NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS ENDED JUNE 30, 201
7
1. Basis of Presentation and Nature of Operations
Basis of Presentation
and Name Change
Innovation Pharmaceuticals Inc. (the “Company”) was incorporated as Econoshare, Inc. on August 1, 2005, in the State of Nevada. On December 6, 2007, the Company acquired Cellceutix Pharma, Inc., a privately owned corporation formed under the laws of the State of Delaware on June 20, 2007. Following the acquisition, the Company changed its name to Cellceutix Corporation. The Company’s subsidiary Cellceutix Pharma, Inc. was dissolved in 2014. Effective June 5, 2017, the Company amended its Articles of Incorporation and changed its name from Cellceutix Corporation to Innovation Pharmaceuticals Inc. In accordance with Section 92A.180 of the Nevada Revised Statutes, stockholder approval of the name change was not required.
The Company is a clinical stage biopharmaceutical company and has no customers, products or revenues to date. The Company’s common stock is quoted on OTCQB, symbol “IPIX”.
Nature of Operations -Overview
We are in the business of developing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of cancer, antibiotics and inflammatory disease. Our strategy is to use our business and scientific expertise to maximize the value of our pipeline. We will do this by focusing initially on our lead compounds, Brilacidin, Kevetrin and Prurisol and advancing them as quickly as possible along the regulatory pathway. We will develop the highest quality data and broadest intellectual property to support our compounds.
We currently own all development and marketing rights to our products. In order to successfully develop and market our products, we may have to partner with other companies. Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.
2.
Going Concern and Liquidity
As of June 30, 2017, the Company adopted Accounting Standards Codification 205-40. This guidance amended the existing requirements for disclosing information about an entity’s ability to continue as a going concern and explicitly requires management to assess an entity’s ability to continue as a going concern and to provide related disclosure in certain circumstances. This guidance was effective for annual reporting periods ending after December 15, 2016, and for annual and interim reporting periods thereafter. The following information reflects the results of management’s assessment, plans and conclusion of the Company’s ability to continue as a going concern.
As of June 30, 2017, the Company has an accumulated deficit of $69.6 million, representative of recurring losses since inception. The Company have incurred recurring losses since inception due to the fact that it is a development stage pharmaceutical company that has no sales since inception since no products have obtained the necessary Federal Drug Administration approval in order to market products. The Company expects to continue to incur losses as a result of costs and expenses related to the Company’s clinical trials and corporate general and administrative expenses.
At June 30, 2017, the Company had $4.1 million in cash and had a working capital deficit of $6.1 million. The Company had expended substantial funds on its clinical trials and expects to increase this spending. The Company’s net cash used in operating activities during the year ended June 30, 2017 was approximately $11.7 million, and current projections indicate that the Company will have continued negative cash flows for the foreseeable future. Net losses incurred for the year ended June 30, 2017, 2016 and 2015, amounted to $(15.5) million, $(12.9) million and $(13.1) million, respectively, and working capital (deficits) was approximately $(6.1) million and $(1.9) million, respectively, at June 30, 2017 and 2016. At June 30, 2017, the Company’s cash amounted to $4.1 million and current liabilities amounted to $10.6 million, of which $6.3 million were with related parties with no immediate payment terms.
Accordingly, the Company’s planned operations for the next 12 months raise doubt about its ability to continue as a going concern. The Company’s plans to alleviate the doubt of its ability to continue as a going concern, which are probable to be effectively implemented and alleviate these conditions, primarily include its ability to control the timing and spending on its research and development programs and raising additional funds through equity financings from its Common Stock Purchase Agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”). The Company also may consider other plans to fund operations including: (1) raising additional capital through debt financings or from other sources; (2) additional funding through new relationships to help fund future clinical trial costs (i.e. licensing and partnerships); (3) reducing spending on one or more research and development programs by discontinuing development; and/or (4) restructuring operations to change its overhead structure. The Company may issue securities, including common stock, preferred stock and stock purchase contracts through private placement transactions or registered public offerings, pursuant to its registration statement on Form S-3 initially filed with the Securities and Exchange Commission (“SEC”) on October 30, 2014. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates and key development and regulatory events and its decisions in the future.
The Company believes that the actions discussed above are probable of occurring and alleviating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements.
As discussed in Note 15, subsequent to June 30, 2017, the Company entered into a new $30 million common stock purchase agreement with Aspire Capital to replace the prior $30 million Aspire Capital agreement and additional proceeds of approximately $2.1 million was generated from the April 2015 agreement with Aspire Capital from July 1, 2017 to September 1, 2017.
3. Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, measurement of stock-based compensation, and the periods of performance under collaborative research and development agreements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Cash
Cash consist of bank deposits. There were no cash equivalents at June 30, 2017 and 2016.
Equipment
Equipment is stated at cost, net of accumulated depreciation. Expenditures that extend the life, increase the capacity, or improve the efficiency of property and equipment are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Depreciation is recognized using the straight-line method over the following approximate useful lives:
Intangible Assets - Patents
Costs incurred to file patent applications and acquired intangibles are capitalized when the Company believes that there is a high likelihood that the patent will be issued and there will be future economic benefit associated with the patent. These costs will be amortized on a straight-line basis over a 12 - 17 years life from the date of patent filing. All costs associated with abandoned patent applications are expensed. In addition, the Company will review the carrying value of patents for indicators of impairment on a periodic basis and if it determines that the carrying value is impaired, it values the patent at fair value. As of June 30, 2017 and 2016, carrying value of patent was approximately $4,212,000 and $4,311,000, respectively. Amortization expense for the fiscal years ended June 30, 2017, 2016 and 2015, was approximately $372,000, $404,000 and $394,000, respectively.
As of June 30, 2017, the Company expensed the costs associated with obtaining patents that have not yet developed products nor which have gained market acceptance and the Company has or will let these patents go abandoned. For the fiscal years ended June 30, 2017, 2016 and 2015, the Company has charged to operations approximately $4,000, $37,000 and $102,000, respectively as patent expenses included in general and administrative expenses.
In accordance with the provisions of the applicable authoritative guidance, the Company’s long-lived assets and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value. During the fiscal years ended June 30, 2017, 2016 and 2015, the Company has recorded impairment on patent costs of Delparantag and various patents of approximately $0, $648,000 and $0, respectively and included in general and administrative expenses.
Financial Instruments
The Company’s financial instruments include cash, accounts payable and accrued liabilities. The carrying amounts of these financial instruments approximate their fair value, due to the short-term nature of these items. The fair value hierarchy has the following three levels:
Level 1-quoted prices in active markets for identical assets and liabilities.
Level 2-observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3-unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
Certain Risks and Uncertainties
Product Development
We devote significant resources to research and development programs in an effort to discover and develop potential future product candidates. The product candidates in our pipeline are at various stages of preclinical and clinical development. The path to regulatory approval includes three phases of clinical trials in which we collect data to support an application to regulatory authorities to allow us to market a product for treatment of a specified disease. There are many difficulties and uncertainties inherent in research and development of new products, resulting in a high rate of failure. To bring a drug from the discovery phase to regulatory approval, and ultimately to market, takes many years and significant cost. Failure can occur at any point in the process, including after the product is approved, based on post-market factors. New product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved uses, reimbursement challenges, difficulty or excessive costs of manufacture, alternative therapies or infringement of the patents or intellectual property rights of others. Uncertainties in the FDA approval process and the approval processes in other countries can result in delays in product launches and lost market opportunities. Consequently, it is very difficult to predict which products will ultimately be submitted for approval, which have the highest likelihood of obtaining approval and which will be commercially viable and generate profits. Successful results in preclinical or clinical studies may not be an accurate predictor of the ultimate safety or effectiveness of a drug or product candidate.
Expenditures for research, development, and engineering of products are expensed as incurred. For the fiscal years ended June 30, 2017, 2016 and 2015, the Company incurred approximately $12,783,000, $8,952,000 and $10,531,000 of research and development costs, respectively.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit and checking accounts that at times exceed federally insured limits. Approximately $4 million is subject to credit risk at June 30, 2017. However, these cash balances are maintained at creditworthy financial institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Accrued Outsourcing Costs
Substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors, or collectively “CROs”. These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. We monitor patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the CROs, correspondence with the CROs and clinical site visits. Our estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive.
Valuation of Equity Grants
The Company accounts for all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company is required to measure the cost of employee services received in exchange for stock options and similar awards based on the grant-date fair value of the award and recognize this cost in the income statement over the period during which an employee is required to provide service in exchange for the award. The Company uses the Black-Scholes valuation model and has elected to use the ratable method to amortize compensation expense over the vesting period of the grant. The Company accounts for equity instruments issued to nonemployees by valuing them using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest.
Income Taxes
Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company has generated net losses since inception and accordingly has not recorded a provision for income taxes. The deferred tax assets were primarily comprised of federal and state tax net operating loss, or NOL, carryforwards. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset the deferred tax assets. Additionally, the future utilization of the NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.
The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company has identified its U.S. Federal income tax return and its State return in Massachusetts as its major tax jurisdictions. The fiscal 2014 and forward years are still open for examination.
Basic Loss per Share
Basic and diluted loss per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, restricted stock, warrants and convertible related party notes payable. Common share equivalents were excluded from the computation of diluted earnings per share for the years ended June 30, 2017, 2016 and 2015, because their effect was anti-dilutive (See Note 11 - Weighted Average Shares Outstanding).
Treasury Stock
The Company accounts for treasury stock using the cost method. There were 262,080 shares of treasury stock purchased at a cost of $220,000 at June 30, 2017 (see Note 13). There were no treasury shares held at June 30, 2016.
Treasury stock, representing shares of the Company’s common stock that have been acquired after having been issued, is recorded at its acquisition cost and these shares are no longer considered outstanding.
Accounting for Stock Based Compensation
The stock-based compensation expense incurred by the Company for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. “tax regulations”. Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50.
ASC 505-50-30-11 (previously EITF 96-18) further provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:
|
i.
|
The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and
|
|
|
|
|
ii.
|
The date at which the counterparty’s performance is complete.
|
We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units are measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line method.
The components of stock-based compensation related to stock options and restricted stock grants in the Company’s Statement of Operations for the fiscal years ended June 30, 2017, 2016 and 2015 are as follows (rounded to nearest thousand):
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Research and development expenses:
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
$
|
75,000
|
|
|
$
|
188,000
|
|
|
$
|
55,000
|
|
Employees’ compensation
|
|
|
139,000
|
|
|
|
-
|
|
|
|
103,000
|
|
Officers’ compensation
|
|
|
1,147,000
|
|
|
|
33,000
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional expenses
|
|
|
-
|
|
|
|
432,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors’ fees
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
Employees’ bonus
|
|
|
-
|
|
|
|
-
|
|
|
|
12,000
|
|
Consulting fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
1,361,000
|
|
|
$
|
713,000
|
|
|
$
|
400,000
|
|
Recent
Adopted
Accounting Pronouncements
Going Concern
— In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern-Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). The ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual periods, and interim periods within those annual periods, starting after December 15, 2016. We have implemented this new accounting standard and updated our liquidity disclosures, as required.
Deferred Taxes –
During November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified on a net basis as non-current in a statement of financial position. Early adoption of this ASU did not have an effect on our deferred tax assets and deferred tax liabilities on our accompanying balance sheets.
Debt Issuance Costs -
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The new standard will more closely align the presentation of debt issuance costs under U.S. generally accepted accounting principles with the presentation under comparable IFRS standards. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. Under current U.S. generally accepted accounting principles, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense. The costs will continue to be amortized to interest expense using the effective interest method. Subsequent to the issuance of ASU 2015-03 the Securities and Exchange Commission staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. This guidance, which clarifies the exclusion of line-of-credit arrangements from the scope of ASU 2015-03, is effective upon adoption of ASU 2015-03. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.
Stock Compensation -
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will simplify the income tax consequences, accounting for forfeitures and classification on the Statement of Cash Flows (i) excess tax benefits be classified as cash inflows provided by operating activities, and (ii) cash paid to taxing authorities arising from the withholding of shares from employees be classified as cash outflows used in financing activities. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. This new pronouncement has been adopted on July 1, 2016 and did not have a material effect on the Company’s financial position, results of operations, but had an effect of the classification of cash paid to taxing authorities arising from the withholding of shares from employees (treasury stock), classified as cash outflows used in financing activities.
In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation. The amendments in this ASU apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. This ASU is the final version of Proposed ASU EITF-13D--Compensation--Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which has been deleted. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The implementation of this standard did not have a material impact on the Company’s accompanying financial statements.
Standards Issued Not Yet Adopted
In May 2014, the FASB issued authoritative guidance that defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a single comprehensive five-step principles based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In August 2015, the FASB deferred the effective date of the new revenue standard by one year. As a result, the new standard would not be effective for the Company until 2019. In addition, the FASB is allowing companies to early adopt this guidance for non-public entities beginning in fiscal year 2017. The guidance permits an entity to apply the standard retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company will apply this new guidance when it becomes effective and has not yet selected a transition method. The Company, due to not having any revenue currently and in the foreseeable future, has concluded that the impact of the adoption of this accounting standard on its financial statements will not be material.
In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires that a lessee 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. For finance leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in Topic 842 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management has determined that based on current accounting and lease contract information the adoption of ASU No. 2016-02 is not expected to have a significant impact on the Company’s financial position, results of operations and disclosures. However, management is continually evaluating the future impact of ASU No. 2016-02 based on changes in the Company’s financial statements through the period of adoption.
4
. Patents, net
Patents, net consisted of the following (rounded to nearest thousand):
|
|
Useful life
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Patent Rights- Brilacidin, and related compounds
|
|
14
|
|
|
$
|
4,082,000
|
|
|
$
|
4,082,000
|
|
Purchased Patent Rights-Anti-microbial- surfactants and related compounds
|
|
12
|
|
|
|
144,000
|
|
|
|
144,000
|
|
Patents - Kevetrin and related compounds
|
|
17
|
|
|
|
1,308,000
|
|
|
|
1,035,000
|
|
|
|
|
|
|
|
5,534,000
|
|
|
|
5,261,000
|
|
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds
|
|
|
|
|
|
(1,158,000
|
)
|
|
|
(855,000
|
)
|
Accumulated amortization for Patents-Kevetrin and related compounds
|
|
|
|
|
|
(164,000
|
)
|
|
|
(95,000
|
)
|
Total
|
|
|
|
|
$
|
4,212,000
|
|
|
$
|
4,311,000
|
|
The patents are amortized on a straight-line basis over the estimated remaining useful lives of the assets, determined 12-17 years from the date of acquisition.
Amortization expense for the fiscal years ended June 30, 2017, 2016 and 2015, was approximately $372,000, $404,000 and $394,000, respectively. In fiscal year 2016, $134,000 of accumulated amortization on patents was written off related to the impairment of patents.
Based on managements’ assessment of certain business factors, it was determined that certain particular patents held by the Company would not be used in the future and were therefore impaired at June 30, 2016. The Company recorded a full impairment of its patent rights to Delparantag and other patents in the latter part of April 2016. Delparantag was acquired by the Company in the purchase of the patent assets from the Polymedix Estate. The Company believes that the Delparantag compound, which had clinical activity but also safety concerns in a prior clinical trial by Polymedix, is now a low priority compound for further development, among the compounds held in the Company’s patent portfolio and will not be placed into future clinical trials. The decision by management was also made after factoring in today’s potential regulatory and litigious climate in commercializing these compounds. During the fourth quarter of its fiscal year ended June 30, 2016, the Company recorded an impairment on the patent costs for Delparantag of approximately $377,000 (the patent cost of $480,000 less $103,000 of accumulated amortization) and recorded an impairment on the patent costs of various patents held (included in the above table under the heading Patents - Kevetrin and related compounds) of approximately $271,000 (the patent cost of $302,000 less $31,000 of accumulated amortization). As a result, a total impairment of $0, $648,000 and $0 was recorded on the accompanying statement of operations for the year ended June 30, 2017, 2016 and 2015, respectively.
At June 30, 2017, the future amortization period for all patents was approximately 8.18 years to 17 years. Future estimated annual amortization expenses are approximately $377,000 for each year from 2018 to 2025, $367,000 for the year ending June 30, 2026, $365,000 for the year ending June 30, 2027, $127,000 for the year ending June 30, 2028, $74,000 for the years ending June 30, 2029 through the years ended 2032, $34,000 for the year ending June 30, 2033 and $7,000 for the year ending June 30, 2034.
5
. Property, plant and equipment, net
Property, plant and equipment, net consisted of the following (rounded to nearest thousand):
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Testing equipment
|
|
$
|
183,000
|
|
|
$
|
120,000
|
|
Less: Accumulated depreciation
|
|
|
(63,000
|
)
|
|
|
(30,000
|
)
|
|
|
$
|
120,000
|
|
|
$
|
90,000
|
|
Depreciation expense for the fiscal years ended June 30, 2017, 2016 and 2015 was approximately $33,000, $16,000 and $10,000, respectively.
6
. Accrued Expenses
– Related Parties and Other
Accrued expenses consisted of the following (rounded to nearest thousand):
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Accrued research and development consulting fees
|
|
$
|
673,000
|
|
|
$
|
25,000
|
|
Accrued rent (Note 9) - related parties
|
|
|
21,000
|
|
|
|
32,000
|
|
Accrued interest - related parties
|
|
|
17,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
711,000
|
|
|
$
|
97,000
|
|
7
. Accrued Salaries and Payroll Taxes - Related Parties And Other
Accrued salaries and payroll taxes consisted of the following (rounded to nearest thousand):
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Accrued salaries - related parties
|
|
$
|
2,823,000
|
|
|
$
|
2,647,000
|
|
Accrued payroll taxes - related parties
|
|
|
130,000
|
|
|
|
130,000
|
|
Accrued salaries - employees
|
|
|
86,000
|
|
|
|
-
|
|
Withholding tax
|
|
|
105,000
|
|
|
|
57,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,144,000
|
|
|
$
|
2,834,000
|
|
On December 29, 2010, the Company entered into employment agreements with its two executive officers, Leo Ehrlich, the Company’s Chief Executive Officer, and Krishna Menon, Chief Scientific Officer. Both agreements provide for a three year term with each executive receiving an annual base salary of $350,000 per year commencing January 1, 2011, with an annual increase of 10% for each year commencing January 2012. The Board, at its discretion, may increase the base salary based upon relevant circumstances. On January 1, 2014 the Board approved the extension of the employment agreements for a one year period with a 10% increase in salary from the calendar year 2013 annual salary of $423,500, to an annual salary of $465,850. Until new employment agreements are entered into, we will continue paying the officer’s salaries at this rate per annum.
As of June 30, 2017, the Company accrued bonus payments to (1) Ms. Jane Harness of approximately $76,000, (2) Ms. Anne Ponugoti of approximately $10,000, and (3) a deferred bonus payment to Dr. Bertolino, in accordance with his employment agreement target bonus amount of 40% of his base salary of $440,000. These bonus payments were approved by Compensation Committee of the Board on August 31, 2017.
8. Commitments and Contingencies
Lease Commitments
Operating Leases – Rental Property
The Company signed a lease extension agreement with Cummings Properties which began on October 1, 2013. The lease is for a term of five years ending on September 30, 2018, and requires monthly payments of $18,000. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of the Company, has co-signed the lease and subleases 200 square feet of space previously used by the Company and pays the Company $900 per month.
As of June 30, 2017, future minimum lease payments to Cummings Properties required under the non-cancelable operating lease are as follows (rounded to nearest thousand):
Year ending June 30,
|
|
|
|
2018
|
|
$
|
217,000
|
|
2019
|
|
|
54,000
|
|
Total minimum payments
|
|
$
|
271,000
|
|
Rent expense, net of lease income, under this operating lease agreement was approximately $205,000, $203,000 and $207,000 for the years ended June 30, 2017, 2016 and 2015, respectively. Before September, 2013, the Company paid rent to KARD for share of office space and details are shown at Note 9. Related Party Transactions.
Operating Leases - Equipment
We lease equipment under a non-cancelable operating lease that expires in April, 2018. The future minimum rental commitment for our operating lease for the next 12 months is $34,000, as of June 30, 2017.
Contractual Commitments
The Company has total contractual minimum commitments of approximately $6 million to Contract Research Organizations as of June 30, 2017. Expenses are recognized when services are performed by the Contract Research Organizations.
Employment Agreement
On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as the President and Chief Medical Officer of the Company, effective on June 27, 2016 (See Note 12).
Litigation
A complaint entitled
O’Connell v. Cellceutix Corp. et al.
(No. 1:15-cv-07194) was filed in the United States District Court for the Southern District of New York in September 2015 against the Company and its officers alleging that the defendants made materially false and misleading statements, and omitted materially adverse facts, about the Company’s business, operations and prospects. On June 9, 2016, the U.S. District Court for the Southern District of New York granted the Company’s motion to dismiss the lawsuit. The ruling dismissed all claims against Cellceutix, denied the plaintiff’s request to file an amended complaint, and ordered that the case be closed. The action was subject to a potential appeal which was withdrawn on September 2, 2016.
9
. Related Party Transactions
Office Lease
Dr. Menon, the Company’s principal shareholder, President of Research, and Director, also serves as the Chief Operating Officer and Director of Kard Scientific (“KARD”). On December 7, 2007, the Company began renting office space from KARD, and since September 1, 2013, the Company no longer leases space from Kard. At June 30, 2017 and June 30, 2016, rent payable to KARD of approximately $21,000 and $32,000, respectively, were included in accrued expenses.
In September 2013, the Company signed a lease extension agreement with Cummings Properties for the company’s offices and laboratories at 100 Cummings Center, Suite 151-B Beverly, MA 01915. The lease is for a term of five years from October 1, 2013 to September 30, 2018 and requires monthly payments of approximately $18,000. The Company had taken over the space occupied by KARD. In addition, Innovative Medical Research Inc., (“Innovative Medical”) a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of the Company, has co-signed the lease and rents approximately 200 square feet of office space, the space previously used by the Company and pays the Company $900 per month, the same amount the Company previously paid KARD. Innovative Medical paid rent of $11,000 for the years ended June 30, 2017 and 2016 and 2015. The rental payment was offset with the accrued rent owed to KARD.
Clinical Studies
The Company previously engaged KARD to conduct specified pre-clinical studies. The Company did not have an exclusive arrangement with KARD. All work performed by KARD needed prior approval by the executive officers of the Company, and the Company retained all intellectual property resulting from the services by KARD. The Company now has its own research study capabilities and no longer uses KARD. At June 30, 2017 and June 30, 2016, the accrued research and development expenses payable to KARD was approximately $1,486,000 and this amount was included in accounts payable.
Other related party transactions are disclosed in Note 10 below.
1
0
.
Convertible
Note Payable - Related Party
During the year ended June 30, 2010, Mr. Ehrlich loaned the Company a total of approximately $973,000. A condition for this note was that the Ehrlich Promissory Note A and Ehrlich Promissory Note B be replaced with a new note, Ehrlich Promissory Note C. The Ehrlich Promissory Note C is an unsecured demand note that bears 9% simple interest per annum and is convertible into the Company’s Class A common stock at $0.50 per share. The note requires that the interest rate on the amounts due on Ehrlich Promissory Notes A and B be changed retroactively, beginning October 1, 2009, to 9%. On April 1, 2011, the Company amended the Ehrlich Promissory Note C and agreed to retroactively convert accrued interest of approximately $97,000 through December 31, 2010 into additional principal. During the year ended June 30, 2011, Mr. Ehrlich loaned the Company an additional (approximate) $997,000 which brought the total balance of the demand note to approximately $2,002,000. During the year ended June 30, 2012, Mr. Ehrlich loaned the Company an additional $20,000 which brought the balance of this demand note to approximately $2,022,000.
On May 8, 2012, the Company did not have the ability to repay the Ehrlich Promissory Note C loan and agreed to change the interest rate on the outstanding balance of principal and interest of approximately $2,248,000, as of March 31, 2012, from 9% simple interest to 10% simple interest, and the Company issued 2,000,000 Equity Incentive Options exercisable at $0.51 per share equal to 110% of the closing bid price of $0.46 per share on May 7, 2012. Options are valid for ten (10) years from the date of issuance.
At June 30, 2017 and June 30, 2016, approximately $17,000 and $40,000, respectively, is the accrued interest payable on this note.
At June 30, 2017 and June 30, 2016, principal balance of this demand note was approximately $2,022,000.
1
1
. Weighted Average Shares Outstanding
Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings per share were as follows:
|
|
Years Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic
|
|
|
127,285,861
|
|
|
|
119,908,145
|
|
|
|
115,087,368
|
|
Dilutive options and restricted stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares outstanding-diluted
|
|
|
127,285,861
|
|
|
|
119,908,145
|
|
|
|
115,087,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive securities not included:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and convertible note shares
|
|
|
44,733,477
|
|
|
|
44,570,736
|
|
|
|
42,953,318
|
|
Restricted stock grants
|
|
|
601,728
|
|
|
|
1,066,667
|
|
|
|
-
|
|
Warrants
|
|
|
-
|
|
|
|
25,000
|
|
|
|
1,507,000
|
|
Total
|
|
|
45,335,205
|
|
|
|
44,662,433
|
|
|
|
44,460,318
|
|
12.
Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding
Equity Incentive Plans
2009 Stock Option Plan
On April 5, 2009 the Board of Directors of the Company adopted the 2009 Stock Option Plan (“the 2009 Plan”). The 2009 Plan permits the grant of 2,000,000 shares of both Incentive Stock Options (“ISOs”), intended to qualify under section 422 of the Code, and Non-Qualified Stock Options.
2010 Equity Incentive Plan
Under the 2010 Equity Incentive Plan (the “2010 Plan”) adopted by the Board of Directors in December 2010, the total number of shares of Class A or Class B common stock reserved and available for issuance under the 2010 Plan is 45,000,000 shares. Shares of common stock under the 2010 Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. The term of each stock option shall be fixed as provided, however, an ISO may be granted only within the ten-year period commencing from the effective date of the 2010 Plan and may only be exercised within ten years of the date of grant (or five years in the case of an ISO granted to an optionee who, at the time of grant, owns common stock possessing more than 10% of the total combined voting power of all classes of voting stock of the Company).
2016 Equity Incentive Plan
On June 30, 2016, the Board of Directors adopted the Cellceutix Corporation 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan became effective upon adoption by the Board of Directors on June 30, 2016.
Up to 20,000,000 shares of the Company’s Class A common stock may be issued under the 2016 Plan (subject to adjustment as described in the 2016 Plan); provided that, no Outside Director (as defined in the 2016 Plan) may be granted awards covering more than 250,000 shares of common stock in any year and no participant shall be granted, during any one year period, options to purchase common stock and stock appreciation rights with respect to more than 4,000,000 shares of common stock in the aggregate or any other awards with respect to more than 2,500,000 shares of common stock in the aggregate. The 2016 Plan permits the grant of ISOs, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, directors, and consultants of the Company and its affiliates.
In connection with adoption of the 2016 Plan, the Board of Directors also approved forms of Incentive Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Non-Employee Directors, Restricted Stock Award Agreement for Employees and Restricted Stock Award Agreement for Non-Employee Directors that will be utilized by the Company to grant options and restricted shares under the 2016 Plan.
Stock
O
ption
s Issued and Outstanding
The following table summarizes all stock option activity under the Company’s equity incentive plans:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
39,007,500
|
|
|
$
|
0.14
|
|
|
|
6.50
|
|
|
$
|
59,613,000
|
|
Granted
|
|
|
155,000
|
|
|
|
3.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(320,000
|
)
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(80,000
|
)
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2015
|
|
|
38,762,500
|
|
|
$
|
0.15
|
|
|
|
5.54
|
|
|
$
|
94,217,650
|
|
Granted
|
|
|
1,871,258
|
|
|
|
1.58
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(74,000
|
)
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(115,000
|
)
|
|
|
0.61
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
40,444,758
|
|
|
|
0.22
|
|
|
|
4.58
|
|
|
$
|
48,185,911
|
|
Granted
|
|
|
398,749
|
|
|
|
1.29
|
|
|
|
9.09
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(188,262
|
)
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
40,655,245
|
|
|
|
0.22
|
|
|
|
3.61
|
|
|
$
|
31,662,730
|
|
Exercisable at June 30, 2017
|
|
|
40,143,339
|
|
|
$
|
0.21
|
|
|
|
3.54
|
|
|
$
|
31,660,700
|
|
The fair value of options granted for the years ended June 30, 2017, 2016 and 2015 was estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table.
|
|
Year Ended June 30
|
|
|
|
201
7
|
|
201
6
|
|
201
5
|
|
Expected term (in years)
|
|
3 - 10
|
|
3 - 10
|
|
3
|
|
Expected stock price volatility
|
|
57.63% to 111.62%
|
|
56.52% to 112.71%
|
|
62.79% to 65.84%
|
|
Risk-free interest rate
|
|
0.71% to 2.49%
|
|
0.88% to 1.74%
|
|
0.76% to 1.19%
|
|
Expected dividend yield
|
|
0
|
|
0
|
|
0
|
|
Stock-Based Compensation
The Company recognized approximately $1,361,000, $713,000 and $400,000 of total stock-based compensation expense for the years ended June 30, 2017, 2016 and 2015 respectively. The $1,361,000 of stock- based compensation expense for the year ended June 30, 2017 included approximately $533,000 of stock options expense and $828,000 of stock awards (see Note 13).
For the fiscal year ended June 30, 201
7
On July 18, 2016, the Company issued 7,500 stock options to purchase shares of the Company’s common stock to a consultant for services rendered, exercisable for 3 years at $1.38 per share of common stock. The value of these 7,500 options was approximately $4,000. During the year ended June 30, 2017, the Company recorded approximately $4,000 of stock option expense for this option grant.
On September 1, 2016, the Company and Jane Harness entered into an executive employment agreement as the Company’s VP, Clinical Sciences and Portfolio Management, effective on September 1, 2016. Commencing on September 1, 2016, the Company agreed to pay Ms. Harness an annual salary of $250,000. In addition, the Company agreed to grant to Ms. Harness, under the 2016 Plan (i) 58,394 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, one third (33 1/3 %) upon the second anniversary of the effective date, and the remaining one third (33 1/3 %) upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company. Ten-year options to purchase 172,987 shares of the Company’s common stock were also granted at an exercise price of $1.37 per share, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 58,394 shares were valued at approximately $80,000, which will be amortized over three years to September 1, 2019. The 172,987 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They will be amortized over 3 years to September 1, 2019. During the year ended June 30, 2017, the Company recorded approximately $83,000 of stock-based compensation expense for these equity grants, including approximately $61,000 of stock option expense and $22,000 for the stock awards.
On September 15, 2016, the Company and LaVonne Lang entered into an employment agreement as the Company’s VP, Regulatory Affairs, effective on September 15, 2016. Commencing on September 15, 2016, the Company agreed to pay Dr. Lang an annual salary of $250,000. In addition, the Company agreed to grant to Dr. Lang under the 2016 Plan (i) 63,492 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, one third (33 1/3 %) upon the second anniversary of the effective date, and the remaining one third (33 1/3 %) upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company. Ten-year options to purchase 188,262 shares of the Company’s common stock were also granted at an exercise price of $1.26 per share, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 63,492 shares were valued at approximately $80,000, which will be amortized over three years to September 15, 2019. The 188,262 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They will be amortized over 3 years to September 15, 2019. During the year ended June 30, 2017, the Company recorded approximately $50,000 of stock-based compensation expense for these equity grants, including approximately $37,000 of stock option expense and $13,000 for the stock awards. Dr. Lang resigned on March 17, 2017 and the 63,492 restricted shares and the 188,262 stock options were forfeited.
On January 9, 2017, the Company and Anne Ponugoti entered into an employment agreement as the Company’s Associate Director, Clinical Sciences, effective on February 1, 2017. Pursuant to the employment agreement, the Company issued 10,000 shares of restricted stock and options to purchase 30,000 shares of common stock under the 2016 Plan. During the year ended June 30, 2017, the Company recorded approximately $6,000 of stock-based compensation expense for these equity grants, including approximately $4,000 of stock option expense and $2,000 for the stock awards.
For the fiscal year ended June 30, 2016
On July 10, 2015, the Company issued 7,028 shares and 50,000 stock options to purchase shares of the Company’s common stock to a consultant for services rendered. The stock options were valued at approximately $60,000, based on the closing bid price as quoted on the OTC on July 10, 2015 at $2.64 per share. These options were issued with an exercise price of $2.49 and vested immediately, with a three year option term. These options have piggyback registration rights. During the year ended June 30, 2016, the Company recorded approximately $60,000 of stock option expense for this equity grant.
On September 30, 2015, the Company recorded approximately $20,000 of stock option expense regarding the 50,000 stock options to purchase shares of the Company’s common stock at $2.93 per share to Dr. William James Alexander.
On November 5, 2015, the Company issued one million stock options to purchase shares of the Company’s common stock to a law firm for services, valued at approximately $432,000, based on the closing bid price as quoted on the OTC on November 5, 2015 at $1.36 per share. These options were issued with an exercise price of $1.70 and vested immediately, with a three year option term. These options have piggyback registration rights. During the year ended June 30, 2016, the Company recorded approximately $432,000 of stock option expense for this equity grant.
On February 16, 2016, the Company issued 119,424 stock options to purchase shares of the Company’s common stock to two consultants for services, valued at approximately $55,000, based on the closing bid price as quoted on the OTC on February 16, 2016 at $1.15 per share. These options were issued with an exercise price of $1.105. One third of these stock options vested immediately, one third vested in six months (August 11, 2016), and the balance vested on February 11, 2017, and will be valid for a period of three years. These options have piggyback registration rights. During the year ended June 30, 2017 and 2016, the Company recorded approximately $16,000 and $39,000 of stock options expense, respectively, for these equity awards.
On April 6, 2016, the Company issued 25,000 shares and 25,000 stock options to purchase shares of the Company’s common stock to a consultant for service. The stock options were valued at approximately $14,000, based on the closing bid price as quoted on the OTC on April 6, 2016 at $1.61 per share. These options were issued with an exercise price of $1.77 and vested on April 30, 2017, with a three year option term. These options have piggyback registration rights. During the year ended June 30, 2017 and 2016, the Company recorded approximately $11,000 and $3,000 of stock option expenses for these equity grants, respectively. The value of these 25,000 shares at $1.61 per share was approximately $40,250 (see Note 13).
On June 10, 2016, the Company issued 19,665 stock options to purchase shares of the Company’s common stock each to three directors for service, valued at approximately $60,000, based on the closing bid price as quoted on the OTC on June 10, 2016 at $1.58 per share. These stock options were issued with an exercise price of $1.58 and vested immediately, with a five year option term. These options have piggyback registration rights. During the year ended June 30, 2016, the Company recorded approximately $60,000 of stock option expense for these equity grants.
On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as our President and Chief Medical Officer, effective on June 27, 2016. Commencing on June 27, 2016, the Company agreed to pay Dr. Bertolino an annual salary of $440,000. In addition, the Company agreed to grant to Dr. Bertolino under the 2016 Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company’s Class A common stock at an exercise price of $1.39 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the effective date, and the remaining 50% upon the second anniversary of the effective date (2) completion of both a Phase 2b psoriasis study and a Phase 2 oral mucositis study; (3) the Company’s common stock closes above $3.00 per share (as may be adjusted for any stock splits or similar actions); (4) the commencement of trading of the Company’s common stock on a national securities exchange (e.g. Nasdaq or the NYSE); or (5) upon a Change in Control (as defined in the employment agreement) of the Company. The Company could not conclude that it was probable that these awards will fully vest until the second anniversary of the effective date, because such events listed above are outside the Company’s control. The Company will evaluate the probability of these events occurring for each reporting period. The 1,066,667 shares were valued at approximately $1.5 million, which will be amortized over two years to June 27, 2018. The 617,839 stock options were valued at approximately $800,000 and will be exercisable for 10 years at an exercise price of $1.39 per share. They will be amortized over 2 years to June 27, 2018 or sooner if the Company determines that it is probable that one of the events listed above will occur. During the year ended June 30, 2017 and 2016, the Company recorded approximately $1,147,000 and $13,000 of stock-based compensation expense – Officer, for these equity grants, respectively. The $1,147,000 of stock-based compensation – Officer in 2017 included approximately $400,000 of stock option expense and $747,000 of stock awards. The $13,000 of stock-based compensation – Officer in 2016 included approximately $5,000 of stock option expense and $8,000 of stock awards.
The Company may award Dr. Arthur P. Bertolino an annual bonus at the sole discretion of the Board of Directors of the Company. The Company may accelerate the amortization of the $0.7 million stock-based compensation expense if there are conditions which will accelerate the vesting, as mentioned above. At June 30, 2017, it was determined by management that it was not probable that these accelerated vesting conditions would occur and therefore there was no accrual recorded for the contingent acceleration and recording of this stock-based compensation expense.
For the fiscal year ended June 30, 2015
On October 20, 2014 the Board of Directors approved the appointment of Dr. William James Alexander as the Chief Operations Officer of the Company for the term of one year effective October 27, 2014. Pursuant to his employment agreement, Dr. Alexander received immediately 50,000 shares of the Company’s common stock as a sign-on bonus and 50,000 stock options to purchase shares of the Company’s common stock at $2.93 per share. Such options vest in equal installments on July 27, 2015 and October 27, 2015 and the option life is 3 years and expires on July 27, 2018 and October 27, 2018, respectively.
On December 26, 2014 the Board of Directors approved the cash and option bonus payments to officers and employees, including cash of $250,000 each to Mr. Leo Ehrlich, our CEO and Dr. Krishna Menon, our President at the time, and 25,000 options exercisable for 3 years at $4.71 per share of common stock to Dr. William James Alexander, our COO and 65,000 options exercisable for 3 years at $4.29 per share of common stock, to our employees.
On May 12, 2015, the Company issued 15,000 options to a consultant for his one year contract and exercisable for 3 years at $2.56 per share of common stock. The total value of these 15,000 shares of stock option was approximately $17,000 and we recognized approximately $17,000 of stock based compensation costs and charged to additional paid-in capital as of June 30, 2015. The assumptions we used in the Black Scholes option-pricing model were disclosed as above.
Exercise of options
During the year ended June 30, 2017, there were no stock options exercised.
During the year ended June 30, 2016, the Company received an aggregate of approximately $28,000 in total, including the $12,000 of subscription receivable of 2015 and the $16,000 for the exercise of 14,000 common stock options at $1.105 per share. In addition, the Company recorded a subscription receivable of approximately $26,000 for the exercise of 60,000 options at a price from $0.17 to $0.64 per share (See Note 13).
During the year ended June 30, 2015, the Company received an aggregate of approximately $100,000 in total and recorded subscription receivable of approximately $12,000 for the exercise of 320,000 options at a price from $0.20 to $0.47 per share (See Note 13).
Stock Warrants
Outstanding
For the fiscal year ended June 30, 201
7
During the year ended June 30, 2017, there were no warrants issued and 25,000 expired.
For the fiscal year ended June 30, 2016
During the year ended June 30, 2016, there were no warrants issued and there were 1,482,000 warrants expired.
For the fiscal year ended June 30, 2015
On July 11, 2014, the Company issued 200,000 shares of Class A common stock to a warrant holder upon exercise of common stock purchase warrants exercisable at $1 per share. The Company received an aggregate of $200,000 in total for the exercise of 200,000 warrants. The issuance was exempt from registration under Section 4(a)(2) of the Securities Act.
On November 24, 2014, the Company issued 370,500 shares of Class A common stock to a warrant holder upon exercise of common stock purchase warrants exercisable at $1 per share and 370,500 shares of Class A common stock to a warrant holder upon exercise of common stock purchase warrants exercisable at $0.50 per share. The Company received an aggregate of $556,000 in total for the exercise of 741,000 warrants. The issuance was exempt from registration under Section 4(a)(2) of the Securities Act.
The following table summarizes the outstanding stock warrants:
|
|
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at June 30, 2014
|
|
|
2,448,000
|
|
|
$
|
1.01
|
|
|
|
1.43
|
|
|
$
|
1,623,000
|
|
Extended
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
(941,000
|
)
|
|
|
0.80
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2015
|
|
|
1,507,000
|
|
|
$
|
1.14
|
|
|
|
0.52
|
|
|
$
|
2,156,310
|
|
Extended
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(1,482,000
|
)
|
|
|
1.13
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
25,000
|
|
|
$
|
1.79
|
|
|
|
0.56
|
|
|
$
|
-
|
|
Extended
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(25,000
|
)
|
|
|
1.79
|
|
|
|
-
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
1
3
.
Equity
Transactions
For the fiscal year ended June 30, 201
7
$30 million Class A Common Stock Purchase Agreement with Aspire Capital
On March 30, 2015, the Company entered into a common stock purchase agreement with Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 36-month term of the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued to Aspire Capital 160,000 shares of its Class A common stock as a commitment fee. The commitment fee of approximately $499,000 is amortized as the funding is received. The amortized amounts of $131,000 and $136,000 were recorded to additional paid-in capital during the years ended June 30, 2017 and 2016. The unamortized portion is carried on the balance sheet as deferred offering costs and was $227,000 and $358,000 at June 30, 2017 and 2016, respectively. During the period from March 30, 2015 to June 30, 2017, the Company had completed sales to Aspire totaling 14.7 million shares of common stock generating gross proceeds of approximately $16 million. As of June 30, 2017, the available balance is approximately $14 million under this stock purchase agreement.
Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with Aspire Capital, in which the Company agreed to file one or more registration statements, as permissible and necessary to register, under the Securities Act of 1933, as amended, the sale of the shares of the Company’s common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. The Company has filed with the Securities and Exchange Commission a prospectus supplement, dated March 31, 2015, to the Company’s prospectus filed as part of the Company’s effective $75 million shelf registration statement on Form S-3, File No. 333-199725, registering all of the shares of common stock that have been or may be offered and sold to Aspire Capital from time to time.
During the year ended June 30, 2017 and 2016, the Company had completed sales to Aspire Capital totaling 9 million shares and 5.7 million shares of common stock generating gross proceeds of approximately $7.9 million and $8.2 million, respectively.
Stock Purchase Agreement
On March 28, 2017, the Company entered into stock purchase agreements with certain investors (“Offering”), pursuant to which the Company agreed to sell 2,471,912 shares of its Class A common stock at $0.89 per share in a registered direct offering, without an underwriter or placement agent. The offering closed on March 31, 2017. The total proceeds to the Company from the Offering were $2.2 million. The Company intends to use the proceeds from the Offering for general corporate purposes.
Issuance of Common Stock to Consultants and Employees
On July 18, 2016, the Company issued 7,500 shares to a consultant for service rendered. The value of these 7,500 shares at $1.38 per share was approximately $10,000.
On August 1, 2016, the Company issued 11,720 shares to a consultant for service rendered. The value of these 11,720 shares at $1.28 per share was approximately $15,000.
On June 2, 2017, the Company issued 22,500 shares to a consultant for service rendered. The value of these 22,500 shares at $0.84 per share was approximately $19,000.
Issuances of Common Stock and Stock Options – Pursuant to
New
Employment Agreements
On September 1, 2016, the Company and Jane Harness entered into an executive employment agreement as the Company’s VP, Clinical Sciences and Project Management, effective on September 1, 2016. Pursuant to the employment agreement, the Company issued 58,394 shares of restricted stock and options to purchase 172,987 shares of common stock to Ms. Harness under the Company’s 2016 Plan. See Note 10 for additional information concerning the restricted stock and stock options granted to Ms. Harness.
On September 15, 2016, the Company and LaVonne Lang entered into an employment agreement as the Company’s VP, Regulatory Affairs, effective on September 15, 2016. Pursuant to the employment agreement, the Company issued 63,492 shares of restricted stock and stock options to purchase 188,262 shares of common stock to Dr. Lang under the Company’s 2016 Plan. See Note 10 for additional information concerning the restricted stock and stock options granted to Dr. Lang. Dr. Lang resigned on March 17, 2017 and the 63,492 shares and the 188,262 stock options granted were forfeited.
On January 9, 2017, the Company and Anne Ponugoti entered into an employment agreement as the Company’s Associate Director, Clinical Sciences, effective on February 1, 2017. Pursuant to the employment agreement, the Company issued 10,000 shares of restricted stock and options to purchase 30,000 shares of common stock to Anne Ponugoti under the Company’s 2016 Plan. See Note 10 for additional information concerning the restricted stock and stock options granted to Anne Ponugoti.
Purchase of Treasury Stock
- cash paid to Federal and State Taxing Authorities arising from the withholding of common shares from an officer’s vested restricted stock grant issuance
On June 27, 2017, 533,333 shares of the Company’s restricted stock vested to Dr. Bertolino according to Dr. Bertolino’s employment agreement. The total taxable compensation to Dr. Bertolino for the 533,333 vested shares was $448,000, which is priced at the closing stock price on June 26, 2017 at $.84 a share.
The Company issued 271,253 common shares (net share issuance amount), which is approximately 51% of the total vested common share amount of 533,333 common shares due to be issued to Dr. Bertolino. The remaining 262,080 shares of common stock were withheld from Dr. Bertolino for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as Treasury Stock, at cost, on the Company’s accompanying balance sheets.
The following summarizes our restricted stock activity for the above restricted stock issuances:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
Number of
|
|
|
Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
|
|
|
|
|
Total awards outstanding at June 30, 2016
|
|
|
1,066,667
|
|
|
$
|
1.40
|
|
Total shares granted
|
|
|
131,886
|
|
|
|
1.29
|
|
Total shares vested
|
|
|
(533,333
|
)
|
|
|
1.40
|
|
Total shares forfeited
|
|
|
(63,492
|
)
|
|
|
1.26
|
|
Total shares outstanding at June 30, 2017
|
|
|
601,728
|
|
|
$
|
1.39
|
|
Scheduled vesting for outstanding restricted stock at June 30, 2017 is as follows:
|
|
Year Ending June 30,
|
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Total
|
|
Scheduled vesting—restricted stock
|
|
|
556,132
|
|
|
|
22,798
|
|
|
|
22,798
|
|
|
|
-
|
|
|
|
601,728
|
|
As of June 30, 2017, there was $0.8 million of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements. This compensation is recognized on a straight-line basis resulting in approximately $0.8 million of compensation expected to be expensed over the next twelve months, and the total unrecognized stock-based compensation expense having a weighted average recognition period of 1.09 years.
For the fiscal year ended June 30, 2016
$30 million Class A Common Stock Purchase Agreement with Aspire Capital
During the year ended June 30, 2016, the Company had completed sales to Aspire Capital totaling 5,700,000 shares of common stock generating gross proceeds of approximately $8.2 million. The amortized amount of $136,000 and $5,000 were debited to additional paid-in capital during the year ended June 30, 2016 and 2015. The unamortized portion is carried on the balance sheet as deferred offering costs and was $358,000 at June 30, 2016.
Issuance of Common Stock by Exercise of Common Stock Options
During the year ended June 30, 2016, the Company received cash of $15,000 in total and recorded subscription receivable of $25,400 for the exercise of 74,000 common stock options at a range of $0.42 to $1.11 per share.
Issuance of Common Stock to Consultants For Services
On July 10, 2015, the Company issued 7,028 restricted shares of Class A common stock and 50,000 stock options to purchase shares of the Company’s common stock to a consultant for services rendered. The shares were granted and vested on July 10, 2015. The shares were valued at $17,500.
On February 9, 2016, the Company issued 10,000 shares of Class A common stock to a consultant for services rendered. The shares were granted and vested on February 9, 2016. The shares were valued at $11,200.
On April 6, 2016, the Company issued 25,000 shares of Class A common stock and 25,000 stock options to purchase shares of the Company’s common stock, to a consultant for services rendered. The shares were granted and vested on April 6, 2016 and the options were exercisable for 3 years at $1.77 per share of common stock (see Note 12). These shares were valued at $40,000.
On May 22, 2016, the Company issued 5,000 shares of Class A common stock each to two consultants for services rendered. The shares were granted and vested on May 22, 2016. These shares were valued at $16,400.
Issuance of Common Stock - Employment Agreement
On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as our Chief Medical Officer of the Company, effective on June 27, 2016 and the Company agreed to grant to Dr. Bertolino under the Company’s 2016 Equity Incentive Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company’s Class A common stock at an exercise price of $1.39 per share. See Note 10 for additional information concerning the restricted stock and stock options granted to Dr. Bertolino.
For the fiscal year ended June 30, 2015
$20 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC
During the period from October 25, 2013 to March 5, 2015, the Company had completed sales to Aspire Capital totaling 8,890,379 shares of common stock generating gross proceeds of approximately $20 million. The amortized amount of the commitment fee of $295,000 was debited to additional paid-in capital during the year ended June 30, 2015.
$30 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC
On March 30, 2015, the Company entered into a common stock purchase agreement (the “March 2015 Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 36-month term of the March 2015 Agreement. In consideration for entering into the March 2015 Agreement, the Company issued to Aspire Capital 160,000 shares of its Class A common stock as a commitment fee. The commitment fee of approximately $499,000 is amortized as the funding is received. The amortized amount of $5,000 was debited to additional paid-in capital during the year ended June 30, 2015.
During the period from March 30, 2015 to June 30, 2015, the Company had completed sales to Aspire Capital totaling 100,000 shares of common stock generating gross proceeds of approximately $0.3 million.
Concurrently with entering into the March 2015 Agreement, the Company also entered into a registration rights agreement with Aspire Capital, in which the Company agreed to file one or more registration statements, as permissible and necessary to register, under the Securities Act of 1933, as amended, the sale of the shares of the Company’s common stock that have been and may be issued to Aspire Capital under the March 2015 Agreement. The Company has filed with the Securities and Exchange Commission a prospectus supplement, dated March 31, 2015, to the Company’s prospectus filed as part of the Company’s effective $75,000,000 million shelf registration statement on Form S-3, File No. 333-199725, registering all of the shares of common stock that have been or may be offered and sold to Aspire Capital from time to time.
Issuance of Common Stock by Exercise of Common Stock Purchase Warrants
On July 11, 2014, the Company issued 200,000 shares of Class A common stock to a warrant holder upon exercise of common stock purchase warrants exercisable at $1 per share. The Company received an aggregate of $200,000 in total for the exercise of 200,000 warrants. The issuance was exempt from registration under Section 4(a)(2) of the Securities Act.
On November 24, 2014, the Company issued 370,500 shares of Class A common stock to a warrant holder upon exercise of common stock purchase warrants exercisable at $1 per share and 370,500 shares of Class A common stock to a warrant holder upon exercise of common stock purchase warrants exercisable at $0.50 per share. The Company received an aggregate of $556,000 in total for the exercise of 741,000 warrants. The issuance was exempt from registration under Section 4(a)(2) of the Securities Act.
Issuance of Common Stock by Exercise of Common Stock Options
The Board of Directors approved the exercise of 320,000 common stock options at a range of $0.20 - $0.45 per share for $112,000 during the year ended June 30, 2015.
Issuance of Common Stock to Consultants and Employees
On October 20, 2014 the Board of Directors approved the appointment of Dr. William James Alexander as the Chief Operations Officer of the Company for the term of one year effective October 27, 2014. Pursuant to his employment agreement, Dr. Alexander received immediately 50,000 shares of the Company’s common stock as a sign on bonus and 50,000 stock options vesting during the next 12 months.
On May 12, 2015, the Company issued 15,000 restricted shares of Class A common stock and 15,000 options to a consultant for services rendered. The shares were granted on May 12, 2015 and vested on May 31, 2015. The shares were valued at $38,400 which were charged to additional paid-in capital as of June 30, 2015. The Company recognized approximately $55,000 of stock-based compensation costs related to the common stock and the stock option issued to this consultant for the year ended June 30, 2015.
1
4
. Income Taxes
Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the financial statements. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax bases of particular assets and liabilities and the tax effects of net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized as income or expense in the period that included the enactment date.
The Company has incurred operating losses since its inception and therefore no tax liabilities have been incurred for the periods presented. The amount of unused tax losses available for carryforward and to be applied against taxable income in future years totaled approximately $54,078,000 at June 30, 2017. The tax loss carryforwards expire beginning in 2028. Internal Revenue Code Sec. 382 places limitations on the utilization of net operating losses. Due to the potential limitation and the Company’s historical losses, the Company has recorded a full valuation allowance against this deferred tax asset. The valuation allowance increased by approximately $7,047,000 at June 30, 2017 and $5,383,000 at June 30, 2016.
The income tax provision benefit differs from the amount of tax determined by applying the Federal and States statutory rates as follows:
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Book income at federal statutory rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
State income tax, net of federal tax benefit
|
|
|
5.30
|
%
|
|
|
5.24
|
%
|
|
|
5.31
|
%
|
Change in valuation allowance
|
|
|
(45.35
|
)%
|
|
|
(41.88
|
)%
|
|
|
(43.43
|
)%
|
Research and development credit
|
|
|
8.20
|
%
|
|
|
6.97
|
%
|
|
|
8.01
|
%
|
Permanent difference
|
|
|
(2.78
|
)%
|
|
|
(3.16
|
)%
|
|
|
(2.72
|
)%
|
Others - net
|
|
|
0.63
|
%
|
|
|
(1.17
|
)%
|
|
|
(1.17
|
)%
|
Total
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
There was no current or deferred provision or benefit for income taxes for the years ended June 30, 2017 and 2016. The components of deferred tax assets as of June 30, 2017 and 2016, at an effective tax rate of 40%, are as follows
(
rounded to nearest thousand
)
:
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
21,510,000
|
|
|
$
|
16,272,000
|
|
Accrued payroll
|
|
|
1,174,000
|
|
|
|
1,105,000
|
|
Stock compensation
|
|
|
2,104,000
|
|
|
|
1,653,000
|
|
Research and development credit
|
|
|
3,951,000
|
|
|
|
2,672,000
|
|
Other
|
|
|
171,000
|
|
|
|
161,000
|
|
|
|
$
|
28,910,000
|
|
|
$
|
21,863,000
|
|
Valuation allowance
|
|
|
(28,910,000
|
)
|
|
|
(21,863,000
|
)
|
Total deferred taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
1
5
. Subsequent Events
Equity Transactions
From July 1, 2017 to September 1, 2017, the Company has generated additional proceeds of approximately $2.1 million under the Common Stock Purchase Agreement with Aspire Capital from the sale of approximately 2.6 million shares of its common stock.
On September 1, 2017, the Company issued to Dr. Bertolino for his services rendered 1,066,667 shares of common stock, vesting 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 617,839 stock options to purchase shares of the Company’s common stock. These stock options are valued at approximately $399,000, based on the closing bid price as quoted on the OTC on August 31, 2017 at $0.705 per share. These options were issued with an exercise price of $0.705 and vest 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration as defined in award agreement, with a three year option term. These options have piggyback registration rights.
On September 1, 2017, the Company also issued to Ms. Harness 58,394 shares of the Company’s common stock, 33 1/3% vesting upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date and 33 1/3% upon the third anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 172,987 options to purchase common stock. These stock options are valued at approximately $112,000, based on the closing bid price as quoted on the OTC on August 31, 2017 at $0.705 per share. These options were issued with an exercise price of $0.705 and vest 33 1/3% upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date, and 33 1/3% upon the third anniversary of the grant date, with acceleration of vesting upon certain events.
On September 6, 2017, the Company entered into a common stock purchase agreement with Aspire Capital which replaces the prior $30 million Aspire Capital stock purchase agreement and provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 36-month term of the Purchase Agreement. The Company also issued 300,000 shares of its Class A common stock to Aspire Capital as a commitment fee. The Company will register the resale of any shares that Aspire Capital may purchase under this Purchase Agreement. To the extent Aspire Capital purchases shares under the Purchase Agreement and subsequently sells those shares, the other holders of our Class A common stock may experience dilution, which may be substantial. In addition, the sale of a substantial number of shares of our Class A common stock by Aspire Capital, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
1
6
. Selected Quarterly Results of Operations (unaudited)
A summary of the Company’s quarterly results of operations for the years ended June 30, 2017 and 2016 is as follows
(
rounded to nearest thousand, except for shares and per share data):
|
|
|
Years Ended June 30, 2017
|
|
|
|
|
Quarter 1
|
|
|
Quarter 2
|
|
|
Quarter 3
|
|
|
Quarter 4
|
|
|
Total
|
|
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Gross profit
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net loss
|
|
|
$
|
(3,028,000
|
)
|
|
$
|
(3,358,000
|
)
|
|
$
|
(3,903,000
|
)
|
|
$
|
(5,247,000
|
)
|
|
$
|
(15,536,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.12
|
)
|
-Diluted
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.12
|
)
|
Weighted average number of common shares
|
|
|
|
124,289,082
|
|
|
|
125,275,060
|
|
|
|
127,270,598
|
|
|
|
132,363,566
|
|
|
|
127,285,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30, 201
6
|
|
|
|
|
Quarter 1
|
|
|
Quarter 2
|
|
|
Quarter 3
|
|
|
Quarter 4
|
|
|
Total
|
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Gross profit
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net loss
|
|
|
$
|
(2,577,000
|
)
|
|
$
|
(3,323,000
|
)
|
|
$
|
(3,709,000
|
)
|
|
$
|
(3,243,000
|
)
|
|
$
|
(12,852,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.11
|
)
|
-Diluted
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.11
|
)
|
Weighted average number of common shares
|
|
|
|
118,140,424
|
|
|
|
118,673,362
|
|
|
|
120,204,272
|
|
|
|
122,647,514
|
|
|
|
119,908,145
|
|