In addition to the Companys manufacturing agreement with Samsung, the Company also previously entered
into an arrangement with another third party contract manufacturer to provide process transfer, validation and manufacturing services for leronlimab. In the event that the Company terminates the agreement with this manufacturer, the Company may
incur certain financial penalties which would become payable to the manufacturer. Conditioned upon the timing of termination, the financial penalties may total approximately $8.3 million. These amount and timing of the financial commitments
under an agreement with the Companys secondary contract manufacturer will depend on the timing of the anticipated approval of the Companys BLA and the initial product demand forecast, which is critical to align the timing of capital
resources in order to ensure availability of sufficient quantities of commercial product.
The Company has entered into project work orders, as amended,
for each of its CRO and related laboratory vendors. Under the terms of these agreements, the Company incurs execution fees for direct services costs, which are recorded as a current asset. In the event the Company were to terminate any trial, it may
incur certain financial penalties which would become payable to the CRO. Conditioned upon the form of termination of any one trial, the financial penalties may range up to $0.7 million. In the remote circumstance that the Company would
terminate all clinical trials, the collective financial penalties may range from an approximate low of $0.5 million to an approximate high of $1.1 million.
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Other than specified in Part II, Item 1,
there are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Companys financial position.
Note 10 Public Warrant Tender Offerings
During
the three months ended August 31, 2019, the Company conducted two public warrant tender offers, in which accredited investors purchased unregistered common stock at either $0.30 or $0.40 per share. Pursuant to the offering, the Company sold a
total of 45,375,923 shares of common stock, $0.001 par value, for aggregate gross proceeds of approximately $11.9 million. The Company paid placement agent fees of approximately $1.1 million for services in connection with the offering.
The Company also recorded a non-cash inducement interest expense of approximately $2.4 million in connection with the offerings.
Note 11 Registered Direct Equity Offering
On
August 29, 2019, the Company entered into subscription agreements with certain investors for the sale of 5,639,500 shares of common stock at a purchase price of $0.40 per share in a registered direct offering (August Offering),
pursuant to a registration statement on Form S-3. The investors in the August offering also received warrants to purchase 2,819,750 shares of common stock with an exercise price of $0.45 per share
and a five-year term. The Company received net proceeds from the offering of approximately $2.0 million. In addition, the placement agent received warrants covering 498,105 shares of common stock (or 8.8% of total shares sold to investors) with
a per share exercise price of $0.40, a five-year term and include a cashless exercise provision.
Note 12 Employee Benefit Plan
The Company has an employee savings plan (the Plan) pursuant to Section 401(k) of the Internal Revenue Code (the Code), covering
all of its employees. The Company makes a qualified non-elective contribution of 3%, which consequently vests immediately. In addition, participants in the Plan may contribute a percentage of their
compensation, but not in excess of the maximum allowed under the Code. During the three months ended August 31, 2019 and 2018, the Company incurred an expense of approximately $26,000 and $15,800, respectively, for qualified non-elective contributions.
Note 13 Related Party Transactions
The Audit Committee of the Board of Directors, comprised of independent directors, or the full Board of Directors, reviews and approves all related party
transactions.
On July 15, 2019, the Company entered into consulting agreements with two of its directors, one with Scott A. Kelly, M.D. in the
capacity of non-executive Chief Science Officer, the other with David F. Welch, Ph.D. in the capacity of non-executive Strategy Advisor. On September 12, 2019, the
Company and Dr. Welch agreed to amend his consulting agreement to eliminate any cash compensation (including previously earned entitlements) thereunder. The company has issued options for an aggregate of 1,375,000 shares of common stock to
Dr. Kelly and Dr. Welch as compensation pursuant to such agreements, including options to Dr. Kelly for 750,000 shares at an exercise price of $0.385, on September 12, 2019, and 187,500 shares at an exercise price of $0.39, on
October 7, 2019; and options to Dr. Welch for 250,000 shares at an exercise price of $0.385, on September 12, 2019, and 187,500 shares at an exercise price of $0.39, on October 7, 2019. The options granted on September 12,
2019 vested immediately upon issuance and have a 10-year expiration term. The options issued on October 7, 2019 vest in four equal quarterly installments beginning on the grant date and have a 10-year expiration term.
On June 12, 2019, the Company concluded a warrant tender offer (the June 2019 Warrant Tender Offer) for certain outstanding series of
eligible warrants, offering the holders of such warrants the opportunity to amend and exercise their warrants at a reduced exercise price equal to the lower of (i) their respective existing exercise price or (ii) $0.40 per share of common
stock. As an inducement to holders to participate in the June 2019 Warrant Tender Offer, the Company offered to issue to participating holders shares of common stock equal to an additional 50% of the number of shares issuable upon exercise of the
eligible warrants (collectively, the Additional Shares). Dr. Kelly validly tendered warrants beneficially owned by him, covering an aggregate of 50,000 shares of common stock, and received 25,000 Additional Shares. Dr. Kelly
participated on terms identical to those applicable to other holders in the June 2019 Warrant Tender Offer.
On July 31, 2019, the Company concluded
an additional warrant tender offer on terms identical to the June 2019 Warrant Tender Offer (the July 2019 Warrant Tender Offer). Dr. Welch tendered warrants beneficially owned by him, covering an aggregate of 1,000,000 shares of
common stock, and received 500,000 Additional Shares. Dr. Welch participated on terms identical to those applicable to other holders in the July 2019 Warrant Tender Offer).
On September 30, 2019, an entity controlled by Dr. Welch exchanged a 2019 Short-term Convertible Note in the principal amount of $1 million and accrued but
unpaid interest of $75,343, for an Exchange Note (as defined in Note 14 below) in the principal amount of $1,075,343 and a warrant to purchase 1,000,000 shares of common stock. The terms of the exchange, the Exchange Note and the related warrant are
further described in Note 14. The entity controlled by Dr. Welch participated on terms identical to the other holders in the exchange.
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