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A.
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Organization, Business and Summary of Significant Accounting Policies
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Organization
The accompanying unaudited condensed consolidated financial statements include the accounts of Aeolus Pharmaceuticals, Inc. and its wholly-owned subsidiary, Aeolus Sciences, Inc. (collectively, “we,” “us,” “Company” or “Aeolus”). All significant intercompany accounts and transactions have been eliminated in consolidation. Aeolus is a Delaware corporation. The Company’s primary operations are located in Mission Viejo, California.
Business
Aeolus is a biopharmaceutical company developing a platform of a new class of broad-spectrum, catalytic antioxidant compounds that protect healthy tissue from the damaging effects of oxidative stress. The principal endeavor of the Company is protecting against damaging effects of oxidative stress induced by radiation. Its first compound, AEOL 10150, is being developed as a medical countermeasure against the pulmonary effects of radiation exposure under a contract (“BARDA Contract”) valued at up to $118.4 million with the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the Department of Health and Human Services (“HHS”). Aeolus is in its third year under the BARDA Contract. Aeolus also receives development support from the National Institutes of Health (“NIH”) for development of the compound as a medical countermeasure against radiation and exposure to chemical and nerve agents. Additionally, Aeolus is developing AEOL 10150 for oncology indications, where it is used in combination with radiation and chemotherapy. Aeolus’ strategy is to leverage the substantial investment in toxicology, manufacturing, and preclinical and clinical studies made by U.S. government agencies in AEOL 10150, including the BARDA Contract, to efficiently develop the compound for use in oncology.
Basis of Presentation
All significant intercompany activity has been eliminated in the preparation of the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Some information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company. The condensed balance sheet at September 30, 2013 was derived from the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, filed with the Securities and Exchange Commission (the “SEC”) on December 20, 2013.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company invests available cash in short-term bank deposits. Cash and cash equivalents include investments with maturities of three months or less at the date of purchase. The carrying value of cash and cash equivalents approximate their fair market value at December 31, 2013 and September 30, 2013 due to their short-term nature.
Significant customers and accounts receivable
For the three months ended December 31, 2013, the Company’s primary customer was BARDA. For the three months ended December 31, 2013, revenues from BARDA comprised 100% of total revenues. As of December 31, 2013, the Company’s receivable balances were comprised 100% from this customer. There was no unbilled accounts receivable, included in accounts receivable, as of December 31, 2013. Unbilled accounts receivable relates to work that has been performed, though invoicing has not yet occurred. All of the unbilled receivables are expected to be billed and collected within the next 12 months. Accounts receivable are stated at invoice amounts and consist primarily of amounts due from HHS as well as amounts due under reimbursement contracts with other government entities and non-government and philanthropic organizations. If necessary, the Company records a provision for doubtful receivables to allow for any amounts which may be unrecoverable. This provision is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. As of December 31, 2013 and September 30, 2013, an allowance for doubtful accounts was not recorded as the collection history from the Company’s customer indicated that collection was probable.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality financial institutions. Management believes that the financial risks associated with its cash and cash equivalents and investments are minimal. Because accounts receivable consist primarily of amounts due from the U.S. federal government agencies, management deems there to be minimal credit risk.
Revenue Recognition
Aeolus recognizes revenue in accordance with the authoritative guidance for revenue recognition. Revenue is recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title) has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.
The BARDA Contract is classified as a “cost-plus-fixed-fee” contract. Aeolus recognizes government contract revenue in accordance with the authoritative guidance for revenue recognition including the authoritative guidance specific to federal government contracts. Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel, and indirect costs. In addition, we receive a fixed fee under the BARDA Contract, which is unconditionally earned as allowable costs are incurred and is not contingent on success factors. Reimbursable costs under the BARDA Contract, including the fixed fee, are generally recognized as revenue in the period the reimbursable costs are incurred and become billable.
Fair Value of Financial Instruments
The carrying amounts of Aeolus’ short-term financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short maturities.
Fair Value Measurements
The Company adopted Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, for financial and non-financial assets and liabilities.
ASC Topic 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
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Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
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●
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Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
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●
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Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
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Research and Development
Research and development costs are expensed in the period incurred.
Leases
The Company leases office space and office equipment under month to month operating lease agreements. For the three months ended December 31, 2013 and 2012, total rent expense was approximately $10,000 and $8,000, respectively.
Income Taxes
The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. A valuation allowance is established when management determines that is more likely than not that all or a portion of a deferred tax asset will not be realized. Management evaluates the Company’s ability to realize its net deferred tax assets on a quarterly basis and valuation allowances are provided, as necessary. During this evaluation, management reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the Company’s ability to realize its deferred tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the Company’s income tax provision or benefit. Management also applies the relevant guidance to determine the amount of income tax expense or benefit to be allocated among continuing operations, discontinued operations, and items charged or credited directly to stockholders’ equity (deficit).
A tax position must meet a minimum probability threshold before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation process, based on the technical merits of the position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Net Income (Loss) Per Common Share
The Company computes net income attributable to common stockholders using the two-class method required for participating securities. Under the two-class method, securities that participate in dividends, such as the Company’s outstanding preferred shares, preferred warrants, and most common stock warrants, are considered “participating securities.” Our preferred shares, preferred warrants and common stock warrants are considered “participating securities” because they include non-forfeitable rights to dividends.
In applying the two-class method, (i) basic net income (loss) per share is computed by dividing net income (less any dividends paid on participating securities) by the weighted average number of shares of common stock and participating securities outstanding for the period and (ii) diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated using the treasury stock method. The Company does have other securities with a dilutive effect outstanding, so the Company’s basic net income (loss) per share uses the two-class method and diluted net income (loss) per share uses the treasury stock method.
Accounting for Stock-Based Compensation
The Company recognizes stock based compensation expense in the statement of operations based upon the fair value of the equity award amortized over the vesting period.
Segment Reporting
The Company currently operates in one segment.
In its audit opinion issued in connection with the Company’s consolidated financial statements for the fiscal year September 30, 2013 and 2012, the Company’s independent registered public accounting firm expressed substantial doubt about the Company’s ability to continue as a going concern given the Company’s recurring net losses, negative cash flows from operations and working capital deficiency. The Company had cash and cash equivalents of $534,000 on December 31, 2013, and $869,000 on September 30, 2013. The decrease in cash was primarily due to cash used in operating activities.
The Company has incurred significant losses since its inception. At December 31, 2013, the Company’s accumulated deficit was $184,617,000. This raises substantial doubt about Aeolus’ ability to continue as a going concern, which will be dependent on the Company’s ability to generate sufficient cash flows to meet the Company’s obligations on a timely basis, obtain additional financing and, ultimately, achieve operating profits through product sales or BARDA procurements. The Company intends to explore strategic and financial alternatives, which may include a merger or acquisition with or by another company, the sale of shares of stock and/or convertible debentures, the establishment of new collaborations for current research programs that include initial cash payments and on-going research support and the out-licensing of the Company’s compounds for development by a third party. The Company believes that without additional investment capital it will not have sufficient cash to fund its activities in the near future, and will not be able to continue operating. As such, the Company’s continuation as a going concern is dependent upon its ability to raise additional financing. If the Company is unable to obtain additional financing to fund operations, it will need to eliminate some or all of its activities, merge with another company, sell some or all of its assets to another company, or cease operations entirely. There can be no assurance that the Company will be able to obtain additional financing on acceptable terms or at all, or that the Company will be able to merge with another Company or sell any or all of its assets.
Preferred Stock
The Certificate of Incorporation of Aeolus authorizes the issuance of up to 10,000,000 shares of Preferred Stock, at a par value of $.01 per share. The Board of Directors has the authority to issue Preferred Stock in one or more series, to fix the designation and number of shares of each such series, and to determine or change the designation, relative rights, preferences, and limitations of any series of Preferred Stock, without any further vote or action by the stockholders of the Company.
Of the 10,000,000 shares of total authorized shares of Preferred Stock, 1,250,000 shares are designated as Series A Convertible Preferred Stock and 1,600,000 shares are designated as Series B Stock. The Series B Stock is not entitled to vote on any matter submitted to the vote of holders of the common stock except that the Company must obtain the approval of a majority of the outstanding shares of Series B Stock to either amend the Company’s Certificate of Incorporation in a manner that would adversely affect the Series B Stock (including by creating an additional class or series of stock with rights that are senior or
pari passu
to the Series B Stock) or change the rights of the holders of the Series B Stock in any other respect. Each share of Series B Stock is convertible at any time by the holder thereof into one share of the Company’s common stock, provided that no conversion may be effected that would result in the holders of Series B Stock owning more than 9.9% of the Company’s common stock on a fully converted to common stock basis. If the Company pays a cash dividend on its common stock, it must also pay the same dividend on an as converted basis on the Series B Stock. Upon a liquidation, dissolution, bankruptcy or winding up of the Company or the sale of all or substantially all of the Company’s assets, the holders of Series B Stock will be entitled to receive, together with the holders of common stock, the assets of the Company in proportion to the number of shares of common stock held (assuming conversion of the Series B Stock into shares of common stock).
As of December 31, 2013, 526,080 shares of Series B Stock were outstanding, all of which were held by Elan. Each share of Series B Stock was convertible into one share of common stock as of December 31, 2013.
There were no shares of Series A Convertible Preferred Stock issued or outstanding as of December 31, 2013.
Common Stock
February/March 2013 Financing
On February 19, 2013 and March 4, 2013, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors (the “Purchasers”). Under the terms of the agreements, the Company received approximately $3,616,000 in gross proceeds in exchange for the issuance of an aggregate of 14,462,000 units (the “Units”), consisting of 14,462,000 shares of common stock and 14,462,000 warrants, at a purchase price of $0.25 per unit. Each Unit consists of (i) one share of common stock (the “Common Shares”) and (ii) a five-year warrant to purchase one share of the Company’s common stock (the “Warrants”). The Warrants have an initial exercise price of $0.25 per share.
On February 19, 2013, the Company received $3,225,000 in gross proceeds in exchange for the issuance of an aggregate of 12,900,000 Units, which consisted of 12,900,000 shares of common stock and 12,900,000 warrants.
On March 4, 2013, the Company received approximately $390,000 in gross proceeds in exchange for the issuance of an aggregate of 1,562,000 Units, which consisted of 1,562,000 shares of common stock and 1,562,000 warrants.
Net cash proceeds from the February/March 2013 Financing, after deducting for expenses, were approximately $3,558,000. The Company also incurred non-cash expenses in the form of 365,000 warrants issued to consultants, at similar terms as the financing Warrants, for services provided. The Company issued a total of 14,827,000 warrants in connection with the February/March 2013 Financing.
The fair value of the February/March 2013 Financing warrants was estimated to be $4,791,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, expected volatility of 154.84%, risk free interest rate of 0.87% and an expected life of five years. The proceeds from the February/March 2013 Financing were allocated based upon the relative fair values of the February/March 2013 Financing Warrants and the February/March 2013 Common Shares.
The February/March 2013 Financing contains a registration rights agreement with an arrangement for liquidated damages in the event of a failure to maintain the effectiveness with the SEC of a registration statement covering the February/March 2013 Financing Units. The Company must use its commercially reasonable efforts to maintain the registration statement continuously effective until the earlier to occur of (i) the date on which all securities covered by such registration statement have been sold, and (ii) the date on which all securities covered by such registration statement may be sold without volume restrictions pursuant to Rule 144 under the Securities Act of 1933, as amended. In the event the Company fails to meet this obligation, subject to certain exceptions, the Company will be required to make a cash payment of 0.5% of the aggregate amount invested to the Purchasers of the February/March 2013 Financing Units. The 0.5% payment equaling $18,000 would be due for every 30-day period in which the registration statement is not continuously effective. The maximum liability would be $108,000 and no damages would accrue after August 19, 2013, the date that is six months from the closing of the February/March 2013 Financing. The registration statement was declared effective by the SEC as of June 13, 2013. No liability was recorded as the registration statement was continuously effective through December 31, 2013.
Modification to rights of Security Holders
Effective February 19, 2013, the Company and each of Xmark JV Investment Partners, LLC, Xmark Opportunity Fund, Ltd. and Xmark Opportunity Fund, L.P. (collectively, the “Xmark Entities”) entered into a Warrant Repricing, Exercise and Lockup Agreement (the “Xmark Warrant Agreement”) pursuant to which the Company agreed to reduce the exercise price of outstanding warrants to purchase an aggregate of up to 59,149,999 shares of Common Stock held by the Xmark Entities (the “Xmark Warrants”) to $0.01 per share. In consideration for the reduction of the exercise price of the Xmark Warrants, each of the Xmark Entities agreed to immediately exercise all of the Xmark Warrants by cashless exercise. The Xmark Warrant Agreement also provides that the Xmark Entities will not transfer the shares issuable upon exercise of the Xmark Warrants (the “Xmark Warrant Shares”) until the Company either (i) declares a cash dividend on its common stock or otherwise makes a cash distribution or (ii) effects a Change of Control, subject in each case to the terms of the Xmark Warrant Agreement.
Modifying the exercise price of the warrants to a fixed amount of $0.01 eliminated the requirement for warrant liability accounting treatment and resulted in a charge of $2,084,000.
March 2012 Financing
On March 30, 2012 and April 4, 2012, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors (the “Purchasers”) and completed a financing (the “March 2012 Financing”). Under the terms of the Purchase Agreements, the Company received $660,000 in gross proceeds in exchange for the issuance of an aggregate of 2,200,166 units (the “March 2012 Units”), consisting of 2,200,166 shares of common stock and 1,650,126 warrants, at a purchase price of $0.30 per Unit. Each Unit consisted of (i) one share of common stock (the “March 2012 Common Shares”) and (ii) a five-year warrant to purchase 0.75 of a share of the Company’s common stock (the “March 2012 Warrants”). The March 2012 Warrants have an initial exercise price of $0.40 per share.
On March 30, 2012, the Company received $530,000 in gross proceeds in exchange for the issuance of an aggregate of 1,766,833 March 2012 Units, which consisted of 1,766,833 shares of common stock and 1,325,126 warrants.
On April 4, 2012, the Company received $130,000 in gross proceeds in exchange for the issuance of an aggregate of approximately 433,333 March 2012 Units, which consisted of 433,333 shares of common stock and 325,000 warrants.
Net cash proceeds from the March 2012 Financing, after deducting for expenses, were $642,000. The Company also incurred non-cash expenses in the form of 12,501 warrants issued to consultants, at similar terms as the March 2012 Warrants, for services provided. Pursuant to the warrants, the Company is obligated to issue up to a total of 1,662,627 shares of common stock as of September 30, 2012 in connection with the March 2012 Financing.
The fair value of the March 2012 Warrants issued on March 30, 2012 was estimated to be $363,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, expected volatility of 150.74%, risk free interest rate of 1.04% and an expected life of five years. The proceeds from the March 2012 Financing were allocated based upon the relative fair values of the March 2012 Warrants and the March 2012 Common Shares.
The fair value of the March 2012 Warrants issued on April 4, 2012 was estimated to be $84,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, expected volatility of 149.36%, risk free interest rate of 1.05% and an expected life of five years. The proceeds from the March 2012 Financing were allocated based upon the relative fair values of the March 2012 Warrants and the March 2012 Common Shares.
Dividends
The Company has never paid a cash dividend on its common stock and does not anticipate paying cash dividends on its common stock in the foreseeable future. If the Company pays a cash dividend on its common stock, it also must pay the same dividend on an as converted basis on its outstanding Series B Stock.
Warrants
As of December 31, 2013, warrants to purchase an aggregate of 17,879,627 shares of common stock were outstanding with a weighted average exercise price of $0.30 per share. Details of the warrants for common stock outstanding at December 31, 2013 are as follows:
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|
|
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100,000
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|
$
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0.50
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|
May 2014
|
|
100,000
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|
$
|
1.00
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|
May 2014
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|
100,000
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|
$
|
1.50
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|
May 2014
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|
125,000
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|
$
|
0.51
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|
June 2014
|
|
125,000
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|
$
|
1.00
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|
June 2014
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|
20,000
|
|
$
|
0.39
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|
September 2014
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|
15,000
|
|
$
|
0.50
|
|
September 2014
|
|
15,000
|
|
$
|
0.60
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|
September 2014
|
|
50,000
|
|
$
|
0.38
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|
April 2015
|
|
50,000
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|
$
|
0.50
|
|
May 2016
|
|
50,000
|
|
$
|
0.50
|
|
July 2016
|
|
50,000
|
|
$
|
1.00
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|
July 2016
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|
50,000
|
|
$
|
1.50
|
|
July 2016
|
|
50,000
|
|
$
|
2.00
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|
July 2016
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|
50,000
|
|
$
|
2.50
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|
July 2016
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1,337,627
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$
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0.40
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March 2017
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325,000
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|
$
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0.40
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|
April 2017
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|
300,000
|
|
$
|
0.258
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June 2017
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|
140,000
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|
$
|
0.35
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|
October 2017
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|
13,085,000
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|
$
|
0.25
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|
February 2018
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|
|
|
$
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0.25
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March 2018
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|
|
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$
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0.30
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|
As of December 31, 2013, one warrant to purchase an aggregate of 896,037 shares of preferred stock was outstanding. The warrant has an exercise price of $0.01 per share and expires in February 2016.
Below is a summary of warrant activity (“common and preferred”) for the three months ended December 31, 2013:
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Weighted Average
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|
|
|
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Remaining Contractual Term (in years)
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Aggregate Intrinsic Value
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|
Outstanding at 9/30/2013
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18,775,664
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|
|
$
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0.29
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|
|
|
4.05
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|
|
$
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693,340
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|
Granted
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|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Exercised
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|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Expired or Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Vested
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding at 12/31/2013
|
|
|
18,775,664
|
|
|
$
|
0.29
|
|
|
|
3.80
|
|
|
$
|
197,128
|
|
|
D.
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Stock-Based Compensation
|
Below is a summary of stock option activity for the three months ended December 31, 2013:
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|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Contractual Term (in years)
|
|
|
Aggregate Intrinsic Value
|
|
|
Outstanding at 9/30/2013
|
|
|
11,214,898
|
|
|
$
|
0.52
|
|
|
|
6.67
|
|
|
$
|
3,825
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Expired or Canceled
|
|
|
(62,856
|
)
|
|
$
|
2.93
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Vested (RSAs)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding at 12/31/2013
|
|
|
11,152,042
|
|
|
$
|
0.51
|
|
|
|
6.45
|
|
|
$
|
-
|
|
For the three months ended December 31, 2013, all stock options were granted with an exercise price at or above the fair market value of the Company’s common stock on the date of grant.
The details of stock options for the three months ended December 31, 2013 were as follows:
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Options Outstanding
|
Options Exercisable
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
Weighted
|
|
Average
|
Number
|
|
Weighted
|
|
Average
|
|
Range of
|
|
Outstanding
|
|
Average
|
|
Remaining
|
Exercisable
|
|
Average
|
|
Remaining
|
|
Exercise
|
|
at December 31,
|
|
Exercise
|
|
Contractual
|
At December 31,
|
|
Exercise
|
|
Contractual
|
|
Prices
|
|
2013
|
|
Price
|
|
Life (in years)
|
2013
|
|
Price
|
|
Life (in years)
|
|
$
0.23-$0.30
|
|
1,612,500
|
|
$
|
0.29
|
|
6.05
|
1,612,500
|
|
$
|
0.29
|
|
6.05
|
|
$
0.31-$0.40
|
|
6,501,500
|
|
$
|
0.39
|
|
7.57
|
5,873,378
|
|
$
|
0.39
|
|
7.40
|
|
$
0.41-$0.50
|
|
502,000
|
|
$
|
0.45
|
|
7.99
|
366,583
|
|
$
|
0.45
|
|
7.49
|
|
$
0.51-$0.60
|
|
963,750
|
|
$
|
0.59
|
|
5.39
|
963,750
|
|
$
|
0.59
|
|
5.39
|
|
$
0.61-$0.70
|
|
66,500
|
|
$
|
0.68
|
|
2.63
|
66,500
|
|
$
|
0.68
|
|
2.63
|
|
$
0.71-$0.80
|
|
382,250
|
|
$
|
0.75
|
|
3.41
|
382,250
|
|
$
|
0.75
|
|
3.41
|
|
$
0.81-$0.90
|
|
697,091
|
|
$
|
0.88
|
|
2.76
|
697,091
|
|
$
|
0.88
|
|
2.76
|
|
$
0.91-$1.00
|
|
44,500
|
|
$
|
0.94
|
|
1.74
|
44,500
|
|
$
|
0.94
|
|
1.74
|
|
$
1.01-$1.50
|
|
81,500
|
|
$
|
1.13
|
|
1.31
|
81,500
|
|
$
|
1.13
|
|
1.31
|
|
|
$1.51-$5.00
|
|
300,451
|
|
$
|
2.73
|
|
0.65
|
300,451
|
|
$
|
2.73
|
|
0.65
|
Stock-based compensation expense recognized in the statement of operations is as follows (in thousands):
|
|
For the three months ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
Research and Development Expenses
|
|
$
|
6
|
|
|
$
|
4
|
|
|
General and Administrative Expenses
|
|
|
262
|
|
|
|
68
|
|
|
|
|
$
|
268
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
The total deferred compensation expense for outstanding and unvested stock options for the three months ended December 31, 2013 was $209,000. The weighted average remaining recognition period for the total deferred compensation expense is approximately three months. The fair value of the options associated with the above compensation expense was determined at the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:
|
|
|
For the three months ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
156.27
|
%
|
|
|
143.05
|
%
|
|
Risk-free interest rate
|
|
|
0.86
|
%
|
|
|
0.72
|
%
|
|
Expected term
|
|
5.27 years
|
|
|
5.14 years
|
|
|
E.
|
Net Income (Loss) Per Common Share
|
The Company computes basic net income (loss) per weighted average share attributable to common stockholders using the weighted average number of shares of common stock outstanding during the period. The Company computes diluted net income (loss) per weighted average share attributable to common stockholders using the weighted average number of shares of common and dilutive potential common shares outstanding during the period. Potential common shares outstanding consist of stock options, convertible debt, warrants and convertible preferred stock using the treasury stock method and are excluded if their effect is anti-dilutive. Diluted weighted average common shares did not include any incremental shares for the three months ended December 31, 2013 and included incremental shares of approximately 2,903,000 shares for the three months ended December 31, 2012 issuable upon the exercise or conversion of convertible debt, stock options to purchase common stock, convertible preferred stock and warrants to purchase common stock. Diluted weighted average common shares excluded incremental shares of approximately 2,292,000 and 58,565,000, respectively, for the fiscal year 2013 and 2012, due to their anti-dilutive effect.
|
|
|
For three months ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(695
|
)
|
|
$
|
4,028
|
|
|
Net income attributable to participating securities
|
|
|
|
|
|
|
|
)
|
|
Net income attributable to common stockholders – basic
|
|
$
|
(695
|
)
|
|
$
|
2,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(695
|
)
|
|
$
|
4,028
|
|
|
Less gain on warrant liability for participating common warrants
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders – diluted
|
|
|
|
)
|
|
|
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net income per share attributable to common stockholders – basic
|
|
|
|
|
|
|
|
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
—
|
|
|
|
2,903
|
|
|
Convertible preferred warrants
|
|
|
—
|
|
|
|
—
|
|
|
Convertible preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
Common stock options
|
|
|
—
|
|
|
|
—
|
|
|
Non-participating common stock warrants
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders – diluted
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
|
|
)
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
|
|
)
|
|
|
|
|
The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the arrangement, the Company may have to make royalty payments based upon a percentage of the sales of the pharmaceutical product in the event that regulatory approval for marketing is obtained. Because of the contingent nature of these payments, they are not included in the table of contractual obligations. No milestones have been met, nor have any payments been paid, as of December 31, 2013.
We are also obligated to pay patent filing, prosecution, maintenance and defense costs, if any, for the intellectual property we have licensed from National Jewish Health, National Jewish Medical and Research Center and Duke University.
These arrangements may be material individually, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations in any one period. In addition, these arrangements often give Aeolus the discretion to unilaterally terminate development of the product, which would allow Aeolus to avoid making the contingent payments; however, Aeolus is unlikely to cease development if the compound successfully achieves clinical testing objectives.