The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Basis of Presentation
Altimmune, Inc., headquartered in Gaithersburg, Maryland, United States, together with its subsidiaries (collectively, Altimmune) is a clinical
stage biopharmaceutical company incorporated in 1997 under the laws of the State of Delaware. Altimmune is focused on discovering and developing immunotherapies and vaccines to address significant unmet medical needs. Since its inception, Altimmune
has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of common and convertible preferred
stock, long-term debt, and proceeds from research grants and government contracts. Altimmune has not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.
Pursuant to an Agreement and Plan of Merger and Reorganization (the Merger Agreement) dated January 18, 2017, PharmAthene, Inc.
(PharmAthene), its wholly owned acquisition subsidiaries Mustang Merger Sub Corp I Inc. (Merger Sub Corp) and Mustang Merger Sub II LLC (Merger Sub LLC) agreed to acquire 100% of the outstanding capital stock of
Altimmune in a reverse triangular merger and reorganization pursuant to section 368(a) of the Internal Revenue Code (the Mergers) (Note 3).
As a condition for the Mergers, in January 2017, prior to the Mergers, Altimmune entered into a Convertible Promissory Note Purchase Agreement (the Note
Agreement) for the private placement of $8.6 million of 6% convertible notes (the Notes) (See Note 7) to be issued in two separate closings. The initial closing dated March 9, 2017 resulted in $3,150,630 of gross
proceeds. The initial closing also included $196,496 of certain existing outstanding notes payable and $881,044 of certain accrued expenses that were modified and became a component of the Notes on March 9, 2017. In connection with the Notes,
Altimmune issued warrants to purchase 49,776 shares of Altimmunes common stock to certain noteholders, with an exercise price of $0.01 per share. These warrants are classified as permanent equity (see Note 10). The second closing was included
in the sale of Series B redeemable convertible preferred stock (redeemable preferred stock) that closed on August 16, 2017 (see Note 9).
On May 4, 2017, Altimmune and PharmAthene closed the Mergers in accordance with the terms of the Merger Agreement. Upon the closing of the Mergers,
(i) Merger Sub Corp merged with and into Altimmune, with Altimmune remaining as the surviving corporation; (ii) Altimmune then merged with and into Merger Sub LLC, with Merger Sub LLC (renamed as Altimmune LLC) remaining as the
surviving entity; and (iii) PharmAthene was renamed as Altimmune, Inc. Upon closing of the Mergers, all equity instruments of Altimmune were exchanged for corresponding equity instruments of PharmAthene (see Note 3). Altimmune and
PharmAthene and its subsidiaries are hereinafter collectively referred to as the Company or we.
The accompanying unaudited
condensed consolidated financial statements are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the
information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements and should be read in conjunction with Altimmunes audited consolidated financial statements
for the year ended December 31, 2016 included in the Registration Statement on Form
S-4/A
which was filed with the SEC on March 31, 2017. In the opinion of management, we have prepared the
accompanying unaudited condensed consolidated financial statements on the same basis as our audited consolidated financial statements, and these condensed consolidated financial statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2017 or any future years
or periods.
The unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets
and the satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be
unable to continue as a going concern.
2. Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern. We have experienced recurring
losses in past years and incurred a net loss of $37,594,401 and used $15,407,930 in cash to fund operations during the nine months ended September 30, 2017, and had an accumulated deficit of $68,853,850 as of September 30, 2017. We expect
to incur additional losses in the future in connection with our research and development activities. Since inception, we have financed our activities principally from the issuance of equity and debt securities and the receipt of proceeds from
research grants and government contracts.
5
Our ability to continue as a going concern is dependent upon our ability to raise additional debt and equity
capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us. These factors raise substantial doubt about our ability to continue as a going concern. The accompanying condensed
consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern.
As capital resources are consumed to fund our research and development activities, we may not have sufficient capital to fund our plan of operations. In order
to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing. Adequate financing opportunities might not be available to us, when and if needed, on acceptable terms, or
at all. If we are unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances, our operating results and prospects will be adversely affected.
As more fully described in Note 3, in January 2017, in connection with the Mergers, Altimmune entered into the Note Agreement for the private placement of the
Notes. In addition, as more fully described in Note 9, in August 2017, we issued shares of redeemable preferred stock and the related common stock warrants for an aggregate net proceeds of $13.0 million. We expect that the combination of the
net proceeds from the Notes, cash assumed from the Mergers, the anticipated receipt of tax refunds (Note 3), redeemable preferred financing, and revenue from our government sponsored contracts will be insufficient to fund our operations and research
and development efforts for at least twelve months from the expected issuance date of our September 2017 financial statements.
3. Business Combination
On May 4, 2017, we closed the Mergers with PharmAthene. In accordance with the terms of the Merger Agreement, PharmAthene issued 0.749106 (the
share exchange ratio) of a share of PharmaAthene common stock for each share of Altimmunes $0.0001 par value common stock (common stock) outstanding as of the closing date. All historical share and per share information
including common and preferred stock, common stock warrants, and stock options, has been retroactively adjusted to reflect the impact of the share exchange ratio. In addition, Altimmunes stock options and warrants were also replaced with
options and warrants to purchase PharmAthenes common stock at the same share exchange ratio of 0.749106 share. Immediately prior to closing, 599,285 shares of Series B convertible preferred stock (convertible preferred stock)
converted into Altimmune common stock on a
1-for-1
basis. Due to the convertible preferred stock having unique terms and conditions, the convertible preferred stock
outstanding in periods prior to the Mergers continues to be presented separately on our balance sheet for periods prior to conversion. In addition, outstanding principal and accrued interest on the Notes converted into 316,734 shares of Altimmune
common stock. Further, 39,758 shares of Altimmune common stock were issued pursuant to the accelerated vesting of restricted stock, and 660,715 shares of Altimmune common stock were issued as a result of warrant exercises, both in accordance with
their original terms. Upon the closing of the Mergers, Altimmune common stock totaling 6,883,498 shares were exchanged for 6,883,498 shares of PharmAthene common stock.
Although PharmAthene was the issuer of the shares and considered the legal acquirer in the Mergers, following the closing, shareholders of Altimmune held
58.2% of the equity interest of the combined entity and assumed control of the combined entity. As a result, the transaction has been accounted for as a reverse merger, with Altimmune considered the accounting acquirer, and the assets and
liabilities of PharmAthene have been recorded at their estimated fair value. The unadjusted purchase price allocated to PharmAthenes assets and liabilities was estimated to be $44,742,737 as of the closing date and consisted of the shares of
the combined company retained by PharmAthene shareholders, and the estimated fair value of vested PharmAthene stock options and warrants which remained outstanding as of the closing date. Also at the closing, 7,569 outstanding unvested options of
PharmAthene with an estimated fair value of $15,173 remained subject to vesting and service requirements. These unvested options will be recorded as operating expense in future periods as the services are delivered and the options vest.
Headquartered in Annapolis, Maryland, PharmAthene was incorporated in Delaware in April 2005. PharmAthene was a biodefense company engaged in Phase II
clinical trials in developing a next generation anthrax vaccine. The next generation vaccine is intended to have more rapid time to protection, fewer doses for protection and less stringent requirements for temperature controlled storage and
handling than the currently used vaccine. The Mergers enable the combined company to become a fully integrated, commercially-focused immunotherapeutics company with the ability to create more value than either company could achieve individually. As
a publicly listed entity, the Mergers also provide us with additional capital financing alternatives to support the combined entitys planned research and development activities.
In addition to the operating assets and liabilities of PharmAthene, Altimmune also acquired PharmAthenes tax attributes, which primarily consisted of a
tax refund receivable and approximately $1 million of net operating losses which were limited under Section 382 of the U.S. Internal Revenue Service and were fully reserved, which begin to expire in 2023. We recorded a deferred tax
liability related to future tax benefits arising from an
in-process
research and development asset (IPR&D) acquired in the Mergers. Goodwill generated from the Mergers is not expected to be
deductible for tax purposes.
6
For accounting purposes, the historical financial statements of Altimmune have not been adjusted to reflect the
Mergers, other than adjustments to the capital structure of Altimmune to reflect the historical capital structure of PharmAthene. Altimmune incurred $1,673,695 of transaction costs, which have been expensed as incurred in the accompanying condensed
consolidated financial statements.
The following table lists the various securities of PharmAthene which were outstanding as of May 4, 2017 and
whose rights and obligations were assumed by Altimmune following the Mergers:
|
|
|
|
|
Outstanding PharmAthene common stock
|
|
|
6,883,498
|
|
Outstanding PharmAthene stock options
|
|
|
123,003
|
|
Outstanding PharmAthene stock warrants
|
|
|
4,658
|
|
Per share fair value of PharmAthene common stock
|
|
$
|
6.50
|
|
Weighted average per share fair value of PharmAthene stock options
|
|
$
|
0.26
|
|
Per share fair value of PharmAthene stock warrants
|
|
$
|
0.01
|
|
Aggregate fair value of consideration
|
|
$
|
44,757,910
|
|
Less fair value of unvested common stock options
|
|
|
(15,173
|
)
|
|
|
|
|
|
Total fair value of consideration
|
|
$
|
44,742,737
|
|
|
|
|
|
|
Since the acquisition date, we have recorded adjustments to the allocation of the purchase consideration that included a
$44,700 adjustment to increase our tax refund receivable and a $4,535 adjustment to reduce our deferred tax liabilities, with a total adjustment of $49,235 resulting in an increase in goodwill. The adjustments were the result of a change in the tax
rate being applied from 34% to 35%. These purchase price adjustments were reflected in the accompanying condensed consolidated balance sheet as of September 30, 2017. The adjusted allocation of the purchase consideration to the assets acquired
and liabilities assumed of PharmAthene in these financial statements is still preliminary and subject to change as management gathers information regarding these items. The adjusted allocation of the purchase consideration was as follows:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,684,535
|
|
Accounts receivable
|
|
|
1,124,462
|
|
Prepaid expenses and other current assets
|
|
|
597,172
|
|
Tax refund receivable
|
|
|
2,047,234
|
|
Property and equipment
|
|
|
75,779
|
|
IPR&D
|
|
|
22,389,000
|
|
Goodwill
|
|
|
15,573,822
|
|
|
|
|
|
|
Total assets acquired
|
|
|
55,492,004
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(2,193,785
|
)
|
Deferred tax liability
|
|
|
(8,555,482
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(10,749,267
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
44,742,737
|
|
|
|
|
|
|
We relied on significant Level 3 unobservable inputs to estimate the fair value of acquired IPR&D assets using
managements estimate of future revenue and expected profitability of the products after taking into account an estimate of future expenses necessary to bring the products to completion. These projected cash flows were then discounted to their
present values using a discount rate of 23%, which was considered commensurate with the risks and stages of development of the products.
The operating
activities of PharmAthene have been included in the accompanying condensed consolidated financial statements from the date of the Mergers. For the period from May 4, 2017 to September 30, 2017, revenues and net loss of PharmAthene included
in the accompanying condensed consolidated financial statements aggregated $1,052,007 and $343,509, respectively.
The following unaudited pro forma
information for the nine months ended September 30, 2017 and 2016 gives effect to the acquisition of PharmAthene as if the Mergers had occurred at the beginning of the respective full annual reporting period:
7
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Pro forma revenue and grants and contracts
|
|
$
|
9,035,435
|
|
|
$
|
6,262,748
|
|
Pro forma net (loss) income attributable to common stockholders
|
|
$
|
(39,277,568
|
)
|
|
$
|
111,784,503
|
|
Pro forma weighted average common shares outstanding, basic
|
|
|
15,218,542
|
|
|
|
14,268,717
|
|
Pro forma net (loss) income per share, basic
|
|
$
|
(2.58
|
)
|
|
$
|
7.83
|
|
Pro forma weighted average common shares outstanding, diluted
|
|
|
15,218,542
|
|
|
|
15,107,312
|
|
Pro forma net (loss) income per share, diluted
|
|
$
|
(2.58
|
)
|
|
$
|
7.40
|
|
4. Summary of Significant Accounting Policies
Segment information
Operating segments are identified as
components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, our Chief Executive Officer, in making decisions regarding resource allocation and assessing
performance. We view our operations and manage our business in one operating segment, the research and development of immunotherapies and vaccines.
Business combination
We use our best estimates and
assumptions to accurately assign fair value to the tangible and
intangible assets acquired and liabilities assumed at the acquisition date. Our estimates are inherently
uncertain and subject to refinement. During the measurement
period, which may be up to one year from the
acquisition date, we may record adjustments to the fair value of these tangible and intangible assets
acquired and liabilities assumed, with the corresponding offset to goodwill. In
addition, uncertain tax positions
and
tax-related
valuation allowances are initially established in connection with a business combination as of the
acquisition date. Our management collects
information and reevaluates these estimates and assumptions
quarterly and records any adjustments to our preliminary estimates to goodwill during the measurement period. Upon the conclusion of the measurement period or final
determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to our consolidated statements of operations and comprehensive loss.
Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. We
allocate the purchase price in excess of net tangible assets acquired to identifiable intangible assets, including purchased IPR&D assets. The fair value of identifiable intangible assets is based on detailed valuations that use information and
assumptions provided by management. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
Our IPR&D assets represent the estimated fair value as of the acquisition date of substantive
in-process
projects
that have not reached technological feasibility. The primary basis for determining technological feasibility of these projects is obtaining regulatory approval. The valuation of IPR&D assets is determined using the discounted cash flow method.
In determining the value of IPR&D assets, management considers, among other factors, the stage of completion of the projects, the technological feasibility of the projects, whether the projects have an alternative future use and the estimated
residual cash flows that could be generated from the various projects and technologies over their respective projected economic lives. The discount rate used is determined at the time of acquisition and includes a rate of return which accounts for
the time value of money, as well as risk factors that reflect the economic risk that the cash flows projected may not be realized.
Impairment of
long-lived assets and goodwill
We evaluate our long-lived tangible and intangible assets, including IPR&D assets and goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Impairment of long-lived assets other than goodwill and indefinite lived intangibles is assessed by comparing the undiscounted cash
flows expected to be generated by the asset to its carrying value. Goodwill is tested for impairment by comparing the estimated fair value of our single reporting unit to its carrying value.
From the date of the Mergers through September 30, 2017, we experienced a decline in the trading price of our common stock. As of September 30,
2017, our one reporting unit had an estimated average market capitalization through September 30, 2017, before adjusting for an estimated control premium, of approximately $36,200,000 as compared to the unadjusted carrying value of the
reporting unit of $75,430,244, which is an impairment indicator. As a result, we conducted an interim impairment review and test.
8
Our IPR&D assets are currently
non-amortizing.
Until such time as the
projects are either completed or abandoned, we test those assets for impairment annually by comparing the fair value of such assets to their carrying value. On an interim basis, we consider qualitative factors which could be indicative of
impairment; these factors include the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted changes in the future cash flows to be generated by the completed products, and changes to other
market based assumptions, such as discount rates. Upon completion or abandonment, the value of the IPR&D assets will be amortized to expense or the anticipated useful life of the developed products, if completed, or charged to expense when
abandoned if no alternative future use exists. As of September 30, 2017, the projects continue to progress as originally anticipated, and no significant changes to the estimated timing or amount of cash flows or any other market assumptions
have occurred. We performed an interim qualitative assessment of our long-lived assets, including IPR&D, as of September 30, 2017, and have determined that our long-lived assets, including IPR&D, are not impaired at September 30,
2017.
We test goodwill for impairment during the fourth quarter of each year, or more frequently if impairment indicators arise. During the nine months
ended September 30, 2017, we adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)
No. 2017-04,
Simplifying the Test for Goodwill
Impairment
(ASU
2017-04),
which provides for a
one-step
quantitative test. We early adopted ASU 2017-04 to simplify our goodwill impairment analysis. If
the carrying value of a reporting unit exceeds its fair value, the amount of goodwill impairment is the excess of the reporting units carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting
unit. We consider multiple methods including both market and income approaches to determine fair value of our one reporting unit, and primarily relied on fair value estimated based on our market capitalization (a Level 1 input) as of or near the
testing date, adjusted for an estimated control premium. As noted, due to the decline in the market value of our common stock which indicated potential impairment, we performed an interim impairment test on our goodwill as of September 30,
2017, using a volume weighted average price (VWAP) of $2.31 per share at September 30, 2017 and a control premium of 35%.
Based on the result
of our impairment test, the carrying value of our reporting unit exceeded its estimated fair value at September 30, 2017. As a result, we have concluded that our goodwill was impaired at September 30, 2017 and an impairment charge of
$26,600,000 was recorded during the three and nine months ended September 30, 2017, and was classified as a component of operating expenses. We will continue to evaluate our goodwill for impairment based on factors including the overall
movements of our market capitalization. Any sustained declines in our stock price from the September 30, 2017 level could result in a future impairment and the overall amount of impairment loss could be material.
Income Taxes
We account for income taxes using the asset
and liability approach, which requires the recognition of future tax benefits or liabilities on the temporary differences between the financial reporting and tax bases of our assets and liabilities. A valuation allowance is established when
necessary to reduce deferred tax assets to the amounts expected to be realized. We also recognize a tax benefit from uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical
merits.
Pursuant to federal and state tax regulations with respect to carryback periods of certain net operating losses (NOLs), in 2017, as a
result of the Mergers, we anticipate that we will be able to carryback 2017 NOLs to 2016, which we expect will allow us to recover previously paid federal and state income taxes by PharmAthene and other tax credits of approximately
$5.1 million. These anticipated refunds generated through September 30, 2017, are included as a component of tax refund receivable on the condensed consolidated balance sheet at September 30, 2017 and an income tax benefit during the
three and nine months ended September 30, 2017.
Preferred Stock
Convertible preferred stock outstanding prior to the Mergers were classified as permanent equity, with the net issuance price in excess of par value recorded
as additional
paid-in
capital. Redeemable preferred stock issued in August 2017 are classified as temporary equity and were initially recorded at their original issuance price, net of issuance costs and
discounts. Discounts included common stock warrants issued as part of the financing which were required to be classified as a liability and recorded at fair value (Note 10), an embedded derivative related to certain redemption features which was
classified as a liability and recorded at fair value (Note 9), and the intrinsic value of a beneficial conversion feature present in the instrument at issuance (Note 9). The carrying value of redeemable preferred stock will be accreted over the term
of the redeemable preferred stock up to their redemption value, using the interest method with the amount of the accretion recorded as a reduction of additional
paid-in
capital.
9
Warrants
Common stock warrants issued in connection with the convertible preferred stock and the Notes were classified as a component of permanent equity because they
were freestanding financial instruments that were legally detachable and separately exercisable from other debt and equity instruments, were contingently exercisable, did not embody an obligation for us to repurchase our own shares, and permitted
the holders to receive a fixed number of common shares upon exercise. In addition, such warrants required physical settlement and do not provide any guarantee of value or return. These warrants were valued using the Black Scholes option pricing
model (Black-Scholes).
Common stock warrants issued in connection with the redeemable preferred stock are classified as a liability because
the warrants may be net share settled at the holders option. Such warrants contain terms which could, in certain circumstances, require the Company to settle the instruments for cash and such circumstances are outside the Companys control.
Common stock warrants classified as a liability are initially recorded at their issuance date fair value and are remeasured on each subsequent balance sheet date with changes in fair value recorded as a component of other income (expenses), net.
These common stock warrants were valued using the Monte Carlo simulation valuation model.
Stock Compensation
We adopted FASBs ASU
No. 2016-09,
Compensation Stock Compensation
(ASU
2016-09)
on January 1, 2017. The adoption of ASU
2016-09
did not have a material impact on our financial statements. We elected to adopt the cash flow presentation
of the excess tax benefits prospectively, commencing with our statement of cash flows for the three months ended March 31, 2017. We have elected to continue to estimate the number of stock-based awards expected to vest, rather than electing to
account for forfeitures as they occur to determine the amount of compensation cost to be recognized in each period. There was no impact to our computation of dilutive EPS as all securities were considered anti-dilutive.
Recently issued accounting pronouncements
In May 2014,
FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers
(ASU
2014-09),
as amended, which amends the guidance for revenue recognition
to replace numerous industry specific
requirements. ASU
2014-09,
as amended, implements a five-step process for customer contract revenue recognition
that focuses on transfer of control, as
opposed to transfer of risk and rewards. ASU
2014-09,
as amended, also requires
enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from
contracts with customers. Other major provisions include ensuring the time value of money is considered in the
transaction price, and allowing estimates of variable consideration to be recognized before contingencies are
resolved
in certain circumstances. ASU
2014-09,
as amended, is effective for reporting periods beginning
after December 15, 2017. Early adoption is permitted, but not before December 15, 2016. Entities
can transition
to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently in the process of evaluating the effect the adoption of ASU
2014-09,
as amended, may have on our financial statements. As the majority of our revenues relate to research grants and government contracts, we do not expect the adoption of ASU
2014-09,
as amended, will have a material impact on our financial statements.
In February 2016, FASB issued ASU
No. 2016-02,
Leases
(ASU
2016-02).
ASU
2016-02
requires a lessee to separate the lease components from the
non-lease
components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a
right-of-use
asset representing its right to use the underlying asset for the lease term. It also aligns lease accounting for lessors with the revenue recognition
guidance in ASU
2014-09.
ASU
2016-02
is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to
be applied at the beginning of the earliest period presented using a modified retrospective approach. We do not expect the adoption of ASU
2016-02
will have a material impact on our financial statements.
5. Net Loss Per Share
Because we have reported a net
loss attributable to common stockholders for all periods presented, basic and diluted net loss per share attributable to common stockholders are the same for all periods presented. For periods presented, all preferred stock, unvested restricted
stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.
The following table sets forth the computation of basic and diluted net loss per share:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(29,905,237
|
)
|
|
$
|
(4,795,059
|
)
|
|
$
|
(37,594,401
|
)
|
|
$
|
(8,024,985
|
)
|
Less: preferred stock accretion and dividends
|
|
|
(1,962,072
|
)
|
|
|
(104,548
|
)
|
|
|
(2,125,141
|
)
|
|
|
(247,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributed to common stockholders
|
|
$
|
(31,867,309
|
)
|
|
$
|
(4,899,607
|
)
|
|
$
|
(39,719,542
|
)
|
|
$
|
(8,272,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
15,527,867
|
|
|
|
6,911,715
|
|
|
|
11,595,698
|
|
|
|
6,911,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributed to common stockholders, basic and diluted
|
|
$
|
(2.05
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(3.43
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential common shares issuable upon conversion, vesting or exercise of convertible preferred stock, redeemable preferred
stock, unvested restricted stock, common stock warrants, and stock options that are excluded from the computation of diluted weighted-average shares outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Convertible preferred stock
|
|
|
|
|
|
|
517,860
|
|
|
|
|
|
|
|
411,736
|
|
Redeemable preferred stock
|
|
|
5,863,564
|
|
|
|
|
|
|
|
5,863,564
|
|
|
|
|
|
Common stock warrants
|
|
|
2,350,085
|
|
|
|
538,003
|
|
|
|
2,350,085
|
|
|
|
442,910
|
|
Common stock options
|
|
|
1,720,004
|
|
|
|
831,248
|
|
|
|
1,720,004
|
|
|
|
838,595
|
|
Restricted stock
|
|
|
25,559
|
|
|
|
|
|
|
|
25,559
|
|
|
|
|
|
6. Goodwill and Intangible Assets
Changes in the carrying amounts of IPR&D assets and goodwill for the nine months ended September 30, 2017 were:
|
|
|
|
|
|
|
|
|
|
|
IPR&D
|
|
|
Goodwill
|
|
Balance, beginning of period
|
|
$
|
14,477,019
|
|
|
$
|
18,758,421
|
|
Additions from the Mergers
|
|
|
22,389,000
|
|
|
|
15,573,822
|
|
Foreign currency translation adjustments
|
|
|
1,235,457
|
|
|
|
1,602,661
|
|
Impairment charges
|
|
|
|
|
|
|
(26,600,000
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
38,101,476
|
|
|
$
|
9,334,904
|
|
|
|
|
|
|
|
|
|
|
Our intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Estimated
Useful
Lives
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Internally developed patents
|
|
|
6-10 years
|
|
|
$
|
624,454
|
|
|
$
|
(211,956
|
)
|
|
$
|
412,498
|
|
Acquired licenses
|
|
|
16-20 years
|
|
|
|
285,000
|
|
|
|
(219,800
|
)
|
|
|
65,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
|
|
|
|
909,454
|
|
|
|
(431,756
|
)
|
|
|
477,698
|
|
IPR&D assets
|
|
|
Indefinite
|
|
|
|
14,477,019
|
|
|
|
|
|
|
|
14,477,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
15,386,473
|
|
|
$
|
(431,756
|
)
|
|
$
|
14,954,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
Estimated
Useful
Lives
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Internally developed patents
|
|
|
6-10
years
|
|
|
$
|
672,088
|
|
|
$
|
(239,211
|
)
|
|
$
|
432,877
|
|
Acquired licenses
|
|
|
16-20
years
|
|
|
|
285,000
|
|
|
|
(232,954
|
)
|
|
|
52,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
|
|
|
|
957,088
|
|
|
|
(472,165
|
)
|
|
|
484,923
|
|
IPR&D assets
|
|
|
Indefinite
|
|
|
|
38,101,476
|
|
|
|
|
|
|
|
38,101,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
39,058,564
|
|
|
$
|
(472,165
|
)
|
|
$
|
38,586,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Amortization expense of intangible assets subject to amortization totaled $14,257 and $11,764 for the three
months ended September 30, 2017 and 2016, respectively, and $40,409 and $60,552 for the nine months ended September 30, 2017 and 2016, respectively. Amortization expense was classified as research and development expenses in the
accompanying condensed consolidated statements of operations and comprehensive loss.
As of September 30, 2017, future estimated amortization expense
is as follows:
|
|
|
|
|
Years ending December 31,
|
|
|
|
The remainder of 2017
|
|
$
|
14,257
|
|
2018
|
|
|
53,027
|
|
2019
|
|
|
48,227
|
|
2020
|
|
|
34,781
|
|
2021
|
|
|
14,222
|
|
2022 and thereafter
|
|
|
320,409
|
|
|
|
|
|
|
Total
|
|
$
|
484,923
|
|
|
|
|
|
|
7. Notes Payable
As a
condition for the Mergers as described in Note 3, Altimmune entered into the Note Agreement on January 18, 2017. The Notes bore interest at a rate of 6% per annum, compounded annually. On February 28, 2017, as part of the initial closing,
$196,496 of the Notes were issued upon the conversion of outstanding principal of certain prior notes payable, and $881,044 of the Notes were issued upon the conversion of certain outstanding accrued expenses. The conversion of the prior notes
payable into the Notes was accounted for as a modification with no resulting gains or losses being recognized. On March 9, 2017, the remainder of the initial closing of the Notes was issued for an aggregate of $3,150,630 in gross proceeds. In
connection with the issuance of the Notes, we granted warrants for the purchase of up to 49,776 shares of our common stock to certain noteholders. The allocated fair value of the warrants on the issuance date of $566,793 was accounted for as a debt
issuance discount and was accreted over the term of the Notes using the interest method.
All outstanding principal and accrued interest on the Notes were
converted into our common stock upon the close of the Mergers. On May 4, 2017, upon the close of the Mergers, outstanding principal and accrued interest, net of unamortized discount and deferred financing costs totaling $3,645,424 were
converted into 316,734 shares of our common stock. Interest expense incurred on the Notes prior to conversion totaled $83,207 and $136,629 for the three and nine months ended September 30, 2017, respectively.
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued professional services
|
|
$
|
885,549
|
|
|
$
|
689,135
|
|
Accrued board of director compensation
|
|
|
81,414
|
|
|
|
606,199
|
|
Accrued payroll and employee benefits
|
|
|
1,070,006
|
|
|
|
957,719
|
|
Accrued interest
|
|
|
536
|
|
|
|
169,790
|
|
Accrued research and development costs
|
|
|
1,559,808
|
|
|
|
549,902
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,597,313
|
|
|
$
|
2,972,745
|
|
|
|
|
|
|
|
|
|
|
9. Redeemable Convertible Preferred Stock
On August 16, 2017, we issued 15,656 shares of $0.0001 par value, redeemable preferred stock and warrants to purchase up to 2,345,427 shares of our common
stock (see Note 10) for total gross proceeds of $14,716,370, and incurred issuance costs totaling
12
$1,697,800. The redeemable preferred stock matures on August 16, 2018. The maturity date may be extended at the option of the holders to ten trading days after the curing of a triggering
event (as defined), or ten business days after the consummation of a change of control. In addition, the redeemable preferred stock agreements require that we reserve a sufficient number of common shares to cover at least 150% of the common shares
expected to be issued upon the conversion of the redeemable preferred stock at the then current conversion price, and the exercises of common stock warrants issued in connection with the redeemable preferred stock.
The rights, preferences, and privileges of redeemable preferred stock are summarized below:
Voting
Holders of redeemable preferred stock have no voting rights, except as required by law.
Dividends
Holders of redeemable preferred stock are entitled to participate in dividends, when and if declared by our board of
directors, on an as converted basis at the initial conversion price of $2.67 per share, not to exceed the maximum ownership percentages (as defined).
Optional conversion
Holders of redeemable preferred stock have the option to convert redeemable preferred stock into shares of
common stock, rounded up to the nearest whole shares, at any time, not to exceed the maximum ownership percentages (as defined), at the conversion rate calculated as (1) whole shares of redeemable preferred shares to be converted at $1,000 per
share, plus any accrued but unpaid dividends, and any accrued but unpaid late charges, divided by (2) the conversion price which is $2.67 per share initially, or as adjusted for any dilutive events and down rounds.
Mandatory conversion
If for any ten consecutive trading days after the redeemable preferred stock issuance date, the weighted
average price of our common stock equals or exceeds 200% of the then current conversion price (initially $2.67 per share, subject to adjustment for stock dividends, stock splits, or a stock combination), we have the option to require all holders of
redeemable preferred stock to convert all or a pro rata portion of their outstanding unconverted redeemable preferred stock (plus accrued and unpaid dividends and accrued and unpaid late charges) into common stock at the then current conversion rate
(initially $2.67 per share), up to the maximum ownership percentage (as defined).
Triggering event conversion
Upon a
triggering event, holders of redeemable preferred stock may elect to convert all, or a portion of, the outstanding conversion amount at the triggering event conversion price determined based on the lowest of (1) the conversion price then in
effect (initially $2.67 per share), (2) 75% of the lowest VWAP during the
20-day
period prior to the triggering event conversion date, and (3) 75% of the VWAP on the triggering event conversion date, adjusted
for any share dividend, share split, or share combination.
Installment
On each of the nine specified installment dates
beginning in December 2017 through maturity, we are required to convert, redeem, or a combination,
one-ninth
of the originally issued number of redeemable preferred shares at their stated value of $1,000 per
share, for an aggregate value of $1,739,524 at each installment. If we elect to convert the installment shares, the conversion price is determined based on the lowest of (i) the then applicable conversion price (initially $2.67 per share), (ii)
85% of the average of the three lowest weighted-average prices of the common stock during the ten trading days up to the installment date, and (iii) 85% of the weighted average price of common stock on the trading day immediately before the
installment date. If we elect cash redemption, the redemption amount is $1,000 per share, plus any accrued but unpaid dividends and any accrued but unpaid late charges.
Liquidation preference
In the event of a voluntary or involuntary liquidation, dissolution, or winding up of business involving
substantially all of our assets, holders of redeemable preferred stock are entitled to receive cash payments in priority to holders of common stock in the amount that equals the sum of any outstanding shares at $1,000 per share, plus any accrued and
unpaid dividends, and any accrued and unpaid late charges. If assets available for distribution are insufficient to satisfy the liquidation payment in full, funds available for distribution shall be allocated pari passu among holders of redeemable
preferred stock, and other equity classes equal in preference, based on their relative shareholdings. When the holders of redeemable preferred stock are satisfied in full, any excess assets available for distribution will be allocated ratably among
holders of common stock and holders of redeemable preferred stock based on the number of common shares held by each holders of redeemable preferred stock on an
as-converted
basis.
Mandatory redemption
Upon maturity, we are required redeem any remaining outstanding redeemable preferred stock in cash at $1,000
per share, plus any accrued and unpaid dividends, and any accrued and unpaid late charges.
13
Change of control redemption or triggering event redemption
In the event of a
change of control or upon a triggering event, holders of redeemable preferred stock may redeem for cash all or a portion of their outstanding redeemable preferred stock at the greater of (i) 125% of the amount to be redeemed, or (ii) the amount
to be redeemed multiplied by the quotient of the highest closing sale price during the period from the earlier of consummation or public announcement of the change of control to the date of the redemption notice, divided by the lowest conversion
price in effect during such period. If we are unable to redeem all redeemable preferred stock submitted for redemption, we may be required to pay a penalty until the redemption amount is paid in full.
Stock purchasing rights
Holders of redeemable preferred stock are entitled to the same stock purchasing rights granted to holders
of common stock.
Late charges
We may be required to pay a late charge for any amounts due to the holders of redeemable
preferred stock that are not paid timely, at 12% per annum on the unpaid amount, until it is paid in full.
Because the securities contain contingencies
which could require the Company to redeem the shares for cash, and such contingencies are outside the control of the Company, the redeemable convertible preferred stock must be classified outside of permanent equity. Because a substantive conversion
feature is present at issuance, the redeemable convertible preferred stock is only contingently redeemable and therefore is classified as temporary equity and carried on the balance sheet in between liabilities and equity at its accreted redemption
value.
In addition, certain features present in the redeemable convertible preferred stock require separate recognition. For purposes of this evaluation,
we have determined that the redeemable preferred instrument is more akin to a debt host because the installment conversion feature, as the primary settlement mechanism, settles in variable shares. Because the potential contingent redemption price
contains a significant premium over the issuance price, the redemption feature is not clearly and closely related to the debt-like host instrument. All redemption features (including the change of control redemption, triggering event redemption,
mandatory redemption, and installment redemption) have been determined to be a single, compound embedded derivative financial instrument to be bifurcated and separately accounted for as a liability. The embedded derivative financial instrument was
initially recorded at its fair value on the redeemable preferred stock issuance date, and is being remeasured on each subsequent balance date with changes in fair value classified as a component of other income (expenses), net. The embedded
derivative is classified as a component of other long-term liabilities.
The redeemable convertible preferred stock also contains a beneficial conversion
element at issuance. The conversion feature was
in-the-money
as of the commitment date as the fair value of the underlying common share was greater than the
effective conversion price. The beneficial conversion feature, measured as the intrinsic value of the feature, totaled $3,223,853 and is classified as a component of additional
paid-in
capital. This amount was
allocated from the net proceeds of the financing. The beneficial conversion feature will not be remeasured in subsequent periods.
The net proceeds from
the financing were allocated as follows:
|
|
|
|
|
Common stock warrant liability
|
|
$
|
3,498,632
|
|
Embedded derivative, redemption features
|
|
|
19,857
|
|
Beneficial conversion feature
|
|
|
3,223,853
|
|
Initial carrying value of redeemable preferred stock
|
|
|
6,276,228
|
|
|
|
|
|
|
Net proceeds from redeemable preferred stock issuance
|
|
$
|
13,018,570
|
|
|
|
|
|
|
The periodic changes in the fair value of the embedded redemption derivative financial instrument measured using Level 3
inputs, is as follows:
|
|
|
|
|
Balance, beginning of period
|
|
$
|
|
|
Issuance
|
|
|
19,857
|
|
Change in fair value
|
|
|
1,157
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
21,014
|
|
|
|
|
|
|
The fair value used to determine the initial carrying value of the embedded redemption derivative financial instrument was
measured using Level 3 inputs and was estimated using the Monte Carlo simulation valuation model. The assumptions used to estimate the fair value of the embedded redemption derivative financial instrument as September 30, 2017 and as of
the redeemable preferred stock issuance date were as follows:
14
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
August 16,
2017
|
|
Expected volatility
|
|
|
52.00
|
%
|
|
|
56.00
|
%
|
Incremental borrowing rate
|
|
|
12.00
|
%
|
|
|
12.00
|
%
|
Risk-free interest rate
|
|
|
1.28
|
%
|
|
|
1.24
|
%
|
10. Warrants
As of
December 31, 2016, there were 616,770 warrants outstanding. In March 2017, we issued warrants to purchase up to 49,776 shares of common stock in connection with the Notes (see Note 1). The warrants were classified as permanent equity, and were
recorded at the issuance date using a relative fair value allocation method, and were not subsequently remeasured. In connection with the Mergers, 660,715 shares of common stock were issued as a result of cashless exercises of such warrants.
In August 2017, in connection with the redeemable preferred stock issuance (Note 9), we granted warrants to holders of redeemable preferred stock to purchase
up to 2,345,427 shares of our common stock. Warrants issued with the redeemable preferred stock are classified as a liability and are initially recorded at their grant date fair value, to be remeasured on each subsequent balance sheet date. The
warrant liability is classified as component of other long-term liabilities.
A summary of warrant activity during the three and nine months ended
September 30, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Warrants outstanding, beginning of period
|
|
|
4,658
|
|
|
|
477,613
|
|
|
|
616,770
|
|
|
|
208.614
|
|
Issuances
|
|
|
2,345,427
|
|
|
|
134,499
|
|
|
|
2,395,203
|
|
|
|
403,498
|
|
Exercises and conversions
|
|
|
|
|
|
|
|
|
|
|
(661,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, end of period
|
|
|
2,350,085
|
|
|
|
612,112
|
|
|
|
2,350,085
|
|
|
|
612,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at September 30, 2017 have an aggregate grant date fair value of $3,498,720 with a weighted average
exercise price of $2.70.
The periodic changes in the fair value of the warrant liability, measured using Level 3 inputs, is as follows:
|
|
|
|
|
Balance, beginning of period
|
|
$
|
|
|
Issuance
|
|
|
3,498,632
|
|
Change in fair value
|
|
|
508,316
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
4,006,948
|
|
|
|
|
|
|
The fair value used to determine the initial carrying value of warrants classified as permanent equity was measured using
Level 3 inputs and was estimated using the Black-Scholes option pricing model. The fair value of common warrants classified as a liability was estimated using the Monte Carlo simulation valuation model with Level 3 inputs. The following
assumptions were used to estimate the fair value of warrants during the three and nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Expected volatility
|
|
|
87.00
|
%
|
|
|
71.00
|
%
|
|
|
87.00
|
%
|
|
|
75.00
|
%
|
Expected term (years)
|
|
|
5.00
|
|
|
|
4.22
|
|
|
|
5.00
|
|
|
|
4.54
|
|
Risk-free interest rate
|
|
|
1.76
|
%
|
|
|
1.08
|
%
|
|
|
1.76
|
%
|
|
|
1.29
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
15
11. Stock-Based Compensation
Stock Options
Our stock option awards generally vest over
four years and typically have a contractual life of ten years. At September 30, 2017, there was $2,227,080 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.45
years. During the three and nine months ended September 30, 2017, we issued 200,060 and 200,657 shares, respectively, of common stock as a result of option exercises.
Information related to stock options outstanding at September 30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Stock
Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
|
|
|
1,720,004
|
|
|
$
|
4.73
|
|
|
|
4.93
|
|
|
$
|
883,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
971,221
|
|
|
$
|
4.44
|
|
|
|
4.41
|
|
|
$
|
857,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest
|
|
|
748,783
|
|
|
$
|
5.11
|
|
|
|
5.61
|
|
|
$
|
25,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
At
September 30, 2017, we had unvested restricted stock of 25,559 shares with total unrecognized compensation expense of $33,618, which we expect to recognize over a weighted average period of approximately 1.86 years. During the three and nine
months ended September 30, 2017, we released 2,130 and 48,987 shares of common stock, respectively, from restriction as a result of the vesting and accelerated vesting of restricted stock.
Stock-based compensation expense
Stock-based
compensation expense is classified in the accompanying condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2017 and 2016 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
93,821
|
|
|
$
|
62,871
|
|
|
$
|
250,061
|
|
|
$
|
215,596
|
|
General and administrative
|
|
|
359,216
|
|
|
|
132,185
|
|
|
|
887,064
|
|
|
|
369,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
453,037
|
|
|
$
|
195,056
|
|
|
$
|
1,137,125
|
|
|
$
|
584,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Contingencies
We are
a party in various other contractual disputes, litigation, and potential claims arising in the ordinary course of business. We do not believe that the resolution of these matters will have a material adverse effect on our financial position or
results of operations.