UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
|
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 3 1 , 201 6 |
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________. |
Commission File No.: 000-55242
Sun BioPharma, Inc. |
(Exact Name of Registrant as Specified in its Charter) |
Utah |
87-0543922 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
712 Vista Blvd #305, Waconia, Minnesota |
||
(Address of principal executive offices) |
(952) 479-1196 |
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐ *
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☐
|
Smaller reporting company ☑ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
On May 10, 2016, there were 29,930,306 shares of the registrant’s common stock, par value $0.001, outstanding.
Sun BioPharma, Inc.
Index to Quarterly Report on Form 10-Q
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Sun BioPharma, Inc.
Condensed
Consolidated Balance Sheets
(In thousands, except share amounts)
March 3 1 , 201 6 |
December 31, 201 5 |
|||||||
ASSETS |
(Unaudited) |
|||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 383 | $ | 925 | ||||
Prepaid expenses and other current assets |
165 | 74 | ||||||
Income tax receivable |
904 | 733 | ||||||
Total current assets |
1,452 | 1,732 | ||||||
Total assets |
$ | 1,452 | $ | 1,732 | ||||
LIABILITIES AND S HAREHOLDER S’ DEFICIT |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 808 | $ | 585 | ||||
Accrued liabilities |
816 | 505 | ||||||
Demand notes payable |
250 | 250 | ||||||
Accrued interest |
35 | 35 | ||||||
Total current liabilities |
1,909 | 1,375 | ||||||
Long-term liabilities: |
||||||||
Convertible notes payable, net |
2,717 | 2,712 | ||||||
Long-term debt, net |
289 | 287 | ||||||
Accrued interest |
42 | 39 | ||||||
Total long-term liabilities |
3,048 | 3,038 | ||||||
Commitments and contingencies (Note 7) |
||||||||
Shareholders’ deficit: |
||||||||
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued or outstanding as of March 31, 2016 and December 31, 2015 |
— | — | ||||||
Common stock, $0.001 par value; 100,000,000 authorized; 29,930,306 and 29,892,806 shares issued and outstanding, as of March 31, 2016 and December 31, 2015, respectively |
30 | 30 | ||||||
Additional paid-in capital |
11,018 | 10,943 | ||||||
Accumulated deficit |
(14,491 | ) | (13,667 | ) | ||||
Accumulated comprehensive gain (loss), net |
(62 | ) | 13 | |||||
Total shareholders’ deficit |
(3,505 | ) | (2,681 | ) | ||||
Total liabilities and shareholders’ deficit |
$ | 1,452 | $ | 1,732 |
See accompanying notes to condensed consolidated financial statements.
Sun BioPharma, Inc.
Condensed
Consolidated Statements of
Operations and
Comprehensive Loss
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended March 3 1 , |
||||||||
2016 |
2015 |
|||||||
Operating expenses |
||||||||
General and administrative |
$ | 481 | $ | 1,196 | ||||
Research and development |
494 | 987 | ||||||
Operating loss |
(975 | ) | (2,183 | ) | ||||
Other income (expense): |
||||||||
Interest income |
1 | 2 | ||||||
Interest expense |
(45 | ) | (47 | ) | ||||
Other income (expense) |
80 | (20 | ) | |||||
Total other income (expense) |
36 | (65 | ) | |||||
Loss before income tax benefit |
$ | (939 | ) | $ | (2,248 | ) | ||
Income tax benefit |
115 | 57 | ||||||
Net loss |
(824 | ) | (2,191 | ) | ||||
Foreign currency translation adjustment loss |
(75 | ) | (4 | ) | ||||
Comprehensive loss |
$ | (899 | ) | $ | (2,195 | ) | ||
Basic and diluted net loss per share |
$ | (0.03 | ) | $ | (0.37 | ) | ||
Weighted average shares outstanding – basic and diluted |
29,915,820 | 5,999,795 |
See accompanying notes to condensed consolidated financial statements.
Sun BioPharma, Inc.
Condensed Consolidated Statements of Shareholders’ Deficit
(In thousands except share and per share amounts)
(Unaudited)
Accumulated |
||||||||||||||||||||||||
Additional |
Other |
Total |
||||||||||||||||||||||
Common Stock |
Paid-In |
Accumulated |
Comprehensive |
Shareholder s ’ |
||||||||||||||||||||
Shares |
Amount |
Capital |
Deficit |
Loss |
Deficit |
|||||||||||||||||||
Balances at December 31, 2015 |
29,892,806 | $ | 30 | $ | 10,943 | $ | (13,667 | ) | $ | 13 | $ | (2,681 | ) | |||||||||||
Net loss |
— | — | — | (824 | ) | — | (824 | ) | ||||||||||||||||
Foreign currency translation adjustment, net of taxes of $0 |
— | — | — | — | (75 | ) | (75 | ) | ||||||||||||||||
Issuance of common stock for services |
37,500 | — | 75 | — | — | 75 | ||||||||||||||||||
Balance s at March 31 , 201 6 |
29,930,306 | $ | 30 | $ | 11,018 | $ | (14,491 | ) | $ | (62 | ) | $ | (3,505 | ) |
See accompanying notes to consolidated financial statements.
Sun BioPharma, Inc.
Condensed
Consolidated Statements of Cash
Flows
(In thousands)
(Unaudited)
Three Months Ended March 3 1 , |
||||||||
2016 |
2015 |
|||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (824 | ) | $ | (2,191 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Amortization of debt issuance costs |
7 | 7 | ||||||
Non-cash interest expense |
3 | 3 | ||||||
Share-based compensation |
— | 976 | ||||||
Changes in operating assets and liabilities: |
||||||||
Income and other tax receivables |
(199 | ) | (57 | ) | ||||
Prepaid expenses and other current assets |
(22 | ) | 3 | |||||
Accounts payable and accrued liabilities |
493 | 352 | ||||||
Net cash used in operating activities |
(542 | ) | (907 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from the exercise of stock options |
— | 409 | ||||||
Proceeds from the exercise of stock purchase warrants |
— | 25 | ||||||
Net cash provided by financing activities |
— | 434 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
— | (10 | ) | |||||
Net decrease in cash and cash equivalents |
(542 | ) | (483 | ) | ||||
Cash and cash equivalents at beginning of period |
925 | 1,653 | ||||||
Cash and cash equivalents at end of period |
$ | 383 | $ | 1,170 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during period for interest |
$ | 35 | $ | 37 | ||||
Supplemental disclosure of non-cash transactions: |
||||||||
Issuance of common stock for services |
$ | 75 | — |
See accompanying notes to condensed consolidated financial statements.
S
un BioPharma, Inc.
Notes to
1. Business
Sun BioPharma, Inc., formerly known as Cimarron Medical, Inc., (“Cimarron”) and its wholly-owned subsidiaries, Sun BioPharma Research, Inc. (“SBR”) and Sun BioPharma Australia Pty Ltd. (collectively with Cimarron and SBR, “we,” “us,” “our,” and the “Company”) exist for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a second indication in chronic pancreatitis. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the University of Florida Research Foundation, Inc. (“UFRF”).
2. Risks and Uncertainties
The Company operates in a highly regulated and competitive environment. The development, manufacturing and marketing of pharmaceutical products require approval from, and are subject to ongoing oversight by, the Food and Drug Administration (“FDA”) in the United States, the Therapeutic Goods Administration (“TGA”) in Australia, the European Medicines Agency (“EMA”) in the European Union, and comparable agencies in other countries. Obtaining approval for a new pharmaceutical product is never certain, may take many years, and is normally expected to involve substantial expenditures.
We have incurred losses of $14.5 million since SBR’s inception in 2011. For the three months ended March 31, 2016, we incurred a net loss and negative cash flows from operating activities of $824,000 and $542,000, respectively. We expect to incur substantial losses for the foreseeable future, which will continue to generate negative net cash flows from operating activities, as we continue to pursue research and development activities and seek to commercialize our initial product candidate, SBP-101 . As of March 31, 2016, we had cash and cash equivalents of $383,000, negative working capital of $457,000 and shareholders’ deficit of $3.5 million. The Company’s principal sources of cash have historically included the issuance of convertible debt and equity securities.
The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Our current independent registered public accounting firm, included a paragraph emphasizing this going concern uncertainty in their audit report our 2015 financial statements dated March 8, 2016. Our ability to continue as a going concern, realize the carrying value of our assets and discharge our liabilities in the ordinary course of business is dependent upon a number of factors, including our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States, Australia, the European Union or other markets and ultimately our ability to market and sell our SBP-101 product candidate. These factors, among others, raise substantial doubt about our ability to continue operations as a going concern. See note 4 entitled “Liquidity and Management’s Plans.”
3. Basis of Presentation
We have prepared the accompanying interim condensed consolidated financial statements in accordance with US GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our consolidated financial position, consolidated results of operations and consolidated cash flows for the periods and as of the dates presented. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2015 was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 8, 2016 and our other filings with the SEC. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.
Recently Adopted Accounting Pronouncement
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt rather than as an asset. In 2016, the company retrospectively adopted this update, as required, and the amounts reclassified from other assets to long-term debt on the condensed consolidated balance sheets. These reclassifications did not impact net income.
Recently Issued Accounting Pronouncement
In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance in ASU 2016-02 supersedes the lease recognition requirements in the Accounting Standards Codification Topic 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of ASU 2016-02 to have a material impact on its Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The guidance in ASU 2016-09 is intended to simplify aspects of the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, statutory withholding requirements, and classification on the statement of cash flows. The standard is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are currently assessing the impact of this standard on our financial condition and results of operations.
4. Liquidity and Management Plans
We will need to obtain additional funds to continue our operations and execute our current business plans. We may seek to raise additional funds through various sources, such as equity and debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.
On March 1, 2016 we instituted substantial salary deferrals for all senior employees in order to conserve cash. If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate , licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinuing operations entirely.
Our future success is dependent upon our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States or other markets and ultimately our ability to market and sell our SBP-101 product candidate . If we are unable to obtain additional financing when needed, if our clinical trials are not successful or if we are unable to obtain marketing approval, we would not be able to continue as a going concern and would be forced to cease operations and liquidate our company.
There can be no assurances that we will be able to obtain additional financing on commercially reasonable terms, or at all. The sale of additional convertible debt or equity securities would likely result in dilution to our current shareholders.
On May 5, 2016, our subsidiary received a $772,000 tax refund related to 2015 research and development activities. See Note 11 entitled “Subsequent Events.”
5. Summary of Significant Accounting Policies
Principles of consolidation
The accompanying condensed consolidated financial statements include the assets, liabilities and expenses of Sun BioPharma, Inc. and our wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of condensed consolidated financial statements 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 condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Debt issuance costs
Costs associated with the issuance of debt instruments are capitalized and presented as a direct deduction from the carrying amount of the related debt liability. These costs are amortized on a straight-line basis, which approximates the effective interest method, over the term of the debt agreements and are included in interest expense.
Research and development costs
Research and development costs to date have consisted primarily of expenses incurred for third-party service providers monitoring and accumulating data related to our preclinical and clinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of SBP-101 for use in our pre-clinical studies and human clinical trials; consulting resources with specialized expertise related to execution of our development plan for our SBP-101 product candidate; and costs to license and maintain our licensed intellectual property. Moving forward, research and development expenditures will shift to focus on costs related to the execution of human clinical trials and related efforts to obtain regulatory approval for SBP-101.
We charge research and development costs, including clinical trial costs, to expense when incurred. Our human clinical trials are, and will be, performed at clinical trial sites and are administered jointly by us with assistance from contract research organizations (“CROs”). Costs of setting up clinical trial sites are accrued upon execution of the study agreement. Expenses related to the performance of clinical trials generally are accrued based on contracted amounts and the achievement of agreed upon milestones, such as patient enrollment, patient follow-up, etc. We monitor levels of performance under each significant contract, including the extent of patient enrollment and other activities through communications with the clinical trial sites and CROs, and adjust the estimates, if required, on a quarterly basis so that clinical expenses reflect the actual effort expended at each clinical trial site and by each CRO.
All material CRO contracts are terminable by us upon written notice and we are generally only liable for actual effort expended by the CROs and certain non-cancelable expenses incurred at any point of termination
We expense costs associated with obtaining licenses for patented technologies when it is determined there is no alternative future use of the intellectual property subject to the license.
Fair Value Determination of the Company’s Common Stock
Prior to becoming a public company, determining the fair value per share or our common stock for use in estimating the fair values of share based payments required making complex and subjective judgments. The Company used the implied valuations based upon the terms from our sales of convertible notes payable to estimate our enterprise value for the dates on which these transactions occurred. The estimated enterprise values considered certain discounts related to control and lack of marketability.
Our board of directors also considered the estimated fair value of our common stock in relation to a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector. Our board of directors also retained an independent financial valuation firm to provide independent estimates of our enterprise value. Until an active trading market develops for our common stock, estimating the fair value per share of our common stock will continue to be highly subjective. There is inherent uncertainty in these estimates.
Share-based compensation
Share-based incentive awards are accounted for under the provisions of FASB ASC 718, Compensation — Stock Compensation, which requires companies to measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. Compensation cost is recognized ratably using the straight-line attribution method over the expected vesting period, which is considered to be the requisite service period.
The fair value of share-based awards is estimated at the date of grant using the Black-Scholes option pricing model. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility is based primarily on the volatility rates of a set of guideline companies, which consist of public and recently public biotechnology companies. The assumed dividend yield is zero, as we do not expect to declare any dividends in the foreseeable future. The expected term of options granted is determined using the “simplified” method. Under this approach, the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term.
Foreign currency translation adjustments
The functional currency of Sun BioPharma Australia Pty Ltd is the Australian Dollar (“AUD”). Accordingly, assets and liabilities, and equity transactions of Sun BioPharma Australia Pty Ltd are translated into U.S. dollars at period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect for the period. The resulting translation gains and losses are recorded as a component of accumulated comprehensive loss presented within the shareholders’ deficit. During the three-month periods ended March 31, 2016 and 2015, any reclassification adjustments from accumulated other comprehensive loss to operations was inconsequential.
6. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
March 31, 2016 |
December 31, 2015 |
|||||||
Product and process development expenses |
$ | 354 | $ | 259 | ||||
Deferred payroll and related expenses |
354 | 169 | ||||||
Professional services |
67 | 75 | ||||||
Clinical trial related expense |
41 | — | ||||||
Other |
— | 2 | ||||||
Total accrued liabilities |
$ | 816 | $ | 505 |
7. Debt issuance costs
The following table summarizes the deferred financing costs which are presented as a direct deduction from the carrying amount of their related debt liabilities (in thousands):
March 31, 2016 |
December 31, 2015 |
|||||||||||||||
Convertible Notes Payable |
Long-Term Debt |
Convertible Notes Payable |
Long-Term Debt |
|||||||||||||
Loan principal amount |
$ | 2,775 | $ | 300 | $ | 2,775 | $ | 300 | ||||||||
Deferred financing costs |
105 | 37 | 105 | 37 | ||||||||||||
Accumulated Amortization |
(47 | ) | (26 | ) | (40 | ) | (26 | ) | ||||||||
Unamortized balance |
58 | 11 | 65 | 11 | ||||||||||||
Loan amount, net |
$ | 2,717 | $ | 289 | $ | 2,712 | $ | 287 |
We recorded amortization of debt issuance costs of $7,000 for the three months ended March 31, 2016 and 2015, respectively.
8. Net Loss P er Share
The following table summarizes our calculation of net loss per common share for each of the periods presented (in thousands, except share and per share data):
Three Months Ended March 31, |
||||||||
2016 |
2015 |
|||||||
Net loss |
$ | (824 | ) | $ | (2,191 | ) | ||
Weighted average shares outstanding—basic and diluted |
29,915,820 | 5,999,795 | ||||||
Basic and diluted net loss per share |
$ | ( 0.03 | ) | $ | (0.37 | ) |
The following outstanding potential common shares are not included in diluted net loss per share calculations as their effects would have been anti-dilutive:
Three Months Ended March 31, |
||||||||
2016 |
2015 |
|||||||
Employee and non-employee stock options |
3,163,600 | 9,504,152 | ||||||
Common shares issuable upon conversion of notes payable |
2,466,667 | 2,666,667 | ||||||
Common shares issuable under common stock purchase warrants |
2,550,000 | 4,650,000 | ||||||
8,180,267 | 16,820,819 |
9 . Shareholders’ Equity
Stock-Based Payments
In the first quarter of 2016, our Board of Directors authorized the issuance of 37,500 shares of our common stock to two vendors who agreed to provide services to the Company upon terms that provided for a portion of their consideration to be paid in shares of our common stock. The fair value of each share of common stock was determined by our Board of Directors, and accordingly, we recorded a charge of $75,000.
10 . Share -Based Compensation
The Sun BioPharma, Inc. 2011 Stock Option Plan (the “Plan”) was adopted by the SBR of Directors in September, 2011 and approved by SBR shareholders in January, 2012. We assumed the Plan as part of the Merger. The Plan permits the granting of incentive and non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other stock awards to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the Plan at no less than the fair market value of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years and generally vest over zero to two years for employees. Under the Plan, a total of 14,000,000 shares of common stock were originally reserved for issuance. As of March 31, 2016, 6,102,264 shares remained available for the issuance of future grants under the Plan and options to purchase 3,163,600 shares of common stock were outstanding under the Plan.
We recognize share-based compensation based on the value of the portion of awards that are ultimately expected to vest. Guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of a surrendered option. We will re-evaluate this estimate periodically and adjust the forfeiture rate on a prospective basis as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that actually vest.
We estimate the fair value of share-based awards at the date of grant using the Black-Scholes option pricing model. There were no options granted during the three month period ended March 31, 2016.
1 1 . Subsequent Events
On May 5, 2016, we received $772,000 of the $904,000 income tax receivable reported as of March 31, 2016. This receivable related to refundable tax credits for the 2015 research and development activities of our subsidiary Sun BioPharma Australia Pty Ltd.
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion contains various forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates” and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are set forth herein and in Part I, Item 1A under the caption “Risk Factors” in our most recent Annual Report on Form 10-K.
Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.
Overview
Sun BioPharma, Inc., formerly known as Cimarron Medical, Inc., (“Cimarron”) and its wholly-owned subsidiaries, Sun BioPharma Research, Inc. (“SBR”) and Sun BioPharma Australia Pty Ltd. (collectively with Cimarron and SBR, “we,” “us,” “our,” and the “Company”) exist for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a second indication in chronic pancreatitis. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the University of Florida Research Foundation, Inc. (“UFRF”).
In August 2015, the U.S. FDA granted an Investigational New Drug (“IND”) approval for our SBP-101 product candidate and we began enrolling patients in a Phase 1 clinical trial on January 4, 2016. We estimate that completion of our Phase 1 clinical trial in pancreatic cancer and the completion of necessary preclinical development work and initiation of a Phase 1 clinical trial in pancreatitis, will require additional funding of at least $10 million to $20 million. Additional clinical trials will likely be required for FDA or other similar approvals if the results of the first clinical trial of our SBP-101 product candidate is positive. We estimate that the additional time and cost to obtain FDA and European Medicines Agency (“EMA”) approval and to bring our SBP-101 product candidate to market in these two indications will be 6 to 7 years with related costs up to $200 million.
Financial Overview
We have incurred losses of $14.5 million since inception. For the three months ended March 31, 2016 and 2015, we incurred net losses of $824,000 and $2.2 million, respectively, and negative cash flows from operating activities of $542,000 and $907,000, respectively. We expect to incur substantial losses, which will continue to generate negative net cash flows from operating activities, as we continue to pursue research and development activities and commercialize our SBP-101 product candidate .
Our cash and cash equivalents were $383,000 as of March 31, 2016, compared to $925,000 as of December 31, 2015.
We will need to obtain additional funds to continue our operations and execute our current business plans, including completing our current Phase 1 clinical trial , planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets. We historically have financed our operations principally from the sale of convertible debt and equity securities. While we have been successful in the past in obtaining the necessary capital to support our operations, and have similar future plans to obtain additional financing, there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions, or at all. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.
On March 1, 2016 we instituted substantial salary deferrals for all senior employees in order to conserve cash. If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate , licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinue operations entirely.
Results of Operations
Comparison of the three-months ended March 31, 2016 to the three-months ended March 31, 2015 (in thousands) :
Three Months Ended March 31, |
||||||||||||
2015 |
2014 |
Percent Change |
||||||||||
Operating expenses: |
||||||||||||
General and administrative |
$ | 481 | $ | 1,196 | (59.8 | )% | ||||||
Research and development |
494 | 987 | (49.9 | ) | ||||||||
Total operating expenses |
975 | 2,183 | (55.3 | ) | ||||||||
Other income (expense), net |
36 | (65 | ) | nm | ||||||||
Income tax benefit |
115 | 57 | 101.8 | |||||||||
Net loss |
$ | (824 | ) | $ | (2,191 | ) | (62.4 | )% |
General and administrative expense
Our general and administrative (“G&A”) expenses decreased 59.8% to $481,000 in the first quarter of 2016 down from $1.2 million in the first quarter of 2015. The decrease was due primarily to a reduction in share-based compensation. Decreased legal and accounting fees associated related to pursuing the merger with Cimarron Medical, Inc. during the first quarter of 2015 also contributed to the decline.
Research and development expense
Our research and development (“R&D”) expenses decreased 49.9% to $494,000 in the first quarter of 2016 down from $987,000 in the first quarter of 2015. The decrease in R&D expenses is due primarily to de creases in preclinical studies and other product development costs which were partially offset by increased expenses associated with the initiation of study sites and patient enrollments in our Phase 1 clinical trial.
Other expense , net
Other income and expense, net, was a net income of $36,000 in the current quarter, up from a net expense of $65,000 in the first quarter of 2015. Other income and expense, net, consists primarily of interest expense on convertible promissory notes and long-term debt and foreign currency transaction gains and losses. The current year increase was due to increases in foreign currency transaction gains realized by SBA during the current quarter.
Income tax benefit
Income tax benefit increased to $115,000 for the three-months ended March 31, 2016 up from $57,000 during the three-months ended March 31, 2015. Our income tax benefit is derived primarily from refundable tax credits associated with our R&D activities conducted in Australia.
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of March 31, 2016 and December 31, 2015 and our cash flow data for the three months ended March 31, 2016 and 2015 and is intended to supplement the more detailed discussion that follows (in thousands):
Liquidity and Capital Resources |
March 31, 2016 |
December 31, 2015 |
||||||
Cash and cash equivalents |
$ | 383 | $ | 925 | ||||
Working capital (deficit) |
$ | (457 | ) | $ | 357 |
Three Months Ended March 31 , |
||||||||
Cash Flow Data |
2016 |
2015 |
||||||
Cash provided by (used in): |
||||||||
Operating activities |
$ | (542 | ) | $ | (907 | ) | ||
Financing activities |
— | 434 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
— | (10 | ) | |||||
Net decrease in cash and cash equivalents |
$ | (542 | ) | $ | (483 | ) |
Working Capital
Our total cash resources, including short-term investments, totaled $383,000 as of March 31, 2016, compared to $925,000 as of December 31, 2015. We had $1.9 million in current liabilities, and a working capital deficit of $457,000 as of March 31, 2016, compared to $1.4 million in current liabilities and $357,000 in working capital as of December 31, 2015. On May 5, 2016, we received $772,000 of the $904,000 income tax receivable reported as of March 31, 2016. This receivable related to refundable tax credits for the 2015 research and development activities of our subsidiary Sun BioPharma Australia Pty Ltd.
Cash Flows
Net Cash Used in Operating Activities
Net cash used in operating activities was $542,000 in the three-months ended March 31, 2016 compared to $907,000 in the three-months ended March 31, 2015. The net cash used in each of these periods primarily reflects the net loss for these periods, and in the partially offset by the effects of changes in operating assets and liabilities and, in the three months ended March 31, 2015, by non-cash charges recorded for share-based compensation.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was zero for the three-months ended March 31, 2016, compared to $434,000 in the three-months ended March 31, 2015. Net cash provided by financing activities was comprised of net proceeds from the exercise of stock options and stock purchase warrants.
Capital Requirements
We expect to incur substantial losses, which will continue to generate negative net cash flows from operating activities, as we continue to pursue research and development activities and commercialize our SBP-101 product candidate .
Our future capital uses and requirements depend on numerous current and future factors. These factors include, but are not limited to, the following:
● |
the progress of clinical trials required to support our applications for regulatory approvals, including our Phase 1 clinical trial, a human clinical trial in Australia and the United States; |
● |
our ability to demonstrate the safety and effectiveness of our SBP-101 product candidate ; |
● |
our ability to obtain regulatory approval of our SBP-101 product candidate in the United States, the European Union or other international markets; |
● |
the market acceptance and level of future sales of our SBP-101 product candidate ; |
● |
the rate of progress in establishing reimbursement arrangements with third-party payors; |
● |
the effect of competing technological and market developments; |
● |
the cost and delays in product development that may result from changes in regulatory oversight applicable to our SBP-101 product candidate ; and |
● |
the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims. |
To date, we have used primarily convertible debt and equity financings to fund our ongoing business operations and short-term liquidity needs, and we expect to continue this practice for the foreseeable future.
Our cash and cash equivalents were $383,000 as of March 31, 2016, compared to $925,000 as of December 31, 2015. Although we do not have any current capital commitments, we expect that we will increase our projected expenditures once we have additional capital on hand in order to continue our efforts to grow our business and complete our Phase 1 clinical trial for our SBP-101 product candidate. Accordingly, we expect to make additional expenditures in product development to continue enhancing our current products. We also expect to invest in research and development efforts of follow-on products. However, we do not have any definitive plans as to the exact amounts or particular uses at this time, and the exact amounts and timing of any expenditure may vary significantly from our current intentions.
As of March 31, 2016, we did not have any existing credit facilities under which we could borrow funds. We historically have financed our operations principally from the sale of convertible debt and equity securities. While we have been successful in the past in obtaining the necessary capital to support our operations, and have similar future plans to obtain additional financing, there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions, or at all.
We will need to obtain additional funds to continue our operations thereafter and execute our business plans, including completing our current Phase 1 clinical , planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets. We historically have financed our operations principally from the sale of convertible debt and equity securities. While we have been successful in the past in obtaining the necessary capital to support our operations, and have similar future plans to obtain additional financing, there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions, or at all. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.
On March 1, 2016 we instituted substantial salary deferrals for all senior employees in order to conserve cash. If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions which may include, among other things, reducing use of outside professional service providers, reducing staff or further reduce staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate , licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinuing operations entirely.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the interests of our current shareholders would be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our current shareholders. If we issue preferred stock, it could affect the rights of our shareholders or reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Debt financing, if available, 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 of these events could adversely affect our ability to achieve our regulatory approvals and commercialization goals and harm our business.
Our future success is dependent upon our ability to obtain additional financing, the success of our current Phase 1 clinical trial and required future trials, our ability to obtain marketing approval for our SBP-101 product candidate in the United States, the European Union and other international markets. If we are unable to obtain additional financing when needed, if our Phase 1 clinical trial is not successful, if we do not receive regulatory approval required future trials or if once these studies are concluded, we do not receive marketing approval for our SBP-101 product candidate , we would not be able to continue as a going concern and would be forced to cease operations. The interim financial statements included in this report have been prepared assuming that we will continue as a going concern and do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties.
Indebtedness
We currently have $2,775,000 outstanding in convertible promissory notes that accrue annual interest of 5%, payable quarterly, and are convertible into common stock at $1.125 per share. These notes mature in December 2018. We have $300,000 outstanding in an unsecured loan that accrues annual interest of 4.125%. All principal and accrued interest on this loan are payable in October 2017. We also have $250,000 of unsecured demand notes which we assumed in connection with the September 2015 merger with Cimarron Medical, Inc.. These demand notes have no stated interest rate or maturity date.
Critical Accounting Policies and Estimates
Our significant accounting policies are set forth in notes accompanying the condensed consolidated financial statements included in this document. The accounting policies used in preparing our interim fiscal 2016 condensed consolidated financial statements are the same as those described in our Annual Report on Form 10-K filed with the SEC on March 8, 2016 .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4), that have or are reasonably likely to have a material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements .
Item 3. |
Quantitative and Qualitative Disclosure About Market Risk. |
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 4. |
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. As of the date of this filing, management has not identified any material weaknesses but believes that it does have a significant deficiency in that it has insufficient personnel resources within the accounting function to fully segregate the duties over financial transaction processing and reporting. Management has mitigated this deficiency primarily through greater involvement in the review and monitoring of financial transaction processing and reporting by executive and senior management.
We believe that our internal control system provides reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Therefore, even effective internal controls over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time.
As of the end of the period covered by this quarterly report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2016, our disclosure controls and procedures were effective in ensuring that information relating to the Company required to be disclosed in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes to Internal Control Over Financial Reporting
We have not identified any change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. |
Legal Proceedings. |
None
Item 1A. |
Risk Factors. |
There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
In February 2016, we issued an aggregate of 37,500 shares of our common stock to two vendors who agreed to provide services to the Company upon terms that provided for a portion of their consideration to be paid in shares of our common stock. The fair value of each share of common stock was determined by our Board of Directors, and accordingly, we recorded a charge of $75,000. These securities were issued pursuant to the exemption from registration provided in Section 4(2) of the Securities Act. We did not receive any cash proceeds from the issuance of these securities.
Item 3. |
Defaults Upon Senior Securities. |
None.
Item 4. |
Mine Safety Disclosures. |
Not applicable.
Item 5. |
Other Information. |
None.
Item 6. |
Exhibits. |
The exhibit index appearing after the signature page is incorporated herein by reference.
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.
SUN BIOPHARMA, INC. |
|
Date: May 12, 2016 |
/s/ David B. Kaysen |
David B. Kaysen Chief Executive Officer |
|
(Principal Executive Officer) |
|
Date: May 12, 2016 |
/s/ Scott Kellen |
Scott Kellen Chief Financial Officer |
|
(Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT INDEX
Unless otherwise indicated, all documents incorporated into this quarterly report on Form 10-Q by reference to a document filed with the SEC pursuant to the Exchange Act are located under SEC file number 000-55242.
Exhibit No. |
Description |
Manner of Filing |
||
3.1 |
Composite Amended and Restated Articles of Incorporation, as amended through September 4, 2015 |
Filed Electronically |
||
3.2 |
Amended and Restated Bylaws, as amended through September 24, 2015 (incorporated by reference to Exhibit 3.1 to current report on Form 8-K filed September 30, 2015) |
Incorporated by Reference |
||
31.1 |
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) Under the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Filed Electronically |
||
31.2 |
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) Under the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Filed Electronically |
||
32.1 |
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Filed Electronically |
||
32.2 |
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Filed Electronically |
||
101 |
Financial statements from the quarterly report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended March 31, 2015, formatted in XBRL: (i) the Balance Sheets, (ii) the Statements of Operations and Comprehensive Loss, (iii) the Statements of Cash Flows, and (iv) the Notes to Financial Statements. |
Filed Electronically |
18
Exhibit 3.1
COMPOSITE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SUN BIOPHARMA, INC. 1 |
Pursuant to and in accordance with Section 16-10a-1007 of the Utah Revised Business Corporation Act (as amended, supplemented or superseded, the “ URBCA ”), the following are the Amended and Restated Articles of Incorporation of Sun BioPharma, Inc., a Utah corporation (the “ Corporation ”):
ARTICLE I
NAME
The name of the Corporation is Sun BioPharma, Inc.
ARTICLE II
PURPOSES AND POWERS
The Corporation is organized to engage in any and all lawful acts, activities and/or pursuits for which corporations may presently or hereafter be organized under the URBCA.
The Corporation shall have all powers allowed by law, including without limitation those powers described in Section 302 of the URBCA. The purposes stated herein shall be construed as powers as well as purposes and the enumeration of a specific purpose or power shall not be construed to limit or restrict the meaning of general terms of the general powers; nor shall the expression of one thing be deemed to exclude another not expressed, although it be of like nature.
ARTICLE III
AUTHORIZED SHARES
The Corporation is authorized to issue two classes of shares. The total number of shares the Corporation is authorized to issue is One Hundred Ten Million (110,000,000) shares as follows:
Common Stock
1. Number, Designation and Par Value . The Corporation is authorized to issue One Hundred Million (100,000,000) shares designated as “Common Stock” each having $0.001 par value (the “ Common Stock ”).
2. Voting . All voting rights of the Corporation, subject to any preferences or rights that may be granted to the holders of the Preferred Stock (as defined below), shall be exercised by the holders of the Common Stock.
3. Net Assets . The holders of the Common Stock, subject to any preferences or rights that may be granted to the holders of the Preferred Stock, shall be entitled to receive the net assets of the Corporation upon the dissolution of the Corporation.
1) These Composite Amended and Restated Articles of Incorporation of Sun BioPharma, Inc. reflect the Company’s Amended and Restated Articles of Incorporation, filed with the Utah Secretary of State on September 22, 1999, and all subsequent amendments thereto, which were filed with the Utah Secretary of State on May 14, 2002, June 3, 2002, April 21, 2005, May 29, 2015, September 3, 2015 and September 4, 2015.
4. Payment . All shares of the Common Stock shall be fully paid and non-assessable.
Preferred Stock
1. Number, Designation and Par Value . The Corporation is authorized to issue Ten Million (10,000,000) shares of “Preferred Stock,” each having $0.001 par value, of which (i) 500,000 shares are designated as Series A Preferred Stock (the “ Series A Preferred Stock ”) and (ii) 200,000 shares are designated as Series B Preferred Stock (the “ Series B Preferred Stock ”). The Corporation’s Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed in this Article III and/or in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation. Authority is hereby granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolutions or resolutions providing for the issuance of the shares thereof, to determine and fix such voting powers, multiple (i.e., each share of Preferred Stock having multiple votes while each share of common stock has a single vote) or limited, or no voting powers, and such designations, preferences, powers and relative participating, optional or other special rights and qualifications, limitations, or restrictions thereof, including without limitation dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the Utah Revised Business Corporation Act. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock or any other series to the extent permitted by law. No vote of the holders of the Preferred Stock or Common Stock shall be prerequisite to the issuance of any shares of any series of Preferred Stock authorized by and complying with the conditions of this Article III, the right to enjoy such vote being expressly waived by all present and future holders of the capital stock of the Corporation. The resolutions providing for issuance of any series of Preferred Stock may provide that such resolutions may be amended by subsequent resolutions adopted in the same manner as the preceding resolutions. Such resolutions shall be effective upon adoption, without the necessity of any filing with the State of Utah or otherwise. The Series A Preferred Stock and the Series B Preferred Stock (collectively, the “ Preferred Stock ”) have the terms, powers, preferences and rights set forth below.
2. The Preferred Stock :
(a) Dividend Provisions . The holders of shares of the Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation, at the rate of $.10 per share per annum on each outstanding share of Series A Preferred Stock, and at the rate of $1.90 per share per annum on each outstanding share of Series B Preferred Stock, in each case, payable quarterly when, as and if declared by the Board of Directors. Such dividends shall not be cumulative.
(b) Liquidation .
(i) Preference to Holders of Preferred Stock . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, the amount equal to the Original Purchase Price (as defined in Section 2(c) hereof; provided , however , that in the case of an acquisition deemed to be a liquidation pursuant to Section 2(b)(iii) below, the Original Purchase Price shall mean $1.30 per share with respect to the Series A Preferred Stock) for each share of Preferred Stock then held by them (as adjusted for any stock splits, stock dividends, recapitalizations or the like with respect to such shares), plus declared but unpaid dividends. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.
(ii) Distributions to Other Holders . Upon the completion of the distribution required by Section 2(b)(i), the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of the Preferred Stock and the Common Stock pro rata based on the number of shares of Common Stock held by each such holder (assuming conversion of all such Preferred Stock) until the holders of Series A Preferred Stock shall have received an aggregate of $6.50 per share and the holders of Series B Preferred Stock shall have received an aggregate of $38.05 per share (in each case, including amounts paid pursuant to Section 2(b)(i) above); thereafter, if assets remain in the Corporation, the holders of Common Stock of the Corporation shall receive all of the remaining assets of the Corporation pro rata based on the number of shares of Common Stock held by each.
(iii) Acquisition Deemed a Liquidation . For purposes of this Section 2(b), a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation); or (B) a sale of all or substantially all of the assets of the Corporation, unless the Corporation’s shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation’s acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity; provided, however, that (i) neither the exercise of the Option nor the consummation of the Acquisition (each as defined in the Stockholders Agreement dated September 24, 1999 (the “Stockholders Agreement”) by and among the Corporation, the Founders, the Series A Purchasers and the Series B Purchaser (each as defined therein) shall be deemed liquidation, dissolution or winding up of the Corporation under this Section 2(b), and (ii) any transaction described under clauses (A) or (B) above which has gross proceeds of greater than $15,000,000 shall not be deemed liquidation, dissolution or winding up of the Corporation under this Section 2(b).
(iv) In any of the events specified (iii) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other similar restrictions on free marketability:
i) If traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) day period ending three (3) days prior to the closing;
ii) If actively traded over the counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and
iii) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock; provided, however, if such parties are unable to agree on such determination, the parties shall select a mutually acceptable nationally recognized valuation firm to determine such value.
(B) The method of valuation of securities subject to the investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) 1), ii) or iii) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock; provided, however, if such parties are unable to agree on such determination, the parties shall select a mutually acceptable nationally recognized valuation firm to determine such value.
(C) In the event the requirements of Section 2(b)(iv) are not complied with the Corporation shall forthwith either:
i) cause such closing to be postponed until such time as the requirements of this Section 2(b) have been complied with; or
ii) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 2(b)(iv)(D) hereof.
(D) The Corporation shall give each holder of record of Preferred Stock written notice of such impending transaction not later than (20) days prior to the shareholders’ meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2(b), and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given any notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Preferred Stock.
(c) Conversion . The holders of the Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):
(i) Right to Convert . Subject to Section 2(c)(iii) below, each Share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Original Purchase Price by the applicable Conversion Price of such share of Preferred Stock, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The “ Original Purchase Price ” shall mean $1.00 per share with respect to the Series A Preferred Stock and $19.03 per share with respect to the Series B Preferred Stock. The “ Conversion Price ” shall mean $0.83 per share with respect to the Series A Preferred Stock and $19.03 per share with respect to the Series B Preferred Stock. The applicable Conversion Price shall be subject to adjustment as set forth in Section 2(c)(iv).
(ii) Automatic Conversion . Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon (except as provided below in Section 2(c)(iii)) the Corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the “ Securities Act ”), the public offering price of which is not less than $7.00 per share (adjusted to reflect subsequent stock dividends, stock splits or re-capitalization) and which results in aggregate cash proceeds to the Corporation of at least $10,000,000 (net of underwriting discounts and commissions).
(iii) Mechanics of Conversion . Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock and shall give written notice to the Corporation at its principal corporate office of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock or to the nominee or nominees of such holder a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive Common Stock upon conversion of such Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities.
(iv) Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits and Combinations . The Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as follows:
(A) i) If the Corporation shall issue, after the date upon which any shares of Preferred Stock were first issued (the “ Purchase Date ”), any Additional Stock (as defined below) without consideration or for a consideration per share less than the applicable Conversion Price for any Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the applicable Conversion Price for such Preferred Stock in effect immediately prior to each such issuance shall automatically (except as otherwise provided in this clause (A)) be adjusted to a price equal to the quotient obtained by dividing the total computed under clause (x) below by the total computed under clause (y) below as follows:
(x) an amount equal to the sum of
(1) the aggregate purchase price of the shares of such Preferred Stock sold pursuant to the agreement pursuant to which such shares of Series A Preferred Stock or Series B Preferred Stock were first issued (the “ Purchase Price ”),plus
(2) the aggregate consideration, if any, received by the Corporation for all Additional Stock issued on or after the Purchase Date:
(y) an amount equal to the sum of
(1) the applicable Purchase Price divided by the applicable initial Conversion Price for such series (or such higher or lower Conversion Price as results from the application of Sections 2(c)(iv)(C) and (D) hereof), plus
(2) the number of shares of Additional Stock issued since the Purchase Date (as adjusted pursuant to Sections 2(c)(iv)(C) and (D) hereof, if applicable).
ii) No adjustment of the Conversion Price for the Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 2(c)(iv)(A)v)c) or d), no adjustment of such Conversion Price pursuant to this Section 2(c)(iv)(A) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment.
iii) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof.
iv) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment.
v) In the case of the issuance (whether before, on or after the applicable Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this Section 2(c)(iv)(A) and Section 2(c)(iv)(B):
a) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 2(c)(iv)(A)iii) and iv)), if any, received by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential anti-dilution adjustments) for the Common Stock covered thereby.
b) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential anti-dilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Sections 2(c)(iv)(A)iii) and iv)).
c) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the applicable Conversion Price of the Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.
d) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the applicable Conversion Price of the Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities.
e) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 2(c)(iv)(A)v)a) and b) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 2(c)(iv)(A)v)c) or d).
(B) “ Additional Stock ” shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 2(c)(iv)(A)v)) by the Corporation after the Purchase Date) other than
i) Common Stock issued pursuant to a transaction described in Section 2(c)(iv)(C) hereof,
ii) up to 350,000 shares of Common Stock issuable or issued to employees, consultants or directors of the Corporation directly or pursuant to the existing stock option or issuance plan of the Corporation or any replacement plan unanimously approved by the Board of Directors of the Corporation, on or before July 1, 2002 whereby the total number of shares of Common Stock issuable does not exceed 350,000 shares (appropriately adjusted to reflect subsequent share combinations or divisions),
iii) capital stock, or options or warrants to purchase capital stock, issued to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions,
iv) capital stock or warrants or options to purchase capital stock issued to unaffiliated entities of the Corporation in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are unanimously approved by the Board of Directors of the Corporation,
v) Shares of Common Stock issued or issuable upon conversion of the Preferred Stock, and
vi) Shares of Common Stock issued or issuable in a public offering prior to or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock.
vii) up to 700,000 shares of Common Stock issuable or issued to employees, consultants or directors of the Corporation directly or pursuant to the existing stock option or issuance plan of the Corporation or any replacement plan approved by the Board of Directors of the Corporation, whereby the total number of shares of Common Stock issuable does not exceed 700,000 shares (appropriately adjusted to reflect subsequent share combinations or divisions).
(C) In the event the Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the applicable Conversion Price of the Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 2(c)(iv)(A)v).
(D) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares.
(v) Other Distributions . In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 2(c)(iv)(C), then, in each such case the holders of Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.
(vi) Recapitalizations . If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 2(c) or Section 2(b)) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the Company or otherwise, to which a holder of the number of shares of Common Stock deliverable upon conversion of the Preferred Stock would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 2(c) with respect to the rights of the holders of the Preferred Stock after the recapitalization to the end that the provisions of this Section 2(c) (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event.
(vii) No Impairment . The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 2(c) and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment.
(viii) No Fractional Shares and Certificate as to Adjustments .
(A) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one-half being rounded upward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
(B) Upon the occurrence of each adjustment or readjustment of the Conversion Price of the Preferred Stock pursuant to this Section 2(c), the Corporation, upon the written request of any holder of Preferred Stock, at the expense of the Corporation, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the applicable Conversion Price for the Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Preferred Stock.
(ix) Notices of Record Date . In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.
(x) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Articles of Incorporation.
(xi) Notices . Any notice required by the provisions of this Section 2(d) to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.
(d) Voting Rights .
(i) The holder of each share of Preferred Stock shall have the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock and shall be entitled, notwithstanding any provision hereof, to notice of any shareholders’ meeting in accordance with the bylaws of the Corporation and shall be entitled to vote together with holders of Common Stock (in a single voting group) with respect to any question upon which holders of Common Stock have the night to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).
(ii) The holders of shares of the Preferred Stock (or the Common Stock into which the Preferred Stock is convertible) shall be entitled to designate directors of the Corporation as set forth in the Stockholders Agreement. In the case of any vacancy in the office of a director designated by holders of Preferred Stock as set forth in the Stockholders Agreement, a successor designated by the applicable holders of the Preferred Stock shall be elected to hold office for the unexpired term of such director by the affirmative vote of the applicable holders of the Preferred Stock (as set forth in the Stockholders Agreement), or, in the absence of action by such holders, by action of any remaining directors elected by the holders of the Preferred Stock, if any. Any director who shall have been designated by the holders of Preferred Stock may be removed from the Board of Directors during such director’s term of office, either for or without cause by, and only by, the affirmative vote of the applicable holders of shares of Preferred Stock (as set forth in the Stockholders Agreement), given at a special meeting of the shareholders duly called or by an action by written consent for that purpose.
(e) Status of Converted Stock . In the event any shares of Preferred Stock shall be converted pursuant to Section 2(c) hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation’s authorized capital stock.
ARTICLE IV
OFFICER AND DIRECTOR LIABILITY
(a) Limited Liability . Except as required by the Act, no director of this Corporation shall be personally liable for monetary damages for any action taken, or any failure to take any action, as a director. Neither any amendment nor repeal of this Article IV, nor the adoption of any provision in these Articles of Incorporation inconsistent with this Article IV, shall eliminate or reduce the effect of this Article IV with respect to any matter occurring or any cause of action, suit or claim that, but for this Article IV, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
(b) Indemnity . The Corporation shall, to the fullest extent permitted by the URBCA, as the same may be amended or supplemented, indemnify all directors, officers, employees and agents of the Corporation whom it shall have the power to indemnify thereunder from and against any and all of the expenses, liabilities, or other matters referred to therein or covered thereby. The corporation shall have the right to advance expenses to its directors, officers, employees and agents to the full extent permitted by the URBCA, as the same may be amended or supplemented. Such right to indemnification or advancement of expenses shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation, and shall inure to the benefit of the heirs, executives and administrators of such persons. The indemnification and advancement of expenses provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement may be entitled under any bylaw, agreement, vote of shareholders or of disinterested directors or otherwise. The Corporation shall have the right to purchase and maintain insurance on behalf of its directors, officers, employees or agents to the full extent permitted by the URBCA, as the same may be amended or supplemented.
10
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David B. Kaysen, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Sun BioPharma, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Dated: May 12, 2016 |
/s/ David B. Kaysen |
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David B. Kaysen |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE
13a-14(a)
OR
15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF
1934,
AS AMENDED, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott Kellen, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Sun BioPharma, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Dated: May 12, 2016 |
/s/ Scott Kellen |
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Scott Kellen |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, David B. Kaysen, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
the Quarterly Report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended March 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Sun BioPharma, Inc. |
Dated: May 12, 2016
/s/ David B. Kaysen |
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David B. Kaysen |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott Kellen, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
the Quarterly Report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended March 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Sun BioPharma, Inc. |
Dated: May 12, 2016
/s/ Scott Kellen |
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Scott Kellen |
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Chief Financial Officer |
|
(Principal Financial Officer and Principal |
|
Accounting Officer) |