During the three months ended March 31, 2018, 450 shares of Series D Convertible Preferred Stock were converted into 30,000,000 shares of common stock.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
March 31
, 20
1
8
(unaudited)
1.
Description of Business
GeoVax Labs, Inc. (“GeoVax” or the “Company”), is a clinical-stage biotechnology company developing human vaccines using our novel vaccine platform. Our current development programs are focused on preventive vaccines against Human Immunodeficiency Virus (HIV), Zika Virus, hemorrhagic fever viruses (Ebola, Sudan, Marburg, Lassa), and malaria, as well as therapeutic vaccines for chronic Hepatitis B infections and cancers. We believe our technology and vaccine development expertise are well-suited for a variety of human infectious diseases and we intend to pursue further expansion of our product pipeline.
Certain of our vaccine development activities have been, and continue to be, financially supported by the U.S. government. This support has been both in the form of research grants and contracts awarded directly to us, as well as indirect support for the conduct of preclinical animal studies and human clinical trials.
We operate in a highly regulated and competitive environment. The manufacturing and marketing of pharmaceutical products require approval from, and are subject to, ongoing oversight by the Food and Drug Administration (FDA) in the United States, by the European Medicines Agency (EMA) in the European Union, and by comparable agencies in other countries. Obtaining approval for a new pharmaceutical product is never certain,
may
take many years and often involves expenditure of substantial resources. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with
one
or more potential strategic partners.
GeoVax is incorporated under the laws of the State of Delaware and our principal offices are located in Smyrna, Georgia (metropolitan Atlanta area).
2.
Basis of Presentation
The accompanying condensed consolidated financial statements at
March 31, 2018
and for the
three
-month periods ended
March 31, 2018
and
2017
are unaudited, but include all adjustments, consisting of normal recurring entries, which we believe to be necessary for a fair presentation of the dates and periods presented. Interim results are
not
necessarily indicative of results for a full year. The financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form
10
-K for the year ended
December 31, 2017.
We expect our operating results to fluctuate for the foreseeable future; therefore, period-to-period comparisons should
not
be relied upon as predictive of the results in future periods.
Our financial statements have been prepared assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the
twelve
-month period following the date of the financial statements. We are devoting substantially all of our present efforts to research and development of our vaccine candidates. We have funded our activities to date from government grants and clinical trial assistance, and from sales of our equity securities. We will continue to require substantial funds to continue these activities.
We believe that our existing cash resources and government funding commitments will be sufficient to continue our planned operations into the
third
quarter of
2018.
Due to our history of operating losses and our continuing need for capital to conduct our research and development activities, there is substantial doubt concerning our ability to operate as a going concern beyond that date. We are currently exploring sources of capital through additional government grants and contracts. We also intend to secure additional funds through sales of our equity securities or by other means. Management believes that we will be successful in securing the additional capital required to continue the Company’s planned operations, but that our plans do
not
fully alleviate the substantial doubt about the Company’s ability to operate as a going concern. Additional funding
may
not
be available on favorable terms or at all. If we fail to obtain additional capital when needed, we will be required to delay, scale back, or eliminate some or all of our research and development programs as well as reduce our general and administrative expenses.
3.
Significant Accounting Policies and Recent Accounting Pronouncements
We disclosed in Note
2
to our consolidated financial statements included in our Annual Report on Form
10
-K for the year ended
December 31, 2017
those accounting policies that we consider significant in determining our results of operations and financial position. Other than as described below, there have been
no
material changes to, or in the application of, the accounting policies previously identified and described in the Form
10
-K.
In
May 2014,
the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
2014
-
09,
Revenue from Contracts with Customers
(ASU
2014
-
09
), which creates a new Topic, Accounting Standards Codification Topic
606.
The standard is principle-based and provides a
five
-step model to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue when it transfers 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. We adopted ASU
2014
-
09
effective
January 1, 2018;
such adoption had
no
material impact on our financial statements.
In
May 2017,
the FASB issued Accounting Standards Update
2017
-
09,
Scope of Modification Accounting
(ASU
2017
-
09
), which amends Accounting Standards Codification Topic
718,
Compensation – Stock Compensation. ASU
2017
-
09
is an attempt to provide clarity and reduce both (
1
) diversity in practice and (
2
) cost and complexity when applying the guidance in Topic
718
to a change to the terms or conditions of a share-based payment award. We adopted ASU
2017
-
09
effective
January 1, 2018;
such adoption had
no
material impact on our financial statements.
There have been
no
other recent accounting pronouncements or changes in accounting pronouncements during the
three
months ended
March 31, 2018,
as compared to the recent accounting pronouncements described in our Annual Report on Form
10
-K for the fiscal year ended
December 31, 2017,
which we expect to have a material impact on our financial statements.
4.
Basic and Diluted Loss Per Common Share
Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and potentially dilutive common share equivalents outstanding during the period. Potentially dilutive common share equivalents consist of convertible preferred stock, stock options and stock purchase warrants. Common share equivalents which potentially could dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, as the effect would be anti-dilutive, totaled approximately
222.9
million and
91.7
million shares at
March 31, 2018
and
2017,
respectively.
5.
Property and Equipment
Property and equipment as shown on the accompanying Condensed Consolidated Balance Sheets is composed of the following as of
March 31, 2018
and
December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Laboratory equipment
|
|
$
|
530,306
|
|
|
$
|
530,306
|
|
Leasehold improvements
|
|
|
115,605
|
|
|
|
115,605
|
|
Other furniture, fixtures & equipment
|
|
|
28,685
|
|
|
|
28,685
|
|
Total property and equipment
|
|
|
674,596
|
|
|
|
674,596
|
|
Accumulated depreciation and amortization
|
|
|
(648,425
|
)
|
|
|
(643,445
|
)
|
Property and equipment, net
|
|
$
|
26,171
|
|
|
$
|
31,151
|
|
6.
Accrued Expenses
Accrued expenses as shown on the accompanying Condensed Consolidated Balance Sheets is composed of the following as of
March 31, 2018
and
December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Accrued management salaries
|
|
$
|
623,289
|
|
|
$
|
532,615
|
|
Accrued directors’ fees
|
|
|
214,819
|
|
|
|
182,620
|
|
Other accrued expenses
|
|
|
26,250
|
|
|
|
18,476
|
|
Total accrued expenses
|
|
$
|
864,358
|
|
|
$
|
733,711
|
|
7.
Note Payable
On
February 28, 2018,
we entered into a Senior Note Purchase Agreement with Georgia Research Alliance, Inc. (GRA) pursuant to which we issued a
five
-year Senior Promissory Note (the “Note”) to GRA in exchange for
$50,000.
The Note bears an annual interest rate of
5%,
payable monthly, with principal repayments beginning in the
second
year. Principal repayments are expected to be $-
0
- in
2018,
$10,417
in
2019,
$12,500
in
2020,
2021
and
2022,
and
$2,083
in
2023.
In connection with the Note, we also issued to GRA a
five
-year warrant to purchase
178,571
shares of our common stock (see Note
9
). Interest expense related to the Note for the
three
-month period ended
March 31, 2018
was
$208.
8.
Commitments
We lease approximately
8,400
square feet of office and laboratory space pursuant to an operating lease which expires on
December 31, 2018.
As of
March 31, 2018,
our future minimum lease payments total
$117,409
all of which will be payable during
2018.
In the normal course of business, we
may
enter into various firm purchase commitments related to our research-related activities; as of
March 31, 2018,
such unrecorded outstanding purchase commitments were
not
material.
9.
Stockholders’ Equity
Series B Convertible Preferred Stock
As of
March 31, 2018,
there are
100
shares of our Series B Convertible Preferred Stock (“Series B Preferred Stock”) outstanding. The Series B Preferred Stock
may
be converted at any time at the option of the holder into shares of our common stock at a conversion price of
$0.35
per share, or
285,714
shares. During the
three
months ended
March
31,
2018,
there were
no
conversions or other transactions involving our Series B Preferred Stock.
Series C Convertible Preferred Stock
As of
March 31, 2018,
there are
2,570
shares of our Series C Convertible Preferred Stock (“Series C Preferred Stock”) outstanding. The Series C Preferred Stock
may
be converted at any time at the option of the holder into shares of our common stock at a conversion price of
$0.015
per share, or
171,349,733
shares. During the
three
months ended
March
31,
2018,
there were
no
conversions or other transactions involving our Series C Preferred Stock.
Series D Convertible Preferred Stock
As of
March 31, 2018,
there are
550
shares of our Series D Convertible Preferred Stock (“Series D Preferred Stock”) outstanding. The Series D Preferred Stock
may
be converted at any time at the option of the holder into shares of our common stock at a conversion price of
$0.015
per share, or
36,666,666
shares. During the
three
months ended
March
31,
2018,
450
shares our Series D Preferred Stock were converted into
30,000,000
shares of our common stock.
Series E Convertible Preferred Stock
In
March 2018,
we issued
600
shares of our Series E Convertible Preferred Stock,
$1,000
stated value (“Series E Preferred Stock”), for net proceeds, after deduction of certain expenses, of
$590,000.
Each share of Series E Preferred Stock is entitled to a liquidation preference equal to the initial purchase price, has
no
voting rights, and is
not
entitled to a dividend. The Series E Preferred Stock is convertible at any time at the option of the holders into shares of our common stock, with an initial conversion price of
$0.08
per share. The Series E Preferred Shares contains price adjustment provisions, which
may,
under certain circumstances, reduce the conversion price on future dates according to a formula based on the then-current market price for our common stock.
We assessed the Series E Preferred Stock under ASC Topic
480,
“
Distinguishing Liabilities from Equity
” (“ASC
480”
), ASC Topic
815,
“
Derivatives and Hedging
” (“ASC
815”
), and ASC Topic
470,
“
Debt
” (“ASC
470”
). The preferred stock contains an embedded feature allowing an optional conversion by the holder into common stock which meets the definition of a derivative. However, we determined that the preferred stock is an “equity host” (as described by ASC
815
) for purposes of assessing the embedded derivative for potential bifurcation and that the optional conversion feature is clearly and closely associated to the preferred stock host; therefore, the embedded derivative does
not
require bifurcation and separate recognition under ASC
815.
During the
three
months ended
March
31,
2018,
there were
no
conversions or other transactions involving our Series E Preferred Stock
Common Stock Transactions
As discussed above, during the
three
months ended
March 31, 2018,
we issued
30,000,000
shares of our common stock pursuant to the conversion of
450
shares of our Series D Preferred Stock.
During the
three
months ended
March 31, 2018,
we issued
5,000,000
shares of our common stock in connection with our entering into a financial advisory and investment banking agreement.
Stock Options
The following table presents a summary of our stock option transactions during the
three
months ended
March 31, 2018:
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at December 31, 2017
|
|
|
7,024,275
|
|
|
$
|
0.29
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
Forfeited or expired
|
|
|
(68,334
|
)
|
|
|
0.06
|
|
Outstanding at March 31, 2018
|
|
|
6,955,941
|
|
|
$
|
0.29
|
|
Exercisable at March 31, 2018
|
|
|
1,960,284
|
|
|
$
|
0.90
|
|
Stock Purchase Warrants
On
February 28, 2018,
in connection with issuance of the note payable discussed in Note
7,
we issued a
five
-year warrant to purchase
178,571
shares of our common stock at a purchase price of
$0.042
per share. We had
no
other stock purchase warrants outstanding at
March 31, 2018.
Stock-Based Compensation Expense
Stock-based compensation expense related to our stock option plans was
$23,978
and
$14,580
during the
three
-month periods ended
March 31, 2018
and
2017,
respectively. Stock-based compensation expense related to stock options is recognized on a straight-line basis over the requisite service period for the award and is allocated to research and development expense or general and administrative expense based upon the related employee classification. As of
March
31,
2018,
there was
$194,302
of unrecognized compensation expense related to stock options, which we expect to recognize over a weighted average period of
2.4
years.
Additionally, during the
three
-month period ended
March 31, 2018
we recorded stock-based compensation expense of
$28,571
associated with common stock issued for financial advisory services. As of
March 31, 2018,
there was
$171,429
of unrecognized stock-based compensation expense associated with this arrangement, which we expect to recognize during the remainder of
2018.
10.
Income Taxes
Because of our historically significant net operating losses, we have
not
paid income taxes since inception. We maintain deferred tax assets that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These deferred tax assets are comprised primarily of net operating loss carryforwards and also include amounts relating to nonqualified stock options and research and development credits. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of our future profitability and our ability to utilize the deferred tax assets. Utilization of operating losses and credits will be subject to substantial annual limitations due to ownership change provisions of Section
382
of the Internal Revenue Code. The annual limitation will result in the expiration of net operating losses and credits before utilization.
11.
Grants and Collaboration Revenue
We receive ongoing payments pursuant to grants and contracts from the National Institute of Allergy and Infectious Diseases (NIAID) in support of our vaccine research and development efforts. We record revenue associated with government grants and contracts as the reimbursable costs are incurred. During the
three
-month periods ended
March 31, 2018
and
2017,
we recorded
$216,299
and
$295,735,
respectively, of revenues associated with these grants and contracts. As of
March 31, 2018,
there is an aggregate of
$265,396
in approved grant funds available for use.
During the
first
quarter of
2018,
we recorded
$5,000
of revenue associated with a collaboration with the U.S. Naval Research Laboratory (USNRL) for development of high-quality antibodies useful for detection of Lassa virus.
12.
Subsequent Events
In
April 2018,
NIAID awarded us a Fast Track Phase I/II Small Business Innovative Research (SBIR) grant entitled “
Construction and efficacy testing of novel recombinant vaccine designs for eliciting both broadly neutralizing antibodies and T cells against Lassa virus
.” The initial Phase I grant award is
$299,820
for the project period
April 9, 2018
to
March
31,
2019.
During
April 2018,
we issued
10,000,000
shares of our common stock pursuant to the conversion of
150
shares of our Series D Preferred Stock.
Item 2
Management’s Discussion and Analysis of Financial Condition And Results of Operations