The closing of the PPO and the closing of the Merger were conditioned upon each other.
Available Information
Our Annual Report on Form10-K, Quarterly Reports on Form10-Q, Current Reports on Form8-K, and other filings with the United States Securities and Exchange Commission, or the SEC, and all amendments to these filings, are available, free of charge, on our website at www.tymetechnologiesinc.comwww.tymeinc.com as soon as reasonably practicable following our filing of any of these reports with the SEC. You can also obtain copies free of charge by contacting our Investor Relations department at our office address listed above. The public may read and copy anySEC also maintains a website that contains all the materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operationSEC. Its website is www.sec.gov.
Corporate Governance Developments
Our Board of Directors (“Board”) and holders of a majority of the Public Reference Room by callingCompany’s outstanding common stock recently approved and implemented changes to our certificate of incorporation that (a) implemented a classified Board of Directors, (b) authorized the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy,Board of Directors to exclusively fill any and information statements,all vacancies occurring on our Board of Directors, (c) authorized our Board of Directors to exclusively have the power to change, and set, the size of our Board of Directors and (d) authorized our Board of Directors to have the exclusive power to call a special meetings of our stockholders. Additionally, our Board of Directors may pursue certain other information regarding issuers that file electronically with the SEC at www.sec.gov. The information posted on or accessible through these websites are not incorporated into this filing.structural defenses such as a stockholder rights plan.
ITEM 1A. RISK FACTORS
Our business is subject to numerous risks. You should carefully consider the following risks and all other information contained in this Annual Report, as well as general economic and business risks, together with any other documents we file with the SEC. If any of the following events actually occur or risks actually materialize, it could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our common stock to decline.
Risks Related to Owning Our Stock
The ownership interests in our Company held by two of our executive officers and directors could allow them to significantly influence corporate decision-making in a manner that may not reflect the interests of all of our stockholders.
Steve Hoffman, our Chief Executive Officer, Chief Science Officer and a director, beneficially owned 26.3% and Michael Demurjian, our Chief Operating Officer, Executive Vice President and a director, beneficially owned 26.3% of our outstanding common stock as of May 30, 2018. As a result, these individuals are positioned to exercise significant influence over our Company’s management and affairs, including, but not limited to, electing our Board of Directors and exercising managerial influence and voting rights in connection with fundamental corporate transactions, and take action that may not reflect the best interests of all of the stockholders of our Company.
Further, the Company has granted Mr. Hoffman perpetual, exclusivenon-royalty bearing license with respect to certain patents and patent applications that the Company uses forSM-88 for all fields other than in connection with the treatment of cancer. This license to Mr. Hoffman may limit the Company’s ability to profit from alternative
uses ofSM-88, if such uses were to be discovered. Additionally, the use of these patent or patent applications could be associated with a negative event outside of the control of the Company and outside the treatment of cancer, which in either case may have an adverse effect on our business.
Our share price is likely to be volatile due to factors beyond our control and may drop below prices paid by investors.
All readers of this report should consider an investment in our common stock as risky and invest in our common stock only if the purchaser can withstand a significant loss and wide fluctuations in the market value of an investment. Investors may be unable to sell their shares of our common stock at or above the price they paid for their shares due to fluctuations in the market price of our common stock arising from factors affecting our drug discovery and development objectives as well as changes in our operating performance or prospects. In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. Some of the factors that may cause the market price of our common stock to fluctuate include, but are not limited to:
results and timing of our clinical trials and clinical trials of our competitors’ products;
the failure or discontinuation of any of our development programs;
issues in manufacturingSM-88 or any future drugs we may develop and receive governmental approval to market;
regulatory developments or enforcement in the United States andnon-U.S. countries with respect to our or our competitors’ products;
failure to achieve pricing and reimbursement levels expected by us or the market;
competition from existing products or new products that may emerge;
developments or disputes concerning patents or other proprietary rights;
introduction of technological innovations or new commercial products by us or our competitors;
announcements by us, our collaborators or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
changes in estimates or recommendations by securities analysts, to the extent any cover our common stock;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
public concern overSM-88 or any future drugs we may develop and receive governmental approval to market;
litigation or the threat of litigation;
future issuances and sales of our common stock;
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
additions or departures of key personnel;
changes in the structure of healthcare payment systems in the United States or overseas;
the failure ofSM-88, if approved, or any other approved drug product we may develop, to achieve commercial success;
economic and other external factors or other disasters or crises;
period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other payments under commercialization or licensing agreements, if any;
general market conditions and market conditions for biopharmaceutical stocks; and
overall fluctuations in U.S. equity markets.
In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit and divert the time and attention of our management, which could seriously harm our business.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish substantial rights.
Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants and licensing and development agreements in connection with any collaborations. We do not have any committed external source of funds and no revenue source. To the extent that we raise additional capital through the sale of equity or convertible debt securities as we expect we will, then outstanding stockholders’ ownership interests in our Company will be diluted and the terms of these new securities may include liquidation or other preferences that adversely affect rights of holders of our common stock. Debt financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, drug candidates, future revenue streams or grant licenses on terms that are not favorable to us. We cannot give any assurance that we will be able to obtain additional funding if and when necessary or on satisfactory terms. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of our development programs or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Future issuances of our common stock or rights to purchase our common stock pursuant to our equity incentive plan or outstanding options and warrants could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We are authorized to grant equity awards, including stock grants and stock options, to our employees, directors and consultants, covering up to 12.5% of our shares of common stock outstanding from time to time pursuant to our 2015 Equity Incentive Plan (the “2015 Plan”) and, subject to stockholder approval, up to 2,750,000 shares of our common stock, pursuant to our recently amended and restated 2016 Director Plan (the “2016 Director Plan”). Future issuances, as well as the possibility of future issuances, under our 2015 Plan or 2016 Director Plan or other equity incentive plans could cause the market price of our common stock to decrease.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us and our business. Securities and industry analysts may choose not to publish research on our Company. If an insufficient number of, securities or industry analysts provide coverage of our Company, the trading price for our stock would likely be negatively impacted. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. Further, if one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common
stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors. Because our board is responsible for appointing the members of our management team, these provisions could, in turn, affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions:
establish a board of directors having three classes of directors with a three-year term of office that expires as to one class each year, commonly referred to as a “staggered board”;
limit the manner in which stockholders can remove directors from our board;
exclusively empower the board of directors to fill any and all vacancies on the board of directors;
authorize the board of directors to exclusively have the power to change and set the size of the board of directors;
limit who may call stockholder meetings;
include advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and for nominations to our board of directors, which include, among other things, requirements for proposing stockholders to disclose information about derivative or short positions; and
authorize our Board of Directors to issue, without stockholder approval, shares of currently undesignated preferred stock; such ability to issue previously undesignated preferred stock makes it possible for our board to establish a “poison pill” and issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Investors could lose all their investment in our Company.
An investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of an investment in our Company may go down as well as up. In addition, there can be no certainty that the market value of an investment in our Company will fully reflect its underlying value. Due to these risks and the other risks described in this report, investors could lose their entire investment in our Company.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
In the future, to raise needed financing, we are likely to issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our stockholders at the time of such issuances. We are authorized to issue an aggregate of 300,000,000 shares of common stock and 10,000,000 shares of “blank check” preferred stock. We also have an effective “shelf” registration statement on FormS-3 that allows us to issue securities in registered offerings and an available ATM Financing Facility that allows us to sell shares of our Common Stock through a placement agent at market prices. We may issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of our common stock. We will need to raise additional capital in the near future to meet our working capital needs, and we regularly evaluate our capital needs and available sources of financing. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise prices) below the price a stockholder at the time of such securities issuance paid for such stockholder’s stock.
The ability of our board of directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of our Company. Our board is authorized to issue up to 10,000,000 shares of preferred stock with powers, rights and preferences designated by it. (See “Preferred Stock” in “Description of
Securities.”) Shares of voting or convertible preferred stock could be issued or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to affect a takeover or otherwise gain control of our Company. The ability of our board to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of our Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to our board could make it more difficult to remove incumbent managers and directors from office even if such change were to be favorable to stockholders generally.
Our common stock has historically been characterized by low and/or erratic trading volume, and the intraday per share price of our common stock has fluctuated from $1.22 to $11.25 between March 31, 2015 and July 31, 2017, the date we became listed on the Nasdaq Capital Market. The intraday per share price of our common stock has fluctuated from $2.05 to $9.05 between August 1, 2017 and March 31, 2018, the date of our last completed fiscal year.
As of July 31, 2017, our common stock became quoted on the Nasdaq Capital Market under the symbol “TYME.” Even though recently listed on the Nasdaq Capital Market, the market for our stock may be impaired because of the limited number of investors, the significant ownership stakes of Messrs. Demurjian and Hoffman, and our small market public float and small capitalization, which is less than that authorized for investment by many institutional investors.
Historically, the public market for our common stock has been characterized by low and/or erratic trading volume, often resulting in price volatility. For the fiscal year ended March 31, 2018 the average daily trading volume for our common stock was approximately 128,049 shares. Subsequent to our common stock becoming listed on the Nasdaq Capital Market, the average daily trading value for our common stock was approximately 189,000 shares. In addition, the price of our common stock has been volatile. Our common stock had a closing price of $2.88 on April 3, 2017 and ended fiscal year 2018 at a closing price of $2.23. During the fiscal year 2018, our common stock had a low trading price of $2.05, which occurred on March 21, 2018, and had a high closing price of $9.47, which occurred on September 7, 2017.
The market price of our common stock is subject to wide fluctuations due to factors that we cannot control, including the results of preclinical and clinical testing of our products under development, decisions by collaborators regarding product development, regulatory developments, market conditions in the pharmaceutical and biotechnology industries, future announcements concerning our competitors, adverse developments concerning proprietary rights, public concern as to the safety or commercial value of any products and general economic conditions.
Furthermore, the stock market has experienced significant price and volume fluctuation unrelated to the operating performance of particular companies. These market fluctuations can adversely affect the market price and volatility of our common stock.
We do not anticipate paying dividends on our common stock.
Cash dividends have never been declared or paid on our common stock and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, our stockholders will likely not receive any funds absent a sale of their shares of our common stock. If we do not pay dividends, our common stock may be less valuable because a return on an investment in shares of our common stock will only occur if our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
We are a “controlled company” within the meaning of the Nasdaq corporate governance rules, and we take, and intend to continue to take, advantage of exemptions from certain corporate governance requirements.
We meet the definition of a “Controlled Company,” under the Nasdaq corporate governance rules, because ourco-founders, Messrs. Hoffman and Demurjian, collectively, beneficially own more than 50% of the voting power of our common stock and have agreed to vote together on certain matters submitted for a stockholder vote. The Company, therefore, is exempt from certain of Nasdaq’s corporate governance requirements, including the requirement that the majority of our board of directors be independent, and the requirement to maintain a nominating and corporate governance committee and a compensation committee composed entirely of independent directors. We currently rely on the exemption and do not maintain a nominating and corporate governance committee. Currently, the majority of our board is independent and we have a compensation committee consisting of only independent directors, but we remain a controlled company, and accordingly, investors do not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq’s corporate governance requirements.
Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for our management.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms.
We regularly evaluate our capital needs and available sources of financing. When we elect to raise additional funds or additional funds are required, we may raise such funds from time to time through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available on advantageous or reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms advantageous or reasonable to us, we will be prevented from our ability to generate revenues and achieve or sustain profitability will be substantially harmed.
If we raise additional funds by issuing equity securities as we expect we will, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations.
Risks Related to Our Business and the Development, Regulatory Approval, and Commercialization of Our Drug Candidates.
Our proprietary lead combination drug product,SM-88, is in the early stages of clinical development.development in two principal areas. We are currently finalizing our regulatory and drug development program for SM-88 and working towards the initiation of our first phaseadvancing two Phase II clinical trial.trials for pancreatic cancer and prostate cancer. Clinical drug development is expensive, time-consuming and uncertain, and we may ultimately not be able to obtain regulatory approval for the commercialization of our lead candidate.
The risk of failure for drugs in clinical development is high and it is impossible to predict when our lead drug candidate for the treatment of cancer,SM-88, will prove effective or safe in humans or will receive regulatory approval.
The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the U.S. Food and Drug Administration (the “FDA”), theEuropean Medicines Agency (the “EMA”“EMA”), national competent authorities in Europe and othernon-U.S. regulatory authorities, which establish regulations that differ from country to country. We are not permitted to marketSM-88 and any other drug product we may develop in the U.S.United States or in other countries until we receive approval of a New Drug Application (“NDA”(an “NDA”) from the FDA or marketing approval from applicable regulatory authorities outside the U.S.United States. SinceSM-88 is in the early stages of development, it is subject to the risk of failure inherent in the drug development process. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA or EMA. Obtaining approval of aan NDA or a Marketing Authorization Application (“MAA”MAA”) can be a lengthy, expensive and uncertain process. In addition, failure to comply with the FDA, EMA and/or othernon-U.S. regulatory requirements prior to regulatory approval, could subject our Company to administrative or judicially imposed sanctions, which include, but are not limited to:
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| restrictions on our ability to conduct clinical trials, including issuing full or partial clinical holds or other regulatory objections to ongoing or planned trials;
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| warning letters;
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| clinical investigator disqualification;
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| civil and criminal penalties;
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| injunctions;
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| suspension or withdrawal of regulatory approvals;
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restrictions on our ability to conduct clinical trials, including issuing full or partial clinical holds or other regulatory objections to ongoing or planned trials;
recalls;
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restrictions on the use of drugs, manufacturers or our planned manufacturing process;
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| drug seizures, detentions or import/export bans or restrictions;
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| voluntary or mandatory drug recalls and publicity requirements;
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| total or partial suspension of drug;
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| imposition of restrictions on operations, including costly new manufacturing requirements; and
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| refusal to approve pending NDAs or supplements to approved NDAs in the U.S. and refusal to grant marketing approvals in other jurisdictions, such as a MAA in the EU.
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warning letters;
clinical investigator disqualification;
civil and criminal penalties;
injunctions;
suspension or withdrawal of regulatory approvals;
drug seizures, detentions or import/export bans or restrictions;
voluntary or mandatory drug recalls and publicity requirements;
total or partial suspension of drug;
imposition of restrictions on operations, including costly new manufacturing requirements; and
refusal to approve pending NDAs or supplements to approved NDAs in the United States and refusal to grant marketing approvals in other jurisdictions, such as a MAA in the EU.
The FDA, EMA and othernon-U.S. regulatory authorities also have substantial discretion in the drug approval process. Generally, the number of nonclinical and clinical trials that will be required for regulatory approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address and the regulations applicable to any particular drug candidate. Regulatory agencies can delay, limit or deny approval of a drug for many reasons, which include, but are not limited to:
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the drug candidate may be deemed unsafe or ineffective; evolving results may not continue to confirm any or all of the positive results from earlier nonclinical or clinical trials; failure to select optimal drug doses and suitable trial endpoints; populations studied did not reflect populations likely to use the drug; mortality rates in clinical trials for drug candidates such asSM-88 are shown to be numerically higher given the fact that subjects are being treated for late stage cancer than participants in other clinical trial programs; regulatory agencies may not find the data from nonclinical and clinical trials sufficient or well-controlled; regulatory agencies might not approve or might require changes to manufacturing processes or facilities; and regulatory agencies may change their approval policies or adopt new regulations. | ·
| the drug candidate may be deemed unsafe or ineffective;
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| evolving results may not continue to confirm any or all of the positive results from earlier nonclinical or clinical trials;
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| failure to select optimal drug doses and suitable trial endpoints;
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| populations studied did not reflect populations likely to use the drug;
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| mortality rates in clinical trials for drug candidates such as SM-88 are shown to be numerically higher given the fact that subjects are being treated for late stage cancer than participants in other clinical trial programs;
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| regulatory agencies may not find the data from nonclinical and clinical trials sufficient or well-controlled;
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| regulatory agencies might not approve or might require changes to manufacturing processes or facilities; and
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| regulatory agencies may change their approval policies or adopt new regulations.
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Any delay in obtaining or failure to obtain, required approvals could materially adversely affect our ability to generate revenue fromSM-88, which would likely result in significant harm to our financial position and adversely impact our share price. Furthermore, any regulatory approval to marketSM-88 may be subject to limitations on the indicated uses for which we may market the drug. These limitations may limit the size of the market forSM-88 and any other drug product we may develop.
We have no history of conductingcompleting large-scale, pivotal phasePhase II or III clinical trials or commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.
Our operations to date have been limited to financing and staffing our Company, developing our technology platform,SM-88 and other potential drug candidates, and initializing and conducting a limited phase Iour small-scale completed Phase Ib clinical trial and the ongoing Phase II clinical trials forSM-88. We have not yet developed our commercialization strategy and marketing plan. In additional, our executive team has no prior experience in obtaining regulatory approval for a drug or commercializing an approved drug. Accordingly, we have not had experience completing a large-scale or pivotal clinical trial (whether phasePhase II, III, or otherwise), obtaining marketing approval, manufacturing product on a commercial scale or conducting sales and marketing activities. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.
If we are unable to identify and qualify enough patients for our clinical trials, it could delay or prevent development ofSM-88 and adversely affect our future business prospects.
The timing and length of our clinical trials depends in part on the speed at which we can identify and recruit patients to participate in clinical trials of our product candidates. Difficulties with enrollment or finding qualifying patients may cause delays in current and future clinical trials. If patients are unwilling to participate in our clinical trials due to any negative publicity in the industry, the trials for other third-party product candidates, or for other reasons, our clinical trials could be delayed or terminated.
We or our clinical trial sites may not be able to identify, recruit and enroll enough patients, or those with the required or desired characteristics in a clinical trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors including the design of clinical trial protocols, size of patient populations, eligibility criteria, proximity and availability of clinical trial sites, and other factors. If we have difficulty enrolling enough patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.
If clinical trials forSM-88 are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize our drug on a timely basis, which would require us to incur additional costs and delay revenue.
SM-88 is in the early stages of development. We are working towards conducting our first phasePhase II clinical trials and their initiationsuccessful completion is subject to numerous factors that can cause interruptions or delays, many of which may be beyond our control. Should we experience any interruption or delay, our future plans and expected future revenue could be adversely affected and could result in our inability to continue our operations.
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The commencement of these planned trials could be substantially delayed or prevented due to several factors, which include but are not limited to:
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| further discussions with the FDA, the EMA or other regulatory agencies regarding the scope or design of our clinical trials;
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| the limited number of and competition for, suitable sites to conduct our clinical trials, many of which may already be engaged in other clinical trial programs, including trials for the same potential indications as SM-88;
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| delay or failure to obtain regulatory approval or agreement to commence a clinical trial in any of the countries where enrollment is planned;
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| inability to obtain sufficient funds required to execute our clinical and regulatory development plans;
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| clinical holds on or other regulatory objections to, a new or ongoing clinical trial;
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| delay or failure to supply regulatory-required data and other information to regulators, including the FDA and EMA;
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| delay or failure in the testing, validation, manufacture and delivery of sufficient supplies of SM-88 for our clinical trials;
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| delay or failure to reach agreement on acceptable clinical trial terms or clinical trial protocols with prospective investigational sites or clinical research organizations (“CRO”), the terms of which can be subject to extensive negotiation and may vary significantly among different sites or CROs;
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| delays or failures of third parties, including other agents, consultants and advisors, to provide required resources and services and submit data and information to us and the applicable regulators; and
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| delay or failure to obtain institutional review board or independent ethics committee (“IEC”) approval to conduct a clinical trial at a prospective investigational site.
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Additionally, manyMany factors could substantially delay or prevent the timely completion of our planned clinical trials due to several factors, which include, but are not limited to:
slower than expected rate of subject recruitment and enrollment;
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| slower than expected rate of subject recruitment and enrollment;
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| slower than projected IRB/IRB or Independent Ethics Committee (“IEC”) review and approval; |
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| the Data Monitoring Committee (“DMC”DMC”) for a clinical trial requires the clinical trial be delayed or stopped or requests major or minor modifications to the clinical trial; |
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failure of subjects to complete their full participation in clinical trial or return for post-treatmentfollow-up;
unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by subjects, including the possibility of death;
lack ofSM-88 efficacy during the clinical trials;
poor trial design for one or more of our clinical trials;
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| failure of subjects to complete their full participation in clinical trial or return for post-treatment follow-up;
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| unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by subjects, including the possibility of death;
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| lack of SM-88 efficacy during the clinical trials;
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| poor trial design for one or more of our clinical trials;
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| withdrawal of participation by a principal investigatorPrincipal Investigator (“PI”) in one or more of our clinical trials; |
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| withdrawal of participation by one of our CROs; |
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| inability or unwillingness of subjects or clinical investigators to comply with clinical trial procedures;
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| resolution of data discrepancies;
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| inadequate Clinical Research Organizations (“CRO management and/or monitoring in one or more of our clinical trials;
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inability or unwillingness of subjects or clinical investigators to comply with clinical trial procedures;
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resolution of data discrepancies;
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| the need to repeat, reconstruct or terminate a clinical trial due to inconclusive or negative results or unforeseen complications in testing; and
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| a request by the FDA to abandon our current drug development programs.
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inadequate CRO management and/or monitoring in one or more of our clinical trials;
the need to repeat, reconstruct or terminate a clinical trial due to inconclusive or negative results or unforeseen complications in testing; and
a request by the FDA to abandon our current drug development programs.
Changes in regulatory requirements and guidance may also occur and we may need to significantly amend ongoing clinical trial protocols or revise planned prospective clinical trial protocols to reflect such changes mandated by regulatory authorities. Amendments may require us to renegotiate terms with CROs or resubmit clinical trial protocols to IRBs or IEUsIECs forre-review, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated at any time by the FDA, the EMA, other regulatory authorities or the IRB/IEC overseeing the clinical trial, due to a number of factors, which include, but are not limited to:
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| failure to conduct the clinical trial in accordance with regulatory requirements or compliance with the clinical protocol;
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| unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks to subjects;
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| lack of adequate funding to continue the clinical trial due to higher or additional unforeseen costs or other business decisions; and
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| upon a breach or pursuant to the terms of any agreement with or for any other reason by, current or future collaborators that have responsibility for the clinical development of SM-88.
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failure to conduct the clinical trial in accordance with regulatory requirements or compliance with the clinical protocol;
unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks to subjects;
lack of adequate funding to continue the clinical trial due to higher or additional unforeseen costs or other business decisions; and
upon a breach or pursuant to the terms of any agreement with or for any other reason by, current or future collaborators that have responsibility for the clinical development ofSM-88.
Any failure or significant delay in clinical and regulatory development plans forSM-88 or any other drug candidate we may pursue would likely adversely affect our ability to obtain regulatory approval for the drug and would diminish our ability to generate revenue.
The results of previous clinical trialsstudies may not be predictive of future results, our progress in future trials for one drug candidate may not be indicative of progress in trials for other drug candidates and the results of our current and planned clinical trials may not satisfy the requirements of the FDA, the EMA or othernon-U.S. regulatory authorities.
We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Before obtaining marketing approval from regulatory authorities any sale of SM-88. WeSM-88, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our drug in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and has a risk of uncertainty as to its outcome.
Clinical failure can occur at any stage of clinical development and the outcome of early clinical trials may not be predictive of the success of later clinical trials. Additionally, interim results of a clinical trial do not necessarily predict final trial results. In addition, nonclinical and clinical data are often susceptible to varying interpretations and analyses. In this regard, many companies that have believed their drug performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products from regulatory organizations.
Drug candidates that have shown promising results in early clinical trials, studies (such as our First Human Study) and compassionate use programs (such as our Compassionate Use Patients) may still suffer significant setbacks in subsequent registration clinical trials. A number ofMany companies in the pharmaceutical industry, including those with greater resources and experience than us, as well as those that have conducted large-scale clinical trials under an IND (in contrast to our limited number of First Human Study patients and Compassionate Use Patients, all of whom were treated outside of an IND approved clinical trial) have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials. In light of these factors, and the fact that our dosage and
method of delivery from our First Human Study and Compassionate Use Patients differ from our current Phase II trials, and may differ from future Phase II or subsequent trials, no assurance can be given that our ongoing or future Phase II (or subsequent) trials may produce results similar to our First Human Study or those experienced by Compassionate Use Patients.
We may, from time to time, publish interim or preliminary data from our clinical trials, First Human Study or Compassionate Use Patients. Adverse changes between this interim data and final data obtained from our future clinical trials could harm our business prospects. In the 30 patients who receivedSM-88 in our First Human Study, treatment-related AEs were reported in all of patients, of which hyperpigmentation was the only consistent, lasting AE. The most common treatment-related AEs were hyperpigmentation (100%), mild transient fatigue (57%), and mild transient pain (13%). Many of these patients who were treated withSM-88 were late-stage cancer patients with one or more previous treatments or existing medical conditions, which can cause AEs unrelated toSM-88. Patients may also report additional AEs that have not yet been previously experienced or otherwise predicted. Patients who will be administeredSM-88 in our clinical trials are, or may be, seriously ill and as more patient data becomes available, there is a risk that future clinical outcomes may materially differ from First Human Study or Compassionate Use Patient data. Any negative material changes could have an adverse effect on our business and product development efforts.
Clinical trials may also produce negative or inconclusive results and we may decide to, or regulators may require us to, conduct additional clinical or nonclinical testing. We will be required to demonstrate with substantial evidence through well-controlled clinical trials thatSM-88 is safe and effective for use in diverse populations before we can seek regulatory approvals for its commercial sale.
In addition, the design of a clinical trial can determine whether its results will support approval of a drug. Flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory approval in general, or in an efficient manner given our limited resources.
In some instances, there may be significant variability in safety and/or efficacy results between different trials of the same drug due to numerous factors, including amendment to trial protocols, variability in size and type of the patient populations, adherence to the dosing regimen and other trial procedures and the rate of dropout among clinical trial subjects. We do not know whether any of the clinical trials in our current development plans will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to marketSM-88, and we may need to further refine or redesign our combination drug candidate formula or modify production methodology based on such clinical trials, each of which could result in delays in the regulatory approval process.
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There is always the possibility thatSM-88 may not gain regulatory approval even if it achieves its primary endpoints in its phasePhase III clinical trials, which may only be initiated if we are successful in complying with all regulatory requirements necessary to commence phasePhase III clinical trials. The FDA, the EMA or othernon-U.S. regulatory authorities may disagree with our trial design and/or our interpretation of data from nonclinical and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a drug even after reviewing and providing comments or advice on a protocol for a clinical trial. In addition, any of these regulatory authorities may also approve a drug for fewer or more limited indications than requested or may grant approval that is contingent on the performance of costly post-marketing clinical trials. Further, the FDA, the EMA or othernon-U.S. regulatory authorities may not accept the labeling claims that we believe would be necessary or desirable for the successful commercialization ofSM-88.
Even ifSM-88 obtains regulatory approval, it could be subject to continual regulatory review.
If marketing authorization is obtained for our lead drug candidate,SM-88, the drug could continue to be under review by regulatory authorities. As a result, authorization could be subsequently withdrawn or restricted at any time for a number ofmany reasons, including safety issues. We will be subject to ongoing obligations and oversight by regulatory authorities, including adverse event (AE)AE reporting requirements, marketing restrictions and, potentially, other post-marketing obligations, all of which may result in significant expense and limit our ability to successfully commercialize our drug product.
If there are changes in the application of legislation or regulatory policies or if problems are discovered withSM-88 or our manufacturer(s) or if we or one of our distributors, licensees orco-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include imposing fines on us, imposing restrictions on the drug or its manufacture and requiring us to recall or remove the drug from the market. The regulators could also suspend or withdraw our marketing authorizations, requiring us to conduct additional clinical trials, change our drug labeling or submit additional applications for marketing authorization. If any of these events occurs, our ability to sellSM-88 may be impaired and we may incur substantial additional expense to comply with regulatory requirements, which could adversely affect our business, financial condition and the results of operations and the value of our share price.
We may not be successful in our efforts to use and expand our technology platform to build a pipeline of drug candidates.
A key element of our business strategy is to further develop and expand our technology platform so that we can build a steady pipeline that we ultimately hope will be successful in the treatment of a variety of cancers, as well as other diseases that affect health and quality of life.quality-of-life. However, we may not be able to develop and obtain approval to market our drugs if regulators do not conclude that they are safe and effective. Furthermore, the potential drug candidates that we discover may not be suitable for further clinical development, whether due to the potential that they produce harmful adverse effects or possess other characteristics that indicate that they are unlikely to receive marketing approval and/or market acceptance. In addition, unexpected technical issues involving such product candidates could be encountered that could cause the products to be prohibitively too expensive to manufacture and market. If we do not continue the steady development and commercialization of products utilizing our technology platform, we will face difficulty in achieving increased revenues in future periods, which could result in significant harm to our financial position and adversely affect our share price.
We have filed patents relating to additional drug candidates based on our technology platform. However, to date, the FDA and other regulatory authorities have not approved products that utilize this technology platform.
In the future, we plan to develop additional drug candidates based on our proprietary technology platform. This platform incorporates novel technologies and methods and actions. Since regulators have not yet approved such a platform, the approval of the drug candidates in our pipeline is less certain than approval of drugs that do not employ such novel technologies or methods of action. We intend to work closely with the FDA, the EMA and othernon-U.S. regulatory authorities to perform the requisite scientific analyses and evaluation of our methods to obtain regulatory approval for these future drug candidates. For example, final assays and specifications of our future drug candidates have yet to be developed and the FDA, EMA or other non-U.S. regulatory authorities may require additional analyses to evaluate this aspect of our technology. It is possible that the validation process may take time and significant expenditures of resources, require independent third-party analyses or not be accepted by the FDA, the EMA and othernon-U.S. regulatory authorities. Delays or failure to obtain regulatory approval of any of our future drug candidates could adversely affect our business prospects and the value of our share price.
Even if we obtain marketing approval forSM-88 in a major pharmaceutical market such as the U.S.United States or Europe, we may never obtain approval or commercialize in other major markets, which would limit our ability to realize the drug’s full market potential.
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In order to market any products in a country or territory, we must establish and comply with numerous and varying regulatory requirements of such countries or territories regarding safety and efficacy. Clinical trials conducted in one country may not be acceptable for review by regulatory authorities in other countries and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures differ among countries and can involve additional testing and validation as well as varying administrative review periods. Seeking regulatory approvals in multiple countries could result in significant delays, difficulties and costs and may require additional nonclinical or clinical trials, which would be costly and time-consuming or even delay or prevent the introduction ofSM-88 in those countries. In addition, our failure to obtain regulatory approval in one country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any drug candidates approved for sale in any jurisdiction, including international markets and we therefore do not have experience in obtaining regulatory approval. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to create shareholderstockholder value forSM-88 will be harmed.
In the U.S.,United States, we may seek fast track or breakthrough designation forSM-88. There is no assurance that the FDA will grant either designation and even if it does, such designation may not actually lead to a faster development process, regulatory review or ultimate approval compared to conventional FDA procedure. Any achievement of fast track or breakthrough designation forSM-88 would not increase the likelihood thatSM-88 will receive marketing approval in the U.S.United States.
The fast track program, a provision of the FDAFood and Drug Administration Modernization Act of 1997 (“FDAMA”), is designed to facilitate interactions between a sponsor and the FDA before and during submission of aan NDA for an investigational agent that, alone or in combination with one or more drugs, that is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need for that disease or condition. Under the fast track program, the FDA may consider reviewing portions of a marketing application before the sponsor submits the complete application, if the FDA determines, after a preliminary evaluation of the clinical data, that a fast track drug may be effective. A fast track designation provides the opportunity for more frequent interactions with the FDA and could make the drug eligible for priority review if supported by clinical data at the time of submission of the NDA.
The FDA is authorized to designate a new drug as a breakthrough therapy if it finds that the drug is intended, alone or in combination with one or more drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For products designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Products designated as breakthrough therapies by the FDA are also eligible for accelerated approval.
The FDA has broad discretion whether or not to grant fast track or breakthrough designation. Accordingly, even if we believeSM-88 meets the criteria for fast track or breakthrough designation, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of fast track or breakthrough designation for a drug candidate may not result in a faster development process, review or approval compared to drug candidates considered for approval under conventional FDA procedures and, in any event, does not assure ultimate approval by the FDA. The FDA may even withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Further, in connection with fast track designation, we may be required to provide government regulators with additional manufacturing and production information, some of which we may not be able to provide in a timely manner and to the extent required by such regulators.
Should we choose to pursue orphan drug designation, we may be unable to obtain orphan drug designation or exclusivity forSM-88 or any other drug candidate we may develop. If our competitors instead are able tocan obtain orphan drug exclusivity for their products in the same indications for which we are developingSM-88 or any other drug candidate we may develop, we may be at a competitive disadvantage and may not be able to have our products approved by the applicable regulatory authority for a significant period of time, if at all. Conversely, if we obtain orphan drug exclusivity forSM-88 or any other drug we may develop, we may not be able to fully benefit from the associated marketing exclusivity.
Regulatory authorities in some jurisdictions, including the U.S.United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designateSM-88 as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the U.S.United States. In the European Union,EU, the European Commission may designate a drug candidate as an orphan medicinal drug if it is a medicine for the diagnosis, prevention or treatment of life-threatening or very serious conditions that affects not more than five in
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10,000 persons in the EU or it is unlikely that marketing of the medicine would generate sufficient returns to justify the investment needed for its development. IfSM-88 or any other drug candidate we may develop were to receive orphan drug designation, we still may not have market exclusivity in particular markets. There is no assurance we will be able to receive orphan drug designation forSM-88 or any other drug candidate we may develop. Further, the granting of a request for orphan drug designation does not alter the standard regulatory requirements and process for obtaining marketing approval.
Generally, if a drug candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which, subject to certain exceptions, precludes the FDA from approving the marketing application of another drug for the same indication for that time period or precludes the EMA and other national drug regulators in the EU, from accepting the marketing application for another medicinal drug for the same indication. The applicable period is seven years in the U.S.United States and ten years in the EU. The EU period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. In the EU, orphan exclusivity may also be extended for an additional two years (i.ei.e.., a maximum of 12 years’ orphan exclusivity) if the drug is approved based on a dossier that includes pediatric clinical trial data generated in accordance with an approved pediatric investigation plan. Orphan drug exclusivity may be lost in the U.S.United States if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity forSM-88 or any other drug candidate we may develop, that exclusivity may not effectively protect the drug from competition because exclusivity can be suspended under certain circumstances. In the U.S.,United States, even after an orphan drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the EU, orphan exclusivity will not prevent a marketing authorization from being granted for a similar drug in the same indication if the new drug is safer, more effective or otherwise clinically superior to the first drug or if the marketing authorization holder of the first drug is unable to supply sufficient quantities of the drug.
SM-88 or any other drug product we may develop may have serious adverse, undesirable or unacceptable side effects, which may delay or prevent marketing approval. If such side effects are identified during the development ofSM-88 or any other drug candidate we may develop or following such drug product’s approval, if any, we may need to abandon our development ofSM-88 or such other drug product, the commercial profile of any approved label may be limited and/or we may be subject to other significant negative consequences following marketing approval, if any.
AlthoughSM-88 and any other drug products we may develop will undergo safety testing to the extent possible and agreed to with regulatory authorities, not all adverse effects of drugs can be predicted or anticipated.SM-88, our proprietary combination drug product is based on a mechanism designed to utilize oxidative stress, among other techniques, to selectively kill cancer cells, yet is powerful and could lead to serious side effects that we only discover in clinical trials. Unforeseen side effects fromSM-88 or any other drug product we may develop could arise either during clinical development or, if such side effects are sporadic, after it has been approved by regulatory authorities and the approved drug has been marketed, resulting in the exposure of additional patients. While ourproof-of-concept clinical trial forSM-88 demonstrated a favorable safety profile, the results from future trials ofSM-88 may not confirm these results. Any new therapy to kill cancer tumors is risky and may have unintended consequences. We have not fully demonstrated thatSM-88 is safe in humans and we may not be able to do so.
Furthermore, we are initially developingSM-88 for patients with cancer for whom no other therapies have succeeded and survival times are frequently short. Therefore, we expect that certain subjects may die during the clinical trials and it may be difficult to ascertain whether such deaths are attributable to the underlying disease, complications from the disease,SM-88 or a combination of such factors.
The results of future clinical trials may show thatSM-88 causes undesirable or unacceptable side effects, which could interrupt, delay or halt our clinical trials and result in delay of or failure to obtain, marketing approval from the FDA, the European Commission and othernon-U.S. regulatory authorities or result in marketing approval from the FDA, the European Commission and othernon-U.S. regulatory authorities with restrictive label warnings or potential drug liability claims.
IfSM-88 or any other drug candidate we may develop receives marketing approval and it is later identified as undesirable or has unacceptable side effects, we are at risk for the following actions:
regulatory authorities may require us to takeSM-88 or such other drug product off the market;
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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;
regulatory authorities may require post-market clinical trials to assess possible serious risks associated withSM-88 or such other drug product, which will require us to provide the FDA with additional data;
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| regulatory authorities may require us to take SM-88 or such other drug product off the market;
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| regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;
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| regulatory authorities may require post-market clinical trials to assess possible serious risks associated with SM-88 or such other drug product, which will require us to provide the FDA with additional data;
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| we may be required to change the way SM-88 or such other drug product is administered, conduct additional clinical trials or change the labeling of the drug;
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| we may be subject to limitations on how we may promote SM-88 or such other drug product;
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| sales of SM-88 or such other drug product may never gain traction or could decrease significantly;
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| we may be subject to litigation or drug liability claims; and
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| our reputation may suffer.
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we may be required to change the waySM-88 or such other drug product is administered, conduct additional clinical trials or change the labeling of the drug;
we may be subject to limitations on how we may promoteSM-88 or such other drug product;
sales ofSM-88 or such other drug product may never gain traction or could decrease significantly;
we may be subject to litigation or drug liability claims; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance ofSM-88 or such other drug product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale ofSM-88 or such other drug product.
We depend on continued patient enrollment into our clinical trials. If we are unable to enroll patients in our clinical trials, our research and development efforts could be materially adversely affected.
Successful and timely completion of clinical trials will require that we enroll and complete the trials with a sufficient number of evaluable subjects. Our clinical trials may be subject to delays resulting from the trials’ slower enrollment or subject withdrawal. Subject enrollment depends on many factors, including the size and nature of the patient population, eligibility criteria for the clinical trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials for the same population of subjects, the availability of new drugs approved for the drug candidate that is the subject of the clinical trial, and clinicians’ and patients’ perceptions as to the potential advantages of SM-88 and any other drug product we may develop in relation to other available therapies.
These factors may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. Delays in the completion of any clinical trial for SM-88 and any other drug product we may develop will increase our costs, slow down our drug development and delay or potentially jeopardize our ability to commence drug sales and generate revenue. In addition, some of the factors that cause or lead to, a delay in the completion of clinical trials may also ultimately lead to the denial of regulatory approval of SM-88 and any other drug product we may develop.
Even if approved, ifSM-88 does not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, our revenue generated from its sales will be limited.
The commercial success of ourSM-88 and any other drug product we may develop will depend upon its acceptance among physicians, patients and the overall medical community. The degree of market acceptance ofSM-88, which would be applicable to any other drug product we may develop, will depend on a number of factors, which include, but are not limited to:
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| limitations or warnings contained in the approved labeling for SM-88;
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| changes in the standard of care for the targeted therapy;
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| limitations in the approved clinical indications for SM-88;
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| demonstrated clinical safety and efficacy of SM-88 compared to other drugs;
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| lack of significant adverse effects;
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limitations or warnings contained in the approved labeling forSM-88;
changes in the standard of care for the targeted therapy;
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limitations in the approved clinical indications forSM-88;
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| limitations on how we promote SM-88;
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| sales, marketing and distribution support;
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| availability and extent of reimbursement from managed care plans and other third-party payors;
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| timing of market introduction and perceived effectiveness of competitive drugs;
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| the degree of cost-effectiveness of SM-88;
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| availability of alternative therapies, whether or not at a similar or lower cost, including generic and over-the-counter drugs;
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| the extent to which SM-88 is approved for inclusion on formularies of hospitals and managed care organizations;
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| whether SM-88 is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy;
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| adverse publicity about SM-88 or favorable publicity about competitive drugs;
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| convenience and ease of administration; and
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| potential drug liability claims.
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demonstrated clinical safety and efficacy ofSM-88 compared to other drugs;
lack of significant adverse effects;
limitations on how we promoteSM-88;
sales, marketing and distribution support;
availability and extent of reimbursement from managed care plans and other third-party payors;
timing of market introduction and perceived effectiveness of competitive drugs;
the degree of cost-effectiveness ofSM-88;
availability of alternative therapies, whether or not at a similar or lower cost, including generic andover-the-counter drugs;
the extent to whichSM-88 is approved for inclusion on formularies of hospitals and managed care organizations;
whetherSM-88 is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy;
adverse publicity aboutSM-88 or favorable publicity about competitive drugs;
convenience and ease of administration; and
potential drug liability claims.
IfSM-88 or any other drug candidate we may develop is approved but does not achieve an adequate level of acceptance by physicians, patients and the overall medical community, we may not generate sufficient revenue to become profitable or to sustain operations. In addition, efforts to educate the medical community and third-party payors on the benefits ofSM-88 or any other drug candidate we may develop may require significant resources and may never be successful.
We are subject to manufacturing risks that could substantially increase our costs and limit the supply ofSM-88 and any other drug product we may develop.
As is likely to be common with any other drug candidate we may develop, the process of manufacturingSM-88 is complex, highly regulated and subject to several risks, which include, but are not limited to the following risks:
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| We do not have experience in manufacturing SM-88 in bulk quantity or at commercial scale. We plan to contract with external manufacturers to develop a larger scale process for manufacturing SM-88 in parallel with our phase II trial of SM-88. We may not succeed in the scaling up of our process or we may need a larger manufacturing process for SM-88 than what we have planned. Any changes to our manufacturing processes may result in the need to obtain additional regulatory approvals. Difficulties in achieving commercial-scale production or the need for additional regulatory approvals could delay the development and regulatory approval of SM-88 and ultimately affect our success.
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| The process of manufacturing drugs, such as SM-88, is extremely susceptible to loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in drug characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, drug defects and other supply disruptions. If microbial, viral or other contaminations are discovered in SM-88 or in the manufacturing facilities in which SM-88 is made, such manufacturing facilities may need to be closed for an extended time to investigate and remedy the contamination.
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| A shortage of one or more SM-88 drug substance(s) or ingredients.
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| The manufacturing facilities in which SM-88 is made could have delays in manufacturing due to delays created by other sponsor company drug manufacturing runs, which could affect our manufacturing runs.
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| An unforeseen increase in ingredients procurement or other manufacturing costs.
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We do not have experience in manufacturingSM-88 in bulk quantity or at commercial scale. We plan to contract with external manufacturers to develop a larger scale process for manufacturingSM-88 in parallel with our Phase II trial ofSM-88. We may not succeed in the scaling up of our process or we may need a larger manufacturing process forSM-88 than what we have planned. Any changes to our manufacturing processes may result in the need to obtain additional regulatory approvals. Difficulties in achieving commercial-scale production or the need for additional regulatory approvals could delay the development and regulatory approval ofSM-88 and ultimately affect our success.
The process of manufacturing drugs, such asSM-88, is extremely susceptible to loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in drug characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, drug defects and other supply disruptions. If microbial, viral or other contaminations are discovered inSM-88 or in the manufacturing facilities in whichSM-88 is made, such manufacturing facilities may need to be closed for an extended time to investigate and remedy the contamination.
A shortage of one or moreSM-88 drug substance(s) or ingredients.
The manufacturing facilities in whichSM-88 is made could have delays in manufacturing due to delays created by other sponsor company drug manufacturing runs, which could affect our manufacturing runs.
An unforeseen increase in ingredients procurement or other manufacturing costs.
The manufacturing facilities in whichSM-88 is made could be adversely affected by equipment failures, labor shortages, labor strikes, natural disasters, power failures, lack of phone or internet services, riots, crime, act of foreign enemies, war, nationalization, government sanction, blockage, embargo, any extraordinary event or circumstance beyond control and numerous other factors.
We and our manufacturing partners must comply with applicable cGMP and local and state regulations and guidelines. Compliance with cGMP can be time consuming and expensive. Further, cGMP may not be flexible in situations where business pressures would normally call for immediate ingenuity. We or our manufacturing partners may encounter difficulties in achieving quality controls and quality assurance and may experience shortages in qualified personnel. We and our manufacturing partners will be subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow cGMPs or other regulatory requirements or delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage ofSM-88 that result from a failure at the facilities or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercializeSM-88. This could lead to significant delays in the availability of our drug for clinical trials or the termination or clinical hold on a trial or the delay or prevention of a filing or approval of marketing applications forSM-88. Significant noncompliance could also result in the imposition of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals forSM-88, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could damage our reputation. If we and/or our manufacturing partners are not able to maintain regulatory compliance, we may not be permitted to marketSM-88 and/or may be subject to drug recalls, seizures, injunctions or criminal prosecution.
Any adverse developments affecting manufacturing operations forSM-88, if approved for marketing by the FDA, may result in shipment delays, inventory shortages, lot inspection failures, drug withdrawals or recalls or other interruptions in the supply ofSM-88. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet regulator-approved manufacturing specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives; and
Drug products that have been produced and stored for later use may degrade, become contaminated or suffer other quality defects, which could cause the affected products to no longer be suitable for its intended use in clinical trials or other development activities. If the defective drug cannot be replaced in a timely fashion, we may incur significant delays in our development programs that could adversely affect the value ofSM-88.
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| The manufacturing facilities in which SM-88 is made could be adversely affected by equipment failures, labor shortages, labor strikes, natural disasters, power failures, lack of phone or internet services, riots, crime, act of foreign enemies, war, nationalization, government sanction, blockage, embargo, any extraordinary event or circumstance beyond control and numerous other factors.
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| We and our manufacturing partners must comply with applicable current Good Manufacturing Practice (“cGMP”) and local and state regulations and guidelines. Compliance with cGMP can be time consuming and expensive. Further, cGMP may not be flexible in situations where business pressures would normally call for immediate ingenuity. We or our manufacturing partners may encounter difficulties in achieving quality controls and quality assurance and may experience shortages in qualified personnel. We and our manufacturing partners will be subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow cGMPs or other regulatory requirements or delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage of SM-88 that result from a failure at the facilities or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize SM-88. This could lead to significant delays in the availability of our drug for clinical trials or the termination or clinical hold on a trial or the delay or prevention of a filing or approval of marketing applications for SM-88. Significant noncompliance could also result in the imposition of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for SM-88, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could damage our reputation. If we and/or our manufacturing partners are not able to maintain regulatory compliance, we may not be permitted to market SM-88 and/or may be subject to drug recalls, seizures, injunctions or criminal prosecution.
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| Any adverse developments affecting manufacturing operations for SM-88, if approved for marketing by the FDA, may result in shipment delays, inventory shortages, lot inspection failures, drug withdrawals or recalls or other interruptions in the supply of SM-88. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet regulator-approved manufacturing specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives; and
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| Drug products that have been produced and stored for later use may degrade, become contaminated or suffer other quality defects, which could cause the affected products to no longer be suitable for its intended use in clinical trials or other development activities. If the defective drug cannot be replaced in a timely fashion, we may incur significant delays in our development programs that could adversely affect the value of SM-88.
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One component of
SM-88 is a derivation of an existing
FDA-approved drug that has been modified to contribute to the functionality of
SM-88. This drug substance is being manufactured by a
FDA-approved, third party and to date that manufacturer is our sole supplier of this drug substance. Even though the drug substance is currently being manufactured, its modification and the modified drug’s manufacturing and use in our combination drug product must still undergo regulatory review and approval. To our knowledge, the current manufacturer of this drug substance is the only
FDA-approved supplier of the existing drug in the
U.S.United States. We believe this cGMP manufacturer has sufficient capacity to meet our projected needs into the near future. In the event of a catastrophic event or this manufacturer is unable to meet our needs, we will, due to the nature of the drug substance and the modifications required for this drug substance, need to find an alternative source of supply, which will likely result in time delays in the clinical development process. We believe that replacement for this supplier, in the event it becomes necessary, is not impossible, but would
costcause us
in development time.to lose time that could otherwise be devoted to development. Currently, we do not have an arrangement in place for a secondary supplier for this drug substance.
We currently have no marketing, sales or distribution infrastructure. If we are unable to develop sales, marketing and distribution capabilities on our own or through collaborations or if we fail to achieve adequate pricing and/or reimbursement, we will not be successful in commercializingSM-88 and any other drug product we may develop.
We currently have no marketing, sales and distribution capabilities because our lead drug candidate,SM-88, is still in clinical development and initial trials and our other drug candidates are only in the initial stages of development. IfSM-88 is approved, we intend either to have established a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our drug or to have outsourced this function or portions, to one or more experienced third parties. Either of these options is expensive and time-consuming. Some of these costs may be incurred well in advance of any regulatory approvals forSM-88. In addition, we may not be able to hire a sales force that is sufficient in size or has adequate expertise in the medical markets that we intend to target. Any failure or delay in the development of our internal sales, marketing and distribution capabilities or to outsource these functions, in whole or part, would adversely affect the commercialization of our products.
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To the extent that we enter into collaborative agreements for marketing, sales and/or distribution, our revenue may be lower than if we directly marketed and soldSM-88. In addition, any revenue we receive will depend in
whole or in part upon the efforts and success of these third-party collaborators, which are likely not to be entirely within our control. If we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to successfully commercializeSM-88. If we are not successful in commercializingSM-88, either on our own or through collaborations with one or more third parties, our future revenues will suffer, we may incur significant and additional losses and we may be forced to curtail operations. These factors would have an adverse effect on our share price.
SM-88 and any other drug product we may develop will face significant competition and, if competitors develop and market products that are more effective, safer or less expensive than our drug, our commercial opportunity will be negatively impacted.
The anticancer treatment industry is highly competitive and subject to rapid and significant technological changes. We are currently developingSM-88 to compete with other drugs that currently exist or are being developed. Drugs we may develop in the future are also likely to face competition from other drugs, some of which we may not be currently be aware of. In marketing our products, we will have domestic and international competitors, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, patient recruitment and manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in more advanced stages of development or collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies also may invest heavily to accelerate discovery and development of novel compounds or toin-license novel compounds that could makeSM-88 and any other drug product we may develop obsolete. Some or all of these factors may contribute to our competitors succeeding in obtaining patent protection and/or marketing approval or developing and commercializing products in our field before we do.
There are a large number of companies working to develop and/or market various types of anticancer treatments. These treatments consist both of small molecule drugs, as well as biological drugs that work by using next-generation technology platforms to address specific cancer targets. These treatments are often combined with one another in an attempt to maximize a response rate. In addition, several companies are developing drugs that work by targeting additional specificities using a single recombinant molecule.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe effects, are more convenient or are less expensive thanSM-88. Our competitors also may obtain FDA, EU or othernon-U.S. regulatory approval for their products more rapidly than we may, which could result in our competitors establishing a strong market position before we are able to enter the market. Even ifSM-88 achieves marketing approval, it may be priced at a significant premium over competitive products, if any have been approved by then, resulting in our product’s reduced competitiveness.
In addition,Further, our future ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of similar or biosimilar products.
In addition, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act or collectively, theof 2010, was adopted in March 2010. The Health Care Reform Law is a sweepingfar reaching law intended to broaden access to health insurance, reduce or constrain the growth of health care spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Health Care Reform Law also created a new regulatory scheme authorizing the FDA to approve biosimilars. Undercosts and restrictions impacted by the Health Care Reform Law a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to”impact our competitiveness or “interchangeable with” a previously approved biological product or “reference product,” without the need to submit a full package of nonclinical and clinical data. Under this new statutory scheme, an application for a biosimilar product may not be submitted to the FDA until four years following approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full NDA for such product containing the sponsor’s own nonclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. Furthermore, recent legislation has proposed that the 12-year exclusivity period for each a reference product may be reduced to seven years. availability opportunity.
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Smaller and other early-stage companies also may prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, recruiting clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to or necessary for,SM-88. In addition, the biopharmaceutical industry is characterized by rapid technological changes. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval and commercialization ofSM-88 or any other drug candidate we may develop and may affect the price we set. Our successful commercialization will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement and pricing policies.
In the U.S.,United States, the EU, its Member Statesmember states and some other foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system. These changes could prevent or delay marketing approval ofSM-88 or any other drug product we may develop, restrict or regulate post-approval activities and affect our ability to sell and recognize revenue fromSM-88 or any other drug product we may develop. Among policy makers and payors in the U.S.United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing health care costs, improving quality and/or expanding access to health care.
In the U.S.,United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 or the (the “Medicare Modernization Act”) changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sale prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost-reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.
In addition, the Health Care Reform Law, among other things, increased rebates a manufacturer must pay to the Medicaid program, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, established a new Medicare Part D coverage gap discount program in which manufacturers must provide 50%point-of-sale discounts on products covered under Part D and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain health care services through bundled payment models. Further, the new law imposed a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance were enacted, which may affect our business practices with health care practitioners. The goal of the Health Care Reform Law is to reduce the cost of health care and substantially change the way health care is financed by both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business specifically, the Health Care Reform Law may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of and the price we may charge for, any products we develop that receive regulatory approval. We also cannot predict the impact of the Health Care Reform Law on our business or financial condition, as many of the Health Care Reform Law reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred.
condition.
Moreover, other legislative changes have also been proposed and adopted in the U.S. since the Health Care Reform Law was enacted. On September 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 or the ATRA, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other health care funding, which could have a material adverse effect on our customers and accordingly, our future results from operations.
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The delivery of health care in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the health care budgetary constraints in most EU Member States have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval ofSM-88 and any other drug product we may develop, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval.
approval
If any drug liability lawsuits are successfully brought against us or any of our collaborators, we may incur substantial liabilities and may be required to limit commercialization ofSM-88 and any other drug product we may develop.
We face an inherent risk of drug liability lawsuits related to the testing ofSM-88 and any other drug candidate we may develop that is intended to treat seriously ill patients. In addition, we face risk of liability lawsuits ifSM-88 or any of other drug product of ours is approved by regulatory authorities and introduced commercially. Drug liability claims may be brought against us or our collaborators, if any, by subjects enrolled in our clinical trials, patients, health care providers or others using, administering or sellingSM-88 or such other drug product. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, liability claims may result in, but are not limited to:
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| decreased demand for SM-88 or any other drug candidate we may develop;
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| injury to our reputation;
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| withdrawal of subjects in our clinical trials;
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| withdrawal of clinical trial sites or entire trial programs;
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| increased regulatory scrutiny;
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| significant litigation costs;
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| substantial monetary awards to or costly settlements with patients or other claimants;
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| drug recalls or a change in the indications for which they may be used;
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| loss of revenue;
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| diversion of management and scientific resources from our business operations; and
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| the inability to commercialize SM-88 or such other drug product.
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decreased demand forSM-88 or any other drug candidate we may develop;
injury to our reputation;
withdrawal of subjects in our clinical trials;
withdrawal of clinical trial sites or entire trial programs;
increased regulatory scrutiny;
significant litigation costs;
substantial monetary awards to or costly settlements with patients or other claimants;
drug recalls or a change in the indications for which they may be used;
loss of revenue;
diversion of management and scientific resources from our business operations; and
the inability to commercializeSM-88 or such other drug product.
IfSM-88 is approved for commercial sale, we will be highly dependent upon consumer perception and the safety and quality ofSM-88. We could be adversely affected if we are subject to negative publicity or ifSM-88 proves to be or is asserted to be, harmful to patients. Because of our dependence upon consumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse ofSM-88 could have a material adverse impact on our financial condition or results of operations. This would also be true with respect to any other drug product we may develop, receive regulatory approval of and, thereafter, seek to market.
When necessary, we intend to obtainWe hold clinical trial insurance for theSM-88 phase Phase II clinical trial. We also intend to obtain drug liability insurance coverage at appropriate levels for our operations, which will vary as the level of our operations vary during our growth from a R&D company to a company manufacturing and/or marketing drugs to the public. Our current and planned insurance coverage may not be adequate to cover all liabilities that we may incur. We also may need to increase our insurance coverage when we begin the commercialization ofSM-88. Insurance coverage can be expensive for pharmaceutical products and candidates. As a result, we may be unable to obtain or maintain sufficient liability insurance at a reasonable cost to protect us against losses, which could have a material adverse effect on our business. A successful drug liability claim or series of claims brought against us, particularly if judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affect our business, financial condition and results of operations and could possibly cause us to cease our operations in their entirety.
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Our management lacks experience in obtaining FDA approval of products, which could result in delays or the failure to obtain required regulatory approval of our productsproducts..
Although they have experience in creating and marketing various products, our chief executive and chief operation officers have never previously organized, managed or completedFDA-required submissions and clinical trials concerning new drug products. While we intend to retain employees, advisors and consultants with experience in the FDA approval process and have retained and utilized a number of such advisors and consultants currently and in the past, the lack of experience by our chief executive and operating officers could result in: delays in obtaining necessary regulatory approvals, both in conducting clinical trials and final marketing approvals; additional costs; and the possibility that approvals will not be obtained due to the failure to comply with the regulatory approval process; such delays, costs and/or failure would likely adversely affect our business, financial condition and results of operations and could possibly cause us to cease our operations in their entirety.
entirety
Risks Related to our Financial Condition and Need for Additional Capital
We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have no products approved for commercial sale and to date we have not generated any revenue or profit from drug sales. We may never realize revenue or profitability.
We are a clinical-stage pharmaceutical company with a limited operating history. We have incurred significant losses since our inception. As of DecemberMarch 31, 2015,2018, our accumulated deficit was approximately $15,904,000.$52,831,581. Our losses have resulted principally from expenses incurred in the discovery and development ofSM-88 and from general and administrative expenses incurred while building our business infrastructure. We expect to continue to incur losses for the near future. Furthermore, we expect these losses to increase as we continue our research and development of and seek regulatory approval for our drug candidateSM-88 and any other drug candidates we may develop, prepare for and
begin to commercializeSM-88 or any other regulatory-approved products and add infrastructure and personnel to support our drug development efforts and operations as a public company. The net losses and negative cash flows from operations incurred to date, together with expected future losses, have had and likely will continue to have, an adverse effect on our stockholders’ equity and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.
Because of the numerous risks and uncertainties associated with drug development, we are unable to accurately predict the timing or amount of increased expenses or when or if, we will be able to realize revenue or achieve profitability. For example, our expenses could increase if FDA or EMA require us to conduct supplemental clinical trials not included in our current development plan or if there are any delays in completing our planned clinical trials or in the development ofSM-88 or any other drug product we may pursue.
To become and remain profitable, we must succeed in the development and commercialization of drug products with significant market potential. This will require us to be successful in a range of challenging activities for which we are only in the preliminary stages, including, with respect to the near term, developingSM-88, obtaining regulatory approval and manufacturing, marketing and sellingSM-88. We may never succeed with these activities or generate revenue from drug sales that is significant enough to achieve profitability. Our ability to generate future revenue from drug sales depends heavily on our success in many areas, which include, but are not limited to:
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| completing research and clinical development of SM-88, including successful completion of required clinical trials;
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| obtaining marketing approval for SM-88;
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| developing a sustainable and scalable manufacturing process for SM-88 and maintaining supply and manufacturing relationships with third parties that can conduct the process and provide adequate (in amount and quality) drugs to support clinical development and the market demand for SM-88, if approved;
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| launching and commercializing SM-88, either directly or with a collaborator or distributor;
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| establishing sales, marketing and distribution capabilities in the U.S. and in other markets, such as the EU;
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| obtaining market acceptance of SM-88 as a viable treatment option;
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| addressing any competing technological and market developments;
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completing research and clinical development ofSM-88, including successful completion of required clinical trials;
obtaining marketing approval forSM-88;
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developing a sustainable and scalable manufacturing process forSM-88 and maintaining supply and manufacturing relationships with third parties that can conduct the process and provide adequate (in amount and quality) drugs to support clinical development and the market demand forSM-88, if approved;
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| identifying, assessing, acquiring and/or developing new drug candidates;
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| negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
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| maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and
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| attracting, hiring and retaining qualified personnel.
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launching and commercializingSM-88, either directly or with a collaborator or distributor;
establishing sales, marketing and distribution capabilities in the United States and in other markets, such as the EU;
obtaining market acceptance ofSM-88 as a viable treatment option;
addressing any competing technological and market developments;
identifying, assessing, acquiring and/or developing new drug candidates;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets andknow-how; and
attracting, hiring and retaining qualified personnel.
These factors applicable toSM-88 would be applicable to any other drug candidate we may develop.
Even ifSM-88 or another drug candidate that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercialization. Because of the numerous risks and uncertainties with drug development, we are unable to accurately predict the timing or amount of increased expenses or when or if, we will be able to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to realize revenue or become or remain profitable could depress our market value and could impair our ability to raise capital, expand our business, develop other drug candidates or continue our operations. A decline in the value of our shares could also cause investors in our common stock (or other securities we may issue in the future) to lose all or part of their investment.
We will require substantial additional funding, which may not be available to us on acceptable terms or at all and, if not available, may require us to delay, scale back or cease our drug development programs or operations.
In addition toSM-88, we seek to advance multiple drug candidates through our research and clinical development process. The completion of the development and the potential commercialization ofSM-88 or any other drug candidate will require substantial funds. We believe that our available cash and cash equivalents will be sufficient to fund our anticipated level of operations for the next six-to-nine months, but there can be no assurance that this will be the case. Our future financing requirements will depend on many factors, some of which are beyond our control, which include, but are not limited to:
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| the number and characteristics of drug candidates that we pursue;
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| the scope, progress, timing, cost and results of nonclinical and clinical development and research;
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| the costs, timing and outcome of our seeking and obtaining FDA, EMA and other non-U.S. regulatory approvals;
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| the costs associated with manufacturing SM-88, as well as other potential drug candidates, and establishing sales, marketing and distribution capabilities;
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| our ability to maintain, expand and defend the scope of our IP portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other IP rights;
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| the extent to which we acquire or in-license other products or technologies;
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| our need and ability to hire additional administrative, managerial, scientific, operational and medical personnel;
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| the effect of competing products that may limit market penetration of SM-88 and any other drug candidates we may develop;
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| the amount and timing of revenues, if any, we receive from commercial sales of SM-88 or any other drug candidates for which we receive marketing approval in the future;
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| our need to implement additional internal systems and infrastructure, including financial and reporting systems; and
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| the economic and other terms, timing of and ultimate success of any future collaboration, licensing or other arrangements, including the timing of achievement of milestones and receipt of any milestone or royalty payments under such agreements.
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the number and characteristics of drug candidates that we pursue;
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the scope, progress, timing, cost and results of nonclinical and clinical development and research;
the costs, timing and outcome of our seeking and obtaining FDA, EMA and othernon-U.S. regulatory approvals;
the costs associated with manufacturingSM-88, as well as other potential drug candidates, and establishing sales, marketing and distribution capabilities;
our ability to maintain, expand and defend the scope of our IP portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other IP rights;
the extent to which we acquire orin-license other products or technologies;
our need and ability to hire additional administrative, managerial, scientific, operational and medical personnel;
the effect of competing products that may limit market penetration ofSM-88 and any other drug candidates we may develop;
the amount and timing of revenues, if any, we receive from commercial sales ofSM-88 or any other drug candidates for which we receive marketing approval in the future;
our need to implement additional internal systems and infrastructure, including financial and reporting systems; and the economic and other terms, timing of and ultimate success of any future collaboration, licensing or other arrangements, including the timing of achievement of milestones and receipt of any milestone or royalty payments under such agreements.
Until we can generate sufficient drug and royalty revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. AdditionalAny additional fundraising efforts may divert management’s attention fromday-to-day activities and financing may not be available to us when we need it or financings may not be available on favorable terms. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our drug candidates, technologies, future revenue streams or research programs and/or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, as we expect to do, the ownership interests of our then existing stockholders could be diluted and the terms of these securities may include liquidation or other preferences that adversely affect stockholders’ rights. In addition, certain holders of our outstanding securities have anti-dilution protection that could result in additional dilution to our stockholders generally. These provisions provide that if we raise certain funds before March 2018 at a per share price less than $.050 per share, anti-dilution protections will apply. See Item 1 – “Business – Corporate History; Significant Organizational Events.”
If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain adequate financing when needed and on favorable terms, we may have to delay, reduce the scope of or suspend one or more of our clinical trials or research and development programs or our commercialization efforts.
We may expend our limited resources to pursueSM-88 for certain indications that may not be the most profitable or do not have the greatest likelihood of success.
Because we have limited financial and managerial resources, we currently are focusing our research programs onSM-88 for the treatment of specified cancer therapies. As a result, we may forego or delay pursuit of opportunities with other drug candidates or other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and drug candidates for specific indications may not yield any commercially viable products.
If we do not accurately evaluate the commercial potential or target market forSM-88 or any other drug candidate, we may relinquish valuable rights through collaboration, licensing or other royalty arrangements in cases where it would have been advantageous for us to retain sole development and commercialization rights.
If we do not achieve our projected development goals in the periods we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.
Over the course of our development efforts, we will estimate the successful completion of various scientific, clinical, regulatory and other drug development goals, which we refer to as milestones. These milestones may include the commencement or completion of clinical trials and the submission of planned regulatory filings. Occasionally, we may publicly announce the expected timing of some of these milestones. For example, throughout this report, we state that we plan to begin phase II trials during 2016. All of these milestonesprojected milestone timelines will be based on a variety of assumptions. The actual timing of achieving these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and, as a result, our stock price may decline.
Risks Related to our Reliance on Third Parties
We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of these trials.
We will not independently conduct clinical trials forSM-88 and may not do so for any other drug product we may develop. We will and may rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators to perform these functions. Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, the FDA requires us to comply with standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible, accurate and that the rights, integrity and confidentiality of subjects in clinical trials are protected, even though we are not in control of these processes. These third parties also may have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals forSM-88 or other products we may develop and will not be able to, or may be delayed in our efforts to, successfully commercializeSM-88 and any other drug product we may develop.
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We also will rely on other third parties to store and distribute supplies for our clinical trials. Any performance failure on the part of our existing or future distributors could delay clinical development or regulatory approval ofSM-88, producing additional losses and depriving us of potential revenue.
We intend to rely on third-party contract manufacturing organizations to manufacture and supplySM-88 for us. If one of our suppliers or manufacturers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find new suppliers or manufacturers. We may also face delays in the development and commercialization ofSM-88 and any other drug product we may develop.
We currently have limited experience in and we do not own facilities for, clinical-scale manufacturing ofSM-88, and we will rely upon third-party contract manufacturing organizations to manufacture and supply drug for our clinical trials. The manufacture of pharmaceutical products in compliance with the FDA’s cGMP requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs and yields, quality control, including drug stability, quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements and other federal and state regulatory requirements and foreign regulations. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations to us or under applicable regulations, it would jeopardize our ability to supply investigational drug for our clinical trials. Any delay or interruption in the supply of clinical trial materials could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical development programs and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the ongoing trials.
All manufacturers used to formulate the components ofSM-88 must comply with cGMP requirements, which are enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality control, quality assurance and the documentation and maintenance of records. Manufacturers of our drug candidates may be unable to comply with cGMP requirements and/or with other FDA, state and foreign regulatory
requirements. The FDA or similar foreign regulatory agencies may also implement new standards at any time or change their interpretation and enforcement of existing standards for the manufacture, packaging or testing of drug products. We have little control over our manufacturers’ compliance with these regulations and standards and a failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in drug approval, drug seizure or recall or withdrawal of a drug approval. If the safety of any drug supplied is compromised due to a manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercializeSM-88 and as a result, may be held liable for any injuries sustained. Any of these factors could cause a delay of clinical trial completion, regulatory submission, approval or commercialization ofSM-88, increase our costs or impair our reputation.
We currently rely on single-source suppliers for each of the drug components in SM-88. SuppliesSM-88.Supplies are obtained through limited term supply agreements under individual purchase orders and we do not have any long-termorders. At this time, no supply agreements in place at this time.exceeds 18 months. Although we believe alternative sources of supplies exist, the number of third-party suppliers with the necessary manufacturing and regulatory expertise and facilities is limited, could be more expensive and it could take a significant amount of time to source, any of which would adversely affect our business. New suppliers ofSM-88 would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable IP laws to the method of manufacturing the drug candidate. Obtaining the necessary FDA approvals or other qualifications under applicable regulatory requirements and ensuringnon-infringement of third-party IP rights could result in a significant interruption of supplies and could require the new manufacturer(s) to bear significant additional costs which may be passed on to us.
Our reliance on third parties may require us to share our trade secrets, which increase the possibility that a competitor could discover them or that our trade secrets could be misappropriated or disclosed.
Because we rely on third parties to assist in the research, development and manufacture ofSM-88 and may do so with any other drug candidate we may develop, we must, at times, share trade secrets with such third parties. We will seek to protect our proprietary technology in part by initially entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees and third-party contractors prior to disclosing any proprietary information. These agreements typically limit the rights of third parties to use or disclose our confidential information, which include our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets could become known by our competitors, are inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on ourknow-how and trade secrets, a competitor’s independent discovery of our trade secrets or other unauthorized use or disclosure could impair our competitive position and could have a material adverse effect on our business.
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In addition, these agreements would typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data that could potentially relate to our trade secrets, even though our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with in the future can be, based on customary practice, expected to be granted rights to publish data arising out of such collaboration, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of IP rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future, we may also conduct joint research and develop programs that may require us to share trade secrets under the terms of such research. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development, publication of information by any of our third-party collaborators or otherwise. A competitor’s discovery of our trade secrets could impair our competitive position and could have an adverse impact on our business.
We may enter into license agreements with third parties with respect toSM-88 and any other drug candidates we may develop that may place the development ofSM-88 and any other drug candidates partially or entirely outside of our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us. If our collaborations are not successful,SM-88 and any other drug candidates we may choose to develop may not reach their full market potential.
For financial and efficiency reasons, we may enter into licensing or collaboration agreements with third parties. Collaborations, if any are entered into, involvingSM-88 and any other drug candidates we may develop, will be and are subject to numerous risks, which may include, but are not limited to:
collaborators may have significant discretion in determining the efforts and resources that they will apply to collaborations;
collaborators may not perform their obligations as expected;
collaborators may not pursue development and commercialization ofSM-88 or any other drug candidate we may choose to develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical program, stop a clinical trial, abandonSM-88 or other drug candidate, repeat or conduct new clinical trials or require a new formulation ofSM-88 or other drug candidate;
collaborators could independently develop or develop with third parties, products that compete directly or indirectly withSM-88;
a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;
we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;
collaborators may not properly maintain or defend our IP rights or may use our IP or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our IP or proprietary information or expose us to potential liability;
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| collaborators may have significant discretion in determining the efforts and resources that they will apply to collaborations;
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| collaborators may not perform their obligations as expected;
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| collaborators may not pursue development and commercialization of SM-88 or any other drug candidate we may choose to develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;
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| collaborators may delay clinical trials, provide insufficient funding for a clinical program, stop a clinical trial, abandon SM-88 or other drug candidate, repeat or conduct new clinical trials or require a new formulation of SM-88 or other drug candidate;
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| collaborators could independently develop or develop with third parties, products that compete directly or indirectly with SM-88;
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| a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;
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| we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;
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| collaborators may not properly maintain or defend our IP rights or may use our IP or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our IP or proprietary information or expose us to potential liability;
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| collaborators may not aggressively or adequately pursue litigation against Abbreviated New Drug Application (“ANDA”ANDA”) filers or may settle such litigation on unfavorable terms; |
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| disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization of SM-88 or any other drug candidate we may develop or results in costly litigation or arbitration that diverts management attention and resources;
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| collaborations may be terminated, sometimes at-will, without penalty;
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| collaborators may own or co-own IP covering our products that results from our collaborating with them and, in such cases, we would not have the exclusive right to commercialize such IP; and
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disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization ofSM-88 or any other drug candidate we may develop or results in costly litigation or arbitration that diverts management attention and resources;
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collaborations may be terminated, sometimesat-will, without penalty;
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| a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws and could result in civil or criminal proceedings.
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collaborators may own orco-own IP covering our products that results from our collaborating with them and, in such cases, we would not have the exclusive right to commercialize such IP; and
a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws and could result in civil or criminal proceedings.
Risks Related to the Operation of our Company
Our future operational success depends on our ability to retain our key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on our chief executive officer, chief operating officer, chief financial officer and the other members of our executive and scientific teams. Our executives may terminate their employment with us at any time. The loss of the services of any of these people could impede the achievement of our research, development and commercialization objectives.
Recruiting and retaining qualified scientific, clinical, administrative, operations, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development, preparing filings and communicating with the FDA and other regulatory authorities, preparing for and the conducting of clinical trials and formulating commercialization strategies. Our consultants and advisors may be employed or contracted by other businesses in addition to ours and may have commitments with other entities that may limit their availability to us.
To date, our drug discovery process and development program has been led by Steve Hoffman, our chief executive and science officer. He has been instrumental in providing scientific, technical and business expertise. We do not
currently maintain “key person” insurance on Mr. Hoffman or any of our other executives or employees. While we may, in the future, seek to obtain keymankey man insurance on Mr. Hoffman and/or such other executives and employees, we may not be able to obtain the insurance at favorable rates or at all. Any insurance proceeds we may receive under such “key person” insurance may not adequately compensate us for the loss of Mr. Hoffman’s or other insured’s services. Development ofSM-88 could ultimately continue without Mr. Hoffman’s or others’ contributions, but future development ofSM-88 and all other drug products in our pipeline would be adversely affected without his continued involvement.
We are highly reliant on our executives, but certain of them, including our chief executive and science officer, Steven Hoffman, our chief operating officer, Michael Demurjian, and our chief medical officer, Giuseppe Del Priore, have other business interests to which they devote their attention. From time to time, these other interests may distract their attention from our company, generate reputational risk for our company or give rise to conflicts of interest that must be resolved through the exercise of sound judgment consistent with their fiduciary duties to us. Our ability to attract and retain investors, collaborators, and employees could be adversely affected by damage to our reputation resulting from various sources, such as our executives’ other business interests, employee misconduct, litigation, or regulatory outcomes. For example, Mr. Demurjian is party to litigation related to family real estate and probate matters that may require a significant amount of his time and attention, which may distract him from his duties to Tyme.
We expect to expand our development, regulatory and marketing capabilities and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
As of February 29, 2016,March 31, 2018, we had nine11 full-time employees. Over the next several years, we expect to experience significant growth in the number of our employees and the scope of our operations. To manage our anticipated future growth, including the potential development of new products, we must continue to: implement and improve our managerial, operational and financial systems, expand our facilities and recruit and train additional qualified personnel. Future growth would impose significant added responsibilities on management. Due to our limited financial resources and the limited experience of our management team in managing a life sciences company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. Our current management has limited experience in managing a company that had the life sciences research and development and operational growth we anticipate for our Company. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Business disruptions (domestic and/or international) could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations could be subject to equipment failures, labor shortages, labor strikes, earthquakes, power shortages, telecommunications failures, floods, hurricanes, typhoons, fires, extreme weather conditions, terrorist activities, medical epidemics, riots, crime, act of foreign enemies, war, nationalization, government sanction, blockage, embargo and other natural or manmade disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and could increase our costs and expenses.
Our corporate headquarters is located in New York, New York. Our current and future, third-party collaborators, future partners, supplies, CROs and investigational sites are or will be, located throughout the U.S.United States or internationally and may be located near major high-risk terrorist targets, earthquake faults, flood and fire zones. The ultimate impact on us, our significant partners and suppliers as well as our and their general infrastructures being located near major high-risk terrorist targets, earthquake faults, flood and fire zones and being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major terrorist attack, earthquake, fire, flood or other natural or manmade disaster.
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Our business is also subject to risks associated with conducting international business. If we obtain approval to commercialize any approved products outside of the U.S.,United States, a variety of risks associated with international operations could materially adversely affect our business. Some of our third-party collaborators, future partners,
suppliers, CROs and investigational sites could be located outside the U.S.United States. Accordingly, our future success could be harmed by a variety of factors, which include, but are not limited to:
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| economic weakness, including inflation or political instability in particular non-U.S. economies and markets;
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| differing regulatory requirements for drug approvals in non-U.S. countries;
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| potentially reduced protection for IP rights;
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| difficulties in compliance with non-U.S. laws and regulations;
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| changes in non-U.S. regulations and customs, tariffs and trade barriers;
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| changes in non-U.S. currency exchange rates and currency controls;
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| changes in a specific country’s or region’s political or economic environment;
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| trade protection measures, import/export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;
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| negative consequences from changes in tax laws;
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| compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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| workforce uncertainty in countries where labor unrest is more common than in the U.S.;
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| difficulties associated with staffing and managing international operations, including differing labor relations;
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| production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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| business interruptions resulting from geo-political actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires.
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economic weakness, including inflation or political instability in particularnon-U.S. economies and markets;
differing regulatory requirements for drug approvals innon-U.S. countries;
potentially reduced protection for IP rights;
difficulties in compliance withnon-U.S. laws and regulations;
changes innon-U.S. regulations and customs, tariffs and trade barriers;
changes innon-U.S. currency exchange rates and currency controls;
changes in a specific country’s or region’s political or economic environment;
trade protection measures, import/export licensing requirements or other restrictive actions by U.S. ornon-U.S. governments;
negative consequences from changes in tax laws;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
workforce uncertainty in countries where labor unrest is more common than in the United States;
difficulties associated with staffing and managing international operations, including differing labor relations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting fromgeo-political actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires.
Our internal computer systems or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our drug development program.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we believe we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development program. For example, the loss of clinical data from completed or ongoing clinical trials for SM-88 could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of SM-88 could be delayed.
Substantial amounts of information concerning our products, employees, consultants, vendors, service providers and ongoing business are stored digitally and are subject to threats of theft, tampering, or other intrusion.
We collect and maintain information in digital form that is necessary to conduct our business. This digital information includes, but is not limited to, confidential and proprietary information as well as personal information regarding our employees, consultants, CROs, CMOs, patients participating in our clinical trials and others. Data maintained in digital form is subject to the risk of intrusion, tampering, and theft. We have established physical, electronic, and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools and monitoring to provide security for the processing, transmission and storage of digital information. We are monitoring the abilities of such measures and will seek
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additional enhancements of the measures as necessary. However, the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly more sophisticated. Despite our efforts, the possibility of a future data compromise cannot be eliminated entirely, and risks associated with intrusion, tampering and theft remain. In addition, we provide confidential, proprietary and personal information to third parties when it is necessary to pursue our business objectives. While we obtain assurances that these third parties will protect this information and, where appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised. If our data systems are compromised, our business operations may be impaired, we may lose profitable opportunities or the value of those opportunities may be diminished, and we may lose revenue as a result of unlicensed use of our intellectual property. If personal information of our employees, consultants, CROs, CMOs, patients participating in our clinical trials and such others is misappropriated, our reputation with our employees, consultants, CROs, CMOs, patients participating in our clinical trials and others may be injured resulting in loss of business and/or morale, and we may incur costs to remediate possible injury to such parties or be required to pay fines or take other action with respect to judicial or regulatory actions arising out of such incidents.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.
We rely significantly on information technologyCyber-attacks are increasing in their frequency, sophistication and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our abilityintensity, and have become increasingly difficult to operate our business effectively.
Cybersecurity attacks are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, misappropriation of our confidential or otherwise protected information and corruption of data.detect. Cybersecurity incidents resulting in the failure of our systems to operate effectively or to integrate with other systems, including those of third-parties with whom we rely on for research, clinical trial services or other business and administrative services, or a breach in security or other unauthorized access of these systems, may affect our ability to manage and maintain our operations. A breach in security, unauthorized access resulting in misappropriation, theft, or sabotage with respect to our proprietary and confidential information, including research or clinical data, could require significant investments of capital and time to remediate and could adversely affect our business, financial condition and results of operations. For example, any such event that leads to unauthorized access, use or disclosure of personal information, including personal information regarding patients in our clinical trials or other studies or our employees, could harm our reputation, require us to comply with federal and/or state breach notification laws, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. Security breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. There can be no assurance that the security measures we have implemented to protect our information technology systems and infrastructure will prevent service interruptions or security breaches that could adversely affect our business.
Our business is also subject to risks associated with conducting international business. If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business. Some of our third-party collaborators, future partners, suppliers, CROs and investigational sites could be located outside the United States. Accordingly, our future success could be harmed by a variety of factors, which include, but are not limited to:
economic weakness, including inflation or political instability in particularnon-U.S. economies and markets;
differing regulatory requirements for drug approvals innon-U.S. countries;
potentially reduced protection for IP rights;
difficulties in compliance withnon-U.S. laws and regulations;
changes innon-U.S. regulations and customs, tariffs and trade barriers;
changes innon-U.S. currency exchange rates and currency controls;
changes in a specific country’s or region’s political or economic environment;
trade protection measures, import/export licensing requirements or other restrictive actions by U.S. ornon-U.S. governments;
negative consequences from changes in tax laws;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
workforce uncertainty in countries where labor unrest is more common than in the United States;
difficulties associated with staffing and managing international operations, including differing labor relations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting fromgeo-political actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires.
Risks Related to Intellectual Property
Our ability to successfully commercialize our technology and drug candidate may be materially adversely affected if we are unable to obtain and maintain effective IP.
Our success is largely dependent on our ability to obtain and maintain patent and other IP protection in the U.S.United States and in other countries with respect to our proprietary technology and drug candidates. In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications or to maintain or enforce the patents, covering technology or products that we license to third parties or, conversely, that we may license from third parties. Therefore, if we are subject to patent infringement, we cannot be certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of our business. In addition, if third parties who license patents to us or from us fail to maintain such patents or lose rights to those patents, licensing rights may be reduced or eliminated.
We have sought to protect our proprietary position by filing patent applications in the U.S.United States and abroad related to our novel technologies and products that are important to our business. This process is expensive and time-consuming and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant markets. It is also possible that we fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Our pending and future patent applications may be insufficient to protect our technology or products, completely or in part. In addition, existing and any future patents we obtain may not be extensive enough to prevent others from using our technologies or from developing competing drugs and technologies.
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The patent position of specialty pharmaceutical and biotechnology companies generally is highly uncertain and involves complex legal and factual questions for which many legal principles remain unresolved. In recent years, patent rights have been the subject of significant litigation and, as a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent
applications may result in patents not being issued to us in the U.S.United States or in other countries. Changes in either the patent laws or interpretation of patent laws in the U.S.United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the U.S.United States. Publications of discoveries in scientific literature often lag behind the actual discoveries and patent applications in the U.S.United States and other countries are typically not published until 18 months after filing or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications or that we were the first to file for patent protection of such inventions. In addition, the United States Patent and Trademark Office or USPTO,(the “USPTO”), might require that the term of a patent issuing from a pending patent application be disclaimed and limited to the term of another patent that is commonly owned or names a common inventor. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights is highly uncertain.
Recent or future patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. In March of 2013, under the recently enacted Leahy-Smith America Invents Act or (the “America Invents Act”), the U.S.United States moved from a “first to invent” to a “first-to-file”“first-to-file” system. Under a “first-to-file”first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. The America Invents Act includes a number of other significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted, redefine prior art and establish a new post-grant review system. The effects of these changes are currently unclear as the USPTO only recently developed new regulations and procedures in connection with the America Invents Act and many of the substantive changes to patent law, including the “first-to-file”first-to-file provisions, only became effective in 2013. In addition, the courts have yet to address anysome of these provisions and the applicability of the Act and new regulations on specific patents discussed in this report have not been determined and would need to be reviewed. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition. We may become involved in opposition, interference, derivation, inter parties review or other proceedings that challenge our patent rights or the patent rights of others and the outcome of any proceedings are highly uncertain. An adverse determination in any such proceeding could reduce the scope of or invalidate, our patent rights, allowing third parties to commercialize our technology or drug products and compete directly with us, without payment to us or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or drugs in anon-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability and our owned and licensed patents may be challenged in the courts or patent offices in the U.S.United States and abroad. Such challenges may result in the patent claims of our owned or licensed patents being narrowed, invalidated or held unenforceable. This could limit our ability to stop or prevent us from stopping others from using or commercializing similar or identical technology and drugs or limit the duration of the patent protection of our technology and drugs. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting our drug might expire before or shortly afterSM-88 or any other drug product we develop is commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to our drug products or otherwise provide us with a competitive advantage.
We may not be able to protect our IP rights throughout the world.
Filing, prosecuting and defending patents forSM-88 or any other drug product we may develop throughout the world would be prohibitively expensive. Competitors may use our technologies in countries where we have not obtained patent protection to develop their own drugs and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as in the U.S.United States. These products may compete with our drug products in countries where we do not have any issued patents and our patent claims or other IP rights may not be effective or sufficient to prevent them from so competing. Many companies
have encountered significant problems in protecting and defending IP rights in foreign countries. The legal systems of a number of countries, particularly a number of developing countries, do not favor the enforcement of patents and other IP protection, including those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products against third parties in violation of our proprietary rights. Further, the initiation of proceedings to enforce or protect our patent rights in foreign countries could result in substantial cost and divert our efforts and attention from other aspects of our business.
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Obtaining and maintaining our patent protection depends upon compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies. Our patent protection could be reduced or eliminated for noncompliance with these requirements.
The USPTO and variousnon-U.S. patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during and following the patent prosecution process. Our failure to comply with such requirements could result in abandonment or lapse of a patent or patent application, which would result in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would have been the case if our patents were in force.
We may become involved in lawsuits or other proceedings to protect or enforce our patents or other IP, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe or otherwise violate our patents, trademarks, copyrights or other IP. To counter infringement or unauthorized use, we or our licensees may be required to file infringement claims, which can be expensive and time-consuming. For example, if we need to file patent infringement lawsuits in the future against manufacturers of generic pharmaceuticals that have filed ANDAs with the FDA seeking approval to manufacture and sell generic versions ofSM-88 or any other drug product we may develop, we anticipate that the prosecution of such lawsuits will require a significant amount of time and attention from our chief executive officer, chief financial officer and other senior executives. In addition, in a patent infringement proceeding, a court may decide that our patent is invalid or unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in the litigation or proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Such a result could limit our ability to prevent others from using or commercializing similar or identical technology and drugs, limit our ability to prevent others from launching generic versions of our drug products and could limit the duration of patent protection for our products, all of which could have a material adverse effect on our business. A successful challenge to our patents could reduce or eliminate our right to receive royalties. Furthermore, because of the substantial amount of discovery required in connection with IP litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import/exportSM-88, or any other approved drug, or impair our competitive position.
Patents could be issued to third parties that we may ultimately be found to infringe. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing drug candidates using our technology. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to any technology that we require for our drug products may also materially harm our business, financial condition and results of operations. Furthermore, we would be exposed to a threat of litigation.
In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other IP rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:
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| we or our collaborators, may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our drugs or processes do not infringe those third parties’ patents;
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| if our competitors file patent applications that claim technology also claimed by us or our licensors or collaborators, we or our licensors or collaborators may be required to participate in interference or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third-party with a dominant patent position;
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| if third parties initiate litigation claiming that our processes or products infringe their patent or other IP rights, we and our licensors or collaborators will need to defend against such proceedings; and
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| if a license to necessary drug technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other IP rights and/or that we breached our obligations under the license agreement and we and our collaborators would need to defend against such proceedings.
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we or our collaborators, may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our drugs or processes do not infringe those third parties’ patents;
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if our competitors file patent applications that claim technology also claimed by us or our licensors or collaborators, we or our licensors or collaborators may be required to participate in interference or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third-party with a dominant patent position;
if third parties initiate litigation claiming that our processes or products infringe their patent or other IP rights, we and our licensors or collaborators will need to defend against such proceedings; and
if a license to necessary drug technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other IP rights and/or that we breached our obligations under the license agreement and we and our collaborators would need to defend against such proceedings.
These lawsuits would likely be costly and could affect our results of operations and divert the attention of our management and scientific personnel. There is a risk that a court would decide that we or our collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected drug candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.
The pharmaceutical and biotechnology industries have produced a significant number of patents and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our products or methods do not infringe the patent claims of the relevant patent or that the patent claims are invalid. We may not be able to do this because proving invalidity is difficult. For example, in the U.S.,United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtainnon-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringingSM-88 or any other drug candidate to market and be precluded from manufacturing or selling one or more of our drug products.
As noted previously, the cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time. proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third-party with a dominant patent position;
We may not be successful in obtaining or maintaining necessary rights to IP through acquisitions and in-licenses.
Because our drugs may require the use of proprietary rights held by
if third parties the growth ofinitiate litigation claiming that our business will likely depend in part on our ability to acquire, in-license, maintain or use these proprietary rights. In addition, our drug products may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or products infringe their patent or other third-party IP rights, from third partieswe and our licensors or collaborators will need to defend against such proceedings; and
if a license to necessary drug technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other IP rights and/or that we identify as necessary for one or more ofbreached our drug candidates. The licensingobligations under the license agreement and acquisition of third-party IP rights is a competitive areawe and a number of more established companies are also pursuing strategiesour collaborators would need to license or acquire third-party IP rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.defend against such proceedings.
For example, we may sometimes need to collaborate with U.S. andnon-U.S. academic institutions to accelerate our nonclinical research or development under written agreements with these institutions. Typically, these institutions could provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from our collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the IP rights to other parties, potentially blocking our ability to pursue the applicable drug candidate or program.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party IP rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain a license to third-party IP rights necessary for the development of our drug products, we may have to abandon its development and therefore, our business and financial condition could suffer.
We may be unable to protect the confidentiality of our trade secrets, thus harming our business and competitive position.
In addition to our patented technology, and drug, we rely upon trade secrets, including unpatentedknow-how, technology and other proprietary information to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our current and future employees, as well as our collaborators and consultants. We also have agreements with our
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employees and selected consultants that obligate them to assign their inventions to us. However, while it is our policy to require our employees and contractors who may be involved in the conception or development of IP to execute such agreements, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops IP that we regard as our own. In addition, it is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. While to our knowledge the confidentiality of our trade secrets has not been compromised, if the employees, consultants or collaborators that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could be disclosed, misappropriated or otherwise become known or be independently discovered by our competitors. In addition, IP laws in foreign countries may not protect our IP to the same extent as the laws of the U.S.United States. If our trade secrets are disclosed or misappropriated, it would harm our ability to protect our rights and adversely affect our business.
business
We may be subject to claims that our employees and outside contractors have wrongfully used or disclosed IP from their former employers and clients. IP litigation or proceedings could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Although we will try to ensure that our employees and outside contractors do not use the proprietary information or theknow-how of others in their work for us and we have no knowledge of any instances of wrongful use or disclosure by our employees and outside contractors to date, we may be subject to claims that we or these employees and outside contractors have used or disclosed IP, including trade secrets or other proprietary information from their former employers or clients. Litigation may be necessary to defend our Company against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable IP rights, personnel or consulting services. Even if we are successful in defending against such claims, litigation or other legal proceedings relating to IP claims may cause us to incur significant expenses and could distract our scientific and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. Should this occur and securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. This type of litigation or proceeding could substantially increase our operating losses and reduce resources available to us for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or otherIP-related proceedings could adversely affect our ability to compete in the marketplace.
If we do not obtain protection under the Hatch-Waxman Amendments and similarnon-U.S. legislation for extending the term of patents coveringSM-88 and any other drug product we may develop, our business may be materially harmed.
Depending upon the timing, duration and conditions of FDA marketing approval ofSM-88 and any other drug product we may develop in the future, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 referred to as the (the “Hatch-Waxman Amendments”) and similar legislation in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved drug as compensation for effective patent term lost during drug development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that drug will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue could be materially reduced.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names, to the extent we obtain and use them, may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other IP may be ineffective and could result in substantial costs and a diversion of resources and could adversely affect our financial condition or results of operations.
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Risks Related to Government Regulations
Health care reform measures could hinder or prevent the commercial success ofSM-88 any other drug product we may develop.
In the U.S.,United States, there have been and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future revenue and profitability and the future revenue and profitability of our potential customers. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, one of the most significant health care reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act was enacted in 2010 (“PPACA”). PPACAReform Law contains a number of provisions, including those governing enrollmentenrollments in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which will affecthave affected existing government healthcare programs and will resultresulted in the development of new programs. PPACA,The Health Care Reform Law, among other things:
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| increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;
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| requires collection of rebates for drugs paid by Medicaid managed care organizations; and
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| provides for a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
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imposes anon-deductible annual fee on entities that manufacture or import certain branded prescription drugs;
increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;
requires collection of rebates for drugs paid by Medicaid managed care organizations; and
provides for a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%point-of-sale discounts off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
While the U.S. Supreme Court upheld most of the constitutional elements of PPACA in June 2012, other legal challenges are still pending final adjudication in several jurisdictions. In addition, Congress has also proposed a number of legislative initiatives, including possible repeal of PPACA. At this time, it remains unclear whether there will be any changes made to PPACA, whether to certain provisions or its entirety. We can provide no assurance that PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results and we cannot predict how future federal or state legislative or administrative changes relating to health care reform will affect our business.
The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care services to contain or reduce costs of health care may, among other things, adversely affect:
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our ability to set a price we believe is fair for our drug products; our ability to generate revenue and achieve or maintain profitability; and the availability of capital. Judicial challenges, executive orders and legislative repeal measures relating to the Health Care Reform Law may create regulatory uncertainty with respect to the pharmaceutical, biotechnology and other life sciences industries and may materially harm our business, financial condition and results of operations. While the U.S. Supreme Court upheld most of the constitutional elements of the Health Care Reform Law in June 2012, other legal challenges are still pending final adjudication in several jurisdictions. On January 20, 2017, President Trump signed an executive order directing federal agencies with authorities and responsibilities under the Health Care Reform Law to exercise all available authority and discretion to waive, defer, grant exemptions from or delay the implementation of any provision of the Health Care Reform Law that would impose a fiscal burden on any U.S. state or a cost, fee, tax, penalty or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance or makers of medical devices, products or medications (the “January 2017 Executive Order”). The January 2017 Executive Order does not describe specific federal rules that it applies to but seems to contemplate discretion for federal agencies to delay or stop the implementation of certain Health Care Reform Law taxes and requirements. As a result, the practical effect of the January 2017 Executive Order is unclear. On October 12, 2017, President Trump signed an executive order directing federal agencies to take certain steps intended to make it easier for individuals and small businesses to collectively buy health insurance through association health plans, which are not subject to all of the requirements under the Health Care Reform Law (the “October 2017 Executive Order”). On the same date, he announced that cost-sharing reduction payments from the U.S. government forlow-income health insurance enrollees’ copayments and deductibles (the “CSR Payments”) would cease effective immediately. Cessation of the CSR Payments and other changes ordered could have significant adverse impacts, including, but not limited to, insurance premium increases and increased uncertainty in the health insurance markets. On December 12, 2017, President Trump signed the Tax Cuts and Jobs Act into law, revoking the tax penalty that applied to individuals who did not comply with the Health Care Reform Law’s requirement to have health insurance coverage (known as the “individual mandate”). Judicial challenges to the Health Care Reform Act, the January 2017and October 2017 Executive Orders, The Tax Cuts and Jobs Act, cessation of the CSR Payments and other legislation, could result in increased uncertainty with respect to the pharmaceutical, biotechnology and other life science industries and may materially harm our business, financial condition and results of operations. Further, we can provide no assurance that the Health Care Reform Law, as currently enacted or as amended in the future, or other related laws will not adversely affect our business, financial condition or results of operations. Nor can we predict how future federal or state legislative or administrative changes relating to health care reform will affect our business, financial condition or results of operations. | ·
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If we fail to comply with healthcare laws and regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are, and other healthcare issues and will be, applicable to our business. We could be subject to healthcare fraud and abuse privacy and patient privacysecurity, and transparency regulation by both the federal government and the states in which we conduct our business. The regulations that may affect our ability to operate include, but are not limited to:
the federal healthcare program Anti-Kickback Statute, which prohibits knowingly and willfully offering, soliciting, receiving or providing any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce either the referral of an individual for or the purchase order, lease or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs, such as the Medicare and Medicaid programs;
the federal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting or causing to be presented, false or fraudulent claims for payment or approval or knowingly using false statements, to obtain payment from the federal government and which may apply to entities like us which provide coding and billing advice to customers;
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| the federal healthcare program Anti-Kickback Statute, which prohibits knowingly and willfully offering, soliciting, receiving or providing any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce either the referral of an individual for or the purchase order, lease or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs, such as the Medicare and Medicaid programs;
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| the federal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting or causing to be presented, false or fraudulent claims for payment or approval or knowingly using false statements, to obtain payment from the federal government and which may apply to entities like us which provide coding and billing advice to customers;
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| the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”HIPAA”) which created new federal criminal statutes that prohibit knowingly and willfully executing or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of or payment for, healthcare benefits, items or services relating to healthcare matters; |
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the federal physician self-referral law, commonly known as the Stark Law, which prohibits a physician from making a referral to an entity for certain designated health services reimbursed by Medicare or Medicaid if the physician or a member of the physician’s family has a financial relationship with the entity and which also prohibits the submission of any claims for reimbursement for designated health services furnished pursuant to a prohibited referral;
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| the federal physician self-referral law, commonly known as the Stark Law, which prohibits a physician from making a referral to an entity for certain designated health services reimbursed by Medicare or Medicaid if the physician or a member of the physician’s family has a financial relationship with the entity and which also prohibits the submission of any claims for reimbursement for designated health services furnished pursuant to a prohibited referral;
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| the federal transparency requirements under PPACAthe Health Care Reform Law require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the U.S. Department of Health and Human Services or (“HHS”) information related to physician payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as certain ownership and investment interests held by physicians and their immediate family members; |
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| HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH) and their respective implementing regulations, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and
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| state law equivalents of each of the above federal laws, such as anti-kickback, false claims and transparency laws which may be broader in scope and apply to items or services reimbursed by any third-party payor, including commercial insurers.
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HIPAA, the Health Information Technology for Economic and Clinical Health Act and their respective implementing regulations, which govern the conduct of certain electronic healthcare transactions and protect the security and privacy of protected health information; andstate-law equivalents of each of the above federal laws, such as anti-kickback, false claims and transparency laws which may be broader in scope and apply to items or services reimbursed by any third-party payor, including commercial insurers.
PPACA,The Health Care Reform Law, among other things, amended the intent standard of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to a stricter standard such that a person or entity no longer needs to have actual knowledge of a violation of this statute or specific intent to violate it.it to be convicted. In addition, PPACAthe Health Care Reform Law codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil, criminal and/or administrative penalties, damages, fines, disgorgement and possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these or other laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security fraud and fraudabuse, and transparency laws may prove costly.
Because we and our suppliers are subject to environmental, health and safety laws and regulations, we may become exposed to liability and substantial expenses in connection with environmental compliance or remediation activities, which may adversely affect our business and financial condition.
Our operations, including our discovery, development, testing, research and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the controlled use, handling, release and disposal of and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, we could be subject to fines or other sanctions.
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As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current and historical activities, including liability relating to release of or exposure to, hazardous or biological materials. Environmental, health and safety laws and regulations are becoming more stringent. We may be required to incur substantial expenses in connection with future environmental compliance or remediation activities, in which case, our production and development efforts may be interrupted or delayed and our financial condition and results of operations may be materially adversely affected.
The third parties with whom we contract to manufactureSM-88 or any other drug products we may develop are also subject to these and other environmental, health and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or, in certain circumstances, an interruption in operations, any of which could adversely affect our business and financial condition if we are unable to find an alternate supplier in a timely manner.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA or EMA regulations, to provide accurate information to the FDA or EMA or intentional failures to report financial information or data accurately or to disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation and subjects. The precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
If generic manufacturers use litigation and regulatory means to obtain approval for generic versions of products on which our future revenue depends, our business will suffer.
Under the U.S.Federal Food, Drug, and Cosmetic Act (“FDCA”(the “FDCA”), the FDA can approve an ANDA for a generic version of a branded drug without the ANDA applicant undertaking the clinical testing necessary to obtain approval to market a new drug. In place of such clinical trials, an ANDA applicant usually needs only to submit data demonstrating that its drug has the same active ingredient(s) and is bioequivalent to the branded product, in addition to any data necessary to establish that any difference in strength, dosage form, inactive ingredients or delivery mechanism does not result in different safety or efficacy profiles, as compared to the reference drug.
The FDCA requires that an applicant for approval of a generic form of a branded drug certify either that its generic drug does not infringe any of the patents listed by the owner of the branded drug in the Approved Drug Products
with Therapeutic Equivalence Evaluations, also known as the Orange Book, or that those patents are not enforceable. This process is known as a Paragraph IV Challenge. Upon receipt of the Paragraph IV notice, the owner has 45 days to bring a patent infringement suit in federal district court against the company seeking ANDA approval of a drug covered by one of the owner’s patents. The discovery, trial and appeals process in such suits can take several years. If this type of suit is commenced, the FDCA provides a30-month stay on the FDA’s approval of the competitor’s application. This type of litigation is often time-consuming, costly and may result in generic competition if the patents at issue are not upheld or if the generic competitor is found not to infringe upon the owner’s patents. If the litigation is resolved in favor of the ANDA applicant or the challenged patent expires during the30-month stay period, the stay is lifted and the FDA may thereafter approve the application based on the usual standards for approval of ANDAs.
For various strategic and commercial reasons, manufacturers of generic medications frequently file ANDAs shortly after FDA approval of a branded drug regardless of the perceived strength and validity of the patents associated with such products. Based on these past practices, we believe it is likely that one or more such generic manufacturers will file ANDAs with respect toSM-88, if approved by the FDA, prior to the expiration of the patents related to those compounds.
The filing of an ANDA as described above with respect to any of our products could have an adverse impact on our stock price. Moreover, if any such ANDAs were to be approved and the patents covering the relevant products were not upheld in litigation or if a generic competitor were found not to infringe these patents, the resulting generic competition would negatively affect our business, financial condition and results of operations.
The marketing ofSM-88, if approved, will be limited to use for the treatment of specific cancer indications and, if we want to expand the indications for which these drug candidates may be marketed, additional regulatory approvals will need to be obtained, which may not be granted.
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IfSM-88 is approved for the first indication that we decide to pursue to an NDA, the FDA will restrict our ability to market or advertiseSM-88 for other indications, which could limit physician and patient adoption. We may attempt to develop, promote and commercialize new treatment indications and protocols for additional indications forSM-88, but we cannot predict when or if the approval required to do so will be received. In addition, we would be required to conduct additional clinical trials to support approvals for additional indications forSM-88, which would be time-consuming and expensive and may produce results that do not support regulatory approvals. If we do not obtain additional regulatory approvals, our ability to expand our business will be limited.
If SM-88 is approved for marketing and we are found to have improperly promoted off-label uses or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, significant fines, penalties, sanctions and drug liability claims.Additionally, our image and reputation within the industry and marketplace could be harmed.
The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about approved drugs. In particular, a drug may not be promoted for use or indications that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. For example, if we receive marketing approval for SM-88 for the first indication we are pursuing, we cannot prevent physicians from using SM-88 for their patients in a manner that is inconsistent with the approved label. If we are found to have promoted suchoff-label uses prior to FDA approval for the applicable indication(s), we may receive warning letters and become subject to significant liability, which would materially harm our business. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging inoff-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred and our reputation could be damaged. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products foroff-label use, we could be subject to FDA prohibitions on the sale or marketing of our products or significant fines and penalties and the imposition of these sanctions could also affect our reputation and position within the industry.
Physicians may also misuse our products, potentially leading to adverse results, side effects or injury, which may lead to drug liability claims. If our products are misused, we may become subject to costly litigation by our customers or their patients. Drug liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us that may not be covered by liability insurance. Furthermore, the use of our products for indications other than those approved by the FDA may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients. Any of these events could harm our business and results of operations and cause our stock price to decline.
Additionally, as with an existing number of previously approved therapeutics to treat cancer, the FDA may require us to educate health care providers and patients about the proper use and administration ofSM-88 or any other drug products we develop in the future and obtain FDA approval to market.
Being a public company is expensive and administratively burdensome.
As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act.Act of 2002 (“SOX”). Complying with these laws and regulations requires the time and attention of our board of directors and management and increases our expenses. Among other things, we are required to:must:
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| maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
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| maintain policies relating to disclosure controls and procedures;
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| prepare and distribute periodic reports, proxy statements, Forms 8-K and other reports and filings in compliance with our obligations under applicable federal securities laws;
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| institute a more comprehensive compliance function, including with respect to corporate governance; and
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| involve, to a greater degree, our outside legal counsel and accountants in the above activities and incur additional expenses relating to such involvement.
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maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of SOX and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
maintain policies relating to disclosure controls and procedures;
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prepare and distribute periodic reports, proxy statements, Forms8-K and other reports and filings in compliance with our obligations under applicable federal securities laws;
institute a more comprehensive compliance function, including with respect to corporate governance; and
involve, to a greater degree, our outside legal counsel and accountants in the above activities and incur additional expenses relating to such involvement.
The costscost of preparing and filing annual and quarterly reports and Forms8-K, proxy statements and other information with the SEC and furnishing annual reports containing audited financial statements to stockholders is expensive and much greater than that of a privately-held company and compliancecompany. Compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel and will involve a material increase insignificant regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage. These factors could also make it more difficult for us to attract and retain qualified executives and members of our board of directors, particularly directors willing to serve on anour audit committee that we expect to establish in the future.
committee.
We will continue to incur relatively outsized costs as a result of recently becoming a public company and in the administration of our organizational structure.
As a newly public company, we will incur significant legal, accounting, insurance and other expenses that we havedid not incurredincur as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley ActSOX and related rules implemented by the SEC. We will continue to incur ongoing periodic expenses in connection with the administration of our organizational structure. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. In estimating these costs, we took into account expenses related to insurance, legal, accounting, and compliance activities, as well as other expenses not currently incurred. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Any failure to maintain effectiveManagement’s determination that a material weakness exists in our internal controlcontrols over our financial reporting could materially adversely affect us.have a material adverse impact on our ability to produce timely and accurate financial statements and could negatively impact our business and the market for our Common Stock.
Section 404 of the Sarbanes-Oxley Act of 2002SOX requires us to include in our Annual Reports on Form10-K an assessment by management of the effectiveness of our internal control over financial reporting. Additionally, because we are no longer an
“emerging growth company,” we are now required to include an attestation report of our independent public accounting firm with respect to the effectiveness of our internal controls over financial reporting. Based upon an evaluation conducted in connection with the preparation of Tyme’s audited consolidated financial statements as of DecemberMarch 31, 2015, our current2018, management concluded that our internal controls over financial reporting were not effective due to the material weaknesses in our internal controls over financial reporting. The matters involving internal controls and procedures that our management considered to be material weaknesses were: ineffective information technology general controls, ineffective controls over financial disclosure and reporting and lack of sufficient and timely review over account balances. We believe that the material weaknesses set forth above did not have an effect on our financial results.
We began implementing certain practices and procedures to address the foregoing material weaknesses with plans to complete the remediation of the foregoing deficiencies in the future. We continue to identify and implement actions to improve the effectiveness of our internal controls over financial reporting and disclosure controls and procedures, were not effective as of such date. Specifically, our management determined thatbut there were control deficiencies constituting material weaknesses, including those relating to segregation of duties over cash disbursements, oversight of our outside accounting firm by management, disclosures and the preparation of financial statements. In addition, at the present time, we do not have an audit committee.
We intend to implement a number of changes in our internal control over financial reporting. With the additional recent funding provided and the recent retention of a full-time Chief Financial Officer, we intend to conduct a full analysis of our controls and procedures, segregate duties regarding processing disbursements, enact procedures aimed at timely and effectively maintaining our books and records and financial statement preparations, establish further procedures for analyzing both financial and transactional activities including verifying that all amounts are properly recorded, and take other appropriate steps aimed at giving us reasonablecan be no assurance that required disclosures are properly includedsuch remediation efforts will be successful. We have also incurred and amounts properly presented in our financial statements.
We must perform systemexpect to continue to incur or expend, substantial accounting and process evaluationother expenses and testing of our internal control over financial reporting to allowsignificant management time and (when required in future)resources. Our future assessment, or the future assessment by our independent registered public accounting firm, to report on the effectiveness ofmay reveal additional material weaknesses in our internal control over financial reporting, as required by Section 404. Our compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts. We currently do not have an internal audit group and we will needcontrols. Failure to retainremediate a material weakness or the servicesdiscovery of additional accounting and financial staff or consultants with appropriate public company experience and technical accounting knowledge to satisfy the ongoing requirements of Section 404. We intend to review the effectiveness of our internal controls and procedures and make any changes management determines appropriate, including those intended to assure that we achieve full compliance with Section 404 by the date on which we are required to so comply.
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While we intend to diligently and thoroughly document, review, test and improve our internal control over financial reporting in order to ensure compliance with Section 404 in the future management may not be able to conclude that our internal control over financial reporting is effective. Furthermore, even if management were to reach such a conclusion, if our independent registered public accounting firm is not satisfied with the adequacy of our internal control over financial reporting or if the independent auditors interpret the requirements, rules or regulations differently than we do, then they may decline to attest to management’s assessment or may issue an auditor’s report that is qualified. Any of these eventspotential material weaknesses, could result in a loss of investor confidencefuture misstatements in the reliability of our financial statements whichor in turn could negatively affect the price of our common stock.
We are an “emerging growth company,” anddocuments we cannot be certain whether the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act or the JOBS Act, which was enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to complyfile with the auditor attestation requirements of Section 404 ofSEC and could have a negative impact on our business and the Sarbanes-Oxley Act of 2002 or the Sarbanes-Oxley Act’s reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of our initial public offering of securities, which occurred in March 2012, (b) in which we have total annual gross revenue of at least $1,000,000,000 or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700,000,000 as of a preceding measurement date, and (2) the date on which we have issued more than $1,000,000,000 in non-convertible debt securities during the prior three-year period. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stockCommon Stock. For more information on our material weaknesses and our stock price may suffer or be more volatile.
Risks Related to Ownership of Our Common Stock
Our share price is likely to be volatile due to factors beyond our control. There is the possibility that the market pricestatus of our common stock may drop below the price paid by investors.
All readers of this report should consider an investment in our common stock as riskyremediation efforts, see Item 9A - Controls and invest in our common stock only if the investor can withstand a significant loss and wide fluctuations in the market value of an investment. Investors may be unable to sell their shares of our common stock at or above the price they paid for their shares due to fluctuations in the market price of our common stock arising from changes in our operating performance or prospects. In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. Some of the factors that may cause the market price of our common stock to fluctuate include, but are not limited to:Procedures, which includes Management’s Report on Internal Controls Over Financial Reporting.
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| results and timing of our clinical trials and clinical trials of our competitors’ products;
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| the failure or discontinuation of any of our development programs;
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| issues in manufacturing SM-88 or any future drugs we may develop and receive governmental approval to market;
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| regulatory developments or enforcement in the U.S. and non-U.S. countries with respect to our or our competitors’ products;
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| failure to achieve pricing and reimbursement levels expected by us or the market;
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| competition from existing products or new products that may emerge;
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| developments or disputes concerning patents or other proprietary rights;
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| introduction of technological innovations or new commercial products by us or our competitors;
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| announcements by us, our collaborators or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
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| changes in estimates or recommendations by securities analysts, if any cover our common stock;
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| fluctuations in the valuation of companies perceived by investors to be comparable to us;
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| public concern over SM-88 or any future drugs we may develop and receive governmental approval to market;
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| litigation or the threat of litigation;
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| future issuances and sales of our common stock;
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| share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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| additions or departures of key personnel;
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| changes in the structure of healthcare payment systems in the U.S. or overseas;
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| the failure of SM-88, if approved, or any other approved drug product we may develop, to achieve commercial success;
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| economic and other external factors or other disasters or crises;
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| period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other payments under commercialization or licensing agreements, if any;
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| general market conditions and market conditions for biopharmaceutical stocks; and
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| overall fluctuations in U.S. equity markets.
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In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit and divert the time and attention of our management, which could seriously harm our business.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish substantial rights.
Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants and licensing and development agreements in connection with any collaborations. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, then outstanding stockholders’ ownership interests in our Company will be diluted and the terms of these new securities may include liquidation or other preferences that adversely affect rights of holders of our common stock. Debt financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, drug candidates, future revenue streams or grant licenses on terms that are not favorable to us. We cannot give any assurance that we will be able to obtain additional funding if and when necessary or on satisfactory terms. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of our development programs or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Future issuances of our common stock or rights to purchase our common stock pursuant to our equity incentive plan or outstanding options and warrants could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We are authorized to grant equity awards, including stock grants and stock options, to our employees, directors and consultants, covering up to 10,000,000 shares of our common stock, pursuant to our 2015 Equity Incentive Plan (the “2015 Plan”). We plan to register the shares available for issuance or subject to outstanding awards under our 2015 Plan. Future issuances, as well as the possibility of future issuances, under our 2015 Plan or other equity incentive plans could cause the market price of our common stock to decrease.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us and our business. Securities and industry analysts may choose not to publish research on our Company. If no, or an insufficient number of, securities or industry analysts provide coverage of our Company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. Further, if one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board is responsible for appointing the members of our management team, these provisions could, in turn, affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include that:
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| our board of directors has the right to expand the size of our board and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board;
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| our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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| stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
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| our board of directors may issue, without stockholder approval, shares of currently undesignated preferred stock; such ability to issue previously undesignated preferred stock makes it possible for our board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Investors could lose all of their investment in our Company.
An investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of an investment in our Company may go down as well as up. In addition, there can be no certainty that the market value of an investment in our Company will fully reflect its underlying value. Due to these risks and the other risks described in this report, investors could lose their entire investment in our Company.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our stockholders at the time of such issuances. We are authorized to issue an aggregate of 300,000,000 shares of common stock and 10,000,000 shares of “blank check” preferred stock. We may issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future
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acquisitions, future sales of our securities for capital raising purposes or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of our common stock. We will need to raise additional capital in the near future to meet our working capital needs and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise prices) below the price a stockholder at the time of such securities issuance paid for such stockholder’s stock.
The ability of our board of directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of our Company. Our board is authorized to issue up to 10,000,000 shares of preferred stock with powers, rights and preferences designated by it. (See “Preferred Stock” in “Description of Securities.”) Shares of voting or convertible preferred stock could be issued or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to affect a takeover or otherwise gain control of our Company. The ability of our board to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of our Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to our board could make it more difficult to remove incumbent managers and directors from office even if such change were to be favorable to stockholders generally.
There currently is a limited public trading market for our common stock and there can be no assurance that an active trading market will ever develop. Failure to develop or maintain a trading market could negatively affect the value of our common stock and make it difficult or impossible for a holder of shares of our common stock to sell such shares.
There is currently a limited public trading market for shares of our common stock and an active one may never develop. Our common stock currently is quoted on the QM Tier of OTC Markets. The OTC Markets, generally, is a thinly traded market and lacks the liquidity of certain other public markets with which some investors may have more experience. We may not ever be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely-traded and liquid market. Some, but not all, of the factors that may delay or prevent the listing of our common stock on a more widely-traded and liquid market include the following:
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| our stockholders’ equity may be insufficient;
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| the market value of our outstanding securities may be too low;
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| our net income from operations may be too low;
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| our common stock may not be sufficiently widely held or held by a sufficiently large number of stockholders;
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| we may not be able to secure market makers for our common stock; and
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| we may fail to meet other rules and requirements mandated by the several exchanges and markets to have our common stock listed.
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Should we fail to satisfy the initial listing standards of the national exchanges or our common stock is otherwise rejected for listing and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price of our common stock could decline and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.
Our common stock may be subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” which, for the purposes relevant to us, is any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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| that a broker or dealer approve a person’s account for transactions in penny stocks; and
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| the broker or dealer receives from the investor a written agreement to the transaction, setting the identity and quantity of the penny stock to be purchased.
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In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
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| obtain financial information and investment experience objectives of the person;
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| make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks; and
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| deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
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Sets forth the basis on which the broker or dealer made the suitability determination; and
Confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
While our common stock currently has a market price in excess of $5.00, such may not remain the case and our common stock may, in the future, become subject to the “penny stock” rules.
Our stock may be traded infrequently and in low volumes, so investors may be unable to sell their shares at or near the quoted bid prices if they need to sell their shares.
Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq Stock Market, we expect our common stock to remain eligible for quotation on the OTC Markets or on another over-the-counter quotation system. In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell the investor’s shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, including those relating to “penny stocks,” various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.
We do not anticipate paying dividends on our common stock.
Cash dividends have never been declared or paid on our common stock and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, our stockholders will likely not receive any funds absent a sale of their shares of our common stock. If we do not pay dividends, our common stock may be less valuable because a return on an investment in shares of our common stock will only occur if our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
The ownership interests in our Company held by two of our executive officers and directors could allow them to significantly influence corporate decision-making in a manner that may not reflect the interests of all of our stockholders.
Steve Hoffman, our Chief Executive Officer, Chief Science Officer and a director, and Michael Demurjian, our Chief Operating Officer, Executive Vice President and a director, each own of record approximately 31.3% of our outstanding common stock as of February 1, 2016. As a result, these individuals are positioned to exercise significant influence over our Company’s management and affairs, including, but not limited to, electing our board of directors and exercising managerial influence and voting rights in connection with fundamental corporate transactions, and take action that may not reflect the best interests of all of the stockholders of our Company.
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Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for our management.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms.
When we elect to raise additional funds or additional funds are required, we may raise such funds from time to time through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available on advantageous or reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms advantageous or reasonable to us, we will be prevented from our ability to generate revenues and achieve or sustain profitability will be substantially harmed.
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations. These factors raise substantial doubt about our ability to continue as a going concern.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or ourselves. In addition, the OTC Market Group, Inc.’s OTC QB tier is subject to extreme price and volume fluctuations in general. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. PROPERTIES
Our principal executive offices are located at 48 Wall17 State Street, - Suite 1100,7th Floor, New York, New York 10005,10004, where we lease and occupy approximately 1,1004,752 square feet of office space. Wespace, with a lease these offices under a three-month lease that provides for automatic renewals, unless either party gives notice of non-renewal. The current term of our lease expires on March 31, 2016 and we anticipate renewing the lease for an additional three-month term. Historically, ourexpiring August 30, 2020. Our costs for this officespace are approximately $46,000$250,000 per year.
year plus certain tax, utilities and other expenses.
We also maintain an office in Red Bank, New Jersey, where we lease and occupy approximately 150 square feet of office space. WeThe original lease for this office under a lease, expiring in March of 2016.has expired and it is currently rentedmonth-to-month with 30 days termination notice. We estimate our total annual costs for this office at approximately $6,600 per year.
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We believe that our existing facilities are adequate for our current and near-term growth of our administrative needs. When our current lease term expires, we may exercise our renewal option or look for additional or alternate space for our operations. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms. We will rely on clinical research centers, hospitals, contract research organizations and other parties for suitable space and facilities to conduct our clinical trials. We will explore, in the future, establishing a dedicated technical facility, when we believe the need for such a facility has arisen. No assurance can be given that such a facility can be located without difficulty or at a cost favorable to us.
ITEM 3. LEGAL PROCEEDINGS
Except as set forth below, weWe are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on us, our business, operating results or financial condition.condition.
As described in greater detail under “Business – Corporate History; Significant Organizational Events,” on March 5, 2015, we entered into a Merger Agreement and certain associated transactions, including capitalized terms used below that are detailed and defined under such caption. Pursuant to the Merger Agreement, we, Acquisition Sub and Tyme entered into a reverse triangular merger pursuant to which (a) Acquisition Sub merged into Tyme with Tyme as the surviving entity, (b) Tyme became a wholly-owned subsidiary of us, and (c) the former shareholders of Tyme collectively acquired approximately 79% of our outstanding shares of Common Stock after giving effect to the Merger and the other transactions contemplated by the Merger Agreement.
The shares allocated to our respective stockholders were subject to a number of post-closing adjustments based upon future contingencies. The Merger Agreement required that certain shares then owned by GEM (equal to 3,500,000) would be subject to contingencies and, as a result, they were placed in escrow by GEM pursuant to an escrow agreement and are referred to in this report as Adjustment Shares.
As part of such contingencies and commitments under the Merger Agreement, no Qualified Offering occurred by the Qualified Offering Trigger Termination Date. As a result, as contemplated by the Merger Agreement, the Adjustment Shares are required to be surrendered to us for cancellation under the Adjustment Shares Escrow Agreement.
On November 10, 2015, we made demand of the escrow agent holding the Adjustment Shares for their surrender for cancellation. On November 17, 2015, GEM challenged such demand. On December 2, 2015, we filed a complaint against GEM with the Supreme Court of New York, seeking, among other things, a declaratory judgment directing GEM to deliver to us the 3,500,000 Adjustment Shares for cancellation.
| ITEM 4. | MINE SAFETY DISCLOSURES |
None.
ITEM 4. MINE SAFETY DISCLOSURES
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and their positions as of May 30, 2018 were:
Not applicable.
| | | | |
| | Title and Business Experience | | Age |
| Steve Hoffman | | Mr. Hoffman has been Chief Executive Officer of our wholly-owned subsidiary, Tyme, Inc. since its formation in July 2013, and a manager of our wholly-owned subsidiary, Luminant Biosciences, LLC, since its formation in September 2011. In such roles and continuing with his current position as Chief Executive Officer and Chief Science Officer of the Company, which commenced in March 2015, he supervises the development of our product candidates. | | 55 |
| | |
| Michael Demurjian | | Mr. Demurjian has been Chief Operating Officer of our wholly-owned subsidiary, Tyme, Inc., since its formation in July 2013, and a manager of our wholly-owned subsidiary Luminant Biosciences, LLC, since its formation in September 2011. In such roles and continuing with his position as Chief Operating Officer and Executive Vice President of our Company, which commenced in March of 2015, he leads the teams in studies and data collection activities for our submissions to regulatory authorities, including the FDA. | | 54 |
| | |
| Ben R. Taylor | | Mr. Taylor has been President and Chief Financial Officer since April 2017. | | 41 |
| | |
| Dr. Giuseppe Del Priore | | Dr. Del Priore has been Chief Medical Officer since November 2015. Dr. Del Priore also served on our Advisory Board from April 2015 to November 2015. | | 55 |
| | |
| Dr. Jonathan Eckard | | Dr. Eckard has been Chief Scientific Affairs Officer of Tyme since August 2017. | | 44 |
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Public market for our common stock
Our common stock is currentlyhas been traded on the Nasdaq Capital Market under the symbol “TYME” since July 27, 2017. Prior to July 27, 2017, our common stock was quoted on the over-the counter (“OTC”) Markets, QB Tier, under the symbol “TYMI” for each of the periods listed below. Before September 26, 2014, the common stock of our predecessor was quoted on the OTC Markets, QB Tier, under the symbol “TYMI.” OTC Markets securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Markets securities transactions are conducted through a telephone and computer network connecting dealers. OTC Markets issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
Previously and until September 26, 2014, our common stock was quoted on the OTC Markets, QB Tier, under the symbolpredecessor, “GGET.” Prior to March 12, 2015, there were no reported sales of our common stock of our predecessor on the OTC Market. Since such date, there have been only a limited number of shares of our common stock reported by OTC Markets as having been traded. There can be no assurance given that a regularOur transfer agent is Continental Stock and active trading market for our common stock will ever develop.
Transfer and Trust Company.
The following table sets forth, for the periods indicated, the prices of the common stock in the over-the-counterOTC market, as reported and summarized by OTC Markets Group, Inc.Inc, prior to July 27, 2017 and the high and low closing prices as reported by the Nasdaq Capital Market since July 27, 2017 for our common stock for the fiscal quarter indicated. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. TherePrior to July 27, 2017, there is an absence of an established trading market for our common stock, as the market is limited, sporadic and highly volatile, which may affecthave affected the prices listed below.
| | | | | | | | | | | | |
Quarter Ended | | High | | | Low | | | Mean Daily Trading
Volume (shares) | |
March 31, 2016 | | $ | 11.25 | | | $ | 5.00 | | | | 1,209 | |
June 30, 2016 | | $ | 11.00 | | | $ | 4.99 | | | | 643 | |
September 30, 2016 | | $ | 10.00 | | | $ | 3.20 | | | | 3,475 | |
December 31, 2016 | | $ | 4.20 | | | $ | 1.01 | | | | 8,683 | |
March 31, 2017 | | $ | 3.99 | | | $ | 2.01 | | | | 5,153 | |
June 30, 2017 | | $ | 3.55 | | | $ | 2.63 | | | | 3,640 | |
September 30, 2017 | | $ | 9.50 | | | $ | 2.65 | | | | 41,008 | |
December 31, 2017 | | $ | 8.30 | | | $ | 3.20 | | | | 142,134 | |
March 31, 2018 | | $ | 7.35 | | | $ | 2.05 | | | | 331,883 | |
The closing price of TYME stock as of June 6, 2018 was $3.18.
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| | | | |
Quarter Ended | | High | | Low |
March 31, 2015 | | $6.75 | | $0.10 |
June 30, 2015 | | $8.35 | | $6.75 |
September, 2015 | | $8.50 | | $7.50 |
December 31, 2015 | | $11.25 | | $8.48 |
The following graph and related information shall not be deemed “soliciting material” or be “filed” with the SEC, nor shall such information be incorporated by reference into any further filing, except to the extent we specifically incorporate it into any such filing.
HoldersCOMPARISON CUMULATIVE TOTAL RETURN
The following graph compares the performance of our company stock to the Nasdaq Biotechnology Index, and to the S & P 500 over the period from July 27, 2017 through March 31, 2018. The comparison assumes $100 was invested after the market closed on July 27, 2017 in our common stock and in each of the foregoing indices. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Comparison of Cumulative Total Return
Assumes Initial Investment of $100
March 2018
Holders; Shares Outstanding
We had a total of 87,611,370101,226,479 shares of our common stock outstanding on March 23, 2016,June 6, 2018, held by 41approximately 200 stockholders of record. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in “street name” by brokers and other nominees.
Dividend Policy
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as our board deems relevant. Further, in the event that we issue any shares of a class or series of our preferred stock, the designation of such class or series could limit our ability to pay dividends on our common stock.
Securities Authorized for Issuance underUnder Equity Compensation PlansPlan
TheReference is made to the information requiredin Item 12 of this report under the caption “Compensation Plan and Additional Equity Information as of March 31, 2018,” which is incorporated herein by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive proxy statement to be filed pursuant to Regulation 14A.reference.
Recent Sales of Unregistered Securities
We issued, effective as of February 2, 2016, to a total of two individuals, for the aggregate consideration of $3,100,000, (i) 775,000 shares of our common stock and (ii) 461,384 ten-year common stock purchase warrants entitling its holder to purchase one share of our common stock at a purchase price of $5.00 per share.
We also issued, effective as of December 31, 2015, an aggregate of 9,999 shares of our common stock to our three independent directors, an advisor to our board of directors and the five members of our scientific and medical advisory board, in accordance with our independent director compensation policy, our agreement with such advisor and our scientific and medical advisory board compensation policy.
We also issued, effective December 23, 2015, to a total of three individuals and entities, for the aggregate consideration of $3,000,000, (i) 750,000 shares of our common stock and (ii) 466,500 ten-year common stock purchase warrants entitling its holder to purchase one share of our common stock at a purchase price of $5.00 per share.
Effective December 21, 2015, we issued to a law firm, in satisfaction of $200,000 of outstanding fees for services rendered, (i) 50,000 shares of our common stock and (ii) 29,767 ten-year common stock purchase warrants entitling its holder to purchase one share of our common stock at a purchase price of $5.00 per share.
We believe that the issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4(2) of the Securities Act as such issuance did not involve any public offering.
Use of Proceeds from Registered Securities
None.
| ITEM 6. | SELECTED FINANCIAL DATA |
The following tables set forth our selected financial data for the periods indicated. The following statement of operations data for the years ended March 31, 2018 and 2017, the three months ended March 31, 2016 and the
ITEM 6. SELECTED FINANCIAL DATA
year ended December 31, 2015 and the selected balance sheet data as of March 31, 2018 and 2017 are derived from our audited financial statements appearing elsewhere in this report. The statement of operations data for the year ended December 31, 2014 and November 30, 2013, and the balance sheet data as of December 31, 2015 and 2014, and November 30, 2013 have been derived from audited financial statements previously filed with the SEC that are not included herein.
This selected financial data should be read together with the historical financial statements and related notes to those statements, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this report.
Not applicable.Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended
November 30, | | | Year ended
December 31, | | | Quarter Ended
March 31, | | | Year Ended
March 31, | |
| | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | |
| | | (in thousands, except share and per share data) | |
Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | $ | — | | | $ | 761 | | | $ | 3,824 | | | $ | 808 | | | | 6,112 | | | | 8,840 | |
General and administrative | | | — | | | | 1,823 | | | | 4,776 | | | | 1,943 | | | | 9,095 | | | | 10,520 | |
Total operating expenses | | | (57 | ) | | | 2,584 | | | | 8,600 | | | | 2,751 | | | | 15,207 | | | | 19,360 | |
Loss from operations | | | (57 | ) | | | (2,584 | ) | | | (8,600 | ) | | | (2,751 | ) | | | (15,207 | ) | | | (19,360 | ) |
Interest Expense | | | — | | | | (77 | ) | | | (3,503 | ) | | | — | | | | — | | | | — | |
Other Income | | | — | | | | — | | | | 376 | | | | — | | | | — | | | | 390 | |
Net loss | | $ | (57 | ) | | $ | (2,661 | ) | | $ | (11,727 | ) | | $ | (2,751 | ) | | | (15,207 | ) | | | (18,970 | ) |
Basic and diluted loss per option share | | $ | 0.0 | | | $ | (0.04 | ) | | $ | (0.15 | ) | | $ | (0.03 | ) | | | (0.18 | ) | | | (0.21 | ) |
Basic and diluted weighted average shares outstanding | | | 52,000,800 | | | | 68,000,000 | | | | 77,848,850 | | | | 83,786,260 | | | | 84,454,587 | | | | 90,567,476 | |
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| | | | | | | | | | | | | | | | | | | | |
| | | November 30,
2013 | | | December 31,
2014 | | | December 31,
2015 | | | March 31,
2017 | | | March 31,
2018 | |
| | | (in thousands, except share and per share data) | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 0 | | | $ | 9 | | | $ | 4,446 | | | $ | 10,483 | | | $ | 28,976 | |
Total assets | | | 0 | | | | 167 | | | | 4,490 | | | | 10,719 | | | | 31,018 | |
Total liabilities | | | 43 | | | | 2,640 | | | | 1,474 | | | | 3,327 | | | | 4,546 | |
Total stockholders’ equity (deficit) | | | (43 | ) | | | (2,473 | ) | | | 3,016 | | | | 7,392 | | | | 26,472 | |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Annual Report. Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. As used in this report, unless the context suggests otherwise, “we,” “us,” “our,” “the Company” or “Tyme Technologies” refer to Tyme Technologies, Inc.Inc, together with its subsidiaries.
Overview
We are a clinical-stage biotechnology company developing novel cancer therapeutics that are intended to be effective across many tumor types while also maintaining low toxicity. Our lead clinical program,SM-88, is afirst-in-class combination therapy based on dysfunctional metyrosine derivatives. We currently have two ongoing phase II clinical trials in metastatic pancreatic cancer and biomarker-recurrent prostate cancer. Previously,SM-88 has been used clinically in over 100 patients, primarily for the treatment of metastatic cancers.
We were originally formed in FloridaOn October 27, 2016, our Board of Directors determined to change the fiscal year of the Company from a year ending on November 22, 2011,December 31 of each year to produce, market and sell an ultra-premium vodka product to retailers. We were not successful in our efforts and we turned our efforts towards seeking, investigating and, if such investigation warranted, engaging in a business combination with a private entity whose business presented an opportunity for our stockholders.
Effective asyear ending on March 31 of September 18, 2014, we (then constituting a Florida corporation witheach year. The Company’s report covering the name Global Group Enterprises Corp.) reincorporated in the State of Delaware by merging into our wholly-owned Delaware subsidiary, Tyme Technologies, Inc., whichtransition period from January 1, 2016 through March 31, 2016 was formedfiled via transition report on August 22, 2014 specifically for this purpose (the “Reincorporation”). Tyme Technologies, Inc. was the surviving corporation in such merger.Form10-QT. As a result of this change, we provided herein disclosures of our results, financial conditions and liquidity for (i) the Reincorporation, among other things, (i)year ended March 31, 2018 compared to the year ended March 31, 2017; (ii) the year ended March 31, 2017 to the year ended December 31, 2015; and (iii) the three months ended March 31, 2016 compared to the three months ended March 31, 2015.
In October of 2016, we changedraised $1.47 million through a private placement of 452,314 shares of our namecommon stock.
In March of 2017, we raised $9.2 million in gross proceeds through a private placement of 3,588,620 shares of our common stock and 3,588,620 common stock purchase warrants (each, a “Warrant”). Each Warrant entitles its holder to Tyme Technologies, Inc., (ii) we changed our jurisdiction of incorporation from Florida to Delaware, (iii) we increased our authorized capital stock from 250,000,000 sharespurchase one share of common stock $0.0001 par value(each, a “Warrant Share”) at an exercise price of $3.00 per share,Warrant Share, subject to 300,000,000adjustment.
In April of 2017, we raised approximately $2,700,000 in gross proceeds through a private placement of 1,069,603 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of “blank check” preferred stock, $0.0001 par value per share, (iv) each share of Global Group Enterprises Corp.’s common stock outstanding at the time of the Reincorporation was automatically converted into 4.3334 shares of Tyme Technologies, Inc.’s common stock, with the result that the 12,000,000 shares of common stock outstanding immediately prior to the Reincorporation were converted into 52,000,800 shares of common stock outstanding immediately thereafter. All share and per share numbers in this Annual Report on Form 10-K relating to our common stock priorand 1,069,603 Warrants.
On November 2, 2017, the Company entered into an equity distribution agreement (“Equity Distribution Agreement”) with Canaccord Genuity Inc. (“Canaccord”), to commence anat-the-market offering (the “ATM Financing Facility”) pursuant to which the Company may, from time to time, sell shares of the Company’s common stock, having an aggregate offering price up to $30,000,000, through Canaccord, as the Company’s sales agent. In the year ended March 31, 2018, the Company raised approximately $6,151,000 in gross proceeds through the ATM Financing Facility via sale of 1,543,364 shares of our common stock and paid Canaccord aggregate commissions of $184,559.
In March 2018, we raised approximately $21.89 million of net proceeds (after underwriting discounts and commissions but before expenses) through an underwritten registered public offering of 10,350,000 shares of our common stock. The Offering was made pursuant to the Reincorporation have been adjusted to give effect to this conversion, unless otherwise stated. Subsequent toCompany’s registration statement on FormS-3 (RegistrationNo. 333-211489), which was declared effective by the Reincorporation, Global Group Enterprises Corp. ceased to exist.
As discussed in “Item 1; Business – Corporate History; Significant Organizational Events.” the notes to the consolidated financial statements included in this Annual ReportU.S. Securities and Exchange Commission on Form 10-K and in “Recent Developments” below, on March 5, 2015 we entered intoAugust 16, 2017, a “reverse triangular merger” and related transactions with Tyme Inc., a Delaware corporation (“Tyme”), and other parties that resulted in, among other matters, a change in control of our Companybase prospectus dated August 16, 2017 and a change in our fiscal year from a fiscal year ending on November 30th of each calendar year to one ending on December 31st of each calendar year, which is the fiscal year basis for the financial statements presented herewith.prospectus supplement dated March 1, 2018.
We are in the process of evaluating our short- and long-term financing requirements in order to effectuate our business plan. We anticipate that we will seek to raise required capital by the issuance of equity or debt securities, through private or public offerings or by other means. We have no such arrangements or plans currently in effect and our inability to raise funds could have a severe adverse effect on our ability to become a viable company. In addition, no assurance can be given that we will be able to obtain funds on favorable terms, if at all.
Recent Developments
On March 5, 2015, we entered into and completed the Merger and associated transaction. For further details concerning these transactions, see “Item 1; Business – Corporate History; Significant Organizational Events.”
As a result of the Split-Off Transaction and Merger, we discontinued our pre-Merger business and acquired the business of Tyme, a research and development company focused on developing drug candidates for the treatment of cancer in humans. We intend to continue the existing business operations of Tyme as our wholly-owned subsidiary. At the present time, we do not intend to operate any other business other than Tyme, although such operations may be conducted through one or more direct and/or indirect subsidiaries as we believe appropriate.
In connection with the consummation of the Merger, we changed our fiscal year from a fiscal year ending on November 30th of each calendar year to one ending on December 31st of each calendar year, which is the historical fiscal year of Tyme and which is the fiscal year basis for the financial statements presented herewith.
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At the point of Merger and since inception, we were essentially a “public reporting shell” with no substantive business operations. As such, we had negligible revenues and operating profits that require separate identification.
The transaction costs associated with the Merger relate to professional fees incurred in respect of legal, investor relations and accounting and audit of Tyme’s financial statements. All of such transaction costs, being associated with the final Merger, have been expensed as incurred and total approximately $1,000,000.
For accounting purposes, the acquisition of Tyme by our Company was considered a reverse acquisition, an acquisition transaction where the acquired company, Tyme, is considered the acquirer for accounting purposes, notwithstanding the form of the transaction. The primary reason the transaction was treated as a purchase by Tyme rather than a purchase by our Company was because we were a public reporting shell company with limited operations and Tyme’s stockholders gained majority control of the outstanding voting power of our equity securities through their collective ownership of a majority of the outstanding shares of Company common stock. Consequently, reverse acquisition accounting will be applied to the transaction. No goodwill or intangible assets were recognized in conjunction with the completion of the Merger.
Critical Accounting Policies and Recent Accounting Pronouncements
While our significant accounting policies are more fully described in Note 2 to the Consolidated Financial Statements appearing elsewhere in this Form10-K, we believe the following accounting policies are critical to the preparation of our financial statements.
Research and Development Expenses
Research and development costs are expensed as incurred and are primarily comprised of, but not limited to, external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”CROs”), contract manufacturing organizations (“CMOs”CMOs”) and consultants that conduct clinical and preclinical studies, costs associated with preclinical and development activities, costs associated with regulatory operations, depreciation expense for assets used in research and development activities and employee related expenses, including salaries and benefits for research and development personnel. Costs for certain development activities, such as clinical studies, are accrued, over the service period specified in the contract and recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense, which are reported in prepaid assets or accounts payable and other current liabilities.
expense.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to federal income taxes in the United States, for Federal andas well as in various StateU.S. state jurisdictions. Significant judgments and estimates are required in the determination of the income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. 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 tax rates is recognized in income in the period that includes the enactment date. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).
We believeA valuation allowance is provided when, after consideration of available positive and negative evidence, that it is not more likely than not that the benefit from Federal and State NOLsdeferred tax assets will be realized.realizable. In recognition of this risk, we have provided a full valuation allowance onagainst the net deferred tax assets related to these NOL carryforwards.
assets.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various jurisdictions. ASC 740 “Income Taxes” states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
We had no unrecognized tax benefits of $469,000 and $617,000 at DecemberMarch 31, 20152018 and 2014. The increases2017, respectively. Increases or decreases in such benefits would be reflected as increases or decreases tonot have an effect on the effective tax rate.
The Company files federal income tax expensereturns in the period in which new information is available.United States, as well as various U.S. state jurisdictions. The federal and state income tax years, which currently remainreturns are generally subject to examination by major tax jurisdictions as of Decemberexaminations for the period April 1, 2016 through March 31, 2015, are2017, January 1, 2016 through March 31, 2016, the years ended December 31, 2015 and 2014 and for2014. To the period from July 26, 2013extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to December 31, 2013.the extent utilized in a future period. In addition, we had no income tax related penalties or interest for periods presented in these consolidated financial statements. When and if we were to recognize interest and penalties related to unrecognized tax benefits, they would be reported in tax expense.
On December 22, 2017, H.R. 1 (also, known as the Tax Cuts and Jobs Act (the “Act”)) was signed into law. Among its numerous changes to the Internal Revenue Code, the Act reduces the U.S. federal corporate tax rate from 35% to 21%. As a result, the most significant impact on the financial statements is a reduction of approximately $3.2 million for the deferred tax assets related to net operating losses and stock based compensation. Such reduction is offset by changes to the Company’s valuation allowance.
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Stock-Based Compensation
We follow the authoritative guidance for accounting for stock-based compensation in ASC 718, “Compensation-Stock Compensation.” The guidance requires that stock-based payment transactions be recognized in the financial statements based on their fair value at the grant date and recognized as compensation expense over the vesting period as services are being provided.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend yield of the common stock. For awards subject to time-based vesting conditions, we recognize stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are required to be estimated at the timeThe Company accounts for forfeitures as they occur, rather than estimating forfeitures as of an award’s grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
date.
We account for stock-based awards issued tonon-employees in accordance with ASC Topic 505-50, “Equity-Based Payment toNon-Employees” and accordingly the fair value of the stock compensationoptions granted tonon-employees is measured onremeasured each reporting period until the earlier of: a) the performance commitment date, or b) the date the services required under the arrangement have been completed.completed and the resulting increase or decrease in value, if any, is recognized as expense or income, respectively, during the period the related services are rendered.
The expected volatility of options granted has been determined using the method described under ASC 718 using the expected volatility of similar companies. The expected term of options granted to employees in the current fiscal period has been based on the term by using the simplified “plain-vanilla” method as allowed under SAB No. 110. The expected term of options granted tonon-employees and consultants is based on the grant’s full contractual life.
Prior to the three months ended December 31, 2017, the Company used the full contractual term as the expected term in its Black Scholes model to estimate stock option value. The Company used the full contractual term because there was no history of exercise activity and the stock was thinly-traded on the OTC market.
Beginning in the three months ended December 31, 2017, the Company determined the use of the simplified method was more appropriate than the full contractual term due to the increased trading volume and activity during the quarter and the increased market and demand for shares.
Based on the these factors, the Company deemed it no longer appropriate to use the full contractual term for expected life, because these changes in the business indicate the likelihood that there will be exercise activity before completion of the full contractual term.
The Company considered other methods to estimate expected term other than the simplified method. However, as noted above, there is no historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded and no other refined estimate of expected life that is appropriate.
Refer to Note 2 to our Consolidated Financial Statements for a discussion of Recent Accounting Pronouncements.
Preparation of Financial Statements; Going Concern
Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates our continuation as a going concern. We have incurred losses and negative cash flows from operations since inception (July 26, 2013) and have an accumulated deficit of approximately $15,904,000 as of December 31, 2015. We anticipate incurring additional losses until such time, if ever, that we can generate significant revenues from our products currently in development. Our primary sources of liquidity to date have been the issuance of shares of our common stock, convertible promissory notes and contributed capital by our founders. Substantial additional financing will be needed to fund our operations and to commercially develop our product candidates. There is no assurance that such financing will be available when needed or on acceptable terms. These factors raise substantial doubt about our ability to continue as a going concern.
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Results of Operations
Year ended DecemberMarch 31, 20152018 Compared to DecemberYear Ended March 31, 20142017
Net loss for the year ended DecemberMarch 31, 20152018 was $11,726,818,$18,969,493, compared to $2,649,826$15,206,781 for the year ended DecemberMarch 31, 2014.2017. The increase in the net loss for the year ended DecemberMarch 31, 2014,2018, as compared to the net loss for 2014the year ended March 31, 2017 is due to increased operating costs and expenses in 2015,2018, as highlighted below.
Revenues and Other Income
During the years ended March 31, 2018 and March 31, 2017, we did not realize any revenues from operations. We do not anticipate recognizing any revenues until such time as one of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangements, none of which is anticipated to occur in the near future.
Operating Expenses
For the year ended March 31, 2018, operating costs and expenses totaled $19,359,878, compared to $15,206,781 for the year ended March 31, 2017, representing an increase of $4,153,097. Operating costs and expenses were comprised of the following:
Research and development expenses were $8,839,661 for the year ended March 31, 2018, compared to $6,111,587 for the year ended March 31, 2017, representing an increase of $2,728,074. All research and development expenditures have been incurred in respect of our lead drug candidate,SM-88, its technology platform, and related clinical trials. Research and development activities primarily consist of the following:
Salary expense for research and development personnel was $1,160,559 for the year ended March 31, 2018, compared to $923,816 for the year ended March 31, 2017, representing a $236,743 increase between the comparable periods, primarily due to the addition of personnel in key management positions. These expenses are expected to increase in future periods due to the addition of personnel and certain recently approved salary increases.
Consulting and study expenses were $3,422,503 for the year ended March 31, 2018, compared to $2,233,698 for the year ended March 31, 2017, representing an increase of $1,188,805 between the comparable periods. This increase was in large part due to the costs related to increased activity in our Phase II clinical trials and preparations for initiating our Phase II pancreatic clinical trial. These types of expenses are expected to vary between future accounting periods as we continue to develop our drug candidates and seek related governmental approvals, which may lead to expansion of our current clinical trials or the initiation of new trials for different cancer indications.
Stock based compensation, related to stock options granted, was $3,565,784 for the year ended March 31, 2018, compared to $2,629,073 for the year ended March 31, 2017, representing a $936,711 increase between the periods, primarily due to option grants to research and development employees.
Bonus expense to research and development employees, including related employer payroll taxes, was $551,718 for the year ended March 31, 2018, compared to $0 for the year ended March 31, 2017, representing a $551,718 increase between the periods. The bonus pool was approved by the Board of Directors as recommended by a third-party compensation consultant.
General and administrative expenses were $10,520,217 for the year ended March 31, 2018, compared to $9,095,194 for the year ended March 31, 2017, representing an increase of $1,425,023. The general and administrative expenses include:
Stock based compensation, primarily related to stock options granted, was $4,123,909 for the year ended March 31, 2018, compared to $5,095,813 for the year ended March 31, 2017, representing a $971,904 decrease between the periods, primarily due to option grants to management and board of director members during the prior period.
Legal, professional services, accounting and auditing for the year ended March 31, 2018, was $3,168,822, compared to $2,413,703 for the year ended March 31, 2017 representing an increase of $755,119 primarily related to financing initiatives.
Salary expense for non-research and development personnel was $1,150,050 for the year ended March 31, 2018, compared to $978,179 for the year ended March 31, 2017, representing a $171,871 increase between the comparable periods due to increased headcount.
Bonus expense to general and administrative employees, including related employer payroll taxes, was $851,556 for the year ended March 31, 2018, compared to $0 for the year ended March 31, 2017, representing a $851,556 increase between the periods. The bonus pool was approved by the Board of Directors as recommended by a third-party compensation consultant.
Other Income/Expenses
Interest expense
For the years ended March 31, 2018 and 2017, the Company did not enter into debt financing arrangements, and as such did not incur any interest expense.
Other Income
Other income for the year ended March 31, 2018 was $390,385, which represents a non-cash gain recorded on the remeasurement of a derivative liability due to the expiration of anti-dilution protection on warrants. Certain holders of our outstanding securities that acquired our securities in March and April 2017 private placement transactions (the “2017 Private Placement Investors”) had limited anti-dilution protection that could have resulted in additional dilution to our stockholders. The anti-dilution protection expired without additional shares issued. The resulting change in the fair value of the derivative was recognized as other income for the relevant period.
For the year ended March 31, 2017, the Company did not recognize other income.
Income Tax
Our effective tax rate for the years ended March 31, 2018 and 2017 was zero percent. Our tax rate in the current period was primarily affected by the reduction of our net deferred tax assets due to tax reform, which was offset by a valuation allowance and in the prior year was affected primarily by changes in state income taxes, which was offset by a valuation allowance.
Year ended March 31, 2017 Compared to Year Ended December 31, 2015
Net loss for the year ended March 31, 2017 was $15,206,781, compared to $11,726,818 for the year ended December 31, 2015. The increase in the net loss for the year ended March 31, 2017, as compared to the net loss for the year ended December 31, 2015 is due to increased operating costs and expenses in 2017, as highlighted below.
Revenues and Other Income
During the years ended March 31, 2017 and December 31, 2015, and 2014, we did not realize any revenues from operations. We do not anticipate recognizing any revenues until such time as one of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangement, none of which is anticipated to occur in the near future.
Operating Costs and Expenses
For the year ended March 31, 2017, operating costs and expenses totaled $15,206,781, compared to $8,599,772 for the year ended December 31, 2015, operating costs and expenses totaled $8,599,772, compared to $2,584,116 for the year ended December 31, 2014, representing an increase of $6,015,656.$6,607,009. Operating costs and expenses were comprised of the following:
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| Research and development expenses were $6,111,587 for the year ended March 31, 2017, compared to $3,823,966 for the year ended December 31, 2015, compared to $761,359 for the year ended December 31, 2014, representing an increase of $3,062,607. All research and development expenditures have been incurred in respect of our lead drug candidate, SM-88, and its technology platform. Research and development activities primarily consist of the following: |
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| Salary expense for research and development personnel was $773,853 for the year ended December 31, 2015, compared to $299,880 for the year ended December 31, 2014, representing a $473,973 increase between the comparable periods, primarily due to a higher salary for the Company’s Chief Executive Officer, who primarily provides research and development related services, and an increase in the number of employees.
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| Consulting and study expenses were $1,969,617 for the year ended December 31, 2015, compared to $382,584 for the year ended December 31, 2014, representing an increase of $1,587,033 between the comparable periods. These types of expenses are anticipated to vary between future accounting periods as we continue to develop our drug candidates and seek governmental approval of such drug candidates.
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| For the year ended December 31, 2015, there was $653,369 of expenses incurred in connection with the acquisition of manufactured samples to be used in testing.
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| For the year ended December 31, 2015, we incurred compensation expense, half paid in common shares and half paid in cash, of $250,000 related to the five Scientific Advisory Board members elected in September 2015. There was no such expense for the year ended December 31, 2014.
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| General and administrative expenses were $4,775,806 for the year ended December 31, 2015, compared to $1,822,757 for the year ended December 31, 2014, representing an increase of $2,953,049. We expect our general and administrative expenses, subject to securing ongoing funding, to increase as our operations grow. The general and administrative expenses include:
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| Transaction costs associated with the Merger totaled approximately $1,000,000 for the year ended December 31, 2015 and relate to professional fees incurred in respect of legal, investor relations and accounting and auditing of Tyme’s financial statements. There were no such transaction costs incurred in the year ended December 31, 2014. In addition, in the year ended December 31, 2015, we incurred costs of $1,468,991 for legal and accounting fees as we continue to implement our business plan.
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| Salary expense for non-research and development personnel was $944,561 for the year ended December 31, 2015, compared to $440,269 for the year ended December 31, 2014, representing a $504,292 increase between the comparable periods. This increase is primarily due to a higher salary in 2015 for the Company’s Chief Operating Officer and the addition of a Chief Financial Officer in May 2015. We expect to incur further increases in salary expense for non-research and development personnel as we continue to implement our business plan.
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| Stock based compensation expense related to stock options granted was $485,859 for the year ended December 31, 2015. No stock options were granted during the year ended December 31, 2014.
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| For the year ended December 31, 2015, we incurred compensation expense, half paid in common shares and half paid in cash, of $400,000 related to the three members of the Board of Directors and Special Advisor. There was no such expense for the year ended December 31, 2014.
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Other income (expense)
Interest charges for the year ended December 31, 2015, representing an increase of $2,287,621. All research and development expenditures have been incurred in respect of our lead drug candidate, SM-88, and its technology platform. Research and development activities primarily consist of the following:
Salary expense for research and development personnel was $3,503,301,$923,816 for the year ended March 31, 2017, compared to $76,561$773,853 for the year ended December 31, 2014.2015, representing a $149,963 increase between the comparable periods, primarily due to an increase in the number of employees.
Consulting and study expenses were $2,233,698 for the year ended March 31, 2017, compared to $1,969,617 for the year ended December 31, 2015, representing an increase of $264,081 between the comparable periods. These types of expenses are anticipated to vary between future accounting periods as we continue to develop our drug candidates and seek governmental approval of such drug candidates.
Stock based compensation, primarily related to stock options granted, was $2,629,073 for the year ended March 31, 2017, compared to $250,000 for the year ended December 31, 2015, representing a $2,379,073 increase between the periods, primarily due to option grants to research and development employees.
General and administrative expenses were $9,095,194 for the year ended March 31, 2017, compared to $4,775,806 for the year ended December 31, 2015, representing an increase of $4,319,388, primarily due to increased stock compensation expense. The general and administrative expenses include:
Stock based compensation, primarily related to stock options granted, was $5,095,813 for the year ended March 31, 2017, compared to $685,859 for the year ended December 31, 2015, representing a $4,409,954 increase between the periods, primarily due to option grants to management and board of director members.
Legal, professional services, accounting and auditing for the year ended March 31, 2017, was $2,413,703, compared to $2,460,469 for the year ended December 31, 2015 representing a decrease of $46,766.
Salary expense for non-research and development personnel was $978,179 for the year ended March 31, 2017, compared to $944,561 for the year ended December 31, 2015, representing a $33,618 increase between the comparable periods.
Other Income/Expenses
Interest expense
For the year ended March 31, 2017, the Company did not incur any interest expense.
For the year ended December 31, 2015 the Company incurred $3,503,301 of interest expense primarily relating to modification of the Bridge Note. Contemporaneous with the closing of the Merger, the Bridge Note in the principal amount of $2,310,000 was converted into 2,310,000 shares of Company common stock. On March 5, 2015, the mandatory conversion feature of the Bridge Note was amended to a set fixed conversion amount such that, upon conversion, the Bridge Note purchaser would receive one share of Company common stock for each $1.00 of principal of the Bridge Note outstanding as of the date of the mandatory conversion. We evaluated the modification to the conversion rate as an inducement to convert the Bridge Note and concluded that it provided the purchaser of the Bridge Note an incremental value of $3,465,000, which is included as interest expense on the consolidated statement of operations for yearthe period ended December 31, 2015. We recorded interest expense of $38,301 on the Bridge Note during
Other Income
For the year ended DecemberMarch 31, 2015.
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2017, the Company did not recognize any other income. Other income for the year ended December 31, 2015 was $376,255, which primarily represents a gain recorded on the remeasurement of a derivative liability to $0 as of December 31, 2015. The derivative was originally recorded during the quarter ended March 31, 2015 and based on updated inputs to the valuation model used, we have determined that the derivative liability has no value at December 31, 2015. Changes in the fair value of the derivative are recognized in earnings in the current period.
Income Tax
Our effective tax rate for the years ended March 31, 2017 and December 31, 2015 and 2014 was zero percent. Our tax rate iswas affected primarily by changes to state income taxes and changesvaluation allowance in valuation allowance.both years as well as certain permanent differences in 2015.
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015 (Unaudited)
Net loss for the three months ended March 31, 2016 was $2,751,127 compared to $5,601,438 for the three months ended March 31, 2015. The decrease in the net loss for the three months ended March 31, 2016, as compared to the net loss for the 2015 three-month period, is primarily due to the elimination of $3,503,301 in interest expense after the 2015 three-month period, which was offset in part by increased operating costs and expenses in the 2016 three month period, as highlighted below.
Revenues and Other Income
During the three-month periods ended March 31, 2016 and 2015, we did not realize any revenues from operations. We do not anticipate recognizing any revenues until such time as one of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangement, none of which is anticipated to occur in the near future.
Operating Costs and Expenses
For the three months ended March 31, 2016, operating costs and expenses totaled $2,751,127 compared to $2,098,137 for the three months ended March 31, 2015, representing an increase of $652,990. Operating costs and expenses were comprised of the following:
Research and development expenses were $808,472 for the three months ended March 31, 2016, compared to $514,317 for the three months ended March 31, 2015, representing an increase of $294,155. All research and development expenditures have been incurred in respect of our lead oncology drug candidate,SM-88, and its associated technology platform. Research and development activities primarily consist of the following:
Salary expense for research and development personnel was $212,193 for the three months ended March 31, 2016, compared to $307,058 for the three months ended March 31, 2015, a decrease of $94,865 between the comparable periods. The decrease is due to the fact that during the three months ended March 31, 2015, research and development personnel were awarded bonus compensation totaling $135,560 in connection with the Merger. This decrease is offset by a new hire during the three months ended March 31, 2016.
Consulting and study expenses were $456,551 for the three months ended March 31, 2016, compared to $152,259 for the three months ended March 31, 2015, representing an increase of $304,292 between the comparable periods. These types of expenses are anticipated to vary between future accounting periods as we continue to develop our oncology drug candidates and seek governmental approval of such drug candidates.
For the three months ended March 31, 2016 we incurred compensation expense of $100,000 related to the Scientific Advisory Board that was established as of September 30, 2015 compared to $0 for the three months ended March 31, 2015.
General and administrative expenses were $1,942,655 for the three months ended March 31, 2016, compared to $1,583,820 for the three months ended March 31, 2015, representing an increase of $358,835, with this increase principally attributed to the recognition ofnon-cash compensation expense related to stock options of $1,137,435 for the three months ended March 31, 2016. For the three months ended March 31, 2015, we had no compensation expense related to stock options. The general and administrative expenses for the respective periods include:
Transaction costs associated with the Merger, which totaled approximately $1,000,000 for the three months ended March 31, 2015 and relate to professional fees incurred in respect of legal, investor relations and accounting and auditing of Tyme’s financial statements. There were no such transaction costs incurred in the three months ended March 31, 2016.
Salary expense fornon-research and development personnel was $243,572 for the three months ended March 31, 2016, compared to $395,356 for the three months ended March 31, 2015, representing a $151,784 decrease between the comparable periods. The decrease is due to the fact that during the three months ended March 31, 2015,non-research and development personnel were awarded bonus compensation totaling $206,690 in connection with the Merger. This decrease is offset by a new full time hire during the three months ended March 31, 2016.
Stock based compensation expense related to stock options granted was $1,137,435 for the three months ended March 31, 2016 compared to $0 for the three months ended March 31, 2015. No stock options were granted during or prior to the three months ended March 31, 2015.
In addition, in the three months ended March 31, 2016, we incurred costs of $353,362 for legal and accounting fees.
Liquidity and Capital Resources
At December 31, 2015, we had cash of $4,446,284, working capital of $3,002,737 and stockholders’ equity of $3,015,615.
Net cash used in or provided by operating, investing and financing activities from continuing operations were as follows:
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| | Year Ended December 31, | |
| | 2015 | | 2014 | |
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Net cash used in operating activities | | $ | (6,610,156 | ) | $ | (1,515,586 | ) |
Net cash used in investing activities | | | — | | | (2,710 | ) |
Net cash provided by financing activities | | | 11,046,716 | | | 1,435,400 | |
Operating Activities
Our cash used in operating activities in the year ended December 31, 2015 totaled $6,610,156 which is the sum of (i) our net loss before noncontrolling interests of $11,726,818, adjusted for non-cash expenses totaling $4,728,851 (which includes adjustments for equity-based compensation, depreciation and amortization, a gain on the remeasurement of a derivative liability and noncash conversion), and (ii) changes in operating assets and liabilities of $387,811.
Our cash used in operating activities in the year ended December 31, 2014 totaled $1,515,586, which is the sum of (i) our net loss before noncontrolling interests of $2,660,667, adjusted for non-cash expenses totaling $6,969 (which includes adjustments for depreciation and amortization and a loss on disposal of fixed assets), and (ii) changes in operating assets and liabilities providing $1,138,122.
Investing Activities
During the year ended December 31, 2015, we spent $0 for property and equipment.
During the year ended December 31, 2014, we spent $2,710 for property and equipment.
Financing Activities
During the year ended December 31, 2015, our financing activities consisted of the following:
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| Contemporaneous with the closing of the Merger, the Company completed a private placement of 2,716,000 shares of Company common stock for gross proceeds of $6,790,000 (of which, $4,265,000 was tendered in cash and the remaining subscription price paid by the delivery of the PPO Note in the principal amount of $2,500,000). Payment under the PPO Note of $1,250,000 was received in June of 2015 and payment of the remaining $1,250,000 was received in October 2015.
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| We raised gross proceeds of $960,000 in January 2015 through the additional funding under and the corresponding amendment and restatement of the Bridge Note.
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| Tyme and Luminant obtained from and granted cash advances to certain of their then stockholders/members. Effective as of the consummation of the Merger, these non-interest bearing advances were settled.
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| On December 23, 2015, the Company sold 750,000 shares of the Company’s common stock, par value $0.0001 per share, and 446,500 common stock purchase warrants for net proceeds of $2,966,000.
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During the year ended December 31, 2014, our financing activities consisted primarily of the following:
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| On July 11, 2014, the Company entered into a Securities Purchase Agreement and received $1,100,000 in proceeds from the issuance of a convertible promissory note (the “Bridge Note”) of the Company, from an investor who is an affiliate of GEM. On November 24, 2014, the holder of the Bridge Note loaned the Company an additional $250,000.
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| Proceeds of $200,000 from issuance of convertible notes.
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Liquidity and Capital Requirements Outlook
Liquidity
During fiscal year 2018, we raised gross proceeds of approximately $32.1 million through the issuance of our common stock. Most recently in March 2018, we raised aggregate gross proceeds of $23.3 million before underwriting discounts and commissions and expenses of the offering through an underwritten public offering. Previously, on November 2, 2017, the Company entered into the Equity Distribution Agreement with Canaccord, to commence the ATM Financing Facility pursuant to which the Company may, from time to time, subject to certain rules and regulations, sell shares of the Company’s common stock, par value $0.0001 per share, having an aggregate offering price up to $30.0 million, through Canaccord, as the Company’s sales agent. In the year ended March 31, 2018, the Company raised approximately $6.2 million in aggregate gross proceeds before commissions and expenses through the ATM Financing Facility and incurred related costs, including commission to Canaccord, of approximately $0.3 million. At March 31, 2018, there remained approximately $24.0 million of availability to sell shares through the facility. Additionally, in April 2017, we raised $2.7 million in gross proceeds through a private placement transaction. The proceeds of those offerings are being used by the Company for continued clinical studies and development activities and other general corporate and operating expenses.
We anticipate requiring additional capital in order to further fund the development of our product candidates, as well as to engage in strategic transactions.potential partnerships or collaborations. The most significant funding needs are anticipatedcontinue to be in connection with preparing for and conducting one or more phaseimmediate Phase II clinical trials of ourSM-88 drug candidate for prostate cancer and pancreatic cancer and additional or related studies and investigations. The IND
Additionally, following a review of the Company’s employee and director compensation program performed in conjunction with an independent third-party compensation consultant, in May 2018, our board of directors approved certain changes to these compensation programs, which are designed to address the Company’s unique business attributes and to promote the Company’s goals of attracting and retaining talent, aligning of the interests of executives with stockholders, and avoiding excessive risk taking. After consultation with the compensation consultant, the board approved employee cash bonuses for SM-88 for a study involving breast cancer patients was acceptedthe completed 2018 fiscal year in an aggregate total amount of approximately $1.2 million, which amount is expected to be paid by the FDA in October of 2015. We are evaluating the expansionCompany during June 2018. The Company’s board also approved salary increases for certain of the phase IICompany’s executives and expects that, during the course of fiscal 2019, it will expand its annual cash retainer program fornon-employee directors such that they will each receive an annual cash retainer for board service of $50,000, as well as annual cash retainers for service on board committees, in amounts to be determined.
Primarily as a result of its active clinical trials, as well as other formsbusiness developments, the Company currently anticipates that its quarterly cash usage, or “cash burn rate”, will increase in fiscal 2019 compared to 2018 and is expected to approximate $5 million per quarter.
As of cancer.March 31, 2018, the Company has cash on hand of approximately $29.0 million and a working capital of approximately $26.5 million.
Management has concluded that substantial doubt does not exist regarding the Company’s ability to satisfy its obligations as they come due during the twelve-month period following the issuance of these financial statements. This conclusion is based on the Company’s assessment of qualitative and quantitative conditions and events, considered in aggregate as of the date of issuance of these financial statements that are known and reasonably knowable. Among other relevant conditions and events, the Company has considered its operational plans, liquidity sources, obligations due or expected, funds necessary to maintain the Company’s operations, and potential adverse conditions or events as of the issuance date of these financial statements. The Company has developed an operational plan that manages expenses and delays initiation of certain operational initiatives to focus on core programs if appropriate funding is not available.
We regularly evaluate opportunities to raise capital and obtain necessary, as well as opportunistic financing. To meet our short and long-term liquidity needs, we currently expect to use existing cash balances and a variety of other means, including potential issuances of debt or equity securities in public or private financings, option exercises, and partnerships and/or collaborations. The demand for the equity and debt of biopharmaceutical companies like ours is dependent upon many factors, including the general state of the financial markets. During times of extreme market volatility, capital may not be available on favorable terms, if at all. Our inability to obtain such additional capital could materially and adversely affect our business operations. In addition, we expect to seek as appropriate grants for scientific and clinical studies. There can be no assurance that we will be successful in qualifying for or obtaining such grants
We believe that our current cash balances will be sufficient to fund the business through the next six to nine months.
While we will continue to seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and our negotiating position in capital generating efforts may worsen as existing resources are used.
Additional equity financing, which we expect to raise, may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; and our stock price may not reach levels necessary to induce option exercises. If we are unable to raise the funds necessary to meet our long-term liquidity needs, we may have to delay or discontinue the development of certain or all of our drug candidates or raise funds on terms that we currently consider unfavorable. These factors raise substantial doubt about
Cash Flows
Net cash used in or provided by operating, investing and financing activities from continuing operations were as follows:
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| | | Year Ended
March 31, 2018 | | | Year Ended
March 31, 2017 | | | Three Months
Ended
March 31, 2016 | | | Year Ended
December 31,
2015 | |
Net cash used in operating activities | | $ | (11,879,260 | ) | | $ | (5,861,127 | ) | | $ | (1,373,257 | ) | | $ | (6,610,156 | ) |
Net cash used in investing activities | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Net cash provided by financing activities | | $ | 30,372,105 | | | $ | 10,238,795 | | | $ | 3,032,282 | | | $ | 11,046,716 | |
Operating Activities
Our cash used in operating activities in the year ended March 31, 2018 totaled $11,879,260 which is the sum of (i) our abilitynet loss of $18,969,493, adjusted fornon-cash expenses totaling $7,303,245 (which includes adjustments for equity-based compensation, depreciation and amortization and the issuance of common stock for services), and (ii) changes in operating assets and liabilities of $213,012. As noted above, we expect these amounts to continueincrease in fiscal year 2019.
Our cash used in operating activities in the year ended March 31, 2017 totaled $5,861,127 which is the sum of (i) our net loss of $15,206,781, adjusted fornon-cash expenses totaling $8,076,368 (which includes adjustments for equity-based compensation, depreciation and amortization and the issuance of common stock for services), and (ii) changes in operating assets and liabilities of $1,269,286.
Our cash used in operating activities in the three months ended March 31, 2016 totaled $1,373,257 which is the sum of (i) our net loss of $2,751,127, adjusted fornon-cash expenses totaling $1,138,497 (which includes adjustments for equity-based compensation, depreciation and amortization and the issuance of common stock for services), and (ii) changes in operating assets and liabilities of $239,373.
Our cash used in operating activities in the year ended December 31, 2015 totaled $6,610,156 which is the sum of (i) our net loss of $11,726,818, adjusted fornon-cash expenses totaling $4,728,851 (which includes adjustments for equity-based compensation, depreciation and amortization and the issuance of common stock for services), and (ii) changes in operating assets and liabilities of $387,811.
Investing Activities
There was no cash used in investing activities in any of the reported years.
Financing Activities
During the year ended March 31, 2018, our financing activities consisted of the following:
In the year ended March 31, 2018, the Company raised approximately $5,824,000 in net proceeds after sales commissions and expenses of the offering through the ATM Financing Facility via sale of 1,543,364 shares of our common stock.
In March 2018, we raised approximately $21.74 million in net proceeds after underwriting commissions and discounts and expenses of the offering through a public offering of 10,350,000 shares of our common stock.
In April 2017, we raised $2.7 million in gross proceeds through a private placement of 1,069,603 shares of our common stock and 1,069,603 Warrants. Each Warrant entitles its holder to purchase one Warrant Share at an exercise price of $3.00 per Warrant Share, subject to adjustment.
During the year ended March 31, 2017, our financing activities consisted of the following:
In October 2016, we raised $1.47 million in net proceeds through a private placement of 452,314 shares of our common stock.
| • | | In March 2017, we raised $9.0 million in net proceeds through a private placement of 3,588,620 shares of our common stock and 3,588,620 common stock purchase warrants (each, a “Warrant”). Each Warrant entitles its holder to purchase one share of common stock (each, a “Warrant Share”) at an exercise price of $3.00 per Warrant Share, subject to adjustment. |
During the three months ended March 31, 2016, our financing activities consisted primarily of the following:
Pursuant to a Securities Purchase Agreement, dated as of February 2, 2016, for the aggregate consideration of $3,100,000, the Company sold and issued to two individuals an aggregate of: (x) 775,000 shares of the Company’s common stock and (y) 461,384 common stock purchase warrants. Each warrant entitles its holder to purchase one share of common stock at an initial exercise price of $5.00 per warrant share (subject to adjustment) at any time during the period commencing on February 2, 2016 and terminating on the tenth anniversary of such date. No registration rights were granted to the purchasers of the shares and warrants.
During the year ended December 31, 2015, our financing activities consisted primarily of the following:
On December 23, 2015, pursuant to a going concern.Securities Purchase Agreement, dated as of December 18, 2015, for the aggregate consideration of $3,000,000, the Company sold and issued to a total of three individuals and entities an aggregate of: (x) 750,000 shares of the Company’s common stock and (y) 446,500 common stock purchase warrants. Each warrant entitles its holder to purchase one share of common stock at an initial exercise price of $5.00 per warrant share (subject to adjustment) at any time during the period commencing on December 23, 2015 and terminating on the tenth anniversary of such date. No registration rights were granted to the purchasers of the shares and warrants.
Effective as of December 21, 2015, pursuant to a Securities Acquisition Agreement, dated as of December 18, 2015, the Company issued to a law firm, in satisfaction of $200,000 of amounts payable to such law firm, an aggregate of (x) 50,000 shares of common stock and (y) 29,767 common stock purchase warrants. No registration rights were granted to the purchasers of the law firm shares and warrants.
Subsequent Events
On April 30, 2018, we entered into agreement to lease 4,752 square feet of office space at 17 State Street, 7th Floor, New York, New York 10004. The lease term is 28 months and cumulative monthly rent of $566,427 has been paid in advance and held in escrow. Our costs for this space approximate $250,000 per year.
SeasonalityOn May 24, 2018, the Board approved an amendment and restatement of the 2016 Director Plan (the “Restated 2016 Director Plan”) to increase the number of shares authorized to be issued under the plan and to permit different award structures and different vesting schedules than currently provided for in the plan. The Board expects to submit the Restated 2016 Director Plan for approval by the stockholders at the 2018 annual meeting of stockholders. In addition, the Board approved the 2018 Employee Bonuses as recommended by the Compensation Committee, which consisted of (a) a bonus of $297,000 for the Company’s Chief Executive Officer, Steve Hoffman, and (b) a bonus pool of $870,000 to be allocated among the Company’s other employees. As the amounts related to fiscal year 2018, the amounts and estimated taxes were recorded and are included in accrued bonuses as of March 31, 2018. The Board also granted authority to the CEO to grant up to 750,000 option awards under the 2015 Equity Plan tonon-executive employees, with such authority expiring on March 31, 2019.
Seasonality
The Company does not believe that its operations are seasonal in nature.
JOBS Act
For as long as we remain an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), we will, among other things:
| | |
| ·
| be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;
|
| | |
| ·
| be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and
|
| | |
| ·
| be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.
|
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Although we are still evaluating the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide in our public reports and filings with the SEC certain information, including financial information and information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our Company. As a result, investor confidence in our Company and the market price of our common stock may be materially and adversely affected.
Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Contractual Obligations and Commitments
At our current stage of development and at a stage where we have yet to secure material and recurring amounts of financial funding, we do not have any significant contractual obligations. We planobligations with the exception of certain purchase commitments discussed below.
Purchase Commitments
During fiscal year 2018, we entered into two contracts with manufacturers to enter into longer termsupply certain components used inSM-88 in order to achieve favorable pricing on supplied products. These contracts havenon-cancellable elements related to the scheduled deliveries of these products in future periods. Payments are made by us to the manufacturer when the products are delivered and of acceptable quality. The contracts are structured to match clinical supply needs for our ongoing trials and we expect the timing of associated payments to predominately occur during fiscal year 2019. Total outstanding future obligations once we have a credible levelassociated with the contracts were $1.7 million at March 31, 2018, of clarity on the financial resources consistently available to us.
which approximately $0.6 million subsequently has been paid.
Purchase CommitmentsOff-Balance Sheet Arrangements
We do not have no material non-cancelable purchase commitments with contract manufacturers or service providers as we have generally contracted on a cancelable basis.
Off-Balance Sheet Arrangements
Through December 31, 2015,during the periods presented, and we do not currently have, anyoff-balance sheet arrangements, as defined by applicable SEC regulations. Accordingly, our operating results, financial condition, and cash flows are not subject tooff-balance sheet risks.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company”Market risk is the potential loss arising from adverse changes in market rates and market prices such as defined by Item 10interest rates, foreign currency exchange rates, and changes in the market value of Regulation S-K,equity instruments. We do not believe we are not requiredcurrently exposed to provide the information required by Item 7A.any material market risk. As of March 31, 2018, we had $29.0 million of cash on hand in U.S. bank accounts.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Tyme Technologies, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheetsheets of Tyme Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”“Company”) as of March 31, 2018 and 2017, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended March 31, 2018, the three months ended March 31, 2016, and the year ended the December 31, 2015 and the related consolidatednotes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2018 and 2017, and the results of its operations stockholders’ equity (deficit), and its cash flows for each of the two years in the period ended March 31, 2018, the three months ended March 31, 2016, and the year ended December 31, 2015. 2015 in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of March 31, 2018, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated June 13, 2018 expressed an adverse opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audit.
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engagedmisstatement, whether due to perform an auditerror or fraud. Our audits included performing procedures to assess the risks of material misstatement of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing auditstatements, whether due to error or fraud, and performing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesrespond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tyme Technologies, Inc. and subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the year ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operation, negative cash flows and an accumulated deficit as of December 31, 2015. These conditions, along with other matters described in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We also have audited the adjustments to the 2014 consolidated financial statements to retrospectively apply the impact of the reverse merger, as described in Note 1 to the consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2014 consolidated financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2014 financial statements taken as a whole.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2015.
New York, New YorkNY
March 30, 2016June 13, 2018
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Tyme Technologies, Inc. and Subsidiaries (formerly Tyme Inc. and Subsidiary)
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 1, the consolidated balance sheet Tyme Technologies, Inc. and Subsidiaries (formerly Tyme Inc. and Subsidiary) (the “Company”) as of December 31, 2014, and the related consolidated statement of operations, stockholders’ equity (deficit), and cash flows for the year then ended (the 2014 financial statements before the effects of the adjustments discussed in Note 1 are not presented herein). The 2014 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2014 consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 1, present fairly, in all material respects, the financial position of Tyme Technologies, Inc. and Subsidiaries (formerly Tyme Inc. and Subsidiary) as of December 31, 2014, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 1 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Grant Thornton LLP.
The fiscal year 2014 consolidated financial statements before the effects of the adjustments to retrospectively apply the change in accounting described in Note 1, were prepared assuming that the Company will continue as a going concern. As of and for the year ended December 31, 2014, the Company incurred losses and negative cash flows since inception and had a stockholders’ deficit of $2,473,316. The Company continues to anticipate incurring additional losses until such time, if ever, that it can generate significant revenues from its product candidates currently in development. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regards to these matters is described in Note 1. The 2014 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ WithumSmith+Brown, PC
New Brunswick, New Jersey
April 15, 2015
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Tyme Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
| | | | | | |
| December 31, | | December 31, | |
| 2015 | | 2014 | |
| | | | |
Assets | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | $ | 4,446,284 | | $ | 9,724 | |
Prepaid and other assets | | 30,784 | | | 140,205 | |
Total current assets | | 4,477,068 | | | 149,929 | |
| | | | | | |
Property and equipment, net | | 12,878 | | | 17,170 | |
Total assets | $ | 4,489,946 | | $ | 167,099 | |
| | | | | | |
Liabilities and Stockholders’ Equity (Deficit) | | | | | | |
Current liabilities | | | | | | |
Accounts payable and other current liabilities | $ | 1,474,331 | | $ | 1,290,415 | |
Current maturities of senior secured bridge notes | | — | | | 1,350,000 | |
Total current liabilities | | 1,474,331 | | | 2,640,415 | |
Total liabilities | | 1,474,331 | | | 2,640,415 | |
| | | | | | |
Commitments and contingencies (See Note 10) | | | | | | |
| | | | | | |
Stockholders’ equity (deficit) | | | | | | |
Preferred stock, $0.0001 par value, 10,000,000 and 0 shares authorized at December 31, 2015 and December 31, 2014, respectively, 0 shares issued and outstanding at December 31, 2015 and December 31, 2014 | | — | | | — | |
Common stock, $0.0001 par value, 300,000,000 shares authorized, 86,836,370 shares issued and outstanding at December 31, 2015, and 71,400,000 shares issued and 68,000,000 shares outstanding at December 31, 2014 | | 8,685 | | | 6,800 | |
Additional paid in capital | | 18,911,110 | | | 2,053,012 | |
Accumulated deficit | | (15,904,180 | ) | | (4,177,362 | ) |
Due from stockholders/members | | — | | | (355,766 | ) |
Total stockholders’ equity (deficit) | | 3,015,615 | | | (2,473,316 | ) |
Total liabilities and stockholders’ equity (deficit) | $ | 4,489,946 | | $ | 167,099 | |
| | | | | | | | |
| | | March 31,
2018 | | | March 31,
2017 | |
Assets | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 28,975,822 | | | $ | 10,482,977 | |
Prepaid and other assets | | | 2,038,780 | | | | 228,362 | |
| | | | | | | | |
Total current assets | | | 31,014,602 | | | | 10,711,339 | |
| | |
Property and equipment, net | | | 3,239 | | | | 7,535 | |
| | | | | | | | |
Total assets | | $ | 31,017,841 | | | $ | 10,718,874 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable and other current liabilities (including $384,000 and $1,303,000 of related party accounts payable, respectively) | | $ | 2,817,090 | | | $ | 2,948,468 | |
Accrued bonuses | | | 1,248,690 | | | | — | |
Insurance note payable | | | 480,094 | | | | — | |
Derivative liability | | | — | | | | 378,600 | |
Total current liabilities | | | 4,545,874 | | | | 3,327,068 | |
| | | | | | | | |
Total liabilities | | | 4,545,874 | | | | 3,327,068 | |
| | |
Commitments and contingencies (See Note 8) | | | | | | | | |
| | |
Stockholders’ equity | | | | | | | | |
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding | | | — | | | | — | |
Common stock, $0.0001 par value, 300,000,000 shares authorized, 101,226,479 issued and outstanding at March 31, 2018, and 300,000,000 authorized, 91,692,641 issued and 88,192,641 outstanding at March 31, 2017 | | | 10,125 | | | | 9,172 | |
Common stock, $0.0001 par value, 58,823 shares subscribed at March 31, 2017 | | | — | | | | 6 | |
Additional paid in capital | | | 79,293,423 | | | | 41,419,714 | |
Subscription receivable | | | — | | | | (174,998 | ) |
Accumulated deficit | | | (52,831,581 | ) | | | (33,862,088 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 26,471,967 | | | | 7,391,806 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 31,017,841 | | | $ | 10,718,874 | |
| | | | | | | | |
The Notes to the Consolidated Financial Statements are an integral part of these statements.
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Tyme Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
| | | | | | | |
| | Year ended December 31, | |
| | 2015 | | 2014 | |
| | | | | | | |
Revenues | | $ | — | | $ | — | |
| | | | | | | |
Operating expenses: | | | | | | | |
Research and development | | | 3,823,966 | | | 761,359 | |
General and administrative | | | 4,775,806 | | | 1,822,757 | |
Total operating expenses | | | 8,599,772 | | | 2,584,116 | |
Loss from operations | | | (8,599,772 | ) | | (2,584,116 | ) |
| | | | | | | |
Interest expense | | | 3,503,301 | | | 76,561 | |
Other income | | | (376,255 | ) | | — | |
| | | | | | | |
Loss before income taxes | | | (11,726,818 | ) | | (2,660,677 | ) |
Income tax expense | | | — | | | — | |
Net loss | | | (11,726,818 | ) | | (2,660,677 | ) |
Loss attributable to noncontrolling interests | | | — | | | (10,851 | ) |
Loss attributable to controlling interests | | $ | (11,726,818 | ) | $ | (2,649,826 | ) |
| | | | | | | |
Basic and diluted loss per common share | | $ | (0.15 | ) | $ | (0.04 | ) |
| | | | | | | |
Basic and diluted weighted average shares outstanding | | | 77,848,850 | | | 68,000,000 | |
| | | | | | | | | | | | | | | | |
| | | Years Ended March 31, | | | Three Months Ended
March 31, | | | Year Ended
December 31 | |
| | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | $ | 8,839,661 | | | $ | 6,111,587 | | | $ | 808,472 | | | $ | 3,823,966 | |
General and administrative (including $1,619,000, $1,477,000, $111,000 and $0 of related party legal expenses, respectively) | | | 10,520,217 | | | | 9,095,194 | | | | 1,942,655 | | | | 4,775,806 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 19,359,878 | | | | 15,206,781 | | | | 2,751,127 | | | | 8,599,772 | |
Loss from operations | | | (19,359,878 | ) | | | (15,206,781 | ) | | | (2,751,127 | ) | | | (8,599,772 | ) |
Interest expense | | | — | | | | — | | | | — | | | | 3,503,301 | |
Other income | | | (390,385 | ) | | | — | | | | — | | | | (376,255 | ) |
| | | | | | | | | | | | | | | | |
Loss before income taxes | | | (18,969,493 | ) | | | (15,206,781 | ) | | | (2,751,127 | ) | | | (11,726,818 | ) |
Income tax expense | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (18,969,493 | ) | | $ | (15,206,781 | ) | | $ | (2,751,127 | ) | | $ | (11,726,818 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted loss per common share | | $ | (0.21 | ) | | $ | (0.18 | ) | | $ | (0.03 | ) | | $ | (0.15 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted weighted average shares outstanding | | | 90,567,476 | | | | 84,454,587 | | | | 83,796,260 | | | | 77,848,850 | |
| | | | | | | | | | | | | | | | |
The Notes to the Consolidated Financial Statements are an integral part of these statements.
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Tyme Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
For the Years Ended March 31, 2018 and 2017, Three Months Ended March 31, 2016, and Year Ended
December 31, 2015
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total | |
| | | Common Stock | | | Additional | | | | | | | | | Due from | | | Stockholders’ | |
| | | Shares | | | Amount | | | Subscribed
Shares | | | Subscribed
Amount | | | Paid-in
capital | | | Subscription
Receivable | | | Accumulated
Deficit | | | Stockholders/
Members | | | Equity
(Deficit) | |
Balance, January 1, 2015 | | | 68,000,000 | | | $ | 6,800 | | | | — | | | | — | | | $ | 2,053,012 | | | $ | — | | | $ | (4,177,362 | ) | | $ | (355,766 | ) | | $ | (2,473,316 | ) |
Repayment of stockholder loans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 355,766 | | | | 355,766 | |
Common stock issued as part of the Merger | | | 12,724,000 | | | | 1,272 | | | | — | | | | — | | | | (1,272 | ) | | | — | | | | — | | | | — | | | | — | |
Issuance of common stock and warrants for services | | | 300,000 | | | | 30 | | | | — | | | | — | | | | 824,970 | | | | — | | | | — | | | | — | | | | 825,000 | |
Issuance of common stock and warrants in private placement offering for cash, net of associated expense | | | 2,466,000 | | | | 247 | | | | — | | | | — | | | | 7,230,703 | | | | — | | | | — | | | | — | | | | 7,230,950 | |
Issuance of common stock in private placement offering in exchange for subscription receivable | | | 1,000,000 | | | | 100 | | | | — | | | | — | | | | 2,499,900 | | | | (2,500,000 | ) | | | — | | | | — | | | | — | |
Issuance of common stock upon conversion of Bridge Note and accrued interest | | | 2,310,000 | | | | 231 | | | | — | | | | — | | | | 2,404,243 | | | | — | | | | — | | | | — | | | | 2,404,474 | |
Incremental value of the modification to Bridge Note conversion rate as an inducement to convert | | | — | | | | — | | | | — | | | | — | | | | 3,465,000 | | | | — | | | | — | | | | — | | | | 3,465,000 | |
Stock based compensation | | | 36,370 | | | | 5 | | | | — | | | | — | | | | 324,995 | | | | — | | | | — | | | | — | | | | 325,000 | |
Fair value of price protection feature associated with shares issued under the PPO and Bridge Note conversion | | | — | | | | — | | | | — | | | | — | | | | (376,300 | ) | | | — | | | | — | | | | — | | | | (376,300 | ) |
Amortization of employee stock options | | | — | | | | — | | | | — | | | | — | | | | 485,859 | | | | — | | | | — | | | | — | | | | 485,859 | |
Proceeds from the collection of stock subscription receivable | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,500,000 | | | | — | | | | — | | | | 2,500,000 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (11,726,818 | ) | | | — | | | | (11,726,818 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2015 | | | 86,836,370 | | | $ | 8,685 | | | | — | | | $ | — | | | $ | 18,911,110 | | | $ | — | | | $ | (15,904,180 | ) | | $ | — | | | $ | 3,015,615 | |
Issuance of common stock in private placement offering for cash, net of associated expense | | | 775,000 | | | | 78 | | | | — | | | | — | | | | 3,032,204 | | | | — | | | | — | | | | — | | | | 3,032,282 | |
Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | 1,137,435 | | | | — | | | | — | | | | — | | | | 1,137,435 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,751,127 | ) | | | — | | | | (2,751,127 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2016 | | | 87,611,370 | | | $ | 8,763 | | | | — | | | $ | — | | | $ | 23,080,749 | | | $ | — | | | $ | (18,655,307 | ) | | $ | — | | | $ | 4,434,205 | |
Issuance of common stock and warrants in private placement offering for cash, net of associated expenses | | | 3,529,797 | | | | 353 | | | | — | | | | — | | | | 9,000,537 | | | | — | | | | — | | | | — | | | | 9,000,890 | |
Issuance of common stock in private placement offering in exchange for stock subscription receivable | | | 7,692 | | | | 1 | | | | — | | | | — | | | | 24,998 | | | | (24,999 | ) | | | — | | | | — | | | | — | |
Issuance of common stock and warrants in private placement offering for cash, net of associated expense | | | 452,314 | | | | 45 | | | | — | | | | — | | | | 1,469,960 | | | | — | | | | — | | | | — | | | | 1,470,005 | |
Stock Subscription Receivable Private placement of $9.2M | | | — | | | | — | | | | 58,823 | | | | 6 | | | | 149,993 | | | | (149,999 | ) | | | — | | | | | | | | — | |
Derivative liability | | | — | | | | — | | | | — | | | | — | | | | (378,600 | ) | | | — | | | | — | | | | | | | | (378,600 | ) |
Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | 7,721,837 | | | | — | | | | — | | | | — | | | | 7,721,837 | |
Issuance of common stock for services | | | 75,000 | | | | 8 | | | | — | | | | — | | | | 250,242 | | | | — | | | | — | | | | — | | | | 250,250 | |
Issuance of stock to Scientific Advisory Board members | | | 16,468 | | | | 2 | | | | — | | | | — | | | | 99,998 | | | | — | | | | — | | | | — | | | | 100,000 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15,206,781 | ) | | | — | | | | (15,206,781 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2017 | | | 91,692,641 | | | $ | 9,172 | | | | 58,823 | | | $ | 6 | | | $ | 41,419,714 | | | $ | (174,998 | ) | | $ | (33,862,088 | ) | | $ | — | | | $ | 7,391,806 | |
Issuance of common stock and warrants in private placement offering for cash, net of associated expenses of $130,300 | | | 1,069,603 | | | | 107 | | | | — | | | | — | | | | 2,596,993 | | | | — | | | | — | | | | — | | | | 2,597,100 | |
Issuance of common stock fromat-the-market financing facility, net of issuance costs of $327,939 | | | 1,543,364 | | | | 154 | | | | — | | | | — | | | | 5,823,863 | | | | — | | | | — | | | | — | | | | 5,824,017 | |
Issuance of common stock in public offering for cash, net of associated expenses of $1,547,972 | | | 10,350,000 | | | | 1,035 | | | | — | | | | — | | | | 21,739,425 | | | | — | | | | — | | | | — | | | | 21,740,460 | |
Proceeds from collection of stock subscription receivable | | | 58,823 | | | | 6 | | | | (58,823 | ) | | | (6 | ) | | | — | | | | 174,998 | | | | — | | | | — | | | | 174,998 | |
Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | 7,689,334 | | | | — | | | | — | | | | — | | | | 7,689,334 | |
Issuance of common stock upon exercise of options and warrants | | | 12,048 | | | | 1 | | | | — | | | | — | | | | 35,529 | | | | — | | | | — | | | | — | | | | 35,530 | |
Derivative liability | | | — | | | | — | | | | — | | | | — | | | | (11,785 | ) | | | — | | | | — | | | | — | | | | (11,785 | ) |
Retirement and cancellation of shares of common stock | | | (3,500,000 | ) | | | (350 | ) | | | — | | | | — | | | | 350 | | | | — | | | | — | | | | — | | | | — | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (18,969,493 | ) | | | — | | | | (18,969,493 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2018 | | | 101,226,479 | | | $ | 10,125 | | | | — | | | | — | | | $ | 79,293,423 | | | | — | | | $ | (52,831,581 | ) | | $ | — | | | $ | 26,471,967 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Notes to the Consolidated Financial Statements are an integral part of these statements
Tyme Technologies, Inc. and 2014Subsidiaries
Consolidated Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in | | Subscription | | Accumulated | | | Non-Controlling | | Due from
Stockholders/ | | Total
Stockholders’
Equity | |
| | Shares | | Amount | | capital | | receivable | | deficit | | | Interests | | Members | | (Deficit) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2014 | | 68,000,000 | | $ | 6,800 | | $ | — | | $ | — | | $ | (1,527,536 | ) | $ | 1,976,693 | | $ | (1,306,238 | ) | $ | (850,281 | ) |
Conversion of $1.126 million convertible debt plus accrued interest of $26,242 into 3,624,400 shares of common stock | | 3,624,400 | | | — | | | 1,152,242 | | | — | | | — | | | — | | | — | | | 1,152,242 | |
Surrender of 3,624,400 common stock by two principal stockholders of the Company | | (3,624,400 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Capital contributions | | — | | | — | | | — | | | — | | | — | | | 35,000 | | | — | | | 35,000 | |
Advances to stockholders/members | | — | | | — | | | — | | | — | | | — | | | — | | | (149,600 | ) | | (149,600 | ) |
Luminant stockholder loans assigned in buyout of noncontrolling interests by certain stockholders of Tyme | | — | | | — | | | (1,100,072 | ) | | — | | | — | | | — | | | 1,100,072 | | | — | |
Contribution of noncontrolling interests | | — | | | — | | | 2,000,842 | | | — | | | — | | | (2,000,842 | ) | | — | | | — | |
Net Loss attributable to noncontrolling interests prior to contribution of noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | (10,851 | ) | | — | | | (10,851 | ) |
Net loss | | — | | | — | | | — | | | — | | | (2,649,826 | ) | | — | | | — | | | (2,649,826 | ) |
Balance, January 1, 2015 | | 68,000,000 | | $ | 6,800 | | $ | 2,053,012 | | $ | — | | $ | (4,177,362 | ) | $ | — | | $ | (355,766 | ) | $ | (2,473,316 | ) |
Repayment of stockholder loans | | — | | | — | | | — | | | — | | | — | | | — | | | 355,766 | | | 355,766 | |
Common stock issued as part of the Merger | | 12,724,000 | | | 1,272 | | | (1,272 | ) | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock and warrants for services | | 300,000 | | | 30 | | | 824,970 | | | — | | | — | | | — | | | — | | | 825,000 | |
Issuance of common stock and warrants in private placement offering for cash, net of associated expense | | 2,466,000 | | | 247 | | | 7,230,703 | | | — | | | — | | | — | | | — | | | 7,230,950 | |
Issuance of common stock in private placement offering in exchange for subscription receivable | | 1,000,000 | | | 100 | | | 2,499,900 | | | (2,500,000 | ) | | — | | | — | | | — | | | — | |
Issuance of common stock upon conversion of Bridge Note and accrued interest | | 2,310,000 | | | 231 | | | 2,404,243 | | | — | | | — | | | — | | | — | | | 2,404,474 | |
Incremental value of the modification to Bridge Note conversion rate as an inducement to convert | | — | | | — | | | 3,465,000 | | | — | | | — | | | — | | | — | | | 3,465,000 | |
Stock based compensation | | 36,370 | | | 5 | | | 324,995 | | | — | | | — | | | — | | | — | | | 325,000 | |
Fair value of price protection feature associated with shares issued under the PPO and Bridge Note conversion | | — | | | — | | | (376,300 | ) | | — | | | — | | | — | | | — | | | (376,300 | ) |
Amortization of employee stock options | | — | | | — | | | 485,859 | | | — | | | — | | | — | | | — | | | 485,859 | |
Proceeds from the collection of stock subscription receivable | | — | | | — | | | — | | | 2,500,000 | | | — | | | — | | | — | | | 2,500,000 | |
Net loss | | — | | | — | | | — | | | — | | | (11,726,818 | ) | | — | | | — | | | (11,726,818 | ) |
Balance, December 31, 2015 | | 86,836,370 | | $ | 8,685 | | $ | 18,911,110 | | $ | — | | $ | (15,904,180 | ) | $ | — | | $ | — | | $ | 3,015,615 | |
| | | | | | | | | | | | | | | | |
| | | Years Ended,
March 31 | | | Three Months
Ended March 31, | | | Year Ended,
December 31 | |
| | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | |
Net loss | | $ | (18,969,493 | ) | | $ | (15,206,781 | ) | | $ | (2,751,127 | ) | | $ | (11,726,818 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | | | | |
Depreciation | | | 4,296 | | | | 4,281 | | | | 1,062 | | | | 4,292 | |
Issuance of common stock for services | | | — | | | | 350,250 | | | | — | | | | 825,000 | |
Stock—based compensation and stock issued to Scientific Advisory Board members | | | — | | | | — | | | | — | | | | 325,000 | |
Amortization of employees, directors and consultants stock options, | | | 7,689,334 | | | | 7,721,837 | | | | 1,137,435 | | | | 485,859 | |
Inducement for conversion of Bridge Note to common shares | | | — | | | | — | | | | — | | | | 3,465,000 | |
Gain on remeasurement of derivative liability | | | (390,385 | ) | | | — | | | | — | | | | (376,300 | ) |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | |
Prepaid and other assets | | | (1,330,324 | ) | | | (2,264 | ) | | | 36,786 | | | | 109,421 | |
Accounts payable and other current liabilities | | | (131,378 | ) | | | 1,271,550 | | | | 202,587 | | | | 278,390 | |
Accrued bonuses | | | 1,248,690 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net cash used in operating activities | | | (11,879,260 | ) | | | (5,861,127 | ) | | | (1,373,257 | ) | | | (6,610,156 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Insurance note payments | | | — | | | | (232,100 | ) | | | — | | | | — | |
Repayment from stockholders/members | | | — | | | | — | | | | — | | | | 355,766 | |
Proceeds from Bridge Note | | | — | | | | — | | | | — | | | | 960,000 | |
Proceeds from private placement offering of common stock and warrants, net of issuance costs | | | 2,597,100 | | | | 10,470,895 | | | | 3,032,282 | | | | 7,230,950 | |
Issuance of common stock fromat-the-market financing facility | | | 5,824,017 | | | | — | | | | — | | | | — | |
Proceeds from the collection of stock subscription receivable | | | 174,998 | | | | — | | | | — | | | | 2,500,000 | |
Proceeds from public offering, net of issuance of costs | | | 21,740,460 | | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | 35,530 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 30,372,105 | | | | 10,238,795 | | | | 3,032,282 | | | | 11,046,716 | |
| | | | | | | | | | | | | | | | |
Net increase in cash | | | 18,492,845 | | | | 4,377,668 | | | | 1,659,025 | | | | 4,436,560 | |
Cash and cash equivalents — beginning of period | | | 10,482,977 | | | | 6,105,309 | | | | 4,446,284 | | | | 9,724 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 28,975,822 | | | $ | 10,482,977 | | | $ | 6,105,309 | | | $ | 4,446,284 | |
| | | | | | | | | | | | | | | | |
Supplemental Cash Flow Information: | | | | | | | | | | | | | | | | |
Cash paid for interest and income taxes are as follows: | | | | | | | | | | | | | | | | |
Interest | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Income taxes | | $ | — | | | $ | — | | | $ | — | | | $ | 675 | |
| | | | | | | | | | | | | | | | |
Noncash investing and financing activities: | | | | | | | | | | | | | | | | |
Financing of insurance premiums | | $ | 480,094 | | | $ | — | | | $ | 232,100 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Conversion of the Bridge Note and all accrued interest into shares of common stock | | $ | — | | | $ | — | | | $ | — | | | $ | 2,404,474 | |
| | | | | | | | | | | | | | | | |
Subscribed and subscription receivable shares in conjunction with private placement offering | | $ | — | | | $ | 174,998 | | | $ | — | | | $ | 2,500,000 | |
| | | | | | | | | | | | | | | | |
Inducement for conversion of Bridge Note to common shares | | $ | — | | | $ | — | | | $ | — | | | $ | 3,465,000 | |
| | | | | | | | �� | | | | | | | | |
Derivative liability associated with the price protection feature of shares of common stock issued | | $ | 11,785 | | | $ | 378,600 | | | $ | — | | | $ | 376,300 | |
| | | | | | | | | | | | | | | | |
Retirement and cancellation of shares of common stock | | $ | 350 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
The Notes to the Consolidated Financial Statements are an integral part of these statements.
- 78 -
Tyme Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | | | |
| | Year Ended December 31, | |
| | 2015 | | 2014 | |
| | | | | | | |
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (11,726,818 | ) | $ | (2,660,677 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
Depreciation | | | 4,292 | | | 4,293 | |
Issuance of common stock for services | | | 825,000 | | | — | |
Stock-based compensation | | | 325,000 | | | — | |
Amortization of employee stock options | | | 485,859 | | | — | |
Inducement for conversion of Bridge Note to common shares | | | 3,465,000 | | | — | |
Gain on remeasurement of derivative liability | | | (376,300 | ) | | — | |
Loss on disposal of fixed assets | | | — | | | 2,676 | |
Changes in operating assets and liabilities - | | | | | | | |
Prepaid and other assets | | | 109,421 | | | (30,025 | ) |
Accounts payable and other current liabilities | | | 278,390 | | | 1,168,147 | |
Net cash used in operating activities | | | (6,610,156 | ) | | (1,515,586 | ) |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of property and equipment | | | — | | | (2,710 | ) |
Net cash used in investing activities | | | — | | | (2,710 | ) |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Capital contributions - noncontrolling interest | | | — | | | 35,000 | |
Repayment from (advances to) stockholders/members | | | 355,766 | | | (149,600 | ) |
Proceeds from Bridge Note | | | 960,000 | | | 1,350,000 | |
Proceeds from private placement offering of common stock and warrants, net | | | 7,230,950 | | | — | |
Proceeds from issuance of convertible notes | | | — | | | 200,000 | |
Proceeds from the collection of stock subscription receivable | | | 2,500,000 | | | — | |
Net cash provided by financing activities | | | 11,046,716 | | | 1,435,400 | |
Net increase (decrease) in cash | | | 4,436,560 | | | (82,896 | ) |
Cash and cash equivalents - beginning of period | | | 9,724 | | | 92,620 | |
Cash and cash equivalents - end of period | | $ | 4,446,284 | | $ | 9,724 | |
| | | | | | | |
Supplemental Cash Flow Information: | | | | | | | |
Cash paid for interest and income taxes are as follows: | | | | | | | |
Interest | | $ | — | | $ | — | |
Income taxes | | $ | 675 | | $ | — | |
| | | | | | | |
Noncash investing and financing activities: | | | | | | | |
Conversion of the Bridge Note and all accrued interest into shares of common stock | | $ | 2,404,474 | | $ | — | |
Issuance of subscription receivable for shares issued in conjunction with private placement offering | | $ | 2,500,000 | | $ | — | |
Inducement for conversion of Bridge Note to common shares | | $ | 3,465,000 | | $ | — | |
Derivative liability associated with the price protection feature of shares of common stock issued in PPO and Bridge Note conversion | | $ | 376,300 | | $ | — | |
Conversion of $1.126 million of convertible debt into 3,624,400 shares of common stock; simultaneously, stockholders surrendered an equal amount of their own common stock, thereby having no change in the total number of shares outstanding | | $ | — | | $ | 1,152,242 | |
Luminant member advances assigned in buyout of noncontrolling interest | | $ | — | | $ | 1,100,072 | |
Contribution of noncontrolling interests by stockholders of Tyme Inc. | | $ | — | | $ | 2,000,842 | |
The Notes to the Consolidated Financial Statements are an integral part of these statements.
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Tyme Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Basis of Presentation.
The accompanying consolidated financial statements include the results of operations of Tyme Technologies, Inc. (“Tyme Tech”Tech”) and itsis a Delaware corporation headquartered in New York, NY, with wholly owned subsidiaries, Tyme Inc. (“Tyme”Tyme”) and Luminant Biosciences, LLC (“Luminant”Luminant”) (collectively, the “Company”“Company”). Prior to 2014, Luminant conducted the initial research and development of the Company’s therapeutic platform. Since January 1, 2014, the majority of the Company’s research, and development activities and other business effortsactivities have been conducted by Tyme, which was incorporated in Delaware in 2013. On October 27, 2016, the Board of Directors of Tyme Tech approved a change in fiscal year end from December 31 to March 31 of each year.
The Company is a clinical-stage biotechnology company developing novel cancer therapeutics that are intended to be effective across many tumor types while also maintaining low toxicity. Tyme’s operations to date have been directed primarily toward research and alldevelopment activities for human oncologic product candidates. The Company has completed an ongoingIND-enabled Phase Ib clinical study and has an ongoing Phase II clinical study for use ofSM-88 in biomarker-recurrent prostate cancer patients and also recently initiated a Phase II clinical study in metastatic pancreatic cancer. The Company is also evaluating the Company’s patentexpansion of its clinical programs to other types of cancer and patent application rights are held by Tyme.may also seek to develop oncology drug candidates in addition toSM-88, its lead clinical program.
The accompanying condensed consolidated financial statements include the results of operations of Tyme Tech and its wholly owned subsidiaries.
Tyme Tech was incorporated in the State of Florida on November 22, 2011, to engage in the business of producing, marketing and, selling an ultra-premium vodka product to retailers. Management determined to cease the ultra-premium vodka business and attempt to acquire other assets or business operations that would maximize shareholder value. Effectiveeffective as of September 18, 2014, the Company (then constituting a Florida corporation with the name Global Group Enterprises Corp.) reincorporated in the State of Delaware by merging into its wholly-owned Delaware subsidiary, Tyme Technologies, Inc., which was formed on August 22, 2014 specifically for this purpose (the “Reincorporation”“Reincorporation”). Tyme Technologies, Inc. was the surviving corporation in such merger.
On March 5, 2015, Tyme Tech consummated a reverse triangular merger with Tyme (the “Merger”“Merger”). (See Reverse Triangular Merger below.) The Merger resulted in Tyme becoming a wholly-owned subsidiary of Tyme Tech. Tyme is a clinical-stage biopharmaceutical company focused on the development and commercialization of highly targeted cancer therapeutics with a broad range of oncology indications. Tyme was incorporated in Delaware in 2013 and its operations to date have been directed primarily toward developing business strategies, research and development activities and preparing for clinical trials for its product candidates. Tyme, and now the Company, has focused its research and development efforts on a proprietary platform technology for which it retains global intellectual property (“IP”) and commercial rights. The Company is currently formulating its regulatory and drug development program for its lead drug candidate, SM-88, and working towards the initiation of its first phase II clinical trial. Subsequent to December 31, 2015, the Company’s Investigational New Drug Application for its SM-88 drug candidate for breast cancer patients (the “IND”) was accepted by the United States Food and Drug Administration (the “FDA”). The Company is also evaluating the expansion of its phase II program to other types of cancer.
Reverse Triangular Merger
On March 5, 2015, Tyme Tech consummated a reverse triangular merger whereby a newly formed subsidiary formed specifically for the transaction merged with and into Tyme. The Merger resulted in Tyme becoming a wholly-owned subsidiary of Tyme Tech and the stockholders of Tyme as of immediately prior to the effective timedate of the Merger (the “Pre-Merger Tyme Stockholders”), receiving, in the aggregate, common stock of the Company equal to approximately 79% of the total number of shares of Company common stock outstanding immediately following such issuance to such former Tyme stockholders (34,000 shares of Company common stock for every one share of Tyme common stock outstanding as of the closing of the Merger). The Merger resulted in the Company issuing a total of 68,000,000 shares of common stock to thePre-Merger Tyme stockholdersStockholders and 12,724,000 shares to the Tyme Tech stockholders as of the date of the Merger. (See Note 8. Stockholders’ Equity.)
The Merger Agreement contained representations and warranties andpre- and post-closing covenants of each party and customary closing conditions. Breaches of the representations and warranties under the Merger Agreement are subject to indemnification provisions. Each of the pre-MergerPre-Merger Tyme stockholdersStockholders initially received in the Merger 95% of the shares to which each such stockholder was entitled under the terms of the Merger Agreement, with the remaining 5% of such shares being held in escrow for two years to satisfy post-closing claims for indemnification by the Company (“Indemnity Shares”Shares”), pursuant to an Indemnification Shares Escrow Agreement. AnyAs the Company and the indemnification representative are aware of no post-closing claims during thetwo-year period, a joint instruction was sent on April 7, 2017 asking for the release of the Indemnity Shares. All of the Indemnity Shares remaining in escrow at the end of such two-year period shall bewere distributed to the pre-MergerPre-Merger Tyme stockholdersStockholders on apro rata basis. basis in June 2017.
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Contemporaneous with the closing of the Merger, among other matters, the Company completed a private placement offering (the “PPO”“PPO”) of 2,716,000 shares of Company common stock (the “PPO Shares”“PPO Shares”) for gross proceeds of $6,790,000 (of which $4,264,000 was tendered in cash and the remaining subscription price paid by the delivery of a three-month promissory note in the principal amount of $2,500,000 (“PPO Note”Note”). In addition, a Tyme convertible promissory note in the principal amount of $2,310,000 (the “Bridge Note”“Bridge Note”) was converted into 2,310,000 shares (the “Bridge“Bridge Note Shares”Shares”) of Company common stock. The foregoing aggregate 79% ownership of the post-Merger Company by the former Tyme stockholders was calculated giving effect to the issuances of Company common stock in the PPO, the conversion of the Bridge Note and surrender of stock for cancellation by certain stockholders of thePre-Merger Company. The purchaser of the PPO Shares and party receiving the Bridge Shares upon conversion of the Bridge Note were granted certain registration rights with respect to such shares (such shares being collectively referred to as the PPO/“PPO/Bridge Note Conversion Registrable Shares”). The PPO Note was originally secured by the escrow of 5,000,000 shares of Company common stock pursuant to a Subscription Note Shares Escrow Agreement, dated as of March 5, 2015 (the “Subscription“Subscription Note Escrow Agreement”Agreement”). As originally provided in the Subscription Note Escrow Agreement, to the extent that the PPO Note was not paid at or prior to its maturity date of June 5, 2015, the escrowed shares would be forfeited for cancellation at the rate of one share for every $0.50 of PPO Note principal not paid. The Company received a payment of $1,250,000 in June 2015 and the maturity date on the remaining principal amount of the PPO Note was extended to July 6, 2015 pursuant to an Omnibus Amendment, dated as of June 5, 2015 (the “First“First Omnibus Amendment”Amendment”). The Company entered into a Second Omnibus Amendment as of July 23, 2015 (the “Second“Second Omnibus Amendment”Amendment”), pursuant to which the terms of certain agreements entered into in connection with the Merger were modified and amended. Under the Second Omnibus Amendment, (x) the Company agreed to the extension of the maturity date of the remaining $1,250,000 outstanding amount due under the PPO Note to a date five business days following the Company providing the maker of the PPO Note of written evidence that an Investigational New Drug Application for the Company’sSM-88 drug candidate has been submitted by the Company to the FDA, (y) the holder of all of the PPO/Bridge Note Conversion Registrable Shares irrevocably waived any right to damages, including any liquidated damages with respect to the date of filing or the effective date of the registration statement contemplated by a Registration Rights Agreement entered into in connection with the consummation of the Merger and PPO and (z) the amount of shares that the former-Tyme stockholders may include in such registration statement was increased to 15% of the total number of shares such stockholders received in connection with the Merger. (See Note 8. Stockholders’ Equity - Subscription Receivable.)
AtThe Company granted Mr. Hoffman perpetual, exclusivenon-royalty bearing license with respect to certain patents and patent applications that the pointCompany uses forSM-88 for all fields other than in connection with the treatment of Merger and since inception, Tyme Tech was essentially a “public reporting shell” with no substantive business operations. As such, Tyme Tech had no revenues and operating profits that require separate identification.
cancer.
The Merger established a public forum for the Company. Subject to executing on the Company’s goals, management envisages that the public forum may help the Company secure necessary future funding in the public markets as the Company further develops its business as a clinical-stage biopharmaceutical enterprise focused on the development and commercialization of highly targeted cancer therapeutics for humans with a broad range of oncology indications.
The transaction costs associated with the Merger relate to professional fees incurred in respect of legal, investor relations, accounting and audit. All such transaction costs total approximately $1,000,000 and are included in general and administrative expense.
expense for the year ended December 31, 2015.
For accounting purposes, the acquisition of Tyme by Tyme Tech was considered a reverse acquisition, an acquisition transaction where the acquired company, Tyme, is considered the acquirer for accounting purposes, notwithstanding the form of the transaction. The primary reason the transaction was treated as a purchase by Tyme rather than a purchase by Tyme Tech was becausethat Tyme Tech was a public reporting shell company with limited operations and Tyme’s stockholders gained majority control of the outstanding voting power of the Company’s equity securities through their collective ownership of a majority of the outstanding shares of Company common stock. Consequently, reverse acquisition accounting has been applied to the transaction.
In conjunction with the reverse acquisition, Tyme Tech changed its fiscal year-end from November 30 to December 31, the historical fiscal year-end of Tyme. The capital structure, including the number and type of shares issued appearing in the consolidated balance sheets for the periods presented, reflects that of the legal parent or accounting acquiree, Tyme Tech, including the shares issued to effect the reverse acquisition after the Merger and the capital structure of Tyme modified by the 34,000-for-1 exchange ratio in the Merger for the periods prior to the consummation of the Merger. As a result of the Merger and its accounting treatment as a reverse acquisition, stockholders’ equity has been retrospectively adjusted as of the earliest period presented in these consolidated financial statements. These adjustments include an increase of $6,798 to the par value of common stock issued, a decrease of $2,008 to additional paid-in capital and an increase in accumulated deficit of $4,790 as of January 1, 2014. There was no change to total stockholders’ equity (deficit) as a result of the Merger.
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Going ConcernLiquidity
The Company has incurred losses and negative cash flows from operations since inception (July 26, 2013) and has an accumulated deficit of approximately $15,904,000 as of December 31, 2015. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenues from its products currently in development. The Company’s primary sources of liquidity to date have been the issuance of common stock, convertible promissory notes and contributed capital by its founders. Substantial additional financing will be needed by the Company to fund its operations and to seek applicable FDA and foreign governmental authorization to commercially market its product candidates. There is no assurance that such financing will be available when needed or on acceptable terms. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements have been prepared on a going concerngoing-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has historically funded its operations primarily through equity offerings. During fiscal year 2018, the Company raised gross proceeds of approximately $32.1 million through the issuance of its common stock. Most recently in March 2018, we raised aggregate gross proceeds of $23.3 million before underwriting discounts and commissions and expenses of the offering through an underwritten public offering. Previously on November 2, 2017, the Company entered into an equity distribution agreement (“Equity Distribution Agreement”) with Canaccord Genuity Inc. (“Canaccord”), to commence anat-the-market offering (the “ATM Financing Facility”) pursuant to which the Company may, from time to time, subject to certain rules and regulations, sell shares of the Company’s common stock, par value $0.0001 per share, having an aggregate offering price up to $30.0 million, through Canaccord, as the Company’s sales agent. In the year ended March 31, 2018, the Company raised approximately $6.2 million in aggregate gross proceeds before commissions and expenses through the ATM Financing Facility and paid Canaccord aggregate commissions of $0.3 million. At March 31, 2018, there remained approximately $24.0 million of availability to sell shares through the facility. Additionally, in April 2017, we raised $2.7 million in gross proceeds through a private placement transaction. The proceeds of those offerings are being used by the Company for continued clinical studies, drug commercialization and development activities and other general corporate and operating expenses.
For the year ended March 31, 2018, the Company had negative cash flow from operations of $11.9 million and net loss of $19.0 million, which included $7.3 million ofnon-cash expenses, primarilynon-cash equity compensation expense. As of March 31, 2018, the Company had a working capital of approximately $26.5 million.
Management has concluded that substantial doubt does not exist regarding the Company’s ability to satisfy its obligations as they come due during the twelve-month period following the issuance of these financial statements. This conclusion is based on the Company’s assessment of qualitative and quantitative conditions and events, considered in aggregate as of the date of issuance of these financial statements that are known and reasonably knowable. Among other relevant conditions and events, the Company has considered its operational plans, liquidity sources, obligations due or expected, funds necessary to maintain the Company’s operations, and potential adverse conditions or events as of the issuance date of these financial statements. The Company has developed an operational plan that manages expenses and delays initiation of certain operational initiatives to focus on core programs if appropriate funding is not available.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Significant Accounting Policies
Principles of Consolidation
The Company’s consolidated financial statements do not include any adjustments relating to the recoverabilityaccounts of Tyme Tech and classification of recorded assets amounts or the amountsits subsidiaries, Tyme and classification of liabilities that might result from the outcome of this uncertainty.Luminant. All intercompany transactions and balances have been eliminated in consolidation.
Management is evaluating different strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, additional funding from current or new investors, officersRisks and directors; borrowings of debt; a public offering of the Company’s equity or debt securities; partnerships and/or collaborations. There can be no assurance that any of these future-funding efforts will be successful.
Uncertainties
The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants, as well as third party contractors.
Note 2. Summary of Significant Accounting Policies.
Principles of Consolidation
The Company’s consolidated financial statements include the accounts of Tyme Tech and its subsidiaries, Tyme and Luminant. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimation include the fair value of the Company underlying the conversion feature of the senior secured bridge notes, derivative value associated with the price protection feature of shares of Company common stock issued in connection with the PPO and Bridge Note conversion and stock-based compensation. Actual results could differ from such estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid investments that have maturities of three months or less when acquired to be cash equivalents. As of December 31, 2015, theThe Company’s cash and cash equivalents consisted of $4,446,284 deposited in two checking accounts$28,975,822 at two financial institutions.
March 31, 2018 and $10,482,977 at March 31, 2017.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash. Cash is deposited with major banks and, at times, such balances with any one financial institution may be in excess of FDIC insurance limits. The Company exceeded the FDIC limit of $250,000 by approximately $3,946,284$28,725,822 at DecemberMarch 31, 2015.2018 and $10,232,977 at March 31, 2017. Although the Company has exceeded the federally insured limit, it has not incurred losses related to these deposits. Management monitors the Company’s accounts with these institutions to minimize credit risk.
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Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash, accounts payable and other current liabilities approximates fair value given their short-term nature. The carrying amountfair value of the senior secured bridge notes payable as of December 31, 2014 approximated fair value because the interest rates on these instruments were reflective of rates that the Company could obtain on unaffiliated third party debt with similar terms and conditions.
derivative liability is discussed below.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Fair value should be based on the assumptions that market participants would use when pricing an asset or liability and is based on a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets (observable inputs) and the lowest priority to the Company’s assumptions (unobservable inputs). Fair value measurements should be disclosed separately by level within the fair value hierarchy. For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with established fair value hierarchy.
Fair value measurements for assets and liabilities where there exists limited or no observable market data are based primarily upon estimates, and often are calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as assets held for sale and certain other assets. These nonrecurring fair value adjustments typically involve application oflower-of-cost-or-market accounting or write-downs of individual assets.
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
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| Level 1—Quoted prices in active markets for identical assets or liabilities.
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| Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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| Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Level 3 valuations are for instruments that are not traded in active markets or are subject to transfer restrictions and may be adjusted to reflect illiquidity and/ornon-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. The Company’s derivative liability is classified as a Level 3 instrument. (See Note 7. Derivative Liability.)
An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The Company had no assets or liabilities classified as Level 1, Level 2, or Level 3 for the year ended March 31, 2018. The Company had no assets or liabilities classified as Level 1 or Level 2 duringfor the yearsyear ended March 31, 2017, the three months ended March 31, 2016 and the year ended December 31, 2015 and 2014 and there were no materialre-measurements of fair value with respect to financial assets and liabilities, during those years,periods, other than those assets and liabilities that are measured at fair value on a recurring basis. There were no transfers between Level 1, Level 2 and Level 23 in any of the periods reported.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and 2017 are summarized below:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
March 31, 2018 | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Derivative liability – anti-dilution feature | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
March 31, 2017 | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Derivative liability – anti-dilution feature | | $ | — | | | $ | — | | | $ | 378,600 | | | $ | 378,600 | |
| | | | | | | | | | | | | | | | |
Total | | $ | — | | | $ | — | | | $ | 378,600 | | | $ | 378,600 | |
| | | | | | | | | | | | | | | | |
The change in the fair value of the derivative liability for the year ended March 31, 2017 was de minimis.
The changes in the fair value of the derivative liabilities for the year ended March 31, 2018 are as follows:
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Fair value at March 31, 2017 | | $ | 378,600 | |
Fair value of liability-classified anti-dilution feature | | | 11,785 | |
Change in fair value of derivative liability | | | (390,385 | ) |
| | | | |
Fair value at March 31, 2018 | | $ | — | |
| | | | |
The fair value of the derivative liability as of March 31, 2017 was estimated using a Monte Carlo simulation model using the following assumptions:
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Volatility | | 70% |
Risk-Free Interest Rate | | 0.83% |
Expected Term in Years | | 4.7 months |
Dividend Rate | | 0.00% |
Fair Value of Common Stock Share | | $1.78 |
The fair value of the derivative liability was written down to zero as of December 31, 2017 because the anti-dilution provision of the March 2017 Private Placement expired on September 10, 2017 and the anti-dilution provision of the April 2017 Private Placement expired on October 7, 2017, in each case with no shares issued pursuant to such provisions.
Prepaid and Other Assets
Prepaid and other assets represent expenditures made in advance of when the economic benefit of the cost will be realized, and which will be expensed in future periods with the passage of time or when a triggering event occurs.time. Prepaid and other assets consisted of $1.4 million of prepaid R&D and $480,000 of prepaid insurance as of March 31, 2018. Prepaid and other assets as of March 31, 2017 consisted primarily of prepaid insurance.
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Property and Equipment, Net
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives. The Company estimates a life of five to seven years for equipment and furniture and fixtures. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is includedreflected in operating expenses.results of operations. Repairs and maintenance costs are expensed as incurred.
Impairment of Long-Lived Assets
The Company assesses the recoverability of its long-lived assets, which include fixed assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the years ended March 31, 2018 and 2017, the three months ended March 31, 2016 and the year ended December 31, 2015, and 2014, the Company determined that there were no triggering events requiring an impairment analysis
analysis.
Research and Development
Research and development costs are expensed as incurred and are primarily comprised of, but not limited to, external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”CROs”), contract manufacturing organizations (“CMOs”CMOs”) and consultants that conduct clinical and preclinical studies, costs associated with preclinical and development activities, costs associated with regulatory operations, depreciation expense for assets used in research and development activities and employee related expenses, including salaries and benefits for research and development personnel. Costs for certain development activities, such as clinical studies, are accrued, over the service period specified in the contract and recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to the Companyus by itsour vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense, which are reported in prepaid assets or accounts payable and other current liabilities.
expense.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition ofIncome tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. The Company is subject to income taxes in the expected futureUnited States, for Federal and various State jurisdictions. Significant judgments and estimates are required in the determination of the income tax consequencesexpense.
Deferred income taxes arise from temporary differences between the tax basis of events that have been includedassets and liabilities and their reported amounts in the financial statements. Under this method,statements, which will result in taxable or deductible amounts in the Company determinesfuture. 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 on the basis of the differences between the financial statements and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers allA valuation allowance is provided when, after consideration of available positive and negative evidence including future reversalsthat it is not more likely than not that the benefit from deferred tax assets will be realizable. In recognition of existing taxable temporary differences, projectedthis risk, we have provided a full valuation allowance against the net deferred tax assets. The assumptions about future taxable income tax-planning strategies,require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of recent operations. If the Company determines that it would be able to realize our deferredcumulative operating income (loss).
The calculation of tax assetsliabilities involves dealing with uncertainties in the futureapplication of complex tax laws and regulations in excess of their net recorded amount, the Company would makevarious jurisdictions. ASC 740 “Income Taxes” states that a tax benefit from an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whetherposition may be recognized when it is more likely than not that the tax positionsposition will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits of the positionmerits.
When and (2) for those tax positions that meet the more-likely-than-not recognition threshold,if the Company recognizes the largest amount of tax benefit that is more than 50 percent likelywere to be realized upon ultimate settlement with the related tax authority.
The Company recognizesrecognize interest and penalties related to unrecognized tax benefits, on the incomethey would be reported in tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.expense.
The Company had no unrecognized tax benefits at December 31, 2015 and 2014. The tax years which currently remain subject to examination by major tax jurisdictions as of December 31, 2015, December 31, 2015 and 2014 and for the period from July 26, 2013 to December 31, 2013. In addition, the Company had no income tax related penalties or interest for periods presented in these consolidated financial statements.
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Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views their operations and manages their business in one segment.
Derivative Liabilities
Accounting standards require presentation of derivative liabilities at fair value. Derivative liabilities are adjusted to reflect fair value at the end of each reporting period, with any change in the fair value being recorded in results of operations as a component of other income or expense.
Basic and Diluted Loss Per Share
The Company calculates net loss per share in accordance with ASC Topic 260, Earning“Earning per Share.” Basic net loss per share is computed by dividing net loss attributable to the Company by the weighted average number of shares of Company common stock outstanding for the period, and diluted earnings per share is computed by including common stock equivalents outstanding for the period. At December 31, 2015 and 2014,During the periods presented, the calculation excludes any potential dilutive common shares and any equivalents as they would have been anti-dilutive as the Company hadincurred losses for the periods then ended.
Stock-based Compensation
The Company follows the authoritative guidance for accounting for stock-based compensation in ASC 718, Compensation-Stock Compensation. The guidance requires that stock-based payment transactions be recognized in the financial statements based on their fair value at the grant date and recognized as compensation expense over the vesting period as services are being provided. (See Note 12.10, Equity Incentive Plan.)
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected
term of the option, risk-free interest rates, the value of the common stock and expected dividend yield of the common stock. For awards subject to time-based vesting conditions, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actualThe Company accounts for forfeitures differ from those estimates.
as they occur
The Company accounts for stock-based awards issued tonon-employees in accordance with ASC Topic 505-50, “Equity-Based Payment toNon-Employees” and accordingly the fair value of the stock compensationoptions granted tonon-employees is measured onremeasured each reporting period until the earlier of: a) the performance commitment date, or b) the date the services required under the arrangement have been completed.completed and the resulting increase or decrease in value, if any, is recognized as expense or income, respectively, during the period the related services are rendered.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In May 2017, the FASB issued ASUNo. 2017-09, Compensation-Stock Compensation (Topic 718) - Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. The standard provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The new standard is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt ASU2017-09 in its consolidated financial statements in the first quarter of fiscal year 2019. It is not expected to have a material impact.
In February 2017, the FASB issued UpdateNo. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This update is meant to clarify the scope of ASC Subtopic610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and to add guidance for partial sales of nonfinancial assets. This guidance is to be applied using a full retrospective method or a modified retrospective method as outlined in the guidance and is effective at the same time as Update2014-09. Further, the Company is required to adopt this guidance at the same time that it adopts the guidance in Update2014-09. The Company is currently evaluating the provisions of this guidance and assessing its potential impact on the Company’s financial condition and results of operations.
In January 2017, the FASB issued ASU2017-01, amending Business Combinations: Clarifying the Definition of a Business, to clarify the definition of a business with the objective of providing a more robust framework to assist management when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year, with early application permitted. The amendments are to be applied prospectively to business combinations that occur after the effective date. The Company will adopt ASU2017-01 in its consolidated financial statements in the first quarter of fiscal year 2019. It is not expected to have a material impact.
In August 2016, the FASB issued ASUNo. 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. The new guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition. The Company will adopt ASU2016-15 in its consolidated financial statements in the first quarter of fiscal year 2019. It is not expected to have a material impact.
In March 2016, the FASB issued ASU2016-09,Improvements to Employee Share-Based Payment Accounting(“ASU2016-09”), which provides for simplification of certain aspects of employee share-based payment accounting including income taxes, classification of awards as either equity or liabilities, accounting for forfeitures and classification on the statement of cash flows. ASU2016-09 was effective for the Company in the first quarter of 2018 and was applied prospectively on the area covered in this update. The Company has adopted this standard and it did not have a material impact on its consolidated financial statements.
In February 2016, the Financial Accounting Standards Board (“FASB”)FASB issued ASUNo. 2016-02,Leases (Topic 842) (“ASU 2016-02”2016-02”). The new standard establishes aright-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU2016-02 is effective for annual periods beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020, with early adoption permitted.2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In January 2016, the FASB issued ASUNo. 2016-01,Financial Instruments - Overall (Subtopic825-10), Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-1”2016-1”), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU2016-01 will be effective for the Company for annual periods and interim periods within those annual periods beginning after December 15, 2018 and early adoption is not permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
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In November 2015, the FASB issuedadopt ASU No. 2015-17,Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent2016-01 in a classified balance sheet. Instead, entities will be required to classify all deferred tax assets and liabilities as noncurrent. ASU 2015-17 will be effective for the Company for annual periods beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15,Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” This guidance is effective for annual reporting periods ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements other than potentially on the footnote disclosures.
In June 2014, the FASB issued ASU No. 2014-12,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, (“ASU 2014-12”). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that 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 attributablefirst quarter of fiscal year 2019. It is not expected to the period(s) for which the requisite service has already been rendered. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.impact.
Note 3. Net Loss Per Common Share
The following table sets forth the computation of basic and diluted net loss per common share for the periods indicated:indicated (in thousands, except share and per share data):
| | | | | | | |
| | Year Ended
December 31, 2015 | | Year Ended
December 31, 2014 | |
Basic and diluted net loss per common share calculation: | | | | | |
Net loss attributable to controlling interests | | $ | (11,726,818 | ) | $ | (2,649,826 | ) |
Weighted average common shares outstanding | | | 77,848,850 | | | 68,000,000 | |
Net loss per share of common stock—basic and diluted | | $ | (0.15 | ) | $ | (0.04 | ) |
There are 3,500,000 shares in escrow, subject to cancellation, that have not been included in basic weighted average common shares outstanding for the year ended December 31, 2015 (See Note 8. Stockholders’ Equity.)
| | | | | | | | | | | | | | | | |
| | | Year Ended | | | Three Months Ended | | | Year Ended | |
| | | March 31, | | | March 31, | | | December 31, | |
| | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
Basic and diluted net loss per common share calculation | | | | | | | | | | | | | | | | |
Net loss | | $ | (18,969,493 | ) | | $ | (15,206,781 | ) | | $ | (2,751,127 | ) | | $ | (11,726,818 | ) |
Weighted average common shares outstanding — basic and diluted | | | 90,567,476 | | | | 84,454,587 | | | | 83,796,260 | | | | 77,848,850 | |
Net loss per share of common stock — basic and diluted | | $ | (0.21 | ) | | $ | (0.18 | ) | | $ | (0.03 | ) | | $ | (0.15 | ) |
The following outstanding securities at March 31, 2018, 2017, 2016 and December 31, 2015 and 2014 have been excluded from the computation of diluted weighted average shares outstanding, as they would have been anti-dilutive:
| | | | | |
| | | | | | | | | | | | | | | | | | | | Year Ended | | | Three Months | | | Year Ended | | | | | March 31, | | | Ended | | | December 31, | | | | | 2018 | | | 2017 | | | 2016 | | | 2015 | | Stock options | | | 5,438,072 | | | | 4,039,444 | | | | 350,000 | | | | 150,000 | | Warrants | | | 5,615,641 | | | | 4,556,038 | | | | 937,651 | | | | 476,267 | | | | | | | | | | | | | | | | | | | Total | | | 11,053,713 | | | | 8,595,482 | | | | 1,287,651 | | | | 626,267 | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2015
| | Year Ended
December 31, 2014
| |
| | | | | |
Stock options
| | 150,000
| | —
| |
Warrants
| | 496,500
| | —
| |
Total
| | 646,500
| | —
| |
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Note 4. Property and Equipment, Net.
Property and equipment, net consisted of the following:
| | | | | | | |
| | December 31,
2015 | | December 31,
2014 | |
| | | | | |
Machinery and equipment | | $ | 21,463 | | $ | 21,463 | |
Less: accumulated depreciation | | | 8,585 | | | 4,293 | |
| | $ | 12,878 | | $ | 17,170 | |
| | | | | | | | |
| | | March 31, 2018 | | | March 31, 2017 | |
Machinery and equipment | | $ | 21,463 | | | $ | 21,463 | |
Less: accumulated depreciation | | | 18,224 | | | | 13,928 | |
| | | | | | | | |
| | $ | 3,239 | | | $ | 7,535 | |
| | | | | | | | |
Depreciation expense was $4,292$4,296 and $4,293$4,281 for the yearsyear ended March 31, 2018 and 2017, $1,062 for the three months ended March 31, 2016, and $4,292 for the year ended December 31, 2015 and 2014, respectively.2015.
Note 5. Accounts Payable and Other Current Liabilities.
Accounts payable and other current liabilities consisted of the following:
| | | | | | | |
| | December 31,
2015 | | December 31,
2014 | |
| | | | | |
Interest | | $ | — | | $ | 56,174 | |
Legal | | | 781,933 | | | 844,602 | |
Consulting | | | 50,947 | | | 43,314 | |
Accounting and auditing | | | 157,129 | | | 272,913 | |
Research and development | | | 241,259 | | | 58,750 | |
Board of Directors and Scientific Advisory Board compensation | | | 225,000 | | | — | |
Other | | | 18,063 | | | 14,662 | |
| | $ | 1,474,331 | | $ | 1,290,415 | |
| | | | | | | | |
| | | March 31, 2018 | | | March 31, 2017 | |
Legal | | $ | 421,128 | | | $ | 1,443,084 | |
Consulting | | | 78,101 | | | | 60,317 | |
Accounting and auditing | | | 81,652 | | | | 69,738 | |
Research and development | | | 1,678,675 | | | | 644,546 | |
Board of Directors and Scientific Advisory Board compensation | | | 442,610 | | | | 487,500 | |
Insurance | | | — | | | | 232,100 | |
Other | | | 114,924 | | | | 11,183 | |
| | | | | | | | |
| | $ | 2,817,090 | | | $ | 2,948,468 | |
| | | | | | | | |
Note 6. Debt.
Convertible/Bridge NotesInsurance Note Payable
On August 2, 2013, Tyme entered into a Convertible Promissory Note Agreement (the “Convertible Note Agreement”) to be funded in a series of loans up to a maximum principal amount of $997,000 (“Convertible Notes”). As of DecemberDuring the year ended March 31, 2013, Tyme had received $997,000 in proceeds under2018, the Convertible Notes. The Convertible Notes accrued interest at a rate of 2.5% per year. Principal repayments were to commence on April 30, 2014 equal to 1/24th of the then outstanding balance, with the entire principal amount due and payable on April 30, 2016. The lender opted not to collect principal payments in anticipation of converting the Convertible Notes.
The Convertible Note Agreement provided that if, prior to April 30, 2014, Tyme entered into any financing transaction with the lender or an affiliate thereof, upon the closing of such transaction, the outstanding principal balance of the Convertible Notes would automatically convert on a dollar-for-dollar basis into the securities being issued and sold at a conversion price equal to the purchase price per share implied by a pre-investment valuation of Tyme equal to $20,000,000 (“Conversion Price”). The Convertible Note Agreement further provided that if TymeCompany entered into an agreement withto finance Director and Officer insurance totaling $480,094 for the policy year ending in March 2019. As of March 31, 2018, there remained a third party, other than the lender or affiliate thereof, into any debt or equity financing, exclusive license of any portion of the IP Rights, a sale of substantially all of the assets of Tyme, or subsidiary thereof, or any transaction or series of transactions resulting in the current stockholders holding less than a majority of the voting interests, then, at the lender’s option, effective immediately prior to closing of the third party transaction, the outstanding principal balance of $480,094, recorded to Insurance note payable on the Convertible Notes would have been converted on a dollar-for-dollar basis into shares of common stock. The Convertible Note Agreement provided that inaccompanying consolidated balance sheets.
During the case of conversion of principal under either scenario, Tyme would have no further obligations or liabilities under the Convertible Notes.
In January 2014, the lender increased the aggregate principal amount of the Convertible Notes from $997,000 to $1,126,000 and advanced funds to Tyme to that effect, such that the total amount funded toyear ended March 31, 2016, the Company was equalentered into an agreement to finance Director and Officer insurance totaling $232,100 for the increased principal amountpolicy year ending in March 2017. As of the Convertible Notes.March 31, 2017, no balance remained.
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On August 28, 2014, the lender converted the ConvertibleBridge Notes in the aggregate principal amount of $1,126,000 plus accrued interest of $26,242, into shares of Tyme common stock (3,624,400 shares of the Company common stock). Simultaneous with the issuance of shares to the lender, the two principal stockholders of the Company, as capital contributions, surrendered to Tyme for cancellation an equal number of shares. The net effect of such issuance and cancellations resulted in no change in the total number of shares of Company common stock issued (71,400,000) and outstanding (68,000,000) at such time.
For the years ended December 31, 2015 and 2014, the Company recorded interest expense on the Convertible Notes amounting to $0 and $20,387, respectively.
Payable
On July 11, 2014, Tyme received $1,100,000 in proceeds from the issuance of a convertible promissory note (the “Bridge Note”“Bridge Note”) from an affiliate of GEM Global Yield Fund, LLC SCS (“GEM”GEM”). The Bridge Note bears interest at a rate of 10% per year, maturing fifteen months from the date of issue and was secured by all assets of Tyme. The Bridge Note was mandatorily convertible into Company common stock upon the closing of the PPO. To secure certain obligations relating to the Bridge Note and the then proposed merger, Tyme issued in the name of the purchaser of the Bridge Note butshares of the Company’s stock which were placed into escrow 3,400,000 shares of Company common stock. These shares were not deemed outstanding, but would either be delivered to the Bridge Note purchaser or returned to Tyme for cancellation pursuant to the terms of a Termination Shares Escrow Agreement, dated as of July 11, 2014, among Tyme, the purchaser of the Bridge Note and the escrow agent.
Subsequently, such escrow concerning the Bridge Note was terminated in accordance with the applicable provisions of the Termination Shares Escrow Agreement, those shares of Company common stock were released by the escrow agent to the Company, and the Company then cancelled those shares of common stock.
On November 24, 2014, the purchaser of the Bridge Note loaned Tyme an additional $250,000. In connection with the funding of such loan, the Bridge Note was amended and restated to reflect a principal amount of $1,350,000.
On January 15, 2015, the purchaser of the Bridge Note loaned Tyme a furtheran additional $960,000. In connection with the funding of such further loan, the Bridge Note was amended and restated to reflect a principal amount of $2,310,000. On March 5, 2015, the Bridge Note was further amended and restated to the effect that the mandatory conversion feature bewas amended to a set fixed conversion amount such that, upon mandatory conversion, the Bridge Note purchaser would receive one share of Company common stock (each, a “Bridge“Bridge Note Conversion Share”Share”) for each $1.00 of principal of the Bridge Note outstanding as of the date of the mandatory conversion. The Bridge Note, including accrued interest, was converted at the time of the Merger. The Company evaluated the modification to the conversion rate as an inducement to convert the Bridge Note and concluded that it provided the purchaser of the Bridge Note an incremental value of $3,465,000, which is included as interest expense on the consolidated statementstatements of operations for the three months ended March 31, 2015 and the year ended December 31, 2015.
The Company recorded interest expense of $38,301 and $56,174 during the years ended December 31, 2015 and 2014, respectively, on the Bridge Note. The aggregate outstanding principal and accrued interest balance at December 31, 2015 and 2014 was $0 and $1,406,174, respectively.
Note 7. Derivative Liability.
Liability - PPO
The investor in the PPO and the Bridge Note holder has beenwas granted anti-dilution protection with respect to the PPO Shares and Bridge Note Conversion Shares such that, if within two years after the closing of the Merger, the Company shall issue additional shares of Company common stock or common stock equivalents, for a consideration per share less than $0.50 per share (the “Lower Price”“Lower Price”), each such investor and holder will be entitled to receive from the Company additional shares (“Lower Price Shares”Shares”) of Company common stock in an amount such that, when added to the number of shares initially purchased by such investor or received upon conversion of the Bridge Note, will equal the number of shares that such investor’s PPO subscription amount would have purchased or the Bridge Note holder would have received upon conversion of the Bridge Note at the Lower Price. GEM was the sole investor in the PPO and designee of the Bridge Note holder who received the Bridge Note Conversion Shares.
The Company has determined that this anti-dilution protection is a freestanding financial instrument that will be carried as a liability at fair value. At the time of the merger, in the quarter ended March 31, 2015, management measured this derivative at fair value and recognized a derivative liability of $376,300 on the consolidated balance sheet, with the offset recorded against additionalpaid-in capital. The derivative is valued primarily using models based on unobservable inputs that represent management’s best estimate of what market participants would use in pricing the liability at the measurement date and thus are classified as Level 3. The model incorporates various assumptions related to the Company’s stock price and ascribes a probability based on management’s expectation that such assumptions would occur. Changes in the fair values of the derivative are recognized in earnings in the current period. As of December 31, 2015, the Company determined that the likelihood of the anti-dilution provisions being met was remote based on the Company’s current stock price and the length of time remaining until maturity, and therefore, the anti-dilution protection had no value. As such, a result, a gain of $376,300 derivative liability was recorded in Other income inas other income. As of March 5, 2017, the Consolidated Statementsanti-dilution provisions expired without the triggering of Operations to reflect the remeasurement of the derivative liability to $0.any such protection.
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Note 8.7. Stockholders’ Equity.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred stock, each with a par value of $0.0001. Shares of Company preferred stock may be issued from time to time in one or more series and/or classes, each of which will have such distinctive designation or title as shall be determined by the Company’s board of directors prior to the issuance of any shares of such series or class. The Company preferred stock will have such voting powers, full or limited or no voting powers and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such series or class of Company preferred stock as may be adopted from time to time by the Company’s board of directors prior to the issuance of any shares thereof. No shares of Company preferred stock are currently issued or outstanding and the Company’s board of directors has not designated any class or series of Company preferred stock for use in the future.
Common Stock
Authorized, Issued and Outstanding
The Company is authorized to issue 300,000,000 shares of common stock, each with a par value of $0.0001, of which 86,836,370 shares were issued and outstanding at December 31, 2015 and 71,400,000 shares were issued and 68,000,000 shares were outstanding at December 31, 2014. Included in the shares issued and outstanding at December 31, 2015 are 3,500,000 shares that are in escrow, subject to cancellation, as discussed further below. The 3,400,000 shares issued but not outstanding at December 31, 2014 were held in escrow to secure certain obligations of Tyme to the holder of the Bridge Note.
Prior to the Merger, the Company conducted a 4.3334-for-1 forward stock split. The Merger resulted in the Company issuing a total of 68,000,000 shares of Company common stock to the Pre-Merger Tyme stockholders and 12,274,000 shares to the Tyme Tech stockholders as of the date of the Merger. As a result of the Merger and its accounting treatment as a reverse acquisition, stockholders’ equity (deficit) has been presented to reflect such stock split and stock issuances as of the earliest period presented in these consolidated financial statements. (See Note 1. Nature of Business and Basis of Presentation - Reverse Triangular Merger.)
Voting
Each holder of Company common stock is entitled to one vote for each share thereof held by such holder at all meetings of stockholders (and written action in lieu of meetings). The number of authorized shares of Company common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of majority of the combined number of issued and outstanding shares of the Company.
Dividends
Dividends may be declared and paid on the Company common stock from funds lawfully available therefore, as and when determined by the board of directors.
Liquidation
In the event of the liquidation, dissolution, orwinding-up of the Company, holders of Company common stock will be entitled to receive all assets of the Company available for distribution to its stockholders.
Subscription Receivable
Contemporaneous with the closing of the Merger, the Company completed a private placement of 2,716,000 shares of Company common stock for gross proceeds of $6,765,000 of which $4,265,000 was paid in cash. The remaining subscription price was paid by the delivery of a three-month promissory note in the principal amount of $2,500,000 (the “PPO Subscription Note”). (See Note 1. Nature of Business and Basis of Presentation - Reverse Triangular Merger.) On June 5, 2015, in accordance with the First Omnibus Amendment, the Company received $1,250,000, representing one-half of the principal amount of the PPO Subscription Note, and the maturity date of the PPO Subscription Agreement was extended to July 6, 2015. The First Omnibus Amendment, among other matters, also made corresponding adjustments to the Subscription Note Escrow Agreement and authorized the release of 2,500,000 of the 5,000,000 shares of Company common stock initially placed into escrow under such agreement.
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Effective as of July 23, 2015 and pursuant to a Second Omnibus Amendment (the “Second Omnibus Amendment”), the maturity date of the PPO Subscription Note was further extended to the fifth business day following the date on which the Company notifies the maker of the PPO Subscription Note that the Company had filed with the United States Food and Drug Administration (the “FDA”) an Investigational New Drug Application (an “IND”) for the Company’s SM-88 drug candidate. Such IND was received by the FDA on September 21, 2015, and notice of such was given on September 25, 2015. The Company received the balance of the PPO Subscription Note on October 16, 2015 and the remaining 2,500,000 shares were released from escrow.
Escrow sharesShares
Pursuant to the Merger Agreement, the Company would have been required to issue 1,333,333 shares of Company common stock to thePre-Merger Company stockholders in the event that the Company conductsconducted an offering of at least $20,000,000 at apre-money Company valuation between $200,000,000 and $400,000,000 with such offering proceeds placed in escrow on or before the date which was five months following the consummation of the Merger. As this offering did not occur, these 1,333,333 shares were not issued. The Merger Agreement further provided that, if thepre-money valuation on which the raised funds were placed into escrow was less than $200,000,000, or if no money was raised within such five month period, up to 3,500,000 shares of Company common stock were required to be surrendered for cancellation. Such 3,500,000 shares (the “Escrowed Shares”) were placed into escrow pursuant to an Adjustment Shares Escrow Agreement entered into at the time of Merger Closing (the “Adjustment Shares Escrow Agreement”). The date on which the offering funds were required to be placed into escrow was extended under the terms of the Second Omnibus Amendment to November 5, 2015. No offering was consummated, nor were any offering funds placed into escrow. On November 10, 2015, the Company advised the escrow agent of such facts and demanded the surrender for cancellation of the 3,500,000 shares placed into escrow under the Adjustment Shares Escrow Agreement. Under the Adjustment Shares Escrow Agreement, the depositor of such escrowed sharesthe Escrowed Shares had until November 18, 2015 to challenge the Company’s demand for surrender of the Escrowed Shares.
On November 17, 2015, the Company received notice from the depositor of such 3,500,000 shares disputing the grounds for the surrender for cancellation of those shares. Until resolved by court order or otherwise, the 3,500,000 shares shall remain in escrow. On December 2, 2015,January 19, 2016, the Company filed a complaint against the depositor with the Commercial Division of the Supreme Court of New York, seeking,New York and on April 1, 2016, the Company filed an amended complaint, which asserts causes of actions for (i) a declaratory judgment declaring that the relevant contracts require the 3,500,000 escrowed Adjustment Shares to be released to the Company; (ii) breach of contract for failure to deliver the 3,500,000 escrowed Adjustment Shares to the Company; (iii) conversion for the depositors willful and malicious interference with the Company’s rights to the Adjustment Shares; and (iv) replevin for the escrow agent’s refusal to surrender the escrowed Adjustment Shares to the Company.
On June 20, 2016, the depositor filed their answer and asserted two counterclaims. The first counterclaim alleges that the Company purportedly breached its obligation to allow the depositor to provide additional financing by refusing to allow the depositor to purchase 17,200,000 shares at a price of $1.1626 per share. The depositor alleges that it was damaged by at least $144,000,000 based upon the differential between the depositor’s proposed share purchase price and the then-current market value of the Company’s Common stock. The depositor’s second counterclaim alleges that the Company purportedly breached its fiduciary duties to the depositor as a stockholder of the Company, by rejecting the depositor’s proposed financing described above. The Company believes the depositor’s counterclaims are without merit and intends to vigorously defend these claims and seek the return of the 3,500,000 escrowed Adjustment Shares in accordance with the terms set out in the Merger Agreement and the Adjustment Shares Escrow Agreement. The Company moved to dismiss the counterclaims on August 10, 2016, the depositor filed its opposition on September 21, 2016 and the Company filed its reply memorandum of law on October 28, 2016.
On February 28, 2017, we, GEM Global Yield Fund LLC SCS (on behalf of it and its affiliates, collectively, “GEM”), and CKR Law LLP (“CKR”) entered into a Confidential Settlement and Release Agreement (the “Settlement Agreement”) with respect to, among other things, (a) our complaint filed on or about January 19, 2016 and amended on April 1, 2016 against GEM with the Commercial Division of the Supreme Court of New York, New York (the “Court”) captionedTyme Technologies, Inc. v. GEM Global Yield Fund LLC SCS and CKR Law LLP, Index No. 650250/2016, (b) GEM’s counterclaims asserted against us on or about June 20, 2016 as set forth in CKR’s andGEM’s answer to the Company’s complaint and (c) a declaratory judgment directingRegistration Rights Agreement involving the depositorCompany and GEM (the “RRA”), a form of which was filed as Exhibit 10.9 to deliverthe Company’s Current Report on Form8-K filed with the Securities and Exchange Commission on March 11, 2015.
Pursuant to the Settlement Agreement, GEM directed CKR to surrender to the Company the 3,500,000 AdjustmentEscrowed Shares. The Company is not obligated to pay any monetary damages pursuant to the Settlement Agreement. In addition to the foregoing, the Company and GEM agreed to waive and release any claims they may have against each other with respect to the subject matter of the complaint and counterclaim described above. The parties also agreed to terminate the RRA. On March 1, 2017, the Company received the Escrowed Shares. The Company and the depositor also entered into a Stipulation of Discontinuance with Prejudice that was filed with the Court on March 2, 2017. The Escrowed Shares for cancellation.
were cancelled by the Company on May 25, 2017.
Registration Rights Agreement
In connection with the PPO, the Company entered into a Registration Rights Agreement (the “Registration“Registration Rights Agreement”Agreement”) with the purchaser in the PPO and the holder of the Bridge Note, pursuant to which the Company agreed to promptly, but no later than 90 days following the maturity date of the PPO Note (such maturity date initially being 90 calendar days after the closing of the PPO), file a registration statement with the SEC (the “Registration Statement”“Registration Statement”) covering (a) all of the PPO Shares issued in the PPO, (b) the Bridge Note Conversion Shares issued upon conversion of the Bridge Note, (c) the Lower Price Shares, if any, and (d) any shares of the Company common stock issued or issuable with respect to the PPO Shares, Conversion Shares and Lower Price Shares upon any stock split, dividend or other distribution, recapitalization or similar event. The Merger Agreement provided that the Registration Statement may also cover 9% of the total number of shares issued to the former stockholders ofPre-Merger Tyme Stockholders in connection with the Merger. The required filing date of the Registration Statement to avoid the imposition of liquidated damages was extended by an additional 31 days pursuant to the First Omnibus Amendment.
The Registration Rights Agreement was further modified by the Second Omnibus Amendment to the effect of (x) the holder of all of the PPO/Bridge Note Conversion Registrable Shares agreeing to irrevocableirrevocably waive any right to damages for the late filing and/or effectiveness of the registration statement contemplated by the Registration Rights Agreement and (y) the total number of shares that can be registered by the former Tyme stockholders was increased to 15% of the total number of shares issued to them in connection with the Merger.
Pursuant to the Settlement Agreement (as defined under “Escrow Shares”), the Registration Rights Agreement was terminated effective February 28, 2017.
Securities Purchase AgreementAgreements
On December 23, 2015, pursuant to a Securities Purchase Agreement, dated as of December 18, 2015, for the aggregate consideration of $3,000,000, before deducting offering costs of $34,000, the Company sold and issued in a private placement an aggregate of: (i) 750,000 shares of the Company’s common stock, par value $0.0001 per share, and (ii) 446,500 common stock purchase warrants. Each Warrant entitles its holder to purchase one share of common stock at an initial exercise price of $5.00 at any time during the period commencing on December 23, 2015 and terminating on the tenth anniversary of such date. No registration rights were granted to the purchasers of these shares or warrants. The warrants are included within additionalpaid-in capital on the statement of stockholders’ equity and will not be subject to remeasurement.
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Securities Issued for Services
On March 5, 2015, as a condition of the Merger Agreement, pursuant to a Consulting Agreement, the Company issued 250,000 fully vested, non-forfeitable shares to an Investor Relations firm for services provided in conjunction with the merger. The value of these shares was $625,000, based on the price of the shares issued as part of the Merger. No registration rights were granted related to these shares.
On December 21, 2015,February 2, 2016, pursuant to a Securities AcquisitionPurchase Agreement, dated asfor the aggregate consideration of December 18, 2015,$3,100,000, before deducting offering costs of $67,718, the Company sold and issued toin a law firm, in satisfaction of $200,000 of payables due such law firm,private placement an aggregate ofof: (i) 50,000775,000 shares of the Company’s common stock, par value $0.0001 per share, and (ii) 29,767 Warrants.461,384 common stock purchase warrants. Each Warrant entitles its holder to purchase one share of common stock at an initial exercise price of $5.00 at any time during the period commencing on December 18, 2015February 2, 2016 and terminating on the tenth anniversary of such date. No registration rights were granted related to the purchasers of these shares or warrants. The warrants are included within additionalpaid-in capital on the statement of stockholders’ equity and will not be subject to remeasurement.
In October 2016, the Company raised $1.47 million in gross proceeds through a private placement of 452,314 shares of our common stock.
On March 10, 2017, the Company raised $9.2 million in gross proceeds through a private placement (“March 2017 Private Placement”) of 3,588,620 shares of our common stock and 3,588,620 common stock purchase warrants (each, a “Warrant”). Each Warrant entitles its holder to purchase one share of common stock (each, a “Warrant Share”) at an exercise price of $3.00 per Warrant Share, subject to adjustment. The warrants expire two years from the date of issuance and vest immediately. The warrants are included within additionalpaid-in capital on the statement of stockholders’ equity and will not be subject to remeasurement.
Investors in the March 2017 Private Placement have limited anti-dilution protection. This provision provides that if the Company were to raise certain funds before the Anti-dilution Expiry Date (defined below) at an effective average consideration and/or exercise or conversion price per share price less than $2.55 per share, subject to exceptions for issuances of certain “exempt securities,” anti-dilution protections could apply which could obligate the Company to issue additional securities to the March 2017 Private Placement investors. “Anti-dilution Expiry Date” means the earliest to occur of (i) the business day after we raise $10 million or more in one or more public or private offerings within six months of the applicable purchase date for the 2017 Private Placement Investors, or (ii) thesix-month anniversary of the applicable purchase date for the 2017 Private Placement Investors. The provision had been accounted for as a derivative liability with a fair value of $378,600 and was subject to remeasurement (see Note 9. Income Taxes.2) through the expiration of the anti-dilution provision at which time the write down of the derivative liability was recorded as other income.
April 2017 PPO
In April 2017, the Company raised $2.7 million in gross proceeds through a private placement (“April 2017 Private Placement”) of 1,069,603 shares of common stock and 1,069,603 common stock purchase warrants (each, a “Warrant”). Each Warrant entitles its holder to purchase one share of common stock (each, a “Warrant Share”) at an exercise price of $3.00 per Warrant Share. The warrants expire two years from the date of issuance and vest immediately. The warrants are included within additionalpaid-in capital on the statement of stockholders’ equity and will not be subject to remeasurement.
At March 31, 2018, 5,556,107 common stock purchase warrants relating to securities purchase agreements were outstanding and exercisable.
The Company provides for income taxes under ASC 740. Under ASC 740,following summarizes the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company has not recorded a current or deferred income tax expense or benefit since its inception.
The Company’s loss before income taxes was $11,726,818 and $2,660,677common stock warrant activity for the years ended DecemberMarch 31, 20152018 and 2014, respectively,March 31, 2017:
| | | | | | | | |
| | | Warrant Shares of
Common Stock | | | Weighted Average
Exercise Price | |
Outstanding at March 31, 2016 | | | 937,651 | | | | 5.00 | |
Granted | | | 3,618,387 | | | | 3.02 | |
Exercised | | | — | | | | — | |
Cancelled | | | — | | | | — | |
| | | | | | | | |
Outstanding at March 31, 2017 | | | 4,556,038 | | | $ | 3.42 | |
Granted | | | 1,069,603 | | | | 3.00 | |
Exercised | | | (10,000 | ) | | | 3.00 | |
Cancelled | | | — | | | | — | |
| | | | | | | | |
Outstanding at March 31, 2018 | | | 5,615,641 | | | | 3.34 | |
| | | | | | | | |
At-the-Market Financing Facility
On November 2, 2017, the Company entered into an equity distribution agreement (“Equity Distribution Agreement”) with Canaccord Genuity Inc. (“Canaccord”), to commence anat-the-market offering (the “ATM Financing Facility”) pursuant to which the Company may, from time to time, subject to certain rules and was generated entirely in the United States.
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant componentsregulations, sell shares of the Company’s deferred tax assets are comprisedcommon stock, par value $0.0001 per share, having an aggregate offering price up to $30,000,000, through Canaccord, as the Company’s sales agent. In the year ended March 31, 2018, the Company raised approximately $6,151,000 in gross proceeds through the ATM via sale of the following:
| | | | | | | |
| | Year Ended
December 31, 2015 | | Year Ended
December 31, 2014 | |
| | | | | |
Net operating loss carryforward | | $ | 4,316,110 | | $ | 1,330,660 | |
Research and development credit carryforward | | | 198,490 | | | — | |
Other temporary differences | | | 62,928 | | | — | |
Gross deferred tax assets | | | 4,577,528 | | | 1,330,660 | |
Deferred tax valuation allowance | | | (4,577,528 | ) | | (1,330,660 | ) |
| | $ | — | | $ | — | |
1,543,364 of our common stock. The Company has evaluatedincurred $327,939 of related costs which offset the positiveproceeds. At March 31, 2018, there remained approximately $24,000,000 of availability to sell shares through the facility. Under the ATM Financing Facility, the Company is not required to issue the full available amount authorized and negative evidence bearing upon the realizabilityit may be cancelled at any time.
Public Offering
In March 2018, we raised approximately $23,288,000 in gross proceeds through a public offering of its deferred tax assets. Based on10,350,000 shares of our common stock. The Offering was made pursuant to the Company’s history of operating losses since inception, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2015 and 2014. The valuation allowance increased by $3,246,868 and $1,064,660 for the years ended December 31, 2015 and 2014, respectively, due primarily to the generation of net operating losses during the periods.
A reconciliation of income tax benefit computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:
| | | | | |
| | December 31, 2015 | | December 31, 2014 | |
| | | | | |
U.S. statutory income tax rate | | 34.0 | % | 35.0 | % |
State income taxes, net of federal benefit | | 7.9 | | 5.0 | |
Permanent differences | | (12.8 | ) | — | |
Rate change and provision to return true-up | | 8.0 | | — | |
R&D credit carryforwards | | 1.8 | | — | |
Valuation allowance | | (38.9 | ) | (40.0 | ) |
Effective tax rate | | — | % | — | % |
- 91 -
As of December 31, 2015 and 2014, the Company had U.S. federal net operating loss carryforwards of $10,005,274 and $3,312,651, respectively,registration statement on FormS-3 (RegistrationNo. 333-211489), which may be available to offset future income tax liabilities and will begin to expire at various dates starting in 2033. As of December 31, 2015 and 2014, the Company also had U.S. state net operating loss carryforwards of $17,467,895 and $0, respectively, which may be available to offset future income tax liabilities and will begin to expire at various dates starting in 2033.
Under the provisions of the Internal Revenue Code, the NOL carryforwards are subject to review and possible adjustmentwas declared effective by the Internal Revenue ServiceU.S. Securities and state tax authorities. NOLExchange Commission on August 16, 2017, a base prospectus dated August 16, 2017 and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financing transactions since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.prospectus supplement dated March 1, 2018.
The Company files income tax returns in the United States, and various state jurisdictions. The federal and state income tax returns are generally subject to tax examinations for the years ended December 31, 2015 and 2014 and for the period from July 26, 2013 through December 31, 2013. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.
Note 10.8. Commitments and Contingencies.
Contract Service Providers
In the course of the Company’s normal business operations, it enters into agreements and arrangements with contract service providers to assist in the performance of its research and development and clinical research activities. Substantially all
Purchase Commitments
During fiscal year 2018, we entered into two contracts with manufacturers to supply certain components used inSM-88 in order to achieve favorable pricing on supplied products. These contracts havenon-cancellable elements related to the scheduled deliveries of these agreementsproducts in future periods. Payments are made by us to the manufacturer when the products are delivered and arrangementsof acceptable quality. The contracts are on an as needed basis.
structured to match clinical supply needs for our ongoing trials and we expect the timing of associated payments to predominately occur during fiscal year 2019. Total outstanding future obligations associated with the contracts were $1.7 million at March 31, 2018 of which approximately $.6 million subsequently has been paid.
Employment AgreementsAgreement
On March 5, 2015, the Company entered into employment agreements with its Chief Executive Officer and Chief Operating Officer. Under these agreements, each of such two executive officers will be entitled to an annual base salary of $450,000 and such performance bonuses as the Company’s board of directors may determine, from time to time, in its sole discretion. The base salaries will be reviewed annually (commencing in 2016) by the Company’s board of directors; provided that the base salaries may not be decreased from their then current levels due to any board review. The employment agreements each have a term of five years; provided, however, that, commencing on the first anniversary of the dates of the agreements and on each anniversary thereafter, the term shall automatically be extended by one year, such that, at any time during the term of the agreement, the remaining employment term shall never be less than four years and one day. If employment is terminated by the Company without Cause or by the executive is terminated without “Cause” (as defined in the agreements) or for “Good Reason” (as defined in the agreements),Good Reason, the executive will be entitled to receive his(i) base salary plusas in effect at the time of such termination to the extent such amount has accrued through the termination date and remains unpaid, (ii) any accruedfully earned and declared but unpaid performance bonus withas of the termination date, (iii) an amount equal to the sum of base salary the executive would have received from the date of such termination through the then applicable expiration date, which shall be payable in the same amounts and at the same intervals as the base salary would have been payable if the terminationemployment period had not occurred.ended and (iv) any unpaid expenses as of the termination date. If the employment is terminated for “Cause,” or in the case of the executive’s death or disability, the executive will only be entitled to his base salary through the termination date, plus any accrued and unpaid performance bonus as of the termination date.
On MayMarch 15, 2015,2017, the Company appointedentered into a newletter agreement with its President and Chief Financial Officer.Officer of the Company effective April 3, 2017, which provides for an annual salary of $450,000 and a term which is scheduled to expire on theone-year anniversary of the effective date of the letter agreement unless earlier terminated. The new officer hasletter agreement (i) could renew for an additionalone-year period unless timely notice of nonrenewal is given or the letter agreement is earlier terminated, (ii) provides for severance benefits equal to six months of salary in the event of termination by the Company without “cause” or by the executive for “good reason” (as such terms are defined in the letter agreement) and (iii) contemplates the establishment of a performance bonus opportunity based upon the achievement of performance criteria and goals approved by the Board. Pursuant to the letter agreement, the Company granted effective March 27, 2017 (the “Grant Date”), a nonqualified stock option to purchase up to 1,500,000 shares of Common Stock of the Company at an exercise price per share of $2.95. The Option vests in four equal annual installments on each anniversary of the Grant Date.
In the quarter ending September 30, 2017, the Company entered into an employment agreement with its Chief Scientific Affairs Officer of the Company. The Agreement provides for an annual salary of $200,000 and a term scheduled to expire on theone-year anniversary of the effective date of the agreement unless earlier terminated. Following the completion of a $10 million qualified offering by the Company, as such term is defined in the Agreement, bonus was paid equal to $155,000 multiplied by the number of years (or fraction thereof) that requireshe has been employed by the officerCompany on the date of the qualified offering. Mr. Eckard’s annual salary would also increase to expend one-third$355,000.
The Agreement (i) could renew for an additionalone-year term unless timely notice of his workingnonrenewal is given or the Employment Agreement is earlier terminated, (ii) provides for severance, in the event of termination by the Company without cause (as defined in the Agreement), equal to six months’ salary (as in effect at the time of termination) and immediate vesting of 112,500 options for Company common stock and (iii) contemplates the establishment of a performance bonus opportunity based upon the achievement of performance criteria and goals approved by the Board and conditioned on Mr. Eckard’s continued employment by the Company. The Board plans to establish a performance bonus plan during the Company’s fiscal year ending March 31, 2019. See Subsequent Events (Note 13).
Pursuant to the Company for which he will be compensated atAgreement, the rate of $80,000 per annum. The new officer was alsoBoard granted a five-year optionto Mr. Eckard options to purchase 150,000up to 500,000 shares of the Company’s common stock at aper-share exercise price of $4.31. Of such options, 50,000 vested upon execution of the Eckard Employment Agreement. The balance of the options is scheduled to vest over a four-year term in equal annual installments beginning on theone-year anniversary of the options’ grant date, conditioned on continued employment by the Company on the applicable vesting date.
On November 22, 2017, the Company and the Company’s Chief Financial Officer, entered into an alternative compensation arrangement was grantednon-qualified stock options to purchase shares of the Company’s common stock in lieu of $213,000 in potential salary payable in the future. The arrangement relates to fiscal year 2018 and not future periods. Such options consist of the right to purchase 129,957 shares of Company common stock at $7.75an exercise price per share.share of $4.10. The option vested with respectoptions have a contractual term of two years, and vest over asix-month term in equal monthly installments beginning on theone-month anniversary of the grant date, subject to 75,000 shares on November 15, 2015 and the remaining 75,000 shares will vest on May 15, 2016. Vesting is dependent upon the new officer being in the Company’s employment on the applicable vesting date. (See Note 12. Equity Incentive Plan – Stock Options.) On January 27, 2016, the Company entered into a new employment agreementcontinued service with the Chief Financial Officer. (See Note. 13. Subsequent Events).
Company.
Legal Proceedings
Other than discussed below, the Company isWe are not involved incurrently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that it expects towe believe could have a material adverse effect on itsus, our business, operating results or financial condition, results of operations or cash flows.condition.
- 92 -
As described in Note 8. Stockholders’ equity, the Merger Agreement further provided that, if the pre-money valuation on which the raised funds were placed into escrow was less than $200,000,000, or if no money was raised within such five month period, up to 3,500,000 shares of Company common stock were required to be surrendered for cancellation. Such 3,500,000 shares were placed into escrow pursuant to an Adjustment Shares Escrow Agreement entered into at the time of Merger Closing (the “Adjustment Shares Escrow Agreement”). The date on which the offering funds were required to be placed into escrow was extended under the terms of the Second Omnibus Amendment to November 5, 2015. No offering was consummated, nor were any offering funds placed into escrow. On November 10, 2015, the Company advised the escrow agent of such facts and demanded the surrender for cancellation of the 3,500,000 shares placed into escrow under the Adjustment Shares Escrow Agreement. Under the Adjustment Shares Escrow Agreement, the depositor of such escrowed shares had until November 18, 2015 to challenge the Company’s demand for surrender of the Escrowed Shares. On November 17, 2015, the Company received notice from the depositor of such 3,500,000 shares disputing the grounds for the surrender for cancellation of those shares. On December 2, 2015, the Company filed a complaint against the depositor with the Supreme Court of New York, seeking, among other things, a declaratory judgment directing the depositor to deliver to the Company the 3,500,000 Adjustment Shares for cancellation.
Note 11.9. Related Party Transactions.
Due from Stockholders/Members
Tyme and Luminant obtained from and granted cash advances to certain of their stockholders/members. These net advances were non-interest bearing and had no terms for repayment. At December 31, 2015 and 2014, amounts due to the Company totaled $0 and $355,766 and were reflected as a reduction of stockholders equity.
Effective as of the consummation of and in anticipation of the Merger, thenon-interest bearing advances of $355,766 made to such stockholders/members werewas settled by the bonus compensation payments received fromof $342,250 payable to such stockholders.
stockholders being retained by the Company in lieu of payment. The balance of $13,516 was settled during March 2015 by personal reimbursement made by the stockholders to the Company.
Sale of Excess Ingredient Materials
On December 17, 2015,During the Company’s board of directors approved a future sale of certain excess ingredient materials which the Company believes will expire, terminate and/or lose potency prior to any anticipated use by the Company. The sale of such excess ingredients will be made tothree months ending March 31, 2016, Steve Hoffman, the Company’s President and Chief Executive Officer, atpurchased excess ingredient materials from the Company for a cost of $170,000, which was the pro rata cost of obtaining the items. The income from this was recorded as an offset to Research and Development expense on the consolidated statements of operations, where the cost of such items. In his capacity asmaterials was originally recorded.
Legal
The Company was provided legal service by Drinker Biddle & Reath LLP (“DBR”). A partner of DBR is a director Mr. Hoffman abstained from voting on this matter. (See Note. 13 Subsequent Events.)and has received equity compensation under the Company’s equity compensation plans, and is entitled to receive, equity compensation payable tonon-employee directors generally under the 2016 Director Plan, as well as cash compensation payable tonon-employee directors generally. See note 10 below concerning the 2016 Director Plan. During the years ended March 31, 2018, and 2017, the three months ended March 31, 2016, and the year ended December 31, 2015, approximately $1,819,000 (of which approximately $200,000 was capitalized into equity), $1,477,000, $111,000, and $0, respectively, have been incurred as legal expenses associated with DBR, and the Company had approximately $384,000 and $1,303,000 in accounts payable and accrued expenses payable to DBR at March 31, 2018 and March 31, 2017, respectively.
Note 12.10. Equity Incentive Plan.
On March 5, 2015, the Company’s Board of Directors adopted and the Company’s stockholders approved, the Company’s 2015 Equity Incentive Plan (the “2015 Plan”). A reserve of 10,000,000 shares of Company common stock has been established for issuance under the 2015 Plan. No more than an aggregate of 3,333,333 shares of common stock may be awarded during the twelve months following the 2015 Plan adoption.month period starting March 5 of each succeeding year. Awards under the 2015 Plan may include, but need not be limited to, one or more of the following: options, stock appreciation rights, restricted stock, performance grants, stock bonuses, and any other type of award deemed by the administrator to be consistent with the purposes of the 2015 Plan. The exercise price of all options awarded under the 2015 Plan must be no less than 100% of the fair market value of the Company common stock as determined on the date of the grant and have a term of no greater than ten years from the date of grant. In February 2018, the 2015 Plan was amended making available 12.5% of shares of common stock issued and outstanding. As of DecemberMarch 31, 2015,2018, there were 9,813,6307,363,190 shares available for grant under the 2015 Plan.
On May 9, 2016, the Board approved the establishment of a stock option plan fornon-executive members of the Board (the “2016 Director Plan”), which includes: (i) (A) for current members, an immediate stock option grant of 25,000 shares at fair market value (as defined in the 2016 Director Plan to generally mean the closing stock price per share on the date of grant); or (B) for future members initially appointed, an immediate stock option grant of 25,000 shares at fair market value; and (ii) beginning with the 2017 annual meeting, for members who are reelected as members of the Board, an annual stock option grant of 10,000 shares at fair market value. Each of these stock option awards will vest 50% on the date of grant and 50% on the first anniversary of the date of grant. These stock option awards are in addition to the annual payment of $50,000 in cash fees tonon-employee directors.
The 2016 Director Plan also authorized 750,000 shares for issuance. As of March 31, 2018, there were 600,000 shares available for grant under the Director Plan.
Stock Options
As of DecemberMarch 31, 2015,2018, and 2017, there was $281,841approximately $9,656,000 and $13,375,000, respectively, of total unrecognized compensation related tonon-vested stock options. The cost is expected to be recognized over the remaining weighted average remaining service period of the options which are expected to vest through May 2016.
1.24 years.
During the years ended March 31, 2018 and 2017, the three months ended March 31, 2016, and the year ended December 31, 2015, approximately $7,689,334, $7,725,000, $1,137,000, and 2014, $485,859 and $0,$811,000, respectively, has have
been recognized as stock based compensationcompensation. During the years ended March 31, 2018 and 2017, the three months ended March 31, 2016, and the year ended December 31, 2015, approximately $4,123,000, $5,100,000, $1,137,000, and $811,000, have been recognized in general and administrative expense.
During the years ended March 31, 2018 and 2017, approximately $3,566,000 and $2,625,000 have been recognized in research and development expense. There was no such expense recorded in research and development expense for the three months ended March 31, 2016 and the year ended December 31, 2015.
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. In accordance with ASC 718, for employees, the compensation expense for employees andnon-employees is amortized on a straight-line basis over the requisite service period, which approximates the vesting period. The Company accounts for forfeitures as they occur, rather than estimating forfeitures as of an award’s grant date.
The expected volatility of options granted has been determined using the method described under ASC 718 using the expected volatility of similar companies. The expected term of options granted to employees and directors in the current fiscal period has been based on the term by using the simplified “plain-vanilla” method as allowed under SAB No. 110. The expected term of options granted tonon-employees and consultants is based on the grant’s full contractual life.
- 93 -Prior to the three months ended December 31, 2017, the Company used the full contractual term as the expected term in its Black Scholes model to estimate stock option value. The Company used the full contractual term because there was no history of exercise activity and the stock was thinly-traded on the OTC market.
Beginning October 1, 2017, the Company determined the use of the simplified method was more appropriate than the full contractual term due to the increased trading volume and activity during the quarter and the increased market and demand for shares.
The Company considered other methods to estimate expected term other than the simplified method. However, as noted above, there is no historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded and no other refined estimate of expected life that is appropriate.
The assumptions utilized to determine such valuesestimate the fair value of stock options granted are presented in the following table:
| | | |
| December 31, 2015
| | December 31, 2014
|
| | | |
Risk free interest rate
| 1.65%
| | N/A
|
Expected volatility
| 82.90%
| | N/A
|
Expected term
| 5 years
| | N/A
|
Dividend yield
| 0%
| | N/A
|
Risk-free interest rate—Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company’s stock options.
Expected volatility—Because the Company has a limited trading history in its common stock, expected volatility is based on that of comparable public development stage biotechnology companies.
Expected term—The expected option term represents the period that stock-based awards are expected to be outstanding. The Company is currently using the contractual term of five years as the expected term due to its limited history of granting stock options.
Dividend yield—The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.
Forfeitures—ASC 718 requires forfeitures to be estimated at the time of grant and revised if necessary, in subsequent periods if actual forfeitures differ from those estimates. Due to its limited history of granting stock options, the Company is not applying any forfeiture rate.
| | | | | | | | |
| | | Year Ended | | Three Months
Ended | | Year Ended |
| | | March 31, | | March 31, | | December 31, |
| | | 2018 | | 2017 | | 2016 | | 2015 |
Risk free interest rate | | 1.74%-2.70% | | 1.57%-2.49% | | 1.4% | | 1.65% |
Expected volatility | | 65.95%-90.32% | | 80.74%-92.33% | | 79% | | 82.9% |
Expected term | | 1-10 years | | 5-10 years | | 5 years | | 5 years |
Dividend yield | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
The following is a summary of the statusactivity of the Company’s stock options under the 2015 Plan and 2016 Director Plan as of March 31, 2018:
| | | | | | | | |
| | | Number of
Options | | | Weighted Average
Exercise Price | |
Outstanding at March 31, 2017 | | | 4,039,444 | | | $ | 6.15 | |
Granted | | | 1,920,120 | | | $ | 3.78 | |
Exercised | | | (2,048 | ) | | $ | 2.70 | |
Forfeited/Cancelled | | | (519,444 | ) | | $ | 8.23 | |
| | | | | | | | |
Outstanding at March 31, 2018 | | | 5,438,072 | | | $ | 5.11 | |
| | | | | | | | |
Options exercisable at March 31, 2018 | | | 2,891,909 | | | $ | 5.50 | |
| | | | | | | | |
Weighted-average grant date fair value of options granted during the years ended March 31, 2018 and 2017, the three months ended March 31, 2016 and the year ended December 31, 2015:2015 is $2.72, $5.34, $6.99 and $5.12, respectively.
| | | | |
| Number of
Options | | Weighted Average
Exercise Price |
| | | | |
Outstanding at December 31, 2014 | — | | $ | — |
Granted | 150,000 | | | 7.75 |
Exercised | — | | | — |
Forfeited/Cancelled | — | | | — |
Outstanding at December 31, 2015 | 150,000 | | $ | 7.75 |
Grant date fair value | $ 5.12 | | | |
| | | | | | | | | | | | | | |
| | Stock Options Outstanding | | Stock Options Vested |
Range of
Exercise
Price | | Number
Outstanding at
December 31, 2015 | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Life (Years) | | Aggregate
Intrinsic
Value | | Number
Vested at
December 31, 2015 | | Weighted
Average
Exercise
Price | | Aggregate
Intrinsic
Value |
| | | | | | | | | | | | | | |
$ 7.75 | | 150,000 | | $ 7.75 | | 4.4 | | $ 525,500 | | 75,000 | | $ 7.75 | | $262,500 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Stock Options Outstanding | | | Stock Options Vested | |
Range of Exercise Price | | Number
Outstanding
at
March 31,
2018 | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Life (Years) | | | Aggregate
Intrinsic
Value | | | Number
Vested at
March 31,
2018 | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Life (Years) | | | Aggregate
Intrinsic
Value | |
$2.50-$8.75 | | | 5,438,072 | | | $ | 5.11 | | | | 8.20 | | | $ | — | | | | 2,891,909 | | | $ | 5.50 | | | | 7.78 | | | $ | — | |
The intrinsic value is calculated as the excess of the market value of Decemberas March 31, 20152018 over the exercise price of the option.options, is zero. The market value as of DecemberMarch 31, 20152018 was $11.25$2.23 as reported by the OTC Market, Inc.NASDAQ Capital Market. The total intrinsic value of options exercised during the year ended March 31, 2018 was $7,065.
- 94 -
Stock Grants
On March 10, 2015, the Company adopted an independent director compensation policy and also adopted a compensation policy with respect to a special advisor to the Company’s board of directors. Under such independent director compensation policy, each of those directors meeting the NASDAQ stock market definition of independent director is entitled to receive annual compensation in the amount of $100,000,one-half to be paid in cash on a quarterly basis, in arrears, and the remainingone-half of the compensation to be paid in the form of Company common stock on a quarterly basis, in arrears, with the shares valued at the closing sale price of the Company common stock on the last trading day of the applicable quarterly period. The special advisor isat such time was being compensated in the same manner as the independent directors. Effective as of September 30, 2015, the Company established a Scientific and Medical Advisory Board five individuals were appointed as members of such advisory board and a compensation policy for the advisory board’s members, substantially identical to the compensation policy described above in this paragraph for the Company’s independent directors, was adopted.
Accordingly, as In May 2016, the Company replaced the stock component of the previous independent director compensation policy with respectthe 2016 Director Plan and the Company likewise has determined to extend similar awards to the special advisor and members of the Scientific and Medical Advisory Board. During the fiscal year ending March 31, 2018, the Company discontinued the policy of compensating independent directors equally with the Scientific and Medical Advisory Board. On May 24, 2018, the Board approved the Restated 2016 Plan to allow different vesting schedules fornon-employee directors. The Company expects to submit the Restated 2016 Plan for approval to the stockholders at the 2018 annual meeting of stockholders.
Note 11. Income Taxes.
The Company provides for income taxes under ASC 740. Under ASC 740, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company has not recorded a current or deferred income tax expense or benefit since its inception.
The Company’s loss before income taxes was $18,969,493, $15,206,781, $2,751,127, and $11,726,818, for the years ended March 31, 2018 and 2017, three months ended March 31, 2016, and year ended December 31, 2015, respectively, and was generated entirely in the United States.
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following:
| | | | | | | | |
| | | March 31, | |
| | | 2018 | | | 2017 | |
Net operating loss carryforward | | $ | 5,736,229 | | | $ | 5,747,394 | |
Research and development credit carryforward | | | 410,369 | | | | 310,727 | |
Stock options - NQSOs | | | 2,759,122 | | | | 3,178,381 | |
Accruals and other temporary differences | | | 757,567 | | | | 809,810 | |
| | | | | | | | |
Gross deferred tax assets | | | 9,663,287 | | | | 10,046,312 | |
Deferred tax valuation allowance | | | (9,663,287 | ) | | | (10,046,312 | ) |
| | | | | | | | |
Net deferred taxes | | $ | — | | | $ | — | |
| | | | | | | | |
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses since inception, the Company issued tohas concluded that it is more likely than not that the benefit of its three independent directors, special advisor and five advisory board members an aggregate of 36,370 shares ofdeferred tax assets will not be realized. Accordingly, the Company common stock (7,248 shareshas provided a full valuation allowance for deferred tax assets as of March 31, 2015, 5,884 shares as2018. The valuation allowance decreased by $383,025 for the year ended March 31, 2018 due primarily to stock option forfeitures and rate change.
A reconciliation of June 30, 2015, 13,239 shares as of September 30, 2015 and 9,999 shares as of December 31, 2015), which were valuedincome tax benefit computed at the closing sale pricestatutory federal income tax rate to income taxes as reflected in the financial statements is as follows:
| | | | | | | | | | | | | | | | |
| | | Year Ended | | | Three Months
Ended | | | Year Ended | |
| | | March 31, | | | March 31, | | | December 31, | |
| | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
U.S. statutory income tax rate | | | 31.5 | % | | | 34 | % | | | 34 | % | | | 34 | % |
State income taxes, net of federal benefit | | | — | | | | — | | | | 4.9 | | | | 7.9 | |
Stock options | | | (7.0 | ) | | | — | | | | (14.1 | ) | | | — | |
Permanent differences | | | 0.6 | | | | — | | | | — | | | | (12.8 | ) |
Tax rate change | | | (27.7 | ) | | | (5.4 | ) | | | (21.7 | ) | | | — | |
Provision to returntrue-up | | | | | | | 7.3 | | | | 15.6 | | | | 8.0 | |
R&D credit carryforwards | | | 0.5 | | | | 0.8 | | | | 1.5 | | | | 1.8 | |
Valuation allowance | | | 2.1 | | | | (36.7 | ) | | | (20.2 | ) | | | (38.9 | ) |
| | | | | | | | | | | | | | | | |
Effective tax rate | | | — | % | | | — | % | | | — | % | | | — | % |
As of March 31, 2018, the Company had gross U.S. federal net operating loss carryforwards of approximately $27,300,000 net of uncertain tax positions, which may be available to offset future income tax
liabilities and will begin to expire at various dates starting in 2033. As of March 31, 2018, none of the Company’s state net operating losses have value due to the apportionment rule in the states where state income tax returns are currently filed. As of March 31, 2018, the Company had gross federal research and development tax credit carryforwards of $483,000, available to reduce future tax liabilities which will begin to expire at various dates starting in 2030.
Under the provisions of the Internal Revenue Code, the net operating loss (“NOL”) carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company common stockimmediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financing transactions since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | |
| | | Year Ended
March 31, | |
| | | 2018 | | | 2017 | |
Gross unrecognized tax benefits at beginning of year | | $ | 617,233 | | | $ | 331,545 | |
Increases (decreases) in tax positions for current period | | | (148,066 | ) | | | 285,688 | |
| | | | | | | | |
Gross unrecognized tax benefits at end of year | | $ | 469,167 | | | $ | 617,233 | |
| | | | | | | | |
As of March 31, 2018, the Company had $469,167 of unrecognized tax benefits, which were offset with the net operating loss and valuation allowance on the last trading dayconsolidated balance sheet. None of the gross unrecognized tax benefits would affect the effective tax rate at March 31, 2018, if recognized. In addition, the Company did not record any penalties or interest related to uncertain tax positions for the periods presented in these consolidated financial statements. The Company does not have any positions for which it is reasonably possible that there will be significant increase or decrease in the amounts of unrecognized tax benefits within twelve months of the reporting date.
The Company files income tax returns in the United States, and various state jurisdictions. The federal and state income tax returns are generally subject to tax examinations for the period April 1, 2016 through March 31, 2017, January 1, 2016 through March 31, 2016, the years ended December 31, 2015 and 2014. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.
On December 22, 2017, H.R. 1 (also, known as the Tax Cuts and Jobs Act (the “Act”)) was signed into law. Among its numerous changes to the Internal Revenue Code, the Act reduces the U.S. federal corporate tax rate from 35% to 21%. As a result, the most significant impact on the financial statements is a reduction of approximately $3.2 million for the deferred tax assets related to net operating losses and stock based compensation. Such reduction is offset by changes to the Company’s valuation allowance.
The Company has completed the accounting for the tax impact of the Act as of March 31, 2018 and has recorded no provisional amounts.
Note 12. Quarterly Information (unaudited)
| | | | | | | | | | | | | | | | |
| | | June 30,
2017 | | | September 30,
2017 | | | December 31,
2017 | | | March 31,
2018 | |
Fiscal Year Ended March 31, 2018 | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | $ | 1,264,358 | | | $ | 2,551,920 | | | $ | 2,585,991 | | | $ | 2,437,392 | |
General and administrative | | | 1,924,204 | | | | 2,744,998 | | | | 2,975,274 | | | | 2,875,741 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 3,188,562 | | | | 5,296,918 | | | | 5,561,265 | | | | 5,313,133 | |
Loss from operations | | | (3,188,562 | ) | | | (5,296,918 | ) | | | (5,561,265 | ) | | | (5,313,133 | ) |
Other income | | | (315,624 | ) | | | (74,761 | ) | | | — | | | | — | |
| | | | |
Loss before income taxes | | | (2,872,938 | ) | | | (5,222,157 | ) | | | (5,561,265 | ) | | | (5,313,133 | ) |
Income tax expense | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | | (2,872,938 | ) | | | (5,222,157 | ) | | | (5,561,265 | ) | | | (5,313,133 | ) |
| | | | |
Basic and diluted loss per common share | | $ | (0.03 | ) | | $ | (0.06 | ) | | $ | (0.06 | ) | | $ | (0.06 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted weighted average shares outstanding | | | 89,258,377 | | | | 89,321,067 | | | | 89,929,161 | | | | 93,829,568 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | June 30,
2016 | | | September 30,
2016 | | | December 31,
2016 | | | March 31,
2017 | |
Fiscal Year Ended March 31, 2017 | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | $ | 1,585,540 | | | $ | 1,130,468 | | | $ | 1,745,681 | | | $ | 1,649,898 | |
General and administrative | | | 4,425,786 | | | | 1,990,471 | | | | 1,245,268 | | | | 1,433,669 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 6,011,326 | | | | 3,120,939 | | | | 2,990,949 | | | | 3,083,567 | |
Loss from operations | | | (6,011,326 | ) | | | (3,120,939 | ) | | | (2,990,949 | ) | | | (3,083,567 | ) |
| | | | |
Loss before income taxes | | | (6,011,326 | ) | | | (3,120,939 | ) | | | (2,990,949 | ) | | | (3,083,567 | ) |
Income tax expense | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | | (6,011,326 | ) | | | (3,120,939 | ) | | | (2,990,949 | ) | | | (3,083,567 | ) |
| | | | |
Basic and diluted loss per common share | | $ | (0.07 | ) | | $ | (0.04 | ) | | $ | (0.04 | ) | | $ | (0.04 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted weighted average shares outstanding | | | 84,119,728 | | | | 84,177,838 | | | | 84,517,074 | | | | 85,089,905 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | June 30,
2015 | | | September 30,
2015 | | | December 31,
2015 | | | March 31,
2016 | |
Fiscal Year Ended March 31, 2016 | |
Operating expenses: | |
| | | | |
Research and development | | $ | 790,692 | | | $ | 1,357,394 | | | $ | 1,161,563 | | | $ | 808,472 | |
General and administrative | | | 959,594 | | | | 958,922 | | | | 1,273,470 | | | | 1,942,655 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 1,750,286 | | | | 2,316,316 | | | | 2,435,033 | | | | 2,751,127 | |
Loss from operations | | | (1,750,286 | ) | | | (2,316,316 | ) | | | (2,435,033 | ) | | | (2,751,127 | ) |
| | | | |
Interest expense | | | — | | | | — | | | | — | | | | — | |
Other income | | | — | | | | — | | | | (376,255 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Loss before income taxes | | | (1,750,286 | ) | | | (2,316,316 | ) | | | (2,058,778 | ) | | | (2,751,127 | ) |
Income tax expense | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | | (1,750,286 | ) | | | (2,316,316 | ) | | | (2,058,778 | ) | | | (2,751,127 | ) |
Basic and diluted loss per common share | | $ | (0.02 | ) | | $ | (0.03 | ) | | $ | (0.03 | ) | | $ | (0.03 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted weighted average shares outstanding | | | 86,007,313 | | | | 86,013,196 | | | | 82,189,523 | | | | 83,796,260 | |
| | | | | | | | | | | | | | | | |
On October 27, 2016, the Board of Directors of Tyme Tech approved a change in fiscal year end from December 31 to March 31 of each year. As a result of the quarters ended duringchange in fiscal year, Tyme Tech filed with the Securities and Exchange Commission (“SEC”) a transition report on Form10-QT on November 8, 2016 (the “Transition Report”) reporting the results for the three months periods ending March 31, 2016 and March 31, 2015 ($6.90 per share with respect(unaudited) . As a result of an audit of the financial statements for the Transition Report, certain adjustments were made to the condensed consolidated financial statements contained in the Transition Report compared to what was reported on the Company’s Form10-Q for the quarter ended March 31, 2015, $8.50 per share2016, filed with respectthe SEC on May 10, 2016. The Company evaluated the materiality of these adjustments and concluded that they were not material, individually or in the aggregate, to any of the quarters ended June and September 30, 2015 and $11.25 with respect to the quarter ended December 31, 2015). Total stock compensation expense related to these stock grants was $325,000 for the year ended December 31, 2015.previously issued financial statements.
Note 13. Subsequent Events.
Employment Agreement
The Company evaluates events or transactions that occur after the balance sheet date but prior to the issuance of consolidated financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.
On April 30, 2018 we entered into agreement to lease 4,752 square feet of office space at 17 State Street, 7th Floor, New York, New York 10004. The lease term is 28 months and cumulative monthly rent of $566,427 has been paid in advance and held in escrow. Our costs for this space approximates $250,000 per year.
On May 24, 2018, the Board approved an amendment and restatement of the 2016 Director Plan (the “Restated 2016 Director Plan”) to increase the number of shares authorized to be issued under the plan and to permit different award structures and different vesting schedules than currently provided for in the plan. The Board expects to submit the Restated 2016 Director Plan for approval by the stockholders at the 2018 annual meeting of stockholders. In addition, the Board approved the 2018 Employee Bonuses as recommended by the Compensation Committee, which consisted of (a) a new employment arrangement, set forthbonus of $297,000 for the Company’s CEO, Steve Hoffman, and (b) a bonus pool of $870,000 to be allocated among the Company’s other employees. As the amounts related to fiscal year 2018, the amounts and estimated taxes were recorded and are included in a letter agreement, datedaccrued bonuses as of January 27, 2016, with Robert Dickey IV, Vice President - Finance and Chief Financial Officer.March 31, 2018. The new employment arrangement supersedesBoard also granted authority to the prior letter agreement with Mr. Dickey which was dated as of May 15, 2015. As part of the new employment agreement, Mr. Dickey has been granted a five year optionCEO to purchasegrant up to 200,000 shares of the Company’s common stock at a per share purchase price of $11.00, the closing price of the common stock on the date of the new agreement. One-half of the shares subject to such750,000 option vested immediately upon grant and the remaining 100,000 shares subject to the option will vest on July 27, 2016, provided that Mr. Dickey is still employed by the Company on said vesting date. The option granted to Mr. Dickeyawards under the prior agreement has not been terminated and remains exercisable in accordance2015 Equity Plan tonon-executive employees, with its terms.
Securities Purchase Agreement
Pursuant to a Securities Purchase Agreement, dated as of February 2, 2016, for the aggregate consideration of $3,100,000, the Company sold and issued to a total of two individuals an aggregate of: (i) 775,000 shares of the Company’s common stock, par value $0.0001 per share, and (ii) 461,384 common stock purchase warrants. Each Warrant entitles its holder to purchase one share of common stock at an initial exercise price of $5.00 at any time during the period commencingsuch authority expiring on February 2, 2016 and terminating on the tenth anniversary of such date. No registration rights were granted to the purchasers of these shares or warrants.
Sale of Excess Ingredient Materials
On March 24, 2016, Steve Hoffman, the Company’s President and Chief Executive Officer, purchased excess ingredient materials from the Company for a cost of $170,000, which was the pro rata cost of obtaining items. The income from this will be recorded as an offset to Research and Development expense on the Consolidated Statements of Operations, where the cost of such materials was originally recorded.31, 2019.
- 95 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On November 13, 2015, we engaged Grant Thornton LLP as our new independent registered public accounting firm to audit our financial statements, commencing with our fiscal year ending December 31, 2015. We previously reported in our Current Report on Form 8-K (Date of Report: October 8, 2015), as filed with the Securities and Exchange Commission on October 14, 2015, our termination of our prior independent registered public accounting firm, WithumSmith+Brown, PC.
There were no disagreements with either Grant Thornton LLP or WithumSmith+Brown, PC.LLP.
ITEM 9A. CONTROLS AND PROCEDURES
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended, as of December 31, 2015 as required by Rules 13a-15(b) and 15d-15(b)the end of the Exchange Act.period covered by this Annual Report on Form10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that as of March 31, 2018, our disclosure controls and procedures were not effective. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our Principal Executive Officer and Principal Financial Officer have concluded that at March 31, 2018, due to the material weaknesses in our internal control over financial reporting noted below, our disclosure controls and procedures were not effective. We intend to implement remedial measures designed to address these material weaknesses.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Management assessed the effectiveness of our internal control over financial reporting as of DecemberMarch 31, 2015.2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”) in Internal Control—Integrated Framework issued in 2013.Based on the evaluation of our disclosure controls and proceduresinternal control over financial reporting as of DecemberMarch 31, 2015,2018, our Chief Executive Officer and Chief Financial Officer concluded that as of such date, our internal control over financial reporting was not effective due to the material weaknessweaknesses described below, our disclosure controls and procedures were not effective for the reasons set forth below. A material weakness is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonablyreasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be presented or detected on a timely basis.
Our independent registered public accounting firm, Grant Thornton LLP, has issued an audit report with respect to our internal control over financial reporting, which appears in Part II, Item 9a of this Annual Report onForm 10-K.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:were as follows:
| • | |
| ·
| lack of a functioning audit committee resulting in ineffective oversight inIneffective information technology general controls (“ITGC”) and application controls within the establishmentCompany’s general ledger system, disbursement solution and monitoring of required internal controls and procedures;
|
| | |
| ·
| inadequate segregation of duties consistent with control objectives; and
|
| | |
| ·
| ineffective controls over period end financial disclosure and reporting processes.
payroll solution, including: |
Insufficient segregation of duties;
The aforementioned material weaknesses were identified
Lack of review controls over activity by Messrs. Hoffmanadministrative users;
Validation of information and Dickey in connectionreports used by management.
Ineffective controls over period end financial disclosure and reporting processes, including:
Lack of a formal closing process;
Lack of communication with theirnon-finance business personnel and sufficient review of our financial statements as of December 31, 2015. In addition, our management noted further internal control deficiencies,business activities, including those relating to segregation of duties over cash disbursements and the prompt analysis of the financial impact of allsignificant transactions, to which we are a party.determine proper accounting and reporting;
Insufficient management oversight of outside accounting and financial reporting advisory firm.
Lack of sufficient and timely review over account balances, including:
Inadequate support and description of reconciling items;
Inadequate journal entry review and supporting documentation.
Our management believes that the material weaknesses set forth above did not have an effect on our financial results.
- 96 -
Management’s Remediation Initiatives
Management began implementing certain practices and procedures to address the foregoing material weaknesses with plans to complete the remediation of the foregoing deficiencies in the future. Such remediation efforts are discussed below.
In an effortManagement’s Actions and Plans to Remediate Material Weaknesses:
Management believes that progress has been made during the year ended March 31, 2018, and through the date of this report, to remediate the identifiedunderlying causes of the material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
| | |
| ·
| Assuming we are able to secure additional working capital, we will create additional positions in order to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function. In the meantime, beginning in our fiscal quarter ended September 30, 2015, we retained an accounting and financial reporting advisory firm with significant experience with publicly held companies to assist management in the accounting function and with implementing and enhancing our internal controls over financial reporting.
|
| | |
| ·
| We intend to design and implement centralized and automated enhancements to the processing of invoices to assure standardized supplier setup and proper entry by invoice type into our accounts payable system. These enhancements will also incorporate adherence to signing authorities as part of check run processing and ensure adequate segregation of duties as well as the completion of timely month end reconciliation procedures for accounts payable and accrued expenses.
|
| | |
| ·
| We also plan to appoint one or more independent directors to an audit committee, which will undertake audit oversight and other duties normally performed by audit committees of public companies.
|
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subjectreporting and has taken the following steps to attestationremediate such material weaknesses:
We have recently hired a corporate controller who will provide oversight and define deliverables and responsibilities for the outside accounting and financial reporting advisory firm as well as increase our technical expertise within the accounting function.
We have held and intend to continue to enhance our periodic meetings with our outside accounting and financial reporting advisory firm to discuss operating results, significant transactions, conclusions reached regarding technical accounting matters and financial reporting disclosures.
We have implemented disbursement, general ledger, and human resources systems that provide key control functionality. Within these systems, we plan to modify and improve security administration and other access level and systemic controls. Where this is inherently limited, we will establish more effective compensating controls outside the system.
Management will be taking the following steps to further remediate the material weaknesses as follows:
We will formalize processes and policies, including financial closing processes with analytical reviews and implementation of policies for ITGC. Where necessary, we will implement relevant key controls.
We will establish a disclosure committee which will include both finance andnon-finance representatives.
We will improve processes that allow for proactive review of significant transactions, including the creation of a centralized repository for significant agreements.
We will continue to develop processes that segregate duties consistent with control objectives.
We will establish a periodic review by our registered publicfinancial management of account balance detail, journal entry posting activity and account reconciling items.
We will work with system vendors and the outside accounting and financial reporting advisory firm pursuant to exemptions provided to issuerscreate or modify reports that are non-accelerated filers or qualify as an “emerging growth company,” as definedrelied upon in Section 2(a) ofmaking financial and business decisions.
The material weaknesses will not be considered remediated until the Securities Act of 1933, orapplicable remedial controls operate for a sufficient period and management has concluded, through testing, that the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm provide an attestation on the effectiveness of our internal control over financial reporting.
controls are operating effectively.
Changes in Internal Control over Financial Reporting
ThereOther than as described above under “Management Remediation Initiatives”, there have been no changes in our internal control over financial reporting during our fourth fiscal quarter ended DecemberMarch 31, 20152018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As noted
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Tyme Technologies, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Tyme Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of March 31, 2018, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of March 31, 2018, based on criteria established in the 2013Internal Control—Integrated Framework issued by COSO.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.
| • | | Ineffective information technology general controls (“ITGC”) and application controls within the Company’s general ledger system, disbursement solution and payroll solution,including: |
Insufficient segregation of duties;
Lack of review controls over activity by administrative users.
Validation of information and reports used by management
Ineffective controls over period end financial disclosure and reporting processes, including:
Lack of a formal closing process;
Lack of communication with non-finance, business personnel and sufficient review of business activities, including significant transactions, to determine proper accounting and reporting;
Insufficient management oversight of outside accounting and financial reporting advisory firm.
Lack of sufficient and timely review over account balances, including:
Inadequate support and description of reconciling items;
Inadequate journal entry review and supporting documentation
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended March 31, 2018. The material weaknesses identified above we intendwas considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and this report does not affect our report dated June 13, 2018 which expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to formexpress an audit committee.opinion on the Company’s internal control over financial reporting based on our audit. We anticipate that such audit committee will discuss with management, including our Chief Financial Officer, and our independent registeredare a public accounting firm registered with the statusPCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial controlsreporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and determine what changes are necessarylimitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with US GAAP. We anticipategenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a numbermaterial effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in our financial controls andconditions, or that the degree of compliance with the policies or procedures will be made in the ensuing periods.may deteriorate.
|
| /s/ GRANT THORNTON LLP |
|
| New York, New York |
| June 13, 2018 |
ITEM 9B. OTHER INFORMATION
| ITEM 9B. | OTHER INFORMATION |
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
Directors
Set forth below are the names of and certain information as of May 30, 2018 regarding our Board of Directors:
The Proxy Statement
| | | | | | |
Name | | Age | | Position(s) with the Company/Principal Occupation | | Date Elected to Our Board of Directors |
Steve Hoffman | | 55 | | Director, Chief Executive Officer and Chief Science Officer of the Company | | March 5, 2015* |
| | | |
Michael Demurjian | | 54 | | Director, Chief Operating Officer and Executive Vice President of the Company | | March 5, 2015* |
| | | |
Dr. Gerald Sokol | | 75 | | Director/Chief of Radiation Oncology, University of South Florida’s Tampa General Hospital | | March 10, 2015 |
| | | |
Timothy C. Tyson | | 66 | | Director/Chairman and Chief Executive Officer, Avara Pharmaceutical Services | | March 10, 2015 |
| | | |
Paul Sturman | | 57 | | Director/Chief Executive Officer, Nature’s Bounty Co. | | March 2, 2017 |
| | | |
James Biehl | | 54 | | Director/Partner, Drinker Biddle & Reath LLP | | March 30, 2017 |
| | | |
David Carberry | | 65 | | Director/Former Chief Financial Officer of Excellis Health Solutions, LLC (Retired) | | March 30, 2017 |
| | | |
Tommy G. Thompson | | 76 | | Director/Chairman and Chief Executive Officer, Thompson Holdings | | August 28, 2017** |
| | | |
Don DelGolyer | | 57 | | Director/Chief Executive Officer, Vertice Pharma LLC | | May 24, 2018 |
| * | Messrs. Hoffman and Demurjian served as the sole directors of Tyme, Inc. (or Tyme, our subsidiary) since its formation on July 26, 2013 and have served as directors of the Company since the completion of the Merger on March 5, 2015. |
| ** | Mr. Thompson previously served as a special advisor to our Board and before that served as a member of our Board. |
Executive Officers
See Part I, Additional Item of this Form10-K under the heading “Executive Officers of the Registrant.”
Other Information
Other information required by this Item 10 is incorporated by reference to, and will be contained in, our definitive proxy statement, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report.March 31, 2018.
ITEM 11. EXECUTIVE COMPENSATION
| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item 11 is incorporated by reference to, the informationand will be contained in, our definitive Proxy Statement.proxy statement, which will be filed within 120 days after March 31, 2018.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated by reference to, the informationand will be contained in, our Proxy Statement.definitive proxy statement, which will be filed within 120 days after March 31, 2018.
The following table provides certain information with respect to all of our equity compensation plans in effect as of March 31, 2018:
| | | | | | | | | | | | |
| Plan Category | | Number of
Securities to
be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights | | | Weighted
Average
Exercise Price | | | Number of
Securities
Remaining
Available for
Issuance
Under Equity
Compensation
Plans (3) | |
Equity compensation plans approved by stockholders prior to March 31, 2018 | | | 5,438,072 | (1) | | $ | 5.11 | | | | 7,963,190 | |
Equity compensation plans not approved by stockholders prior to March 31, 2018 | | | 59,534 | (2) | | $ | 5.00 | | | | — | |
| | | | | | | | | | | | |
Total Equity | | | 5,497,606 | | | $ | 5.11 | | | | 7,963,190 | |
| (1) | Includes 5,438,072 shares of our common stock issuable under option awards made prior to March 31, 2018 under our 2015 Equity Incentive Plan and our 2016 Director Plan, each approved by stockholders; these option awards carry a weighted average exercise price of $5.11 per share. For a description of the terms of the 2015 Equity Incentive Plan and 2016 Director Plan, please see Note 10 to the consolidated financial statements presented elsewhere herein. |
| (2) | Includes 59,534 shares of our common stock issuable upon the exercise of certain warrants to purchase common stock as of March 31, 2018 at a weighted average exercise price $5.00 per share; the warrants described in this sentence are limited to warrants issued in return for goods or services provided and do not include warrants issued in connection with capital raising transactions, consistent with applicable SEC disclosure obligations. |
| (3) | Includes 7,963,190 shares of our common stock issuable under awards eligible to be made (and not outstanding) as of March 31, 2018 under our 2015 Equity Incentive Plan and 2016 Director Plan. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated by reference to, the informationand will be contained in, our Proxy Statement.definitive proxy statement, which will be filed within 120 days after March 31, 2018.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item 1413 is incorporated by reference to, the informationand will be contained in, our Proxy Statement.definitive proxy statement, which will be filed within 120 days after March 31, 2018.
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | |
(a)
| DOCUMENTS FILED AS PART OF THIS REPORT |
The following is a list of our financial statements includedfiled in this Annual Report on Form10-K under Item 8 of Part II hereof:
| 1. | FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA |
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements as of December 31, 2015 and 2014
| |
Exhibit
NumberConsolidated Statements of Stockholders’ Equity (Deficit) for the years ended March 31, 2018 and 2017 and three months March 31, 2016; and the year ended December 31, 2015
| | | 84 | |
| |
Consolidated Statements of Cash Flows for the years ended March 31, 2018 and 2017, three months ended March 31, 2016, and year ended December 31, 2015 | | | 86 | |
| |
Notes to Consolidated Financial Statements as of March 31, 2018, 2017, 2016 and December 31, 2015 | | | 87 | |
| ITEM 16. | FORM 10-K SUMMARY |
| Omitted at the company’s option. |
| | |
Exhibit Number | | Description |
2.1
| |
| 2.1 | | Agreement and Plan of Merger and Reorganization, dated as of March 5, 2015, by and among Tyme Technologies, Tyme Acquisition Corp., Tyme, Inc. and other signatories thereto. [Incorporated(Incorporated by reference to Exhibit 2.1 to our Current Report on Form8-K, (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]) |
2.2
| |
| 2.2 | | Agreement and Plan of Merger, dated September 12, 2014, between Global Group Enterprises Corp. and Tyme Technologies, Inc. [Incorporated(Incorporated by reference to Exhibit 2.1 to our Current Report on Form8-K, (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.]) |
3.1
| |
| 3.1 | | Amended and Restated Certificate of Incorporation of Tyme Technologies, Inc. [Incorporated(Incorporated by reference to Exhibit 3.1 to our Current Report on Form8-K, (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.]) |
3.2
| Articles
|
| 3.2 | | Certificate of MergerAmendment to the Amended and Restated Certificate of Global Group Enterprises Corp. with and intoIncorporation of Tyme Technologies, Inc., filed with the Secretary of State of the State of Florida on September 18, 2014. [Incorporatedeffective April 2, 2018 (Incorporated by reference to Exhibit 3.33.1 to our Current Report on Form8-K, (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.]April 2, 2018.) |
3.3
| Certificate
|
| 3.3 | | Amended and RestatedBy-Laws of Merger of Global Group Enterprises Corp. with and into Tyme Technologies, Inc., filed with the Secretary of State of the State of Delaware on September 18, 2014. [Incorporatedeffective April 2, 2018. (Incorporated by reference to Exhibit 3.43.1 to our Current Report on Form8-K, (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.]April 2, 2018.) |
3.4
| Certificate of Merger of Tyme Acquisition Corp. with and into Tyme Inc., filed with the Secretary of State of the State of Delaware on March 5, 2015. [Incorporated by reference to Exhibit 3.4 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
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| |
Exhibit
Number
3.4* | Description
|
3.5
| Amended and RestatedBy-Laws of Tyme Technologies, Inc. [Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.] effective April 2, 2018. (marked copy.) |
10.1
| Split-Off Agreement, dated as of March 5, 2015, among Global Group Enterprises Corp., Tyme Technologies, Inc. and Andrew Keck. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.2
| General Release Agreement, dated as of March 5, 2015, among Global Group Enterprises Corp., Tyme Technologies, Inc. and Andrew Keck. [Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.3
| Lock-Up and No Shorting Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Steven Hoffman. [Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.4
| Lock-Up and No Shorting Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Michael Demurjian. [Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.5
| Form of Subscription Agreement between Tyme Technologies, Inc. and GEM Global Yield Fund LLC SCS. [Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.6
| Subscription Note of GEM Global Yield Fund LLC SCS, dated March 5, 2015, in the amount of $2.5 million and payable to Tyme Technologies, Inc. [Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.7
| Subscription Note Shares Escrow Agreement, dated March 5, 2015, between GEM Global Yield Fund LLC SCS and Tyme Technologies, Inc. and CKR Law LLP (as Escrow Agent). [Incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.8†
| 2015 Equity Incentive Plan of Tyme Technologies, Inc. [Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.9
| Form of Registration Rights Agreement, dated as of March 5, 2015, among Tyme Technologies, Inc. and the other parties thereto. [Incorporated by reference to Exhibit 10.9 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.10
| Indemnification Shares Escrow Agreement, dated as of March 5, 2015, among Tyme Technologies, Inc., Steven Hoffman (as Indemnification Representative) and CKR Law LLP. [Incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.11
| License Agreement, dated as of July 9, 2014, between Steven Hoffman and Tyme Inc. [Incorporated by reference to Exhibit 10.11 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.12†
| Employment Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Steven Hoffman. [Incorporated by reference to Exhibit 10.12 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.13†
| Employment Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Michael Demurjian. [Incorporated by reference to Exhibit 10.13 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.14
| Consulting Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Beryllium Advisory Consulting, Limited Liability Company. [Incorporated by reference to Exhibit 10.14 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.15
| Adjustment Shares Escrow Agreement, dated as of March 5, 2015, among Tyme Technologies, Inc., the depositor parties thereto, CKR Law LLP (as Escrow Agent). [Incorporated by reference to Exhibit 10.15 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.16
| 10% Secured Convertible Promissory Note of Tyme Inc. in the principal amount of $1,100,000, issued on July 11, 2014. [Incorporated by reference to Exhibit 10.16 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.17
| Amended and Restated 10% Secured Convertible Promissory Note of Tyme Inc. in the principal amount of $1,350,000 issued on November 24, 2014. [Incorporated by reference to Exhibit 10.17 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.18
| Second Amended and Restated 10% Secured Convertible Promissory Note of Tyme Inc. in the principal amount of $2,310,000 issued on January 15, 2015. [Incorporated by reference to Exhibit 10.18 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
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| |
Exhibit
Number
4.1 | Description
|
10.19
| Letter Agreement, dated as of March 5, 2015, among Christopher Brown, Tyme Technologies, Inc. and Tyme Inc. [Incorporated by reference to Exhibit 10.19 to our Current Report on Form 8-K (Date of Report: March 5, 2015), filed with the SEC on March 11, 2015.]
|
10.20†
| Employment Agreement, dated as of May 15, 2015, between Tyme Technologies, Inc. and Robert Dickey. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Date of Report: May 15, 2015), filed with the SEC on May 20, 2015.]
|
10.21†
| Option Agreement dated as of May 15, 2015, between Tyme Technologies, Inc. and Robert Dickey. [Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (Date of Report: May 15, 2015), filed with the SEC on May 20, 2015.]
|
10.22
| Omnibus Amendment, dated as of June 5, 2015, among Tyme Technologies, Inc., Christopher Brown and GEM Global Yield Fund LLC SCS. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Date of Report: June 5, 2015), filed with the SEC on June 10, 2015.]
|
10.23
| Second Omnibus Amendment, dated as of July 23, 2015, among Tyme Technologies, Inc., Christopher Brown and GEM Global Yield Fund LLC SCS. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Date of Report: July 23, 2015), filed with the SEC on July 23, 2015.]
|
10.24
| Form of Securities Purchase Agreement, dated as of February 2, 2016, among Tyme Technologies, Inc. and the purchaser parties thereto. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Date of Report: February 2, 2016), filed with the SEC on February 8, 2016.]
|
10.25
| Form of Warrant Certificate, dated as of February 2, 2016. [Incorporated(Incorporated by reference to Exhibit A to the Form of Securities Purchase Agreement, dated as of February 2, 2016, filed as Exhibit 10.1 to our Current Report onForm 8-K, (Date of Report: February 2, 2016), filed with the SEC on February 8, 2016.] ) |
10.26
| Employment Agreement, dated as of January 27, 2016, between Tyme Technologies, Inc. and Robert Dickey IV. [Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Date of Report: January 27, 2016), filed with the SEC on February 2, 2016.]
|
10.27
4.2 | Option Agreement, dated as of January 27, 2016, between Tyme Technologies, Inc. and Robert Dickey IV. [Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (Date of Report: January 27, 2016),filed with the SEC on February 2, 2016.]
|
10.28
| Option Agreement, dated as of May 15, 2015 between Tyme Technologies, Inc. and Robert Dickey IV. [Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on May 20, 2015.]
|
10.29
| Form of Securities Purchase Agreement, dated as of December 18, 2015, between Tyme Technologies, Inc. and the purchaser parties thereto. [Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K (Date of Report: December 23, 2015), filed with the SEC on December 30, 2015.]
|
10.30
| Form of Warrant Certificate, dated as of December 18, 2015, between Tyme Technologies, Inc. and the purchaser parties thereto. [Incorporated(Incorporated by reference to Exhibit A to the Form of Securities Purchase Agreement, dated as of December 18, 2015, filed as Exhibit 99.1 to our Current Report on Form8-K, (Date of Report: December 23, 2015), filed with the SEC on December 30, 2015.] ) |
10.31
| Securities Acquisition
|
| 4.3 | | Form of Warrant. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form8-K, filed with the SEC on March 22, 2017.) |
| |
| 10.1 | | License Agreement, dated as of December 18, 2015,July 9, 2014, between Steven Hoffman and Tyme Inc. (Incorporated by reference to Exhibit 10.11 to our Current Report on Form8-K, filed with the SEC on March 11, 2015.) |
| |
| 10.2 | | Equity Distribution Agreement, dated as of November 2, 2017, by and between Tyme Technologies, Inc. and Canaccord Genuity, Inc. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form8-K, filed with the purchaser parties thereto. [IncorporatedSEC on November 6, 2017.) |
| |
| 10.3† | | 2015 Equity Incentive Plan of Tyme Technologies, Inc. (Incorporated by reference to Exhibit 10.8 to our Current Report on Form8-K, filed with the SEC on March 11, 2015.) |
| |
| 10.4† | | Amendment No. 1 to the Tyme Technologies, Inc. 2015 Incentive Plan, effective May 6, 2016. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form10-Q, filed with the SEC on August 9, 2016.) |
| |
| 10.5† | | Amendment No. 2 to the Tyme Technologies, Inc. 2015 Incentive Plan, effective February 5, 2018. (Incorporated by reference to Exhibit 99.1 to our Current Report on Form8-K, filed with the SEC on April 2, 2018.) |
| |
| 10.6† | | Form of Nonqualified Stock Option Agreement under the Tyme Technologies, Inc. 2015 Equity Incentive Plan. (Incorporated by reference to Exhibit 99.3 to our Current Report on Form8-K, filed with the SEC on April 2, 2018.) |
| |
| 10.7† | | Amended and Restated 2016 Stock Option Plan forNon-Employee Directors, effective May 24, 2018. (Incorporated by reference to Exhibit 99.2 to our Current Report on Form8-K, (Date of Report: December 23, 2015), filed with the SEC on December 30, 2015.]May 31, 2018.) |
21.1*
| |
| 10.8† | | Form of Nonqualified Stock Option Agreement under the Tyme Technologies, Inc. 2016 Stock Option Plan forNon-Employee Directors. (Incorporated by reference to Exhibit 99.4 to our Current Report on Form8-K, filed with the SEC on April 2, 2018.) |
| |
| 10.9† | | Employment Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Steven Hoffman. (Incorporated by reference to Exhibit 10.12 to our Current Report on Form8-K, filed with the SEC on March 11, 2015.) |
| |
| 10.10† | | Employment Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Michael Demurjian. (Incorporated by reference to Exhibit 10.13 to our Current Report on Form8-K, filed with the SEC on March 11, 2015.) |
| |
| 10.11† | | Employment Letter Agreement, dated as of March 15, 2017, between Tyme Technologies, Inc. and Ben R. Taylor. (Incorporated by reference to Exhibit 10.11 to our Annual Report on Form10-K filed with the SEC on June 12, 2017.) |
| |
| 10.12† | | Option Agreement, dated as of March 27, 2017, between Tyme Technologies, Inc. and Ben R. Taylor. (Incorporated by reference to Exhibit 10.12 to our Annual Report on Form10-K filed with the SEC on June 12, 2017.) |
| |
| 10.13† | | Employment Letter Agreement, dated August 1, 2017, by and between Tyme Technologies, Inc. and Jonathan Eckard (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form10-Q filed with the SEC on November 2, 2017.) |
| |
| 21.1* | | List of SubsidiariesSubsidiaries. |
24.1*
| |
| 23.1* | | Consent of Independent Public Accounting Firm. |
| |
| 24.1* | | Power of Attorney (Included in Signature Page of Form10-K). |
31.1*
| |
| 31.1* | | Rule13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer. |
31.2*
| |
| 31.2* | | Rule13(a)-14(a)/15(d)-14(a) Certifications of Principal Financial Officer. |
32.1*
| |
| 32.1* | | Rule 1350 Certification of Chief Executive Officer.Certifications. |
32.2*
| Rule 1350 Certifications of Chief Financial Officer.
|
99.1
101.INS* | Press Release of Tyme Technologies, Inc., dated November 23, 2015. [Incorporated by reference to Exhibit 99.1 to our Quarterly Report on Form 10-Q for September 30, 2015, filed with the SEC on November 23, 2015.]
|
101.INS*
| XBRL Instance Document. |
101.SCH*
| |
| 101.SCH* | | XBRL Schema Document. |
101.CAL*
| |
| 101.CAL* | | XBRL Calculation Linkbase Document. |
101.DEF*
| |
| 101.DEF* | | XBRL Definition Linkbase Document. |
101.LAB*
| |
| 101.LAB* | | XBRL Label Linkbase Document. |
101.PRE*
| |
| 101.PRE* | | XBRL Presentation Linkbase Document. |
†
| † | Management contract or compensatory plan or arrangement |
*SIGNATURESFiled herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: June 13, 2018
Dated: March 30, 2016
| | | |
| TYME TECHNOLOGIES, INC. | |
| | | |
| By: | | | |
| By:
| /s/ Steve Hoffman |
| | Steve Hoffman |
| | Steve Hoffman
| |
| | President and
| |
| | Chief Executive Officer | |
| | (Principal Executive Officer) | |
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Steve Hoffman, Michael Demurjian or Robert Dickey IVBen R. Taylor as his true and lawfulattorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form10-K and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of saidattorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ Steve Hoffman Steve Hoffman | | Chief Executive Officer and Director | | March 30, 2016
|
Steve Hoffman
| | (Principal Executive Officer) | | June 13, 2018 |
| | | | |
/s/ Robert Dickey IVMichael Demurjian Michael Demurjian | | Vice-President - FinanceChief Operating Officer and Chief Financial Officer
Director | | March 30, 2016
June 13, 2018 |
Robert Dickey IV
| | (Principal Financial Officer)
| | |
| | | | |
/s/ Patrick G. LePoreBen R. Taylor Ben R. Taylor | | Chief Financial Officer and President (Principal Financial Officer and Principal Accounting Officer) | Director
| | March 30, 2016
June 13, 2018 |
Patrick G. LePore
| | | | |
| | | | |
/s/ Gerald H.Sokol Gerald Sokol | | Director | | March 30, 2016
June 13, 2018 |
Gerald H. Sokol
| | | | |
| | | | |
/s/ TimPaul L. Sturman Paul L. Sturman | | Director | | June 13, 2018 |
| | |
/s/ David Carberry David Carberry | | Director | | June 13, 2018 |
| | |
/s/ Timothy C. Tyson Timothy C. Tyson | | Director | | March 30, 2016
June 13, 2018 |
| | |
Tim Tyson/s/ James Biehl
James Biehl | | Director | | June 13, 2018 |
| | |
/s/ Tommy G. Thompson Tommy G. Thompson | | Director | | June 13, 2018 |
| | |
/s/ Donald W. DeGolyer Donald W. DeGolyer | | Director | | June 13, 2018 |
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