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 9
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.: 000-55242
Sun BioPharma, Inc. |
(Exact Name of Registrant as Specified in its Charter) |
Delaware |
87-0543922 |
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
|
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 every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐ *
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☑ |
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Securities registered pursuant to Section 12(b) of the Act: None
On May 10, 2019, there were 5,070,341 shares of the registrant’s common stock, par value $0.001, outstanding.
Sun BioPharma, Inc.
Index to Quarterly Report on Form 10-Q
Page |
||
PART I – FINANCIAL INFORMATION | ||
Item 1. |
Financial Statements |
3 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 |
Item 3. |
Quantitative and Qualitative Disclosure About Market Risk |
18 |
Item 4. |
Controls and Procedures |
18 |
PART II – OTHER INFORMATION |
||
Item 1. |
Legal Proceedings |
18 |
Item 1A. |
Risk Factors |
19 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
19 |
Item 3. |
Defaults Upon Senior Securities |
19 |
Item 4. |
Mine Safety Disclosures |
19 |
Item 5. |
Other Information |
19 |
Item 6. |
Exhibits |
19 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Sun BioPharma
, Inc.
Condensed
Consolidated Balance Sheets
(In thousands, except share amounts)
March 31, 2019 |
December 31, 2018 |
|||||||
|
(Unaudited) |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash |
$ | 1,379 | $ | 1,405 | ||||
Prepaid expenses and other current assets |
73 | 110 | ||||||
Income tax receivable |
408 | 332 | ||||||
Total current assets |
1,860 | 1,847 | ||||||
Other noncurrent assets |
51 | 51 | ||||||
Total assets |
$ | 1,911 | $ | 1,898 | ||||
LIABILITITES AND STOCKHOLDERS' EQUITY (DEFICIT) |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 905 | $ | 1,064 | ||||
Accrued expenses |
200 | 212 | ||||||
Convertible notes payable, net of debt discounts |
1,083 | 64 | ||||||
Term debt, current portion |
259 | 286 | ||||||
Accrued interest |
52 | 4 | ||||||
Total current liabilities |
2,499 | 1,630 | ||||||
Stockholders' (deficit) equity: |
||||||||
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued or outstanding as of March 31, 2019 and December 31 2018 |
- | - | ||||||
Common stock, $0.001 par value; 100,000,000 authorized; 5,070,341 and 5,077,483 shares issued and outstanding, as of March 31, 2019 and December 31, 2018, respectively |
5 | 5 | ||||||
Additional paid-in capital |
35,795 | 35,038 | ||||||
Accumulated deficit |
(36,639 | ) | (35,058 | ) | ||||
Accumulated comprehensive income |
251 | 283 | ||||||
Total stockholders' (deficit) equity |
(588 | ) | 268 | |||||
Total liabilities and stockholders' (deficit) equity |
$ | 1,911 | $ | 1,898 |
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 31, |
||||||||
2019 |
2018 |
|||||||
Operating expenses: |
||||||||
General and administrative |
$ | 303 | $ | 658 | ||||
Research and development |
350 | 580 | ||||||
Operating loss |
(653 | ) | (1,238 | ) | ||||
Other (expense) income: |
||||||||
Grant income |
- | 10 | ||||||
Interest expense |
(1,033 | ) | (473 | ) | ||||
Other(expense) income |
34 | (80 | ) | |||||
Total other expense |
(999 | ) | (543 | ) | ||||
Loss before income tax benefit |
(1,652 | ) | (1,781 | ) | ||||
Income tax benefit |
71 | 28 | ||||||
Net loss |
(1,581 | ) | (1,753 | ) | ||||
Foreign currency translation adjustment |
(32 | ) | 69 | |||||
Comprehensive loss |
$ | (1,613 | ) | $ | (1,684 | ) | ||
Basic and diluted net loss per share |
$ | (0.31 | ) | $ | (0.45 | ) | ||
Weighted average shares outstanding - basic and diluted |
5,072,397 | 3,927,296 |
See accompanying notes to condensed consolidated financial statements.
Sun BioPharma, Inc.
Condensed Consolidated Statements of S tock holder s’ Equity (Deficit)
(In thousands)
(Unaudited)
For the Three Months Ended March 31, 2018 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In |
Accumulated |
Accumulated Other Comprehensive |
Total Stockholders' |
||||||||||||||||||||
Shares |
Amount |
Capital |
Deficit |
Gain (Loss) |
Equity (Deficit) |
|||||||||||||||||||
Balances as of January 1, 2018 |
3,842 | $ | 4 | $ | 25,625 | $ | (29,153 | ) | $ | (165 | ) | $ | (3,689 | ) | ||||||||||
Sale of common stock and warrants |
252 | - | 1,261 | - | - | 1,261 | ||||||||||||||||||
Stock-based compensation |
- | - | 1,792 | - | - | 1,792 | ||||||||||||||||||
Net loss |
- | - | - | (1,753 | ) | - | (1,753 | ) | ||||||||||||||||
Foreign currency translation adjustment |
- | - | - | - | 69 | 69 | ||||||||||||||||||
Balances as of March 31, 2018 |
4,094 | $ | 4 | $ | 28,678 | $ | (30,906 | ) | $ | (96 | ) | $ | (2,320 | ) |
For the Three Months Ended March 31, 2019 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In |
Accumulated |
Accumulated Other Comprehensive |
Total Stockholders' |
||||||||||||||||||||
Shares |
Amount |
Capital |
Deficit |
Gain (Loss) |
Equity (Deficit) |
|||||||||||||||||||
Balances as of January 1, 2019 |
5,077 | $ | 5 | $ | 35,038 | $ | (35,058 | ) | $ | 283 | $ | 268 | ||||||||||||
Beneficial conversion feature on convertible notes payable |
- | - | 353 | - | - | 353 | ||||||||||||||||||
Warrants issued with sale of convertible notes payable |
- | - | 419 | - | - | 419 | ||||||||||||||||||
Common stock converted into convertible notes payable |
(7 | ) | - | (25 | ) | - | - | (25 | ) | |||||||||||||||
Stock-based compensation |
- | - | 10 | - | - | 10 | ||||||||||||||||||
Net loss |
- | - | - | (1,581 | ) | - | (1,581 | ) | ||||||||||||||||
Foreign currency translation adjustment |
- | - | - | - | (32 | ) | (32 | ) | ||||||||||||||||
Balances at March 31, 2019 |
5,070 | $ | 5 | $ | 35,795 | $ | (36,639 | ) | $ | 251 | $ | (588 | ) |
See accompanying notes to condensed consolidated financial statements.
Sun BioPharma , Inc.
Condensed
Consolidated
Statements of Cash
Flows
(In thousands)
(Unaudited)
Three Months Ended March 31, |
||||||||
2019 |
2018 |
|||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (1,581 | ) | $ | (1,753 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock-based compensation |
10 | 698 | ||||||
Amortization of debt discount |
974 | 427 | ||||||
Amortization of debt issuance costs |
6 | 2 | ||||||
Non-cash interest expense |
48 | 43 | ||||||
Changes in operating assets and liabilities: |
||||||||
Income tax receivable |
(74 | ) | (36 | ) | ||||
Prepaid expenses and other current assets |
38 | (15 | ) | |||||
Accounts payable |
(193 | ) | 111 | |||||
Accrued liabilities |
(11 | ) | (65 | ) | ||||
Net cash used in operating activities |
(783 | ) | (588 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from the sale of convertible promissory notes, net of debt issuance costs of $7 |
810 | - | ||||||
Proceeds from sale of common stock and warrants, net of offering costs of $152 |
- | 1,261 | ||||||
Deposits received for possible future stock sales |
- | 350 | ||||||
Repayment of demand note |
(25 | ) | - | |||||
Repayments of term debt |
(27 | ) | - | |||||
Net cash provided by financing activities |
758 | 1,611 | ||||||
Effect of exchange rate changes on cash |
(1 | ) | (6 | ) | ||||
Net change in cash |
(26 | ) | 1,017 | |||||
Cash at beginning of period |
1,405 | 152 | ||||||
Cash at end of period |
$ | 1,379 | $ | 1,169 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during period for interest |
$ | 5 | $ | 21 | ||||
Supplemental disclosure of non-cash transactions: |
||||||||
Beneficial conversion feature on convertible notes |
$ | 353 | $ | - | ||||
Warrants issued with convertible notes |
$ | 419 | $ | - | ||||
Common stock converted into convertible notes payable |
$ | 25 | ||||||
Options granted in exchange for release from contingent payment obligations |
$ | - | $ | 1,094 |
See accompanying notes to condensed consolidated financial statements.
S
un BioPharma
, Inc.
1. |
Business |
Sun BioPharma, Inc. and its wholly-owned subsidiary Sun BioPharma Australia Pty Ltd. (collectively “we,” “us,” “our,” and the “Company”) exists for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for the treatment of patients with pancreatic cancer and for a second indication for the treatment of patients with chronic and recurrent acute 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 in Australia, the European Medicines Agency 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 $36.6 million since our inception in 2011. For the three months ended March 31, 2019, we incurred a net loss of $1.6 million, which includes the amortization of discount on debt of $1.0 million. We also incurred negative cash flows from operating activities of $0.8 million for this period. During this same period, we raised $0.8 million from the sale of convertible promissory notes and warrants to purchase common stock, as discussed in Note 4 titled “Liquidity and Business Plan”. As we continue to pursue development activities and seek commercialization of our initial product candidate, SBP-101, we expect to incur substantial losses, which are likely to generate negative net cash flows from operating activities,. As of March 31, 2019, we had cash of $1.4 million, working capital deficit of $1.7 million (current assets less current liabilities excluding unamortized debt discount of $1.1 million), and stockholders’ deficit of $0.6 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 regarding our 2018 financial statements dated March 22, 2019. 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 titled “Liquidity and Business Plan.”
3. |
Basis of Presentation |
We have prepared the accompanying interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. 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 U.S. 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, 2018 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 most recent filed Annual Report on Form 10-K and our subsequent 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 s
In June 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee stock-based payment transactions. This ASU was adopted by the Company effective for the fiscal year beginning January 1, 2019. Historically, the ultimate stock-based compensation related to non-employee common stock options would fluctuate based on changes in the underlying option pricing model as the awards vest. Under the new guidance, the total compensation cost of non-employee options is determined at grant date. The Company has evaluated the impact of this new guidance on its financial statements and has determined that it would affect how the Company will record stock-based compensation related to common stock options and other equity-based compensation, if any, granted to non-employees.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which created a new Topic, Accounting Standards Codification (“ASC”) Topic 842 and established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments, that arise from leases. For leases with a term of 12 months or less, a lessee is permitted to make an election under which such assets and liabilities would not be recognized, and lease expense would be recognized generally on a straight-line basis over the lease term. This standard was adopted by the Company for the year beginning January 1, 2019. The Company has evaluated the impact of this revised guidance on its financial statements and determined it had no material impact, as the Company has no leasing arrangements with terms greater than one year.
4. |
Liquidity and Business Plan |
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.
To further preserve funds, effective November 1, 2018 the Company’s Board of Directors and management team implemented temporary salary reductions for all employees. After the resignation of the Company’s President and CEO, the Company consolidated this position with that of our Executive Chairman as of the same date. Salaries were restored to contracted levels as of February 1, 2019. These reductions in salaries and the number of employees resulted in estimated cost savings of $80,000 during the quarter ended March 31, 2019.
As previously reported, in closings occurring on December 21 and 31, 2018, the Company sold $1,334,000 principal amount of unsecured convertible promissory notes (the “Notes”) and warrants (the “Warrants”) to purchase up to 762,076 shares of common stock in a private placement to certain investors pursuant to a Securities Purchase Agreement. In closings occurring on January 14, 25 and 31, 2019, the Company sold $842,000 aggregate principal amount of additional Notes and Warrants to purchase up to an aggregate of 481,422 additional shares of common stock, resulting in additional gross proceeds of $817,000 million. In January, a previous issuance of 7,142 shares was cancelled and the value of $25,000 was converted into the Notes. See Note 6 titled “Indebtedness” for a detailed discussion of the material terms of the Notes. The Warrants are exercisable for a period of five years from the date of issuance at an exercise price of $4.50. The Warrants issued in January 2019 had a fair market value of approximately $838,000 upon issuance.
If we are unable to obtain additional financing when needed, we believe that 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, recurrent acute and/or chronic 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 stockholders.
5. |
Summary of Significant Accounting Policies |
Principles of consolidation
The accompanying condensed consolidated financial statements include the assets, liabilities and expenses of the Company. 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 expenses during the reporting period. Actual results could differ from those estimates.
Beneficial c onversion f eature
For convertible debt where the rate of conversion is below fair market value for our common stock, the Company records a "beneficial conversion feature" and related debt discount that is presented as a direct deduction from the carrying amount of the related debt and as an increase to additional paid-in capital. The debt discount is amortized through interest expense over the life of the related debt.
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 through interest expense over the life of the related debt.
Research and development costs
Research and development costs include expenses incurred in the conduct of our second Phase 1 human clinical trial, for third-party service providers performing various testing and accumulating data related to our preclinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of the SBP-101 compound 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; personnel costs, including salaries, benefits and share-based compensation; and costs to license and maintain our licensed intellectual property.
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.
Stock-based compensation
In accounting for stock-based incentive awards, we measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the fair value of those awards on the grant date. Calculating stock-based compensation expense requires the input of highly subjective assumptions, which represent our best estimates and involve inherent uncertainties and the application of management’s judgment. Compensation cost is recognized ratably using the straight-line attribution method over the vesting period, which is considered to be the requisite service period. Compensation expense for performance-based stock option awards is recognized when “performance” has occurred or is probable of occurring.
The fair value of stock-based awards is estimated at the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based awards is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility rates are 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. 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 stockholders’ equity (deficit). During the three-month periods ended March 31, 2019 and 2018, any reclassification adjustments from accumulated other comprehensive loss to operations were inconsequential.
Comprehensive loss
Comprehensive loss consists of our net loss and the effects of foreign currency translation.
Net loss per share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted average of common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be anti-dilutive or reduce a net loss per share. The Company’s potential dilutive shares, which include convertible debt, outstanding common stock options, and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.
The following table sets forth the potential shares of common stock that were not included in the calculation of diluted net loss per share as their effects would have been anti-dilutive as of:
March 31, |
||||||||
2019 |
2018 |
|||||||
Employee and non-employee stock options |
1,032,211 | 1,097,960 | ||||||
Estimated common shares issuable upon conversion of notes payable and accrued interest |
636,234 | 322,947 | ||||||
Common stock issuable under common stock purchase warrants |
2,509,477 | 403,700 | ||||||
4,177,922 | 1,824,607 |
6. |
Indebtedness |
Notes
In January 2019 we sold convertible promissory notes (the “Notes”) and Warrants to purchase common stock for gross proceeds $0.8 million. As of March 31, 2019, we had $2.2 million aggregate principal amount of Notes outstanding. The Notes have a mandatory conversion of all principal and accrued interest into common stock on the earlier of (1) June 30, 2019 or (2) the date the Company receives gross proceeds of at least $6.0 million from the sale of equity securities (subject to certain exclusions) and bear interest at a rate of 10.0% per year. In addition to the Notes sold; investors received a warrant to purchase two shares of common stock for every $3.50 principal amount of Notes purchased. In total, warrants to purchase up to 481,422 shares of common stock were issued with the Notes sold in January. In January, common stock totaling 7,142 shares were cancelled and the value of $25,000 was converted into the Notes, no gain or loss occurred on this conversion. The warrants issued in January 2019 had a fair market value of $0.8 million upon issuance. After assigning the relative value of the warrants to the proceeds of the notes it was determined that the Notes sold in January 2019 contained a beneficial conversion feature with an intrinsic value of approximately $0.3 million. Both the relative value of the warrants and the beneficial conversion feature were recorded as a debt discount which is presented as a direct deduction from the carrying value of the Notes. The discount is being amortized through interest expense over the life of the 2018 Notes.
Term debt
Effective April 5, 2019 the terms of our unsecured loan (the “Term Debt”) payable to the Institute for Commercialization of Public Research, Inc. (the “Institute”) were amended to extend the maturity date from May 1, 2019 to December 31, 2019. The Institute agreed to the amendment in exchange for a warrant to purchase 5,555 shares of common stock at an exercise price of $4.50. The warrant expires five years from issuance. The fair market value of the warrant is nominal and as such has not been given any accounting treatment. The amendment requires the continuation of monthly payments of principal and interest totaling $10,000. The unpaid principal balance at March 31, 2019 was $259,000.
Deferred financing costs
The following table summarizes the deferred financing costs which are presented as a direct reduction of the carrying amount of their related debt liabilities (in thousands):
March 31, 2019 |
December 31, 2018 |
|||||||||||||||
Convertible Notes Payable |
Term Debt |
Convertible Notes Payable |
Term Debt |
|||||||||||||
Loan principal Amount |
$ | 2,176 | $ | 259 | $ | 1,359 | $ | 286 | ||||||||
Deferred Financing Costs |
12 | 37 | 5 | 37 | ||||||||||||
Accumulated Amortization |
(6 | ) | (37 | ) | - | (37 | ) | |||||||||
Unamortized balance |
6 | - | 5 | - | ||||||||||||
Discount on Debt |
2,105 | - | 1,333 | - | ||||||||||||
Accumulated Amortization |
(1,018 | ) | - | (44 | ) | - | ||||||||||
Unamortized balance |
1,087 | - | 1,289 | - | ||||||||||||
Loan carrying amounts, net |
$ | 1,083 | $ | 259 | $ | 65 | $ | 286 |
7 . |
S tock holders’ Deficit |
Shares of common stock reserved for future issuance were as follows as of March 31, 2019:
Stock options outstanding |
1,032,211 | ||
Shares available for grant under equity incentive plan |
732,119 | ||
Estimated common shares issuable upon conversion of notes payable and accrued interest |
636,234 | ||
Common shares issuable under outstanding common stock purchase warrants |
2,509,477 | ||
4,910,041 |
8 . |
S tock -based Compensation |
2016 Omnibus Incentive Plan
The Sun BioPharma, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”) was adopted by our Board of Directors in March 2016 and approved by our stockholders in May 2016. The 2016 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 2016 Plan at no less than the fair market value of the underlying common stock as of the date of grant. Options granted under the 2016 Plan have a maximum term of ten years. Under the 2016 Plan, a total of 1,500,000 shares of common stock were initially reserved for issuance. As of March 31, 2019, options to purchase 767,851 shares of common stock were outstanding under the 2016 Plan and 732,149 shares remained available for future awards.
2011 Stock Option Plan
Our Board of Directors ceased making awards under the Sun BioPharma, Inc. 2011 Stock Option Plan (the “2011 Plan”) upon the receipt of stockholder approval for the 2016 Plan. Awards outstanding under the 2011 Plan remain outstanding in accordance with and pursuant to the terms thereof. Options granted under the 2011 Plan have a maximum term of ten years and generally vest over zero to two years for employees. As of March 31, 2019, options to purchase 264,360 shares of common stock remained outstanding under the 2011 Plan.
Stock -based Compensation Expense
General and administrative (“G&A”) and research and development (“R&D”) expenses include non-cash stock-based compensation expense as a result of our issuance of stock options. The terms and vesting schedules for stock-based awards vary by type of grant and the employment status of the grantee. The awards granted through March 31, 2019 vest based upon time-based and performance conditions. No awards were granted for the three months ended March 31, 2019. There was approximately $53,000 unamortized stock-based compensation expense related to options granted to employees as of March 31, 2019.
Stock-based compensation expense for each of the periods presented is as follows (in thousands):
Three Months Ended March 31, |
||||||||
2019 |
2018 |
|||||||
General and Administrative |
10 | 1,065 | ||||||
Research and Development |
- | 727 | ||||||
10 | 1,792 |
No options were granted, exercised, cancelled or forfeited during the three months ended March 31, 2019.
Information about stock options outstanding, vested and expected to vest as of March 31, 2019, is as follows:
Outstanding, Vested and Expected to Vest |
Options Vested and Excercisable |
|||||||||||||||||||||
Per Share Exercise Price |
Shares |
Weighted Average Remaining Contractual Life (Years) |
Weighted Average Exercise Price |
Options Excercisable |
Weighted Average Remaining Contractual Life (Years) |
|||||||||||||||||
$0.875 |
- | $1.10 | 26,360 | 3.75 | $ | 1.029 | 26,360 | 3.75 | ||||||||||||||
$2.275 |
- | $2.50 | 38,000 | 4.87 | $ | 2.464 | 38,000 | 4.87 | ||||||||||||||
$3.175 |
200,000 | 5.93 | $ | 3.175 | 200,000 | 5.93 | ||||||||||||||||
$5.75 |
- | $8.10 | 379,000 | 7.99 | $ | 7.488 | 349,000 | 7.90 | ||||||||||||||
$10.00 |
- | $10.10 | 54,000 | 8.31 | $ | 10.007 | 54,000 | 8.31 | ||||||||||||||
$15.10 |
334,851 | 7.19 | $ | 15.100 | 327,851 | 7.29 | ||||||||||||||||
Totals |
1,032,211 | 7.13 | $ | 8.904 | 995,211 | 7.10 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion contains various forward-looking statements. 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,” “intends,” “believes,” “expects,” “intends,” “plans,” “estimates,” “likely,” “may,” “would,” “will,” 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. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes.
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, other than as may be required by law
Overview
The Company exists for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a second indication in chronic and recurrent acute pancreatitis. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the UFRF.
In August 2015, the U.S. FDA granted an Investigational New Drug (“IND”) approval for our SBP-101 product candidate. From January 2016 through September 2017, we enrolled twenty-nine patients into six cohorts, or groups, in the dose-escalation phase of a Phase 1 safety trial and published results in the Spring of 2018. The Company’s second trial, a Phase 1a/1b combination of SBP-101 with gemcitabine and nab-paclitaxel in patients previously untreated for metastatic pancreatic ductal adenocarcinoma (“PDA”), continued to enroll patients in the quarter ended March 31, 2019. The Phase 1a portion of this study will treat up to 18 PDA patients in three planned cohorts to determine a recommended dose of SBP-101 to be given in combination with standard treatment. The Phase 1b portion will be an expansion at the recommended dose of SBP-101 and will guide SBP-101’s subsequent development for patients with PDA. We estimate that completion of our current Phase 1 clinical trial in PDA will require additional funding of approximately $6 to $12 million. Additional clinical trials will likely be required for FDA or other similar approvals if the results of the current clinical trial of our SBP-101 product candidate is positive. The cost and timing of additional clinical trials is highly dependent on the nature and size of the trials; however, it is estimated that the next steps in the approval process could cost between $25 and $30 million. In the quarter ended March 31, 2019 the Company initiated a preclinical study related to a potential second indication for SBP-101, the treatment of patients with chronic and recurrent acute pancreatitis. The Company has not estimated incremental costs, beyond the current study, to pursue this indication.
Financial Overview
We have incurred losses of $36.6 million since inception. For the three months ended March 31, 2019, we incurred a net loss of $1.6 million. We also incurred negative cash flows from operating activities of $0.8 million for this period. We expect to continue to incur substantial losses, which will 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 was approximately $1.4 million as of both March 31, 2019 and December 31, 2018.
A decrease of $26,000 in cash for the three months ended March 31, 2019 was primarily due to negative cash flow from operations offset by $0.8 million net proceeds from the sales of Notes and Warrants.
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.
If we are unable to obtain additional financing when needed, we will likely 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 results of operations (in thousands) :
Three Months Ended March 31, |
||||||||||||
2019 |
2018 |
Percent Change |
||||||||||
Operating Expenses |
||||||||||||
General and administrative |
$ | 303 | $ | 658 | -54.0 | % | ||||||
Research and development |
350 | 580 | -39.7 | % | ||||||||
Total operating expenses |
653 | 1,238 | -47.3 | % | ||||||||
Other expenses, net |
(999 | ) | (543 | ) | 84.0 | % | ||||||
Income tax benefit |
71 | 28 | 153.6 | % | ||||||||
Net Loss |
$ | (1,581 | ) | $ | (1,753 | ) | -9.8 | % |
R&D and G&A expenses include non-cash share-based compensation expense because of our issuance of stock options. We expense the fair value of equity awards over their vesting periods. The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. The awards granted through March 31, 2019 vest upon performance and time-based conditions. We expect to record additional non-cash share-based compensation expense in the future, which may be significant.
The following table summarizes the stock-based compensation expense in our statements of comprehensive loss for the three months ended March 31, 2019 and March 31, 2018 (in thousands):
Three Months Ended March 31, |
||||||||
2019 |
2018 |
|||||||
General and administative |
$ | 10 | $ | 1,065 | ||||
Research and Development |
- | 727 | ||||||
Total Stock based compensation |
$ | 10 | $ | 1,792 |
General and administrative expense
Our G&A expenses decreased 54.0% to $303,000 in the first quarter of 2019 down from $658,000 in the first quarter of 2018. The decrease was associated primarily with lower stock compensation expense, and temporary salary reductions that were in effect for a portion of the quarter ended March 31, 2019. In the quarter ended March 31, 2018 certain employees waived potential payments of approximately $709,000, which was recorded as a reduction in salary expense.
Research and development expense
Our R&D expenses decreased 39.7% to $350,000 in the first quarter of 2019 down from $580,000 in the first quarter of 2018. The decrease was associated primarily with lower stock compensation expense, and temporary salary reductions that were in effect for a portion of the quarter ended March 31, 2019. In the quarter ended March 31, 2018 certain employees waived potential payments of approximately $385,000, which was recorded as a reduction in salary expense.
Other expense, net
Other expense, net, was $999,000 and $543,000 for the three months ended March 31, 2019 and 2018, respectively. The increase was due primarily to the amortization of the debt discount on the $2.2 million aggregate principal amount of Notes which were sold in December of 2018 and January of 2019. The discount is being amortized over the life of the Notes.
Income tax benefit
Income tax benefit increased to $71,000 for the three months ended March 31, 2019 up from $28,000 during the three months ended March 31, 2018. Our income tax benefit is derived primarily from refundable tax credits associated with our R&D activities conducted in Australia and was increased due to increased eligible R&D activities in the first three months of 2019 versus the first three months of 2018.
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of March 31, 2019 and December 31, 2018 and our cash flow data for the three months ended March 31, 2019 and 2018 and is intended to supplement the more detailed discussion that follows (in thousands):
Liquidity and Capital Resources |
|||||||||
March 31, 2019 |
December 31, 2018 |
||||||||
Cash |
$ | 1,379 | $ | 1,405 | |||||
Working capital deficiency* |
$ | (1,726 | ) | $ | (1,073 | ) |
* exludes $1,087 and $1,289 of unamortized debt discount, respectively
Cash Flow Data |
Three Months Ended March 31, |
||||||||
2019 |
2018 |
||||||||
Cash Provided by (Used in): |
|||||||||
Operating Activities |
$ | (783 | ) | $ | (588 | ) | |||
Investment Activities |
- | - | |||||||
Financing Activities |
758 | 1,611 | |||||||
Effect of exchange rate changes on cash |
(1 | ) | (6 | ) | |||||
Net (decrease) increase in cash |
$ | (26 | ) | $ | 1,017 |
Working Capital
Our total cash was $1.4 million as of both March 31, 2019 and December 31, 2018. We had $2.5 million in current liabilities and working capital deficit of $1.7 million (excluding the unamortized debt discount of $1.1 million) as of March 31, 2019, compared to $1.6 million in current liabilities and a working capital deficit of $1.1 million (excluding $1.3 million of unamortized debt discount) as of December 31, 2018. The increase in current liabilities was due to the sale of$0.8 million aggregate principal amount of Notes during the quarter ended March 31, 2019.
Cash Flows
Net Cash Used in Operating Activities
Net cash used in operating activities was $0.8 million in the three months ended March 31, 2019 compared to $0.6 million in the three months ended March 31, 2018. The net cash used in each of these periods primarily reflects the net loss for these periods and is partially offset by the effects of changes in operating assets and liabilities.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $0.8 million and $1.6 million for the three months ended March 31, 2019 and March 31, 2018, respectively. The cash provided for the three months ended March 31, 2019 represents the gross proceeds from the sale of the Notes during the quarter. The cash provided in the three months ended March 31, 2018 represents $1.3 million net proceeds from sales of equity securities and warrants pursuant to the February and March closings under the the securities purchase agreements dated as of February 20, 2018 and March 16, 2018, respectively.
Capital Requirements
As we continue to pursue our operations and execute our business plan, including the completion of our current Phase 1 clinical trial for our initial product candidate, SBP-101, in pancreatic cancer, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets, we expect to continue to incur substantial and increasing losses, which will continue to generate negative net cash flows from operating activities.
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 1a /1b 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 cost and delays in product development that may result from changes in regulatory oversight applicable to our SBP-101 product candidate; |
● |
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; 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.
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 1a clinical trial for our SBP-101 product candidate. Accordingly, we expect to make additional expenditures in performing our Phase 1a /1b clinical trial and related support activities. With sufficient capital, we also expect to invest in additional R&D efforts of follow-on products or secondary indications. 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. We will likely need to obtain additional funds to continue our operations and execute our 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.
As of March 31, 2019, 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.
If we are unable to obtain additional financing when needed, we will likely 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 patients with pancreatic cancer, recurrent acute and/or chronic 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 stockholders would be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. If we issue preferred stock, it could affect the rights of our stockholders or reduce the value of our common stock. 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 for 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
As of March 31, 2019, we had $2.2 million aggregate principal amount of indebtedness outstanding. As of December 31, 2018, the Company had $1.3 million aggregate principal amount of indebtedness outstanding. The change in the balance was due to the sale of aggregate principal amount of Notes during January of 2019. The balance of $2.2 million bears annual interest at 10% and becomes mandatorily convertible to common stock on the maturity date of June 30, 2019. The notes and accrued interest will convert into approximately 651,700 shares of common stock upon maturity.
One $25,000 convertible promissory note was paid in full on January 4, 2019.
We also have $259,000 outstanding in an unsecured loan that accrues interest of 4.125% per year and is scheduled to mature on December 31, 2019. In accordance with the terms of this loan we commenced with monthly payments of $10,000 on May 1, 2018.
Critical Accounting Policies and Estimates
Our significant accounting policies are set forth in the notes accompanying the condensed consolidated financial statements included in this document. The accounting policies used in preparing our interim fiscal 2019 condensed consolidated financial statements are the same as those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet 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, the Company’s management 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, 2019, 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, 2018.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
On January 25 and 31 of 2019, the Company sold approximately $642,000 original principal amount of the Notes and Warrants to purchase up to 367,138 shares of common stock pursuant to Purchase Agreements in the form that had been previously filed with the SEC. The Company expects to use the net proceeds from the sale of the Notes and Warrants for working capital and general corporate purposes.
As a result, the Company received a total of approximately $642,000 in aggregate purchase price in connection with the sale of the Notes and Warrants. As of the date of this report, conversion of the Notes in accordance with their terms would result in the issuance of 191,357 shares of our common stock and exercise of the Warrants would result in the issuance of up to 367,138 shares of common stock for a total exercise price of approximately $1.6 million.
The Notes and Warrants were issued in reliance on an exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) to a limited number of persons who were “accredited investors” or “sophisticated investors,” as those terms are defined in Rule 501 of Regulation D of the SEC, without the use of any general solicitations or advertising to market or otherwise offer the securities for sale.
None of the Notes, Warrants or shares of common stock issued or issuable in the transactions described above have been registered under the Securities Act, or applicable state securities laws and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements. Neither this quarterly report on Form 10-Q nor any exhibit attached hereto shall constitute an offer to sell or the solicitation of an offer to buy the Notes, Warrants, or any other securities of the Company.
All other unregistered sales of equity securities during the period covered by this report were reported on a previous current report on Form 8-K.
Item 3. | Defaults Upon Senior Securities . |
None.
Item 4. |
Mine Safety Disclosures. |
Not applicable.
Item 5. |
Other Information. |
None.
Item 6. |
Exhibits. |
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 |
Incorporated by Reference |
|||
3.2 |
Incorporated by Reference |
|||
10.1 |
Amendment to Seed Capital Accelerator Loan Agreement and Seed Capital Loan Note dated October 13, 2017 | Filed Electronically | ||
10.2 | Second Amendment to Seed Capital Accelerator Loan Agreement and Seed Capital Loan Note dated April 5, 2019 | Filed Electronically | ||
10.3 | Form of Warrant issued April 2, 2019 | Filed Electronically | ||
31.1 |
Filed Electronically |
|||
31.2 |
Filed Electronically |
|||
32.1 |
Filed Electronically |
|||
32.2 |
Filed Electronically |
|||
101 |
Financial statements from the quarterly report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended March 31, 2019, formatted in XBRL: (i) the Balance Sheets, (ii) the Statements of Operations and Comprehensive Loss, (iii) the Statements of Stockholders’ Equity (Deficit), (iv) the Statements of Cash Flows, and (v) the Notes to Financial Statements. |
Filed Electronically |
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 14, 2019 |
/s/ Michael T. Cullen, MD |
Michael T. Cullen Chief Executive Officer |
|
(Duly Authorized Officer) |
|
Date: May 14, 2019 |
/s/ Susan Horvath |
Susan Horvath Chief Financial Officer |
|
(Principal Financial Officer and Principal Accounting Officer) |
20
Exhibit 10.1
AMENDMENT TO
SEED CAPITAL ACCELERATOR LOAN AGREEMENT
AND
SEED CAPITAL LOAN NOTE
This Amendment to Seed Capital Acceleration Loan Agreement and Seed Capital Loan Note (this “ Amendmen t”) is made and entered into as of the date below and effective as of October 26, 2017 (the “ Effective Date ”) by and between Sun BioPharma, Inc., a Delaware corporation (“ Maker ”) and Institute for Commercialization of Public Research, Inc. (“ Lender ”).
RECITALS
A. Maker and Lender entered into that Seed Capital Accelerator Loan Agreement dated October 26, 2012 (the “ Loan Agreement ”) pursuant to which Maker issued to Lender that Seed Capital Loan Note dated October 26, 2012 whose total principal amount is $300,000 and attached hereto as Exhibit A (the “ Note ”).
B. Maker and Lender desire to extend the Maturity Date of the Note as set forth in, and on the terms and conditions of, this Amendment.
NOW, THEREFORE , in consideration of the promises set forth in this Amendment, and for other good and valuable consideration, the receipt and adequacy of which are by execution of this Amendment acknowledged, Maker and Lender agree as follows:
1. Maturity Date . Notwithstanding anything to the contrary in the Loan Agreement or the Note, the Maturity Date of the Note shall be the earliest to occur of the following events: (a) the date on which a Mandatory Repayment Event has occurred or has been deemed to have occurred; or (b) May 1, 2019.
2. Monthly Payments . In consideration of Lender’s agreement to extend the Maturity Date, Maker shall make payments to Lender in the amount and on the dates here:
Due date |
Amount |
||
October 26, 2017 |
$6,000.00 |
||
May 1, 2018 |
$10,000.00 |
||
June 1, 2018 |
$10,000.00 |
||
July 1, 2018 |
$10,000.00 |
||
August 1, 2018 |
$10,000.00 |
||
September 1, 2018 |
$10,000.00 |
||
October 1, 2018 |
$10,000.00 |
||
November 1, 2018 |
$10,000.00 |
||
December 1, 2018 |
$10,000.00 |
||
January 1, 2019 |
$10,000.00 |
||
February 1, 2019 |
$10,000.00 |
||
March 1, 2019 |
$10,000.00 |
||
April 1, 2019 |
$10,000.00 |
||
May 1, 2019 |
Balance |
The entirety of the balance including principal and interest will be due no later than May 1, 2019 and payable in one lump sum.
All payments shall be applied first to accrued interest under the Note and second to the payment of the principal amount outstanding under the Note. Maker’s failure to make any scheduled payment within ten (10) calendar days of when due shall be an “Event of Default” under the terms of the Loan Agreement and the Note, entitling Lender to exercise any and all remedies at law, in equity, and under the Loan Agreement and the Note.
3. Effect of Amendment . All provisions of the Loan Agreement and the Note which are not specifically amended by this Amendment, including, without limitation, the Note’s provisions regarding the Interest Rate and the Loan Agreement’s negative and affirmative covenants, shall remain in full force and effect without any changes. As amended hereby, the Agreement and the Note shall remain in full force and effect in accordance with their respective terms. For the avoidance of doubt, notwithstanding any provision of this Amendment or any action or inaction by Lender, except as amended hereby, all rights and privileges of Lender under the Loan Agreement and the Note are retained by Lender and nothing in this Amendment constitutes or is intended to constitute a waiver thereof. If a conflict exists between the provisions of this Amendment and the Agreement or the Note, this Amendment shall control.
4. Miscellaneous . The recitals set forth above are complete and accurate in all respects, and are hereby incorporated into this Amendment. Unless indicated otherwise, all capitalized terms used in this Amendment shall have the same meaning as set forth in the Agreement or the Note, as applicable. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Florida. This Amendment may be executed in counterparts, each of which shall be an original and both of which together shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .jpeg or similar attachment to an electronic mail message, shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. Each party hereby irrevocably waives any objection that it has or may have in the future as to the validity of any such electronic transmission of a signature page.
The parties have executed this Amendment to Seed Capital Acceleration Loan Agreement and Seed Capital Loan Note as of the Effective Date.
|
MAKER : |
|
|
Sun BioPharma, Inc. | |||
|
|
|
|
|
By: |
|
|
|
Name: David Kaysen |
|
|
Title: Chief Executive Officer | |||
|
Date: |
|
|
LENDER : | |||
INSTITUTE FOR COMMERCIALIZATION OF PUBLIC RESEARCH, INC. | |||
By: | |||
Name: Jane Teague | |||
Title: Chief Operating Officer | |||
Date: |
EXHIBIT A
Note
Exhibit 10.2
SECOND AMENDMENT TO
SEED CAPITAL ACCELERATOR LOAN AGREEMENT
AND
SEED CAPITAL LOAN NOTE
This Amendment to Seed Capital Acceleration Loan Agreement and Seed Capital Loan Note (this “ Second Amendmen t”) is made and entered into as of the date below and effective as of May 1, 2019 (the “ Effective Date ”) by and between Sun BioPharma, Inc., a Delaware corporation (“ Maker ”) and Institute for Commercialization of Public Research, Inc. now known as Institute for Commercialization of Florida Technology, Inc. and its wholly owned subsidiary, Florida Technology Seed Capital Fund, LLC (“ Lender ”).
RECITALS
A. Maker and Lender entered into that Seed Capital Accelerator Loan Agreement dated October 26, 2012 (the “ Loan Agreement ”) pursuant to which Maker issued to Lender that Seed Capital Loan Note dated October 26, 2012 whose total principal amount is $300,000 and attached hereto as Exhibit A (the “ Note ”) and the first amendment thereto effective October 26, 2017.
B. Maker and Lender desire to extend the Maturity Date of the Note as set forth in, and on the terms and conditions of, this Amendment.
NOW, THEREFORE , in consideration of the promises set forth in this Amendment, and for other good and valuable consideration, the receipt and adequacy of which are by execution of this Amendment acknowledged, Maker and Lender agree as follows:
1. Maturity Date . Notwithstanding anything to the contrary in the Loan Agreement or the Note, the Maturity Date of the Note shall be the earliest to occur of the following events: (a) the date on which a Mandatory Repayment Event has occurred or has been deemed to have occurred; or (b) December 31, 2019.
2. Monthly Payments and Warrants . In consideration of Lender’s agreement to extend the Maturity Date, Maker shall make payments to Lender in the amount and on the dates here:
Due date |
Amount |
||
May 1, 2019 |
$10,000.00 |
||
June 1, 2019 |
$10,000.00 |
||
July 1, 2019 |
$10,000.00 |
||
August 1, 2019 |
$10,000.00 |
||
September 1, 2019 |
$10,000.00 |
||
October 1, 2019 |
$10,000.00 |
||
November 1, 2019 |
$10,000.00 |
||
December 1, 2019 |
$10,000.00 |
||
December 31, 2019 |
Balance |
The entirety of the balance including principal and interest will be due no later than December 31, 2019 and payable in one lump sum.
All payments shall be applied first to accrued interest under the Note and second to the payment of the principal amount outstanding under the Note. Maker’s failure to make any scheduled payment within ten (10) calendar days of when due shall be an “Event of Default” under the terms of the Loan Agreement and the Note, entitling Lender to exercise any and all remedies at law, in equity, and under the Loan Agreement and the Note.
The Maker also grants to the Lender 5,555 Common Stock Warrants under the terms as described in Exhibit B (the “ Warrant ”) to be held in the Lender’s wholly owned subsidiary Florida Technology Seed Capital Fund, LLC.
3. Effect of Amendment . All provisions of the Loan Agreement and the Note which are not specifically amended by this Amendment, including, without limitation, the Note’s provisions regarding the Interest Rate and the Loan Agreement’s negative and affirmative covenants, shall remain in full force and effect without any changes. As amended hereby, the Agreement and the Note shall remain in full force and effect in accordance with their respective terms. For the avoidance of doubt, notwithstanding any provision of this Amendment or any action or inaction by Lender, except as amended hereby, all rights and privileges of Lender under the Loan Agreement and the Note are retained by Lender and nothing in this Amendment constitutes or is intended to constitute a waiver thereof. If a conflict exists between the provisions of this Amendment and the Agreement or the Note, this Amendment shall control.
4. Miscellaneous . The recitals set forth above are complete and accurate in all respects, and are hereby incorporated into this Amendment. Unless indicated otherwise, all capitalized terms used in this Amendment shall have the same meaning as set forth in the Agreement or the Note, as applicable. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Florida. This Amendment may be executed in counterparts, each of which shall be an original and both of which together shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .jpeg or similar attachment to an electronic mail message, shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. Each party hereby irrevocably waives any objection that it has or may have in the future as to the validity of any such electronic transmission of a signature page.
The parties have executed this Second Amendment to Seed Capital Acceleration Loan Agreement and Seed Capital Loan Note on _________________, 2019.
|
MAKER : |
|
|
Sun BioPharma, Inc. | |||
|
|
|
|
|
|
|
|
|
By: |
|
|
|
Name: Dr. Michael T. Cullen |
|
|
Title: Chief Executive Officer | |||
|
|
|
|
Date: | |||
LENDER : | |||
INSTITUTE FOR COMMERCIALIZATION OF FLORIDA TECHNOLOGY, INC. and FLORIDA TECHNOLOGY SEED CAPITAL FUND, LLC by their manager Florida Funders Management, LLC | |||
By: | |||
Name: R. Kevin Adamek | |||
Title: Partner | |||
Date: |
EXHIBIT A
Note
Exhibit B
Warrant
Exhibit 10.3
THE SECURITIES EVIDENCED HERE BY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ” ), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS OF OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS.
SUN BIOPHARMA, INC.
Common Stock Warrant
Warrant No.2019118 |
Original Issue Date: April 2, 2019 |
Sun BioPharma, Inc., a Delaware corporation (the “ Company ”), hereby certifies that, for value received, Florida Technology Seed Capital Fund, LLC or its registered assigns (the “ Holder ”), is entitled to purchase from the Company up to a total of 5,555 shares of Common Stock (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”), at any time and from time to time from and after the Original Issue Date and at or before 5:00 p.m., Eastern Time, through and including April 2, 2023 (the “ Expiration Date ”), and subject to the following terms and conditions:
1. Definitions . As used in this warrant (the “ Warrant ”), the following terms shall have the respective definitions set forth in this Section 1.
“ Business Day ” means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in the city of Minneapolis, Minnesota are authorized or obligated by law or executive order to close.
“ Closing Price ” means, as of any particular date: (a) the volume weighted average of the closing sales prices of the Common Stock for such day on all Trading Market on which the Common Stock may at the time be listed; (b) if there have been no sales of the Common Stock on any such Trading Market on any such day, the average of the highest bid and lowest asked prices for the Common Stock on all such Trading Markets at the end of such day; (c) if on any such day the Common Stock is not listed on a Trading Market, the closing sales price of the Common Stock as reported for an OTC Market or similar quotation system or association for such day; or (d) if there have been no sales of the Common Stock on any OTC Market or any similar quotation system or association on such day, the average of the highest bid and lowest asked prices for the Common Stock quoted on the OTC Market or a similar quotation system or association at the end of such day; in each case, averaged over five (5) consecutive Trading Days ending on the Trading Day immediately prior to the day as of which the Closing Price is being determined. If at any time the Common Stock is not listed on any Trading Market or quoted on an OTC Market or similar quotation system or association, the Closing Price of the Common Stock shall be the fair market value per share as determined by the Company’s Board of Directors.
“ Common Stock ” means the common stock of the Company, par value $0.001 per share, and any securities into which such common stock may hereafter be reclassified.
“ Exercise Price ” means $4.50, subject to adjustment in accordance with Section 9.
“ Original Issue Date ” means the Original Issue Date first set forth on the first page of this Warrant or its predecessor instrument.
“ OTC Market ” means the OTC Markets Group Inc. electronic inter-dealer quotation system, including OTCQX, OTCQB and OTCPink.
“ Trading Day ” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded in an OTC Market; provided, that in the event that the Common Stock is not listed or quoted as set forth in clauses (i) and (ii), then Trading Day shall mean a Business Day.
“ Trading Market ” means whichever of the New York Stock Exchange, the NYSE American Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, if any, on which the Common Stock is listed or quoted for trading on the date in question.
2. Recordation of Warrant Ownership . The Company shall register this Warrant upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
3. Recordation of Transfers . Subject to any applicable restrictions on transfer, including pursuant to this Agreement or applicable law or regulation, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender to the Company of this Warrant, with a form of assignment acceptable to the Company and duly completed and signed (the “ Form of Assignment ”), in accordance with Section 13 hereof. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a “ New Warrant ”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a warrant.
4. Exercise and Duration of Warrants .
(a) This Warrant shall be exercisable by the registered Holder in whole at any time and in part from time to time from the Original Issue Date through and including the Expiration Date. At 5:00 p.m., Eastern Time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided. The Company may not call or redeem any portion of this Warrant without the prior written consent of the affected Holder.
(b) Notwithstanding anything to the contrary contained herein, the number of Warrant Shares that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its affiliates (as defined under Rule 144, “ Affiliates ”) and any other persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. By written notice to the Company, the Holder may waive the provisions of this Section 4(b), but any such waiver will not be effective until the 61st day after delivery of such notice, nor will any such waiver affect any other Holder.
5. Delivery of Warrant Shares .
(a) To effect exercises hereunder, the Holder shall not be required to physically surrender this Warrant unless the aggregate Warrant Shares represented by this Warrant are being exercised. Upon delivery of the exercise notice (in the form attached hereto) (the “ Exercise Notice ”) to the Company (with the attached Warrant Shares exercise log (the “ Warrant Shares Exercise Log ”)) at its address for notice set forth herein and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder and the Company shall promptly after the Date of Exercise issue and deliver to the Holder, a certificate (or electronic equivalent) for the Warrant Shares issuable upon such exercise, which may bear appropriate restrictive legends, including as provided in Section 5(e). The Company shall, upon request of the Holder and subsequent to the date on which a registration statement covering the resale of the Warrant Shares has been declared effective by the U.S. Securities and Exchange Commission, use its reasonable best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions, if available, provided, that, the Company may, but will not be required to change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through the Depository Trust Corporation. A “ Date of Exercise ” means the date on which the Holder shall have delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased.
(b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise.
(c) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (B) the closing bid price of the Common Stock at the time of the obligation giving rise to such purchase obligation and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.
(d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.
(e) The Holder hereby acknowledges that the sale of the Warrant Shares hereunder has not been reviewed by the U.S. Securities and Exchange Commission nor any state regulatory authority since the transactions contemplated hereunder are intended to be exempt from the registration requirements of Section 5 of the Securities Act, pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D. The Warrant Shares will be “restricted securities” as such term is defined in Rule 144 under the Securities Act and are may not be registered under the Securities Act or under any state securities or “blue sky” laws and Holder will not to sell, pledge, assign or otherwise transfer or dispose of the Securities unless they are registered under the Securities Act and under any applicable state securities or “blue sky” laws or unless an exemption from such registration is available. The Company is authorized to place a legend on any certificate or other document evidencing the Warrant Shares, that such securities have not been registered under the Securities Act or any state securities or “blue sky” laws and setting forth or referring to the restrictions on transferability and sale thereof. Each certificate (or electronic equivalent) representing the Warrant Shares may be endorsed with the following legend (or a legend of substantially similar form and substance):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
6. Charges, Taxes and Expenses . Issuance and delivery of Warrant Shares upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.
8. Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments . In order to mitigate dilution of the purchase rights granted under this Warrant, the Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as provided in this Section 9 (in each case after taking into consideration any prior adjustments pursuant to this Section 9).
(a) Stock Dividends and Splits . If, at any time while this Warrant is outstanding, the Company (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be adjusted to equal the product obtained by multiplying the then-current Exercise Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.
(b) Calculations . All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
(c) Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 9, the Company, at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.
10. Payment of Exercise Price . The Holder may pay the Exercise Price in only in the form of immediately available funds.
11. No Fractional Shares . No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the Closing Price of one Warrant Share on the date of exercise.
12. Representations and Warranties of the Holder . By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:
(a) Investor Status. The Holder is an “accredited investor” as such term is defined in Rule 501(a) of the rules and regulations promulgated under the Securities Act. The Holder agrees to furnish any additional information requested by the Company or any of its affiliates to assure compliance with applicable U.S. federal and state securities laws in connection with the purchase and sale of the Warrant Shares.
(b) No Investment, Tax or Legal Advice. Nothing in this Warrant, or any other materials presented by or on behalf of the Company to the Investor in connection with the purchase and sale of the Warrant Shares constitutes legal, tax or investment advice. Each Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase, if any, of the Warrant Shares.
13. Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. Eastern Time on any Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 5:30 p.m. Eastern Time on any Business Day, (c) the second (2nd) Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto unless the dispatching party has received a written communication from the receiving party establishing a new address prior to dispatch.
14. Miscellaneous .
(a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns.
(b) All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof.
(c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.
(d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.
(e) Prior to exercise of this Warrant, the Holder hereof shall not, by reason of being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares
[S ignature P age F ollows ]
In witness whereof, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.
Sun BioPharma, Inc. | ||
By: |
||
Name: |
Michael T. Cullen |
|
Its: |
Chief Executive Officer |
[ Signature Page to Sun BioPharma, Inc. Common Stock Warrant ]
EXERCISE NOTICE
The undersigned Holder hereby irrevocably elects to purchase shares of Common Stock pursuant to the attached Warrant. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.
(1) |
The undersigned Holder hereby exercises its right to purchase Warrant Shares pursuant to the Warrant. |
(2) |
Holder has made arrangements to pay the sum of $____________ to the Company in accordance with the terms of Section 10 of the Warrant. |
(3) |
Pursuant to this Exercise Notice, the Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant. |
(4) |
Holder represents that it is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the U.S. Securities and Exchange Commission, and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company. |
Dated ______________ __, _____ | Name of Holder: | |
(Print) | ||
By: | ||
Its: | ||
(Signature must conform in all respects to | ||
holder name specified on face of Warrant) |
WARRANT SHARES EXERCISE LOG
Date |
Number of Warrant Shares Available to be Exercised |
Number of Warrant Shares Exercised |
Number of Warrant Shares Remaining to be Exercised |
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, Michael T. Cullen, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Sun BioPharma, Inc.; |
||
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; |
||
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; |
||
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: |
||
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 subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
||
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; |
||
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 |
||
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 |
||
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): |
||
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 |
||
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. |
Dated: May 14, 2019 |
/s/ Michael T. Cullen, MD |
|||
Michael T. Cullen |
||||
President and Chief Executive Officer |
||||
(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, Susan Horvath, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Sun BioPharma, Inc.; |
||
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; |
||
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; |
||
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: |
||
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 subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
||
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; |
||
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 |
||
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 |
||
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): |
||
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 |
||
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. |
Dated: May 14, 2019 |
/s/ Susan Horvath |
|||
Susan Horvath |
||||
Chief Financial Officer |
||||
(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, Michael T. Cullen, 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, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(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 14, 2019
/s/ Michael T. Cullen, MD |
|
Michael T. Cullen |
|
President and Chief Executive Officer |
|
(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, Susan Horvath, 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, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(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 14, 2019
/s/ Susan Horvath |
|
Susan Horvath |
|
Chief Financial Officer |
|
(Principal Financial Officer and Principal |
|
Accounting Officer) |