregate purchase price of $1,250,000, or $2.25 per share, (ii)
5,000 shares of our newly designated 0%
Series M Convertible Preferred Stock
(the “Series M Preferred Stock”) for an aggregate
purchase price of $1,500,000, or $300.00 per share,
and
(iii) warrants to purchase up to an aggregate of 855,561 shares of
common stock each with an exercise price of $2.70 per share. The
net proceeds of the February 2018 Private Placements were
$2,700,000 after transaction costs of $50,000.
May
2018 Private Placements
In
connection with the May 2018 Private Placements, the Company agreed
to sell (i) 218,182 shares of common stock at an aggregate purchase
price of $240,000, or $1.10 per share, and (ii) 5,363.64 shares of
newly designated 0%
Series
N Convertible Preferred Stock (the “Series N Preferred
Stock”) at an aggregate purchase price of $590,000, or
$110.00 per share
. The following investors in the May 2018
Private Placements
also
invested in the February 2018 Private Placements (the “Prior
Investors”):
GRQ Consultants Inc., Roth 401K FBO
Renee Honig; GRQ Consultants Inc., Roth 401K FBO Barry Honig;
Melechdavid, Inc.; Grander Holdings Inc. 401K; Robert S. Colman
Trust UDT 3/13/85; Ben Brauser; Joshua A. Brauser; Daniel A.
Brauser; Gregory Aaron Brauser; Erick E. Richardson; and Ronald B.
Low.
Under
the terms of the May 2018 Private Placements, we were required to
offer an aggregate of 12,777.77 shares (the “May 2018
Inducement Shares”) of newly designated 0% Series O Preferred
Stock (the “Series O Preferred Stock”) to investors who
previously purchased securities in the February 2018 Private
Placements and who also purchased securities in the May 2018
Private Placements with an aggregate purchase price of at least 40%
of their investment amounts in the February 2018 Private
Placements. Based on the closing of the offering, and participation
of the Prior Investors who invested an aggregate of $830,000 (the
“May 2018 Inducement Investors”), the Company issued an
aggregate of 10,605.56 May 2018 Inducement Shares in the form of
Series O Preferred Stock convertible into an aggregate of 1,060,556
shares of common stock.
The
May 2018 Private Placements closed on May 15, 2018, with the
Company receiving gross proceeds totaling
$830,000
.
Plans
for Continuing to Fund the Company’s Losses from
Operations
We plan
to continue to fund the Company’s losses from operations and
capital funding needs through equity financings in the form of
common stock and preferred stock, licensing agreements, asset
sales, strategic collaborations, government grants, issuance of
common stock in lieu of cash for services, debt financings or other
arrangements. Further, to extend availability of existing cash
available for our programs for achieving milestones or a strategic
transaction, in mid-2017 we began reducing personnel from
twenty-five (25) full time employees to six (6) as of October 15,
2018, and reduced other operating expenses following the completion
of two (2) Phase 1a clinical trials of our lead antibody product
candidate, HuMab 5B1, which has enabled us to reduce our
expenditures on clinical trials. We plan to continue funding Phase
1 clinical trials of our product candidate MVT-5873 in cancer
patients, MVT-2163 as a diagnostic agent in pancreatic cancer
patients, and MVT-1075 as a radioimmunotherapy agent for the
treatment of various cancers, preclinical testing of follow-on
antibody candidates, investor and public relations, SEC compliance
efforts, and the general and administrative expenses associated
with each of these activities, and prepare for a Phase 1 clinical
trial of MVT-5873 in a potential new indication. We will also
support research efforts and continued Phase 1 clinical development
by MSK of our Positron-emission tomography (“PET”)
imaging agent MVT-2163 under an R01 Research Grant provided by the
National Institutes of Health (“NIH”) to MSK in April
2018, with the bulk of the costs of the research and clinical
development being borne by the NIH. Although we achieved two
strategic transactions in late June 2018 and early July 2018, there
can be no assurance that we will be able to achieve additional
license and or sales agreements and earn revenues large enough to
offset our operating expenses in the future, as discussed further
in Management’s Discussion and Analysis of Financial
Condition and Results of Operations of our Quarterly Report. We
cannot be sure that asset sales or licensing agreements can be
signed in a timely manner, if any, or that capital funding will be
available on reasonable terms, or at all. If we are unable to
secure significant asset sales or licensing agreements and adequate
additional funding, we may be forced to make additional reductions
in spending, incur further cutbacks in personnel, extend payment
terms with suppliers, liquidate assets where possible, suspend or
curtail planned programs and/or cease our operations entirely. In
addition, if the Company does not meet its payment obligations to
third parties as they come due, it may be subject to litigation
claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management.
We
anticipate the Company will continue to incur net losses into the
foreseeable future as we: (i) continue our clinical trial of
MVT-5873 in cancer patients, (ii) continue our clinical trial for
the development of MVT-1075 as a radioimmunotherapy, (iii) prepare
for a Phase 1 clinical trial of MVT-5873 for a new indication, to
be initiated in early 2019, and (iv) continue operations as a
public company. Based on receipt of $2.7 million net of transaction
costs in February 2018, an additional $830,000 from a financing in
May 2018, and receipt of $700,000 from an upfront payment under a
sublicense agreement with Y-mAbs Therapeutics, Inc.
(“Y-mAbs”) during the first six months of 2018; and
receipt of $4.0 million in gross proceeds from an asset purchase
and license agreement with Boehringer Ingelheim International GmbH
(“Boehringer Ingelheim”) in July 2018, as further
discussed in Note 12, Subsequent Events, and without any other
additional funding or receipt of payments from potential asset
sales or licensing agreements, we expect we will have sufficient
funds to meet our obligations until December 2018. These conditions
give rise to substantial doubt as to the Company’s ability to
continue as a going concern. Any of these actions could materially
harm the Company’s business, results of operations, and
prospects. The accompanying consolidated financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
If the
Company raises additional funds by issuing equity securities,
substantial dilution to existing stockholders could result. If the
Company raises additional funds by incurring debt financing, the
terms of the debt may involve significant cash payment obligations
as well as covenants and specific financial ratios that may
restrict the Company’s ability to operate its
business.
3. Cash and Cash Equivalents.
We
consider all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The
Company limits its exposure to credit loss by holding cash in U.S.
dollars or, from time to time, placing cash and investments in U.S.
government, agency and government-sponsored enterprise
obligations.
4. Fair Value of Financial Instruments.
Our
financial instruments consist of cash and cash equivalents and
accounts payable, all of which are generally considered to be
representative of their respective fair values because of the
short-term nature of those instruments.
5. Convertible Preferred Stock, Common Stock and
Warrants.
Dividends
on Preferred Stock
We
immediately recognize the changes in the redemption value on
preferred stock as they occur and the carrying value of the
security is adjusted to equal what the redemption amount would be
as if redemption were to occur at the end of the reporting date
based on the conditions that exist as of that date.
No
dividends have ever been declared by the Board of Directors of the
Company (the “Board of Directors”) since our inception
on any series of convertible preferred stock.
Overview of Preferred Stock & Beneficial Ownership
Blockers
All
issued and outstanding shares of the Company’s preferred
stock have a par value of $0.01 per share and rank prior to any
class or series of the Company’s common stock as to the
distribution of assets upon liquidation, dissolution or winding up
of the Company or as to the payment of dividends. The Company must
obtain the consent of a majority of the holders of each series of
preferred stock before taking any action that materially and
adversely affects the rights, preferences, or privileges of the
applicable series of preferred stock. Also, the holders of each
series of preferred stock are entitled to vote on any matter on
which the holders of common stock are entitled to vote.
Additionally, the Company must obtain the consent of the holders of
the Series E Preferred Stock, Series J Preferred Stock, Series L
Preferred Stock, and Series N Preferred Stock (as each of those
terms are defined below) prior to increasing or decreasing (other
than by conversion) the authorized number of the applicable series
of preferred stock or issuing any additional shares of the
applicable series of preferred stock.
Generally, the same investors participated in each
of the Company’s preferred stock offerings such that the same
investors own most of the shares of each series of the
Company’s issued and outstanding preferred stock. Pursuant to
terms negotiated in connection with the Company’s sales of
preferred stock,
the
certificates of designation for the Company’s preferred stock
each include a 4.99% and/or 9.99% beneficial ownership conversion
blocker. These conversion blockers may be decreased or increased,
at the option of each holder, to a percentage not to exceed 9.99%
upon written notice to the Company, as further specified in the
applicable certificate of designation. The certificate of
designation for our S
eries N Preferred Stock
includes a 19.99% blocker provision
applicable until
stockholders approve issuances of common
stock in excess of such amount.
The
stated values, as applicable, and conversion prices of our
preferred stock are subject to adjustment in the event of stock
splits, stock dividends, combination of shares and similar
recapitalization transactions. The Company’s ability to
administer the blockers according to their terms depends on group
determinations and accurate reporting by outside investors with
respect to their own beneficial ownership.
Series
D Preferred Stock
As of
March 31, 2018 and December 31, 2017, there were 44,104 shares of
Series D Convertible Preferred Stock (“Series D Preferred
Stock”) issued and outstanding, and convertible into an
aggregate of 198,667 shares of common stock.
As of March 31, 2018, each one share of Series D
Preferred Stock is convertible into
4.5045
shares of Common Stock.
Series
E Preferred Stock
As of
March 31, 2018 and December 31, 2017, there were 33,333 shares of
Series E Convertible Preferred Stock (“Series E Preferred
Stock”) issued and outstanding, and convertible into 173,249
shares of common stock.
The
shares of Series E Preferred Stock are
convertible into shares of common stock based on a conversion
calculation equal to the stated value of such preferred share ($75
per share), plus all accrued and unpaid dividends, if any, on such
share of Series E Preferred Stock, as of such date of
determination, divided by the conversion price $14.43 per
share.
Series
I Preferred Stock
As of March 31,
2018 and December 31, 2017, there were 645,640 and 798,460 shares
of our Series I Preferred Stock issued and outstanding, and
convertible into 215,214 and 266,154 shares of our common stock,
respectively. During the three months ended March 31, 2018, 152,820
shares of Series I Preferred Stock were converted by Grander
Holdings, Inc. 401K into 50,940 shares of common
stock.
The Series I Preferred Stock has a stated value of
$0.01 per share. Each one share of Series I Preferred Stock is
convertible into
one-third share of common stock
.
Series
J Preferred Stock
As of
March 31, 2018 and December 31, 2017, there were 772.73 shares of
our Series J Convertible Preferred Stock (“Series J Preferred
Stock”) issued and outstanding and convertible into 386,365
shares of our common stock.
T
he shares of Series J Preferred Stock are
convertible into shares of common stock based on a conversion
calculation equal to the stated value of the Series J Preferred
Stock ($550), plus all accrued and unpaid dividends, if any, on
such Series J Preferred Stock, as of such date of determination,
divided by the conversion price ($1.10). If we issue or sell common
stock, or common equivalent shares, for consideration per share
that is less than the conversion price in effect immediately prior
to the issuance, then the conversion price in effect immediately
prior to such issuance will be adjusted to the lower issuance
price, but not be less than $0.10.
Series
K Preferred Stock
As of
March 31, 2018 and December 31, 2017, there were 63,150 shares of
our Series K convertible preferred stock (“Series K Preferred
Stock”) issued and outstanding, and convertible into
2,105,000 of our common stock.
The
shares of Series K Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series K Preferred Stock ($0.01) divided by the
conversion price ($0.0003).
Series
L Preferred Stock
As of March 31,
2018, and December 31, 2017, there were 45,500 and 58,000 shares of
our Series L Preferred Stock issued and outstanding, and
convertible into 2,527,778 and 3,222,223 shares of our common
stock, respectively. During the three months ended March 31, 2018,
12,500 shares of Series L Preferred Stock were converted into
694,445 shares of common stock by GRQ Consultants, Inc. Roth 401K
FBO Renee Honig Trustee, and HS Contrarian Investments,
LLC.
The
shares of Series L Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series L Preferred Stock ($100), plus all accrued and
unpaid dividends, if any, on such Series L Preferred Stock, as of
such date of determination, divided by the conversion price
($1.80).
Series
M Preferred Stock
As of
March 31, 2018 and December 31, 2017, there were 5,000 and no
shares of our Series M Preferred Stock issued and outstanding, and
convertible into 666,667 and no shares of our common stock,
respectively.
The
shares of Series M Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series M Preferred Stock ($300), plus all accrued and
unpaid dividends, if any, on such Series M Preferred Stock, as of
such date of determination, divided by the conversion price
($2.25).
Warrants
Issued in Connection with February 2018 Private
Placements
The warrants
issued in the February 2018 Private Placements (the “February
2018 Warrants”) are exercisable, at any time on or after the
sixth month anniversary of the closing date, at a price of $2.70
per share, subject to adjustment, and expire three years from the
initial exercise date. The holders of the February 2018 Warrants
may, subject to certain limitations, exercise the February 2018
Warrants on a cashless basis if the shares of common stock issuable
upon exercise of the February 2018 Warrants are not registered for
resale under the Securities Act within four (4) months of issuance,
or between June 2 and June 10, 2018. The Company is prohibited from
effecting an exercise of any February 2018 Warrants to the extent
that, as a result of any such exercise, the holder would
beneficially own more than 9.99% of the number of shares of common
stock outstanding immediately after giving effect to the issuance
of shares of common stock upon exercise of such February 2018
Warrants. The February 2018 Warrants are not listed or quoted on
any securities exchange or other trading market.
Warrants
Issued in Connection with October 2015 Public Offering
As of
March 31, 2018, and December 31, 2017, warrants to purchase 56,306
shares of common stock previously issued in connection with our
public offering closing on October 5, 2015 (the “October 2015
Warrants”) were outstanding. The October 2015 Warrants, which
had an exercise price of $29.31 per share, expired on September 30,
2018
.
Consultant Grants
On
February 10, 2017, the Company entered into a consulting agreement
with MDM Worldwide, pursuant to which MDM Worldwide agreed to
provide investor relations services to the Company in consideration
for an immediate grant of 6,667 shares of the Company’s
common stock and a monthly cash retainer of $10,000 a month for
ongoing services for a period of one year. The shares granted were
fully vested upon grant and the Company recognized the grant date
fair value of the shares of $56,600 as investor relations expense
upon grant during the first quarter of 2017. The services with MDM
Worldwide, which the Company was required to purchase by some
investors in connection with prior financings of the Company, were
terminated effective June 1, 2018.
On
March 7, 2017, the Company entered into a consulting agreement with
Jenene Thomas Communications, pursuant to which Jenene Thomas
Communications agreed to provide investor relations services to the
Company. In consideration for these services, which began on April
1, 2017, we paid a monthly cash retainer of $12,500. Additionally,
we issued 6,667 restricted shares of common stock on April 1, 2017,
to be vested at 1,667 per quarter over the four quarters of
services under the agreement beginning April 1, 2017. The shares
granted were vested over a one-year period over which the services
were performed and, as such, were amortized over the same period
beginning in April 1, 2017. The services with Jenene Thomas
Communications terminated effective June 1, 2018.
6. Notes Payable.
Loan
and Security Agreement with Oxford Finance, LLC
On
January 15, 2016, we entered into a loan and security agreement
with Oxford Finance, LLC (“Oxford Finance”) pursuant to
which we had the option to borrow $10,000,000 in two equal tranches
of $5,000,000 each (the “Loan Agreement”). The first
tranche of $5,000,000 was funded at close on January 15, 2016 (the
“Term A Loans”). The option to fund the second tranche
of $5,000,000 (the “Term B Loans”) was exercisable upon
the Company achieving positive interim data on the Phase 1
HuMab-5B1 antibody trial in pancreatic cancer and successfully
uplisting to either the Nasdaq Stock Market or NYSE MKT on or
before September 30, 2016. The option for the Term B Loans expired
unexercised on September 30, 2016. The interest rate for the Term A
Loans is set on a monthly basis at the index rate plus 11.29%,
where the index rate is the greater of the 30-day LIBOR rate or
0.21%. Interest is due on the first day of each month, in arrears,
calculated based on a 360-day year. The Term A Loans were interest
only for the first year after funding, and the principal amount of
the loan is amortized in equal principal payments, plus period
interest, over the next 36 months. A facility fee of 1.0% or
$100,000 was due at closing of the transaction and was earned and
paid by the Company on January 15, 2016. The Company is obligated
to pay a $150,000 final payment upon completion of the term of the
Term A Loans, and this amount is being accreted using the effective
interest rate method over the term of the loans. The Term A Loans
can be prepaid subject to a graduated prepayment fee, depending on
the timing of the prepayment.
Concurrent with the
execution of the Loan Agreement, the Company issued warrants to
purchase up to 75,075 shares of common stock to Oxford Finance with
an exercise price of $16.65 per share. The warrants were
immediately exercisable, may be exercised on a cashless basis and
expire on January 15, 2021. The Company recorded $607,338 for the
fair value of the warrants as a debt discount within notes payable
and an increase to additional paid-in capital on the
Company’s balance sheet. We used the Black-Scholes-Merton
valuation method to calculate the value of the warrants. The debt
discount is being amortized as interest expense over the term of
the loan using the effective interest method.
We
granted Oxford Finance a perfected first priority lien on all of
the Company’s assets with a negative pledge on IP. The
Company paid Oxford Finance a good faith deposit of $50,000, which
was applied towards the facility fee at closing. The Company agreed
to pay all costs, fees and expenses incurred by Oxford Finance in
the initiation and administration of the facilities including the
cost of loan documentation.
At the
initial funding on January 15, 2016, the Company received net
proceeds from the Term A Loans of approximately $4,610,000 after
fees and expenses. These fees and expenses are being accounted for
as a debt discount and classified within notes payable on the
Company’s condensed consolidated balance sheet. The Company's
transaction costs of approximately $390,000 are presented in the
condensed consolidated balance sheet as a direct deduction from the
carrying amount of the notes payable, consistent with debt
discounts. Debt discounts, issuance costs and the final payment are
being amortized or accreted as interest expense over the term of
the loan using the effective interest method.
The
Loan Agreement also contains customary indemnification obligations
and customary events of default, including, among other things, our
failure to fulfill certain of the Company's obligations under the
Loan Agreement, the occurrence of a material adverse change, which
is defined as a material adverse change in the Company's business,
operations, or condition (financial or otherwise), a material
impairment of the prospect of repayment of any portion of the loan,
or a material impairment in the perfection or priority of Oxford
Finance’s lien in the collateral or in the value of such
collateral. In the event of default by the Company under the
Loan Agreement, Oxford Finance would be entitled to exercise their
remedies thereunder, including the right to accelerate payment of
the debt, upon which we may be required to repay all amounts then
outstanding under the Loan Agreement, which could harm the
Company's financial condition.
First
Amendment to Loan and Security Agreement
On
March 31, 2017, we and Oxford Finance signed the First Amendment to
Loan and Security Agreement providing that the payment of principal
on the Term A Loans that otherwise would have been due on the March
1, 2017 will be due and payable on May 1, 2017 along with any other
payment of principal due on May 1, 2017. We were obligated to pay a
fully earned and non-refundable amendment fee of $15,000 to the
Collateral Agent (as defined in the Loan Agreement). On May 1,
2017, we paid the principal due on May 1, 2017, along with the
$15,000 amendment fee.
Second
Amendment to Loan and Security Agreement
On July
3, 2018, we and Oxford Finance signed the Second Amendment to Loan
and Security Agreement whereby Oxford Finance has (i) consented to
the Company’s license and sale to Boehringer Ingelheim of
certain preclinical assets (the “Acquired Assets”) and
release of any encumbrances under the Loan Agreement that relate to
the Acquired Assets, (ii) payments of advisory fees to Greenhill
& Company of $385,000 over the course of six months in equal
monthly payments, and (iii) deferred principal payments under the
Loan Agreement for six months starting with the July 2018 payment,
in exchange for the Company granting such additional collateral
that was not pledged previously or in which security interest was
not granted prior to the Second Amendment. We are obligated to pay
a fully earned and non-refundable amendment fee of $5,000 to Oxford
Finance, which shall become due and payable upon the earlier of:
(i) the maturity date of the term loans, (ii) the acceleration of
any term loan, or (iii) the prepayment of the term loans pursuant
to the Loan Agreement.
Notice
of Events of Default under Loan and Security Agreement
The
Company was in compliance with all applicable covenants set forth
in the Loan Agreement as of March 31, 2018. However, on August
14, 2018, the Company received a letter from Oxford Finance (the
“Notice”) asserting certain events of default under the
Loan Agreement had occurred as a result of certain events the
Company reported as having occurred, including, without limitation,
(i) the resignation of the Company’s external auditor,
CohnReznick
LLP
(“CohnReznick”), effective August 3, 2018, and its
withdrawal of its audit reports for the years 2014 through 2017,
(ii) the resignation of four (4) members of the Board of Directors,
effective as of July 31, 2018, and (iii) the delisting of the
Company’s common stock from The Nasdaq Stock Market LLC on
July 11, 2018 (collectively, the “Alleged Default
Events”). The Company informed Oxford Finance that it
disputes the Alleged Default Events, individually or collectively,
constitute a “Material Adverse Change” or other event
of default under the Loan Agreement. In addition, the Company
already engaged a new auditor, Haskell & White LLP, effective
August 22, 2018, and on September 20, 2018, the Court ratified the
Delaware Petition. The Company also intends to apply for listing on
the OTCQB Venture Marketplace (the “OTCQB Marketplace”)
once it meets the requisite eligibility requirements, which are
subject to appointing at least one independent member to the Board
of Directors, with the second independent member to be appointed to
the Board of Directors within 30 days of uplisting to the OTCQB
Marketplace.
The
Company recorded interest expense related to the Loan Agreement of
$114,593 and $156,657 for the three months ended March 31, 2018 and
March 31, 2017, respectively. The annual effective interest rate on
the note payable, including the amortization of the debt discounts
and accretion of the final payment, but excluding the warrant
amortization, was approximately 10.4% and 13.5% as of March 31,
2018 and 2017, respectively.
Future
principal payments under notes payable for the Loan Agreement as of
March 31, 2018 are as follows:
Years
ending December 31:
|
|
2018
(remaining)
|
$
1,253,832
|
2019
|
1,666,668
|
2020
|
277,778
|
Notes
payable, balance as of March 31, 2018
|
3,198,278
|
Unamortized
discount on notes payable
|
(251,413
)
|
Notes
payable, net, balance as of March 31, 2018
|
2,946,865
|
Current
portion of notes payable, net
|
(1,670,501
)
|
Long-term
portion of notes payable, net
|
$
1,276,364
|
7. Related Party Transactions
On April 1, 2016,
the Company entered into a two-year consulting agreement with
Jeffrey Ravetch, M.D., Ph.D., a member of the Board of Directors at
that time, for work beginning January 1, 2016 through December 31,
2017, at a rate of $100,000 a year, in support of scientific and
technical advice on the discovery and development of technology and
products for the Company primarily related to monoclonal
antibodies, corporate development, and corporate partnering
efforts. In April 2016, the Company paid Dr. Ravetch $100,000 for
services to be performed in 2016, and made quarterly payments
thereafter beginning January 1, 2017. On February 16, 2018, the
Company extended Dr. Ravetch’s consulting agreement until
February 16, 2019, with services to be provided, as may be needed
by the Company. During the three months ended March 31, 2018, Dr.
Ravetch provided no consulting services related to this agreement
and no payments were made. During the three months ended March 31,
2017, the Company recorded $25,000 in consulting expenses as part
of general and administration expenses related to this
agreement.
On November 3,
2016, the Company granted 5,833 stock options to Jeffrey Ravetch,
M.D., Ph.D., for his ongoing consulting services to the Company.
The option award vests over a three-year period.
During the three months ended March 31, 2018 and
2017, the Company recognized $3,816 and $3,826, respectively, of
stock-based compensation expense, as part of general and
administration expenses, related to this option
grant.
On May 19, 2017, the Company granted each
director, other than J. David Hansen, Jeffrey Ravetch (a
member of the Board of Directors at
the time) and Philip Livingston, 16,667 options at a market price
of $5.40, with
immediate
vesting for their continuing service to the Company, in exchange
for giving up their director fees for the
remainder of the year. J. David Hansen and
Jeffrey Ravetch were each granted 166,667 options and Philip
Livingston was granted 16,667 options
each at an exercise price of $6.00 per share with immediate vesting
and no
performance
obligations. Options granted to J. David Hansen and Philip
Livingston were granted as a condition of
the May 2017 financing transaction. The 150,000
options granted to Dr. Ravetch in addition to the 16,667
options
granted to other
non-employee members of the Company’s Board of Directors were
in recognition of the additional
value provided by Dr. Ravetch as a scientific
expert. Because of the immediate vesting and all of the
expenses
recorded in 2017, no
expenses are being recorded for these grants in
2018.
8. Stock-based Activity
Stock-based Compensation
We
measure stock-based compensation expense for equity-classified
awards, principally related to stock options and restricted stock
units (“RSUs”) based on the estimated fair value of the
award on the date of grant. We recognize the value of the portion
of the award that we ultimately expect to vest as stock-based
compensation expense over the requisite service period in our
condensed consolidated statements of operations.
We
use the Black-Scholes model to estimate the fair value of stock
options granted. The expected term of stock options granted
represents the period of time that we expect them to be
outstanding. For the three months ended March 31, 2018 and 2017,
the following valuation assumptions were used:
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
Risk-free interest rate
|
|
2.38%
|
|
1.5 to 2.0%
|
|
|
|
0%
|
|
0%
|
|
Expected volatility
|
|
87%
|
|
85 to
73%
|
|
Expected life of options, in years
|
|
1.72 to 5.5
|
1.4 to 6.0
|
|
Weighted average grant date fair value
|
|
$
|
1.46
|
$
|
2.20
|
|
Total estimated stock-based compensation expense,
related to all the Company’s stock-based payment awards
recognized under ASC 718,
“Compensation—Stock
Compensation”
was
comprised of the following:
|
Three Months Ended
March 31,
|
|
|
|
Research
and development
|
$
171,160
|
$
320,675
|
General
and administrative
|
453,447
|
712,136
|
Total
stock-based compensation expense
|
$
624,607
|
$
1,032,811
|
Stock-based Award Activity
The
following table summarizes the Company’s stock option
activity during the three months ended March 31, 2018:
|
|
Weighted-Average
Exercise Price
|
Outstanding
at December 31, 2017
|
953,937
|
$
13.97
|
Granted
|
1,126,000
|
2.04
|
Exercised
|
—
|
—
|
Forfeited/cancelled/expired
|
(2,736
)
|
32.28
|
Outstanding
and expected to vest at March 31, 2018
|
2,077,201
|
$
7.48
|
Vested
and exercisable at March 31, 2018
|
713,336
|
$
12.75
|
The
total unrecognized compensation cost related to unvested stock
option grants as of March 31, 2018, was $1,411,061 and the weighted
average period over which these grants are expected to vest is 1.72
years. The weighted average remaining contractual life of stock
options outstanding at March 31, 2018 and 2017 is 9.33 and 9.15
years, respectively.
During
the first three months of 2018, the Company granted 1,126,000
options to officers and employees with a weighted average exercise
price of $2.04 and vesting over a three-year period with a vesting
starting at the one- year anniversary date of the grant date.
During the first three months of 2017, the Company
granted 746,690 options to officers and employees with a weighted
average exercise price of $3.09 and vesting over a three-year
period with vesting starting at the one-year anniversary of the
grant date.
Stock
options granted to employees generally vest over a three-year
period with one third of the grants vesting at each one-year
anniversary of the grant date.
Because
the Company had a net operating loss carryforward as of March 31,
2018, no tax benefits for the tax deductions related to stock-based
compensation expense were recognized in the Company’s
condensed consolidated statements of operations. Additionally, no
stock options were exercised in the three months ended March 31,
2018 and 2017.
A
summary of activity related to restricted stock grants under the
Fifth Amended and Restated MabVax Therapeutics Holdings, Inc. 2014
Employee, Director and Consultant Equity Incentive Plan for the
quarter ended March 31, 2018 is presented below:
|
|
Weighted Average
Grant-Date
Fair Value
|
Non-vested
at December 31, 2017
|
832,226
|
$
3.88
|
Granted
|
—
|
—
|
Vested
|
(797,987
)
|
1.87
|
Forfeited
|
—
|
—
|
Non-vested
at March 31, 2018
|
34,239
|
$
50.54
|
As
of March 31, 2018, there were 34,329 non-vested RSUs remaining
outstanding.
As
of March 31, 2018, unamortized compensation expense related to RSUs
granted in 2016 amounted to $9,903, which is expected to be
recognized over a weighted average period of 0.04 of a
year.
Management Bonus Plan
On
February 21, 2018, the compensation committee of the Board of
Directors reviewed 2017 results and concluded that the year’s
performance, relative to the objectives set at the beginning of the
year, did not merit any bonus payment. The compensation committee
also determined that management base salaries would currently
remain unchanged from 2017 levels.
Common stock reserved for future issuance
Common
stock reserved for future issuance consists of the following at
March 31, 2018:
Common
stock reserved for conversion of preferred stock
|
6,144,154
|
Warrants
to purchase common stock
|
1,278,243
|
Common
stock options outstanding
|
398,259
|
Authorized
for future grant or issuance under the Stock Plan
|
398,217
|
Unvested
restricted stock
|
34,239
|
Total
|
8,253,112
|
9. Net Loss per Share
The
Company calculates basic and diluted net loss per share using the
weighted-average number of shares of common stock outstanding
during the period.
When
the Company is in a net loss position, it excludes from the
calculation of diluted net loss per share all potentially dilutive
stock options, preferred stock and warrants, and the diluted net
loss per share is the same as the basic net loss per share for such
periods. If the Company was to be in a net income position, the
weighted average number of shares used to calculate the diluted net
income per share would include the potential dilutive effect of
in-the-money securities, as determined using the treasury stock
method.
The
table below presents the potentially dilutive securities that would
have been included in the calculation of diluted net loss per share
if they were not antidilutive for the periods
presented.
|
Three Months Ended March 31,
|
|
|
|
Common
stock reserved for conversion of preferred stock
|
6,144,154
|
991,808
|
Warrants
to purchase common stock
|
1,278,243
|
1,708,048
|
Common
stock options outstanding
|
398,259
|
532,689
|
Unvested
restricted stock
|
34,239
|
68,493
|
Total
|
7,854,895
|
3,301,038
|
10. Contracts and Agreements
May
2017 Letter Agreement
On May
15, 2017, as a condition to the participation of HS Contrarian
Investments, LLC (“HS Contrarian”) in the public
offering of the Company’s common stock and Series G Preferred
Stock in May 2017 (the “May 2017 Public Offering”), the
Company entered into a Letter Agreement with HS Contrarian (the
“May 2017 Letter Agreement”) where the Company agreed
to offer incentive shares (the “May 2017 Inducement
Shares”) to investors who (i) participated in both the
Company’s August 2016 public offering and the Company’s
April 2015 private offering, (ii) purchased securities in the May
2017 Public Offering equal to at least 50% of their original
investment in the August 2016 public offering or 25% of their
original investment in the April 2015 private offering, and (iii)
still hold 100% of their common stock or preferred stock purchased
in those investments.
Further, the
Company agreed to the following in the May 2017 Letter
Agreement:
Board
Nomination:
|
|
To
nominate one (1) candidate to the Board of Directors acceptable to
the holder of a majority of the Series G Preferred Stock by
December 31, 2017, and that (2) two current Board members would
resign.
|
Executive
Hire:
|
|
To hire
a new C-level executive in a leadership role by July 15,
2017.
|
Board
Compensation:
|
|
To
issue an aggregate of 350,000 options to certain employees and
members of the Board of Directors, at a price not less than $6.00
per share, and 16,667 options to each other member of the Board of
Directors at the current market price in connection with this
offering. The options were issued pursuant to the Company’s
option plan, subject to the requisite approvals and availability
under the plan. The company was responsible for obtaining the
approval of the Board of Directors and stockholders of the Company
to the extent the company needed their approval to increase the
number of shares available under the plan. All Board of Director
fees were waived for 2017.
|
Funds
Held in Escrow:
|
|
$500,000
of the funds from the May 2017 Public Offering were to be held in
escrow and released to one or more investor relations services
acceptable to the Company following the closing of this
offering.
|
Additionally, we
granted HS Contrarian consent rights: the right to approve future
(i) issuances of our securities, (ii) equity or debt financings and
(iii) sales of any development product assets currently held by us,
subject to certain exceptions, if such securities are sold at a
price below $7.50 per share and for as long as
HS
Contrarian
in the offering holds 50% or more of the shares
of Series G Preferred Stock purchased by
HS
Contrarian
in the May 2017 Public Offering (the
“Consent Rights”). All other prior consent rights of
HS
Contrarian
were superseded by these consent rights. As of
March 31, 2018, none of the shares of Series G Preferred Stock is
outstanding. Thus,
HS
Contrarian
no longer holds the Consent Rights.
For the
period from the May 2017 Public Offering to December 31, 2017, the
Company exceeded the minimum $500,000 in expenses related to
outside investor relations services fulfilling the Company’s
obligation for spending on investor relations.
HS
Contrarian
elected not to hold the funds in escrow. Further,
the Company issued the May 2017 Inducement Shares and adjusted the
Board of Directors compensation per the May 2017 Letter Agreement.
Also, two members of the Board of Directors resigned during 2017,
achieving one of the conditions of
HS
Contrarian
. The Company did not nominate a new member to
the Board of Directors, nor did it hire a new C-level executive in
light of limited amount of cash available to the
Company.
Letter
Agreement Regarding Future Financing Transactions
On
August 9, 2017, in connection with an offering in the aggregate
amount of $1,312,500 in which the Company sold shares of its Series
J Preferred Stock (the “August 2017 Offering”), we
entered into a Letter Agreement with HS Contrarian (the
“August 2017 Letter Agreement”), whereby HS Contrarian
consented to and agreed that, the Company may sell securities to
the investors set forth below, of an aggregate amount of up to
$2,350,000, and the Company would issue incentive shares in the
form of newly designated shares of Series K Preferred Stock
convertible into an aggregate of 2,166,667 shares of common stock
to be distributed to the following individuals or entities, as
directed by HS Contrarian, as an incentive (the “Inducement
Shares”) for HS Contrarian and these entities and individuals
to invest in the August 2017 Offering.
HS
Contrarian Investments, LLC
|
GRQ
Consultants, Inc. Roth 401K FBO Barry Honig Trustee
|
GRQ
Consultants, Inc. Roth 401K FBO Renee Honig Trustee
|
Grander
Holdings, Inc. 401K
|
Robert
B. Prag
|
David
Moss
|
Paradox
Capital Partners, LLC
|
Melechdavid,
Inc.
|
Melechdavid, Inc.
Retirement Plan
|
Robert
S. Colman Trust UDT 3/13/85
|
Sargeant Capital
Ventures, LLC
|
Edward
W. Easton TTEE The Easton Group ORP PSP U/A DTD
02/09/2000
|
Donald
E. Garlikov
|
Airy
Properties
|
Ryan
O'Rourke
|
Corey
Patrick O'Rourke
|
In addition, the Company agreed to the following in the August 2017
Letter Agreement:
●
To file a proxy statement for a special meeting of stockholders
within 10 days of closing the
August 2017 Offering.
Proposals were to include (i) an amendment to the Company’s
Certificate of Incorporation to effect a reverse stock split of its
issued and outstanding common stock by a ratio of not less than
one-for-two and not more than one-for-twenty at any time prior to
one year from the date of the special meeting, with the exact ratio
to be set at a whole number within this range as determined by the
Board of Directors, (ii) the issuance of securities in one or more
non-public offerings where the maximum discount at which securities
will be offered will be equivalent to a discount of 30% below the
market price of the common stock, as required by and in accordance
with Nasdaq Marketplace Rule 5635(d), (iii) the issuance of
securities in one or more non-public offerings where the maximum
discount at which securities will be offered will be equivalent to
a discount of 20% below the market price of the Common Stock, as
required by and in accordance with Nasdaq Marketplace Rule 5635(d),
(iv) the issuance of common stock upon the conversion of Series J
Preferred Stock and (v) the issuance of
incentive shares in the form of shares of Series K
Preferred Stock convertible into an aggregate of 2,166,667 shares
of common stock
.
●
Subject
to agreement on terms and conditions of the investment, HS
Contrarian committed to a $1,000,000 lead order in an offering
amount of $8,000,000 (the “$8,000,000 Financing”). The
$8,000,000 Financing was subject to the Company obtaining approval
of a reverse stock split, issuance of the Series J Preferred Stock,
and filing a proxy statement for stockholder approval of the
Inducement Shares as identified in the August 2017 Letter
Agreement.
●
That
the
employment terms of all
management be reduced to two years from three years and that
management defer portions of their salary for the remainder of the
year, which would be paid upon the earlier of completion of the
$8,000,000 Financing or a business transaction that represents, or
transactions in the aggregate that represent, in excess of
$10,000,000.
In connection with
HS Contrarian’s and the Company’s obligations under the
August 2017 Letter Agreement, neither the $8,000,000 Financing nor
the change in employment terms from three years to two years were
completed as of October 15, 2018.
Memorial Sloan Kettering Cancer Center
Since 2008 the Company has engaged in various
research agreements and collaborations with MSK including licensed
rights to cancer vaccines and the blood samples from patients who
have been vaccinated with MSK’s cancer vaccines. Total
sponsored research contracts outstanding in 2016 amounting to
approximately $800,000 in 2016 were 100% complete as of the year
ended December 31, 2016. Such sponsored research agreements provide
support for preclinical work on the Company’s product
development programs. The work includes preparing
radioimmunoconjugates of the Company’s antibodies and
performing
in vitro
and
in vivo
pharmacology studies for our therapeutic antibody
product candidate, imaging agent product candidate and
radioimmunotherapy product candidate programs. For the three months
ended March 31, 2018, there were no expenses incurred related to
these contracts.
Patheon
Biologics LLC Agreement
On
April 14, 2014, the Company entered into a development and
manufacturing services agreement with Patheon Biologics LLC (f.k.a.
Gallus Biopharmaceuticals) to provide a full range of manufacturing
and bioprocessing services, including cell line development,
process development, protein production, cell culture, protein
purification, bio-analytical chemistry and QC
testing. Total amount of the contract is estimated at
approximately $3.0 million. For the three months ended
March 31, 2018 and 2017, the Company recorded no expenses
associated with the agreement, as no manufacturing was completed
during either period.
11. Commitments and Contingencies
Capital Leases
On
March 21, 2016, the Company entered into a lease agreement with
ThermoFisher Scientific (“Lessor”). Under
the terms of the agreement, the Company agreed to lease two pieces
of equipment from the Lessor, a liquid chromatography system and an
incubator, totaling in cost of $95,656. The term of the
lease is five years (60 months), and the monthly lease payment is
$1,942. In addition, there is a $1.00 buyout option at the end of
the lease term.
Minimum
future annual capital lease obligations are as follows as of
March 31, 2018:
2018
(remaining)
|
$
14,935
|
2019
|
22,402
|
2020
|
22,402
|
2021
|
7,468
|
Less
interest
|
(7,856
)
|
Principal
|
59,351
|
Less
current portion
|
(18,180
)
|
Noncurrent
portion
|
$
41,171
|
Operating Leases
In
2015, the Company recorded a $590,504 contingent lease termination
fee of the master lease and sublease of 3165 Porter Drive in Palo
Alto, California, which was payable to ARE-San Francisco No. 24
(“ARE”), if the Company received $15 million or more in
additional financing in the aggregate. The additional financing was
achieved in 2015 and the termination fee is reflected on the
condensed consolidated balance sheet as an accrued lease
contingency fee.
On September 2, 2015,
the Company
entered into a lease (the
“Lease”) with AGP Sorrento Business Complex, L.P., for
certain premises of office and laboratory space in buildings
located at 11535 Sorrento Valley Rd., San Diego, California, to
serve as the Company’s corporate offices and laboratories
(the “New Premises”). Because certain tenant
improvements needed to be made to the New Premises before the
Company could take occupancy, the term of the Lease did not
commence until the New Premises were ready for occupancy, which was
on February 4, 2016. The Lease terminates on February
28, 2022, unless earlier terminated in accordance with the Lease.
Pursuant to the terms of the Lease, the monthly base rent is
$35,631, subject to annual increases as set forth in the
Lease.
The
Company has an option to extend the Lease term for a single,
five-year period. If the Lease term is extended for the
optional five-year period, the monthly base rent will be adjusted
based on fair market rental value. In addition to rent,
the Company agreed to pay a portion of the taxes and utility,
maintenance and other operating costs paid or accrued in connection
with the ownership and operation of the property.
The
Company recognized rent expense on a straight-line basis over the
term of the lease. Rent expense was $111,201 and $115,238 during
the quarters ended March 31, 2018 and 2017,
respectively.
Minimum
future annual operating lease obligations are as follows as of
March 31, 2018:
2018
(remaining)
|
$
340,208
|
2019
|
466,085
|
2020
|
480,068
|
2021
|
494,470
|
2022
|
41,306
|
Total
|
$
1,822,137
|
12. Subsequent Events
May 2018 Private Placements
In
connection with the May 2018 Private Placements, the Company
entered into separate purchase agreements with accredited investors
between April 30 and May 2, 2018, pursuant to which we agreed to
sell (i) 218,182 shares of common stock at an aggregate purchase
price of $240,000, or $1.10 per share, and (ii) 5,363.64 shares of
Series N Preferred Stock at an aggregate purchase price of
$590,000, or $110.00 per share. The offering closed on May 15,
2018, with the Company receiving gross proceeds totaling $830,000.
No financial advisor was used in connection with the May 2018
Private Placements.
Under
the terms of the May 2018 Private Placements, we were required to
offer an aggregate of 12,777.77 May 2018 Inducement Shares to
investors who previously purchased securities in the February 2018
Private Placements and who also purchased securities in the May
2018 Private Placements with an aggregate purchase price of at
least 40% of their investment amounts in the February 2018 Private
Placements. Based on the closing of the offering, and participation
of the May 2018 Inducement Investors that in the aggregate amounted
to $830,000, the Company issued an aggregate of 10,605.56 May 2018
Inducement Shares in the form of Series O Preferred Stock
convertible into an aggregate of 1,060,556 shares of common
stock.
Amendments
to Articles of Incorporation or Bylaws
Certificate of
Designations, Preferences and Rights of the 0% Series N Convertible
Preferred Stock –
On April 30, 2018, the
Company filed a Certificate of Designations, Preferences and Rights
of the 0% Series N Convertible Preferred Stock (the “Series N
Certificate of Designation”) with the Secretary of State of
the State of Delaware, designating 20,000 shares of preferred stock
as Series N Preferred Stock.
The
shares of Series N Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series N Preferred Stock, plus all accrued and unpaid
dividends, if any, on such Series N Preferred Stock, as of such
date of determination, divided by the conversion price. The stated
value of each share of Series N Preferred Stock is $110 and the
initial conversion price is $1.10 per share, each subject to
adjustment for stock splits, stock dividends, recapitalizations,
combinations, subdivisions or other similar events.
The Series N
Certificate of Designation includes a 4.9% beneficial ownership
conversion blocker, a 19.99% blocker provision until
stockholders have approved any or all
shares of common stock issuable upon conversion of the Series N
Preferred Stock, and price protection for so long as the holder
owns the Series N Preferred Stock. All shares of the
Company’s capital stock will be junior in rank to the Series
N Preferred Stock, with respect to the preferences as to dividends,
distributions and payments upon the liquidation, dissolution and
winding-up of the Company, except for the Company’s Series D
Preferred Stock, Series E Preferred Stock, Series I Preferred
Stock, Series J Preferred Stock, Series K Preferred Stock, Series L
Preferred Stock and Series M Preferred Stock.
In the event of liquidation, the holders of Series
N Preferred Stock shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings
available for distribution to its shareholders (the
“Liquidation Funds”), before any amount shall be paid
to the holders of any of shares of capital stock, an amount per
Series N Preferred Share equal to the greater of (a) the par value
thereof on the date of such payment, and (b) the amount per share
such holder would receive if such holder converted such Series N
Preferred Stock into common stock immediately prior to the date of
such payment; provided, however, that, if the Liquidation Funds are
insufficient to pay the full amount due to the holders and holders
of shares of parity stock (stock ranking equal to the Series N
Preferred Shares), then each holder of Series N Preferred Stock and
each holder of parity stock shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation Funds
payable to such Holder and such holder of parity stock as a
liquidation preference, in accordance with their respective
certificate of designation (or equivalent), as a percentage of the
full amount of Liquidation Funds payable to all holders of Series N
Preferred Stock and all holders of shares of parity stock. All the
preferential amounts to be paid to the holders of Series N
Preferred Stock shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
distribution of any Liquidation Funds of the Company to the holders
of shares of junior stock in connection with
the
liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, or a consolidation or
merger of the Company with or into any other corporation or
corporations, or a sale of all or substantially all of the assets
of the Company, or the effectuation by the Company of a transaction
or series of transactions in which more than 50% of the voting
shares of the Company is disposed of or conveyed.
We
are prohibited from effecting a conversion of the Series N
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99% of the number of
shares of common stock outstanding immediately after giving effect
to the issuance of shares of common stock upon conversion of the
Series N Preferred Stock, which beneficial ownership limitation may
be increased by the holder up to, but not exceeding, 9.99%. Each
holder is entitled to vote on all matters submitted to stockholders
of the Company, and shall have the number of votes equal to the
number of shares of common stock issuable upon conversion of such
holder’s Series N Preferred Stock, but not in excess of the
beneficial ownership limitations, and except that the holder may
not vote for approval of shares of Common Stock issuable upon
conversion of Series N Preferred Stock at any meeting of the
Company's stockholders.
Correction to Certificate
of Designations, Preferences and Rights of the 0% Series N
Convertible Preferred Stock –
On May 2, 2018,
the Company
filed a correction to the Series N Certificate of
Designation.
The inaccuracy or
defect in the Series N Certificate of Designation was that the
Series N Certificate of Designation inadvertently stated a specific
number of shares in Section 4(f) “19.99% Conversion
Blocker.” The Series N Certificate of Designation
was
corrected by amending and restating
Section 4(f) in its entirety to remove such
inadvertent inclusion.
Certificate of
Designations, Preferences and Rights of the 0% Series O Convertible
Preferred Stock –
On April 30, 2018, the
Company filed a Certificate of Designations, Preferences and Rights
of the 0% Series O Convertible Preferred Stock with the Secretary
of State of the State of Delaware, designating 20,000 shares of
preferred stock as Series O Preferred Stock.
The
shares of Series O Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series O Preferred Stock, plus all accrued and unpaid
dividends, if any, on such Series O Preferred Stock, as of such
date of determination, divided by the conversion price. The stated
value of each share of Series O Preferred Stock is $0.01 and the
initial conversion price is $0.0001 per share, each subject to
adjustment for stock splits, stock dividends, recapitalizations,
combinations, subdivisions or other similar events. We are not
permitted to issue any shares of common stock upon conversion of
the Series O Preferred Stock until we obtain the approval of our
stockholders.
In the event of a liquidation, dissolution or
winding up of the Company, each share of Series O Preferred Stock
will be entitled to a per share preferential payment equal to the
stated value on the date of such payment.
All shares of capital
stock will be junior in rank to Series O Preferred Stock with
respect to the preferences as to dividends, distributions and
payments upon the liquidation, dissolution and winding-up of the
Company, except for the Company’s Series D Preferred Stock,
Series E Preferred Stock, Series I Preferred Stock, Series J
Preferred Stock, Series K Preferred Stock, Series L Preferred
Stock, Series M Preferred Stock and Series N Preferred
Stock.
The holders of Series O
Preferred Stock will be entitled to receive dividends if and when
declared by our board of directors. The Series O Preferred Stock
shall participate on an “as converted” basis, with all
dividends declared on our common stock. In addition, if
we grant, issue or sell any rights to purchase our securities pro
rata to all our record holders of our common stock, each holder
will be entitled to acquire such securities applicable to the
granted purchase rights as if the holder had held the number of
shares of common stock acquirable upon complete conversion of all
Series O Preferred Stock then held.
We
are prohibited from effecting a conversion of the Series O
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99% of the number of
shares of common stock outstanding immediately after giving effect
to the issuance of shares of common stock upon conversion of the
Series O Preferred Stock, which beneficial ownership limitation may
be increased by the holder up to, but not exceeding, 9.99%. Each
holder is entitled to vote on all matters submitted to stockholders
of the Company, and shall have the number of votes equal to the
number of shares of common stock issuable upon conversion of such
holder’s Series O Preferred Stock, but not in excess of the
beneficial ownership limitations, and except that the holder may
not vote for approval of shares of Common Stock issuable upon
conversion of Series O Preferred Stock at any meeting of the
Company's stockholders.
Sublicense Grant to Y-mAbs Therapeutics, Inc.
On June 27, 2018, we granted an exclusive
sublicense to Y-mAbs, a privately held clinical stage
biopharmaceutical company, for a bi-valent ganglioside-based
vaccine intended to treat neuroblastoma, a rare pediatric cancer
(the “Y-mAbs Sublicense”). Total value of the
transaction to MabVax is $1.3 million plus a share of a Priority
Review Voucher (as defined in the sublicense agreement) if granted
by the FDA to Y-mAbs on approval of the vaccine and the Priority
Review Voucher is subsequently sold. Additionally, Y-mAbs will be
responsible for all further development of the product as well as
any downstream payment obligations related to this specific vaccine
to MSK that were specified in the original MabVax-MSK license
agreement dated April 30, 2008. If Y-mAbs successfully develops and
receives FDA approval for the neuroblastoma vaccine, it is
obligated to file with the FDA for a Priority Review Voucher. If
the voucher is granted to Y-mAbs and subsequently sold, then MabVax
will receive a percentage of the proceeds from the sale of the
voucher by Y-mAbs. Upon entering the Y-mAbs Sublicense, the Company
received an upfront payment of $700,000 and will receive an
additional $600,000 upon the one-year anniversary of entering into
the agreement (assuming the agreement is still in effect).
The Sublicense Agreement contains termination provisions allowing
for the termination of the agreement (i) upon material breach if
the breaching party fails to cure the breach within 60 days of
notice by the non-breaching party, (ii) by Y-mAbs at any time upon
90 days’ advance notice to MabVax, or (iii) the expiration or
termination of the underlying license from MSK to MabVax, provided
that MSK will assume the agreement if Y-mAbs is in material
compliance with the agreement upon the termination of the
MSK-MabVax license
. There were no
continuing obligations on the part of the Company in connection
with the agreement other than one-time administrative matters that
were completed within thirty (30) days of signing the
agreement.
Letter Agreement with MSK
On
June 27, 2018, we entered into a letter agreement with MSK (the
“MSK Letter”) in connection with obtaining the consent
from MSK for the Company to enter into the Y-mAbs Sublicense and
allow Y-mAbs to “step into the shoes” of the
obligations that the Company would have had to pay MSK if the
Company had continued development of the neuroblastoma vaccine,
including future payment obligations of the Company regarding
future milestones. As part of the agreement, the Company and MSK
agreed that MabVax would receive 100% of both the $700,000 upfront
payment and $600,000 upon the one-year anniversary of the Y-mAbs
Sublicense, and the Company would pay an aggregate of $398,534 to
MSK in connection with prior expenses incurred by MSK in relation
to MSK’s longstanding relationship and collaboration with the
Company.
Amendments
and Notices Related to Oxford Finance Loan Agreement
On July
3, 2018, we and Oxford Finance signed the Second Amendment to Loan
and Security Agreement whereby Oxford Finance has (i) consented to
the Company’s license and sale to Boehringer
Ingelheim
of the
Acquired Assets and release of any encumbrances under the Loan
Agreement that relate to the Acquired Assets, (ii) payments of
advisory fees to Greenhill & Company of $385,000 over the
course of six months in equal monthly payments, and (iii) deferred
principal payments under the Loan Agreement for six months starting
with the July 2018 payment, in exchange for the Company granting
such additional collateral that was not pledged previously or in
which security interest was not granted prior to the Second
Amendment. We are obligated to pay a fully earned and
non-refundable amendment fee of $5,000 to Oxford Finance, which
shall become due and payable upon the earlier of: (i) the maturity
date of the term loans, (ii) the acceleration of any term loan, or
(iii) the prepayment of the term loans pursuant to the Loan and
Security Agreement.
As a
result of the deferred principal payments under the Loan Agreement,
the future principal payments under notes payable for the Loan
Agreement as of July 3, 2018 are as follows:
Years ending
December 31:
|
|
2018
(remaining)
|
$
0
|
2019
|
2,380,952
|
2020
|
396,826
|
Notes payable,
balance as of July 1, 2018
|
2,777,778
|
Unamortized
discount on notes payable
|
(235,560
)
|
Notes payable, net,
balance as of July 1, 2018
|
2,542,218
|
Current portion of
notes payable as of July 1, 2018, net
|
(1,190,476
)
|
Non-current portion
of notes payable as of July 1, 2018, net
|
$
1,351,742
|
The Company was in
compliance with all applicable covenants set forth in the Loan
Agreement as of March 31, 2018. However, on August 14, 2018,
the Company received the Notice from Oxford Finance asserting
certain events of default under the Loan Agreement had occurred as
a result of certain events the Company reported as having occurred,
including, without limitation, the following Alleged Default
Events: (i) the resignation of the Company’s external
auditor, CohnReznick, effective August 3, 2018, and its withdrawal
of its audit reports for the years 2014 through 2017, (ii) the
resignation of four (4) members of the Board of Directors,
effective as of July 31, 2018, and (iii) the delisting of the
Company’s common stock from The Nasdaq Stock Market LLC on
July 11, 2018. The Company informed Oxford Finance that it disputes
the Alleged Default Events, individually or collectively,
constitute a “Material Adverse Change” or other event
of default under the Loan Agreement. In addition, the Company
already engaged a new auditor, Haskell & White LLP, effective
August 22, 2018, and on September 20, 2018, the Court ratified the
Delaware Petition. The Company also intends to apply for listing on
the OTCQB Marketplace once it meets the requisite eligibility
requirements, which are subject to appointing at least one
independent member to the Board of Directors, with the second
independent member to be appointed to the Board of Directors within
30 days of uplisting to the OTCQB
Marketplace.
Asset
Purchase and License Agreement with Boehringer
Ingelheim
On July
6, 2018, the Company entered into an
Asset Purchase Agreement and License
Agreement
with Boehringer Ingelheim
(the “Asset Purchase
Agreement”)
centered on MabVax's program targeting a
glycan commonly overexpressed on multiple solid tumor cancers.
Boehringer Ingelheim has acquired all rights in and to the program.
MabVax received $4 million upon signing the agreement and will
receive an additional $7 million in connection with near-term
milestones and downstream regulatory milestone payments plus
further earn-out payments. The asset acquisition is separate and
distinct from other programs under development at MabVax, enabling
MabVax to retain all rights to its lead HuMab-5B1 antibody program
which is in Phase 1 clinical trials as a therapeutic product
candidate and as a diagnostic product candidate, as well as other
antibody discovery programs from the Company's antibody discovery
portfolio targeting other cancer antigens.
Cold
Spring Harbor Laboratory License Agreement
On
September 8, 2018, the Company entered into an agreement with Cold
Spring Harbor Laboratory (“CSHL”), a nonprofit New York
State education corporation, whereby the Company licensed the
exclusive worldwide rights to certain technology including interest
in certain patent applications by the Company for a new indication
for MVT-5873. The Company paid $20,000 as an upfront license fee
and will pay to CSHL a nonrefundable annual license maintenance fee
of the same amount beginning on January 1, 2020 and continuing each
year thereafter during the term of the agreement and will increase
to $50,000 a year upon issuance of the first patent in connection
with the technology. The annual license fee will be reduced for any
patent prosecution and maintenance costs and will be fully
creditable against any royalties or milestone payments earned
during the year. Future milestone payments are in the aggregate
less than $2.5 million, with royalties that range from 0.25% if no
valid claim to patents, to 2.5% if there is a valid claim of the
patent in the territory of sales.
Legal
Proceedings
On
January 29, 2018, the Company
received
notice from the SEC of an investigation (along with the SEC
Complaint, defined below, the “SEC Action”). We believe
the SEC is investigating (i) potential violations by the Company
and its officers, directors and others of Section 10(b) of the
Securities and Exchange Act of 1934, as amended (as amended, the
“Exchange Act”) and Section 17(a) of the Securities Act
of 1933, as amended (as amended, the “Securities Act”);
and (ii) potential violations by multiple holders of our preferred
stock of the reporting and disclosure requirements imposed by
Section 13(d) of the Exchange Act and pursuant to Schedules 13D and
13G. We further believe the SEC Action pertains to our
relationships with the Investor Defendants (defined below),
including (i) the circumstances under which the Investor Defendants
invested in the Company and whether they have acted as an
undisclosed group in connection with their investment; (ii) the
manner with or in which the Investor Defendants may have sought to
control or influence the Company and its leadership since their
respective investments (and the extent to which those efforts to
control or influence have been successful); and (iii) our prior
disclosures regarding the control of the Company and beneficial
ownership of our common and preferred stock included in our
registration statements filed in 2017 and 2018 and in our Exchange
Act reports.
On
September 7, 2018, the SEC filed a complaint (the “SEC
Complaint”) in the U.S. District Court for the Southern
District of New York against the following individuals and entities
who have purchased securities of the Company: Barry C. Honig, John
Stetson, Michael Brauser, John R. O'Rourke III, Mark Groussman,
Phillip Frost, Alpha Capital Anstalt, ATG Capital LLC,
Frost Gamma Investments Trust, GRQ Consultants,
Inc., Grander Holdings, Inc., Melechdavid, Inc., OPKO Health,
Inc., HS Contrarian Investments, LLC, and Southern Biotech, Inc.
(collectively, the “Investor Defendants”), and
against others who we believe have not made any investment in the
Company.
SEC v. Honig et
al.
, No. 1:18-cv-01875 (S.D.N.Y. 2018). In the Complaint,
the SEC alleges a variety of misconduct with respect to the
Investor Defendants’ transactions and/or relationships with
three public issuers, including a public issuer identified as
“Company C,” which we understand to be MabVax. With
respect to “Company C” in particular, the SEC alleges
that some of the Investor Defendants manipulated the price of the
Company’s securities by writing, or causing to be written,
false or misleading promotional articles, and a variety of other
manipulative trading practices. The SEC further alleges that some
of the Investor Defendants filed false reports of their beneficial
ownership or failed to file reports of their beneficial ownership
when required to do so. The SEC claims that, by engaging in this
and the other alleged actions in the Complaint, the Investor
Defendants and other defendants violated the anti-fraud and many
other provisions of the Exchange Act, the Securities Act, and SEC
Rules promulgated thereunder. The SEC Complaint does not assert any
claims against the Company or any of its directors or officers, nor
otherwise allege that they were culpable participants in the
misconduct allegedly undertaken by the Investor
Defendants.
We
have cooperated with the SEC in connection with the SEC Action.
Although the SEC has not asserted claims against the Company or any
of its directors or officers, we cannot predict whether the SEC
Action ultimately will conclude in a manner adverse to the Company
or any of its directors and officers, or in a manner adverse to the
Investor Defendants or other of the Company’s current or
former stockholders. We also cannot predict when the SEC Action or
any related matters may conclude, or how any such matters or
resolution may impact how the Company is perceived by the market,
potential partners and potential investors in our securities. In
the past, the SEC informed us it would not declare effective any
registration statements registering our securities effective during
the pendency of the SEC Action.
Company Filed Complaint Against Sichenzia Ross Ference
LLP
On September 10, 2018, the Company
filed, in the Superior Court of California, County of San Diego, a
complaint (the “Sichenzia Complaint”) against Sichenzia
Ross Ference LLP, a law firm that previously represented the
Company in certain corporate, securities, and SEC matters
(“Sichenzia”), and eight current Sichenzia partners,
and one former Sichenzia partner, Harvey Kesner,
MabVax
Therapeutics Holdings, Inc. v.
Sichenzia Ross Ference LLP et al.,
No.
37-2018-00045609-CU-PN-CTL.
The Sichenzia Complaint asserts claims
for negligent professional practice, breach of fiduciary
duty, breach of contract,
unjust enrichment, deceit, and fraud by the defendants. The Company
is evaluating additional claims it may have against others in
connection with the same or similar subject
matter.
Delaware
Order Granting Petition for Relief
On
September 20, 2018, the Court entered an order validating (i)
issuances of common stock upon conversions of the Company’s
preferred stock occurring between June 30, 2014 and February 12,
2018, and (ii) stockholder approval of corporate actions presented
to the Company’s stockholders from June 30, 2014 to February
12, 2018. In so doing, the Court granted the Delaware Petition,
filed on July 27, 2018, in order to rectify the uncertainty
regarding whether shares of our common stock were validly issued
upon conversion of our preferred stock from June 30, 2014 to
February 12, 2018.
Class Action and Derivative Complaints
In re MabVax Therapeutics
Securities Litigation,
Case
No. 18-cv-1160-BAS-NLS.
On June 4, 2018, and August 3,
2018, two securities class action complaints were filed by
purported stockholders of the Company in the United States District
Court for the Southern District of California (the “U. S.
District Court”) against the Company and certain of its
current officers. On September 6, 2018, the U.S. District Court
consolidated the two actions and appointed lead plaintiffs. On
October 10, 2018, lead plaintiffs filed their consolidated
complaint, which, in addition to naming the Company and certain
current officers as defendants, also names certain investors as
defendants. The consolidated complaint alleges, among other things,
that the defendants violated Sections 10(b) and 20(a) of the
Exchange Act, and Rule 10b-5 thereunder, by misleading investors
about problems with the Company’s internal controls, improper
calculation of its beneficial ownership, and improper influence by
certain investors. The consolidated complaint also alleges that
some of the investor defendants violated Section 9 of the Exchange
Act by manipulating the Company’s stock price. The
consolidated complaint seek unspecified damages, interest, fees and
costs. The current deadline to respond to the consolidated
complaint is December 6, 2018.
Liesman v. Hansen et
al.
, Case No.
18-cv-2237-BTM-WVG
.
On September
26, 2018, a shareholder derivative complaint was filed in the
United States District Court for the Southern District of
California. The complaint arises from similar allegations as
In re MabVax Therapeutics
Securities Litigation
but asserts a state law breach of
fiduciary duty claim against certain of the Company’s current
and former directors and officers. In particular, the
complaint alleges that the defendants breached their fiduciary
duties by failing to implement the necessary controls to ensure
that certain financial disclosures and disclosures concerning stock
ownership were accurate. Plaintiff seeks, on behalf of the
Company, damages, fees, costs, and equitable
relief.
Jackson v. Hansen et
al.,
Case No.
18-cv-2302-BEN-BGS
.
On October 4,
2018, a shareholder derivative complaint was filed in the United
States District Court for the Southern District of
California. The complaint arises from similar allegations as
In re MabVax Therapeutics
Securities Litigation
and
Liesman v. Hansen et al.
but, in
addition to a breach of fiduciary duty claim, also includes causes
of action for unjust enrichment, abuse of control, gross
mismanagement and waste of corporate assets. Plaintiff seeks,
on behalf of the Company, damages, fees, costs, and equitable
relief.