10-K
1
form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2020
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from ________ to ________
Commission
File No. 000-27072
AIM
IMMUNOTECH INC.
(Exact
name of registrant as specified in its charter)
Delaware
52-0845822
(State
or other jurisdiction of
(I.R.S.
Employer Identification
incorporation
or organization)
Number)
2117
SW Highway 484, Ocala FL
34473
(Address
of principal executive offices)
(Zip
Code)
Registrant’s
telephone number, including area code: (352) 448-7797
(Former
name, former address and former fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading
Symbol
Name
of each exchange on which registered
Common
Stock, par value $0.001 per share
AIM
NYSE
American
Securities
registered pursuant to Section 12(g) of the Act:
(Title
of Each Class)
NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
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 [X] 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
[X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See 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
[X]
Non-accelerated filer
[X]
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 pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The
aggregate market value of the voting and non-voting common equity held by non-affiliates at June 30, 2020, the last business day
of the registrant’s most recently completed second fiscal quarter was $83,967,716.
The
number of shares of the registrant’s Common Stock outstanding as of March 26, 2021 was 47,821,935.
DOCUMENTS
INCORPORATED BY REFERENCE: None.
TABLE
OF CONTENTS
Page
PART I
ITEM 1. Business.
3
ITEM 1A. Risk Factors.
14
ITEM 1B. Unresolved Staff Comments.
28
ITEM 2. Properties.
28
ITEM 3. Legal Proceedings.
28
ITEM 4. Mine Safety Disclosures.
28
PART II
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
29
ITEM 6. Selected Financial Data.
30
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
30
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
35
ITEM 8. Financial Statements and Supplementary Data.
35
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
35
ITEM 9A. Controls and Procedures.
35
ITEM 9B. Other Information.
36
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance.
37
ITEM 11. Executive Compensation.
40
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
47
ITEM 13. Certain Relationships and Related Transactions and Director Independence.
49
ITEM 14. Principal Accountant Fees and Services.
49
PART IV
ITEM 15. Exhibits and Financial Statement Schedules.
50
ITEM 16. Form 10-K Summary.
58
2
PART
I
ITEM
1.
Business
GENERAL
AIM
ImmunoTech Inc. and its subsidiaries (collectively, “AIM”, “Company”, “we” or “us”)
are an immuno-pharma company headquartered in Ocala, Florida and focused on the research and development of therapeutics to treat
multiple types of cancers, various viruses and immune-deficiency disorders. We have established a strong foundation of laboratory,
pre-clinical and clinical data with respect to the development of nucleic acids and natural interferon to enhance the natural
antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain cancers
and chronic diseases.
AIM’s
flagship products include Ampligen® (rintatolimod), a first-in-class drug of large macromolecular RNA (ribonucleic acid) molecules,
and Alferon N Injection® (Interferon Alfa-N3). A first-in-class drug is also known as a new molecular entity that contains
an active moiety. Ampligen has not been approved by the FDA or marketed in the US.
Since
the outbreak of SARS-CoV-2, the novel virus that causes COVID-19, we have been actively engaged in determining whether Ampligen
could be an effective treatment for this virus or could be part of a vaccine. We believe that Ampligen has the potential to be
both an early-onset treatment for and prophylaxis against SARS-CoV-2. Ampligen also has potential as a COVID-19 vaccine strategy
that combines Ampligen as an immune enhancer seeking to boost the efficacy of intranasal and other vaccines and, as to intranasal,
also convey cross-reactivity and cross-protection against future mutations. We believe that prior studies of Ampligen in SARS-CoV-1
animal experimentation may predict similar protective effects against the new virus.
Beginning
in April 2020, we entered into confidentiality and non-disclosure agreements with numerous companies for the potential outsourcing
of the production of polymer, enzyme, placebo as well as Ampligen and one Contract Research Organization which may also assist
with the planning, presentation and filing of documents with the FDA. These confidentiality and non-disclosure agreements are
only the initial step in forging relationships with these entities to obtain contract manufacturers and research partners. No
assurance can be given as to how many of these, initial explorations, if any, will result in definitive arrangements or, with
regard to potential research partners, what research arrangements will develop and thereafter prove fruitful.
Ampligen
represents a dsRNA being developed for globally important cancers, viral diseases and disorders of the immune system. Ampligen
has in the clinic demonstrated the potential for standalone efficacy in a number of solid tumors. We have also seen success in
increasing survival rates and efficacy in the treatment of animal tumors when Ampligen is used in combination with checkpoint
blockade therapies. This success in the field of immuno-oncology has guided our focus toward the potential use of Ampligen as
a combinational therapy for the treatment of a variety of solid tumor types. There are currently multiple Ampligen clinical trials
testing Ampligen in humans — both underway and planned — at major cancer research centers. Ampligen was used as a
monotherapy to treat pancreatic cancer patients in an Early Access Program (EAP) approved by the Inspectorate of Healthcare in
the Netherlands at Erasmus Medical Center. In September, we reported receipt of statistically significantly results of positive
survival benefit when using Ampligen in patients with locally advanced/metastatic pancreatic cancer after systemic chemotherapy.
We will work with our Contract Research Organization, Amarex Clinical Research LLC, to seek FDA “fast-track” and possibly
even FDA “breakthrough” designations and to obtain authorization to conduct a follow-up pancreatic cancer Phase 2/3
clinical trial with sites in the Netherlands at Erasmus MC under Prof. van Eijck, and also at major cancer research centers in
the United States.
Ampligen
is also being evaluated for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS). We are currently sponsoring
an expanded access program for ME/CFS patients in the U.S. In August 2016, we received approval of our New Drug Application (NDA)
from Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (ANMAT) for commercial sale of Ampligen in the Argentine
Republic for the treatment of severe CFS. With regulatory approval in Argentina, Ampligen is the world’s only approved therapeutic
for ME/CFS. On June 10, 2020, we received import clearance from ANMAT to import the first shipment of commercial grade vials of
Ampligen to Argentina. The next steps in the commercial launch of Ampligen include ANMAT conducting a final inspection of the
product and release tests before granting final approval to begin commercial sales. We have supplied GP Pharm with the Ampligen
required for testing and ANMAT release. This testing and approval process is currently delayed due to the COVID-19 pandemic and
ANMAT’s internal processes. Once final approval by ANMAT is obtained, GP Pharm will begin distributing Ampligen in Argentina.
We continue to pursue our Ampligen NDA, for the treatment of CFS with the FDA.
3
Alferon
N Injection is approved for a category of sexually transmitted diseases infection and patients that are intolerant to recombinant
interferon in Argentina. Alferon is the only natural-source, multi-species alpha interferon currently approved for sale in the
U.S. for the intralesional treatment of refractory (resistant to other treatment) or recurring external condylomata acuminata/genital
warts (GW) in patients 18 years of age or older. Certain types of human papilloma viruses cause GW. We also have approval from
ANMAT for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferon in Argentina.
We
operate a 30,000 sq. ft. facility in New Brunswick, NJ, where we conduct testing and have produced limited quantities of active
pharmaceutical ingredients (“API”) for our products. We have reviewed our operations at the facility and believe that
some of the equipment most likely should be upgraded to realize greater efficiencies, when and if we require more API than is
currently in storage. We are also exploring engaging a Contract Manufacturing Organization (“CMO”) to produce API.
While we believe we have sufficient API to meet our current needs, we are also continually exploring new efficiencies so as to
maximize our ability to fulfill future obligations.
AVAILABLE
INFORMATION
We
are subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, we file periodic
reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information are
available for inspection and copying at the website of the SEC www.sec.com. You also may obtain a free copy of our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports on
the day of filing with the SEC on our website at http://www.aimimmuno.com under the Investor Relations tab for SEC Filings or
by contacting the Investor Relations Department by calling 888-557-6480 or (352) 448-7797 or sending an e-mail message to ir@aimimmuno.com .
Our Internet website and the information contained on that website, or accessible from our website, is not intended to be incorporated
into this Annual Report on Form 10-K or any other filings we make with the SEC.
OUR
PRODUCTS
Our
primary pharmaceutical product platform consists of Ampligen®, a first-in-class drug of large macromolecular double-stranded
(ds) RNA (ribonucleic acid) molecules, and our FDA-approved natural alpha-interferon product, Alferon N Injection®.
Ampligen®
Ampligen
is approved for sale in Argentina for severe Chronic Fatigue Syndrome (CFS) and is an experimental drug in the United States
currently undergoing clinical development for the treatment of certain cancers and ME/CFS. Over its developmental history,
Ampligen has received various designations, including Orphan Drug Product Designation (FDA and European Medicines Agency
(“EMA”)), Treatment protocol (e.g., “Expanded Access” or “Compassionate” use
authorization) with Cost Recovery Authorization (FDA) and “promising” clinical outcome recognition based on the
evaluation of certain summary clinical reports (“AHRQ” or Agency for Healthcare Research and Quality). Ampligen
represents the first drug in the class of large (macromolecular) dsRNA molecules to apply for NDA review. Based on the
results of published, peer reviewed pre-clinical studies and clinical trials, we believe that Ampligen may have
broad-spectrum anti-viral and anti-cancer properties. We believe that nucleic acid compounds represent a potential new class
of pharmaceutical products designed to act at the molecular level for treatment of many human diseases. There are two forms
of nucleic acids, deoxyribonucleic acid (“DNA”) and ribonucleic acid (“RNA”). DNA is a group of
naturally occurring molecules found in chromosomes, the cell’s genetic machinery. RNA is a group of naturally occurring
informational molecules which orchestrate a cell’s behavior which, in turn, regulates the action of groups of cells,
including the cells which compromise the body’s immune system. RNA directs the production of proteins and regulates
certain cell activities including the activation of an otherwise dormant cellular defense against viruses and tumors. Our
drug technology utilizes specifically-configured RNA and is a selective Toll-like Receptor 3 (TLR3) agonist that is
administered intravenously. Ampligen has been assigned the generic name rintatolimod by the United States Adopted Names
Council (USANC) and has the chemical designation poly(I):poly(C 12 U).
EAP/clinical
trials of Ampligen that have been conducted or that are ongoing include studies of the potential treatment of patients with renal
cell carcinoma, malignant melanoma, non-small cell lung, ovarian, breast, colorectal, prostate and pancreatic cancer, ME/CFS,
Hepatitis B and HIV.
We
have received approval of our NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen) in the Argentine Republic
for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America. On September
19, 2019, we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. We
are currently working with GP Pharm on the commercial launch of Ampligen in Argentina. Commercialization in Argentina will require,
among other things, GP Pharm to establish disease awareness, medical education, creation of an appropriate reimbursement level,
design of marketing strategies and completion of manufacturing preparations for launch and ANMAT conducting a final inspection
of the product and release tests before granting final approval to begin commercial sales. This testing and approval process is
currently delayed due to the COVID-19 pandemic and ANMAT’s internal processes. Once final approval by ANMAT is obtained,
GP Pharm will begin distributing Ampligen in Argentina. We continue to pursue our Ampligen NDA, for the treatment of CFS with
the FDA.
4
The
FDA has authorized an open-label expanded access treatment protocol, (“AMP-511”), allowing patient access to Ampligen
in an open-label safety study under which severely debilitated CFS patients have the opportunity to be on Ampligen to treat this
very serious and chronic condition. The data collected from the AMP-511 protocol through clinical sites provide safety information
regarding the use of Ampligen in patients with CFS. We are establishing an enlarged data base of clinical safety information which
we believe will provide further documentation regarding the absence of autoimmune disease associated with Ampligen treatment.
We believe that continued efforts to understand existing data, and to advance the development of new data and information, will
ultimately support our future filings for Ampligen and/or the design of future clinical studies that the FDA requested in a complete
response letter. The FDA approved the increase reimbursement level from $200 to $345 per 200 mg vial of Ampligen, due to increased
production costs; which was re-authorized in 2020. At this time, we do not plan on passing this adjustment along to the patients
in this program. As of December 31, 2020, there are 10 patients enrolled in this open-label expanded access treatment protocol.
In October 2020, we received Institutional Review Board (IRB) approval for the expansion of the AMP-511 Expanded Access Program
(EAP) clinical trial for Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS) to include patients previously diagnosed
with SARS-CoV-2 following clearance of the virus, but who still demonstrate chronic fatigue-like symptoms.
In
May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for the commencement and management
of an Early Access Program (“EAP”) in Europe and Turkey (the “Territory”) related to ME/CFS. Pursuant
to the agreement, as amended, myTomorrows also will manage all Early Access Programs and Special Access Programs in Europe, Canada
and Turkey to treat pancreatic cancer and ME/CFS patients.
In
April 2018, we completed data analysis of an intranasal human safety study of Ampligen plus FluMist® known as AMP-600. The
study was previously closed after the US Centers for Disease Control and Prevention (“CDC”) recommended against the
use of FluMist®. Intranasal Ampligen in combination with FluMist® was generally well-tolerated in the study.
In
June 2018, Ampligen was cited as outperforming two other TLR3 agonists, poly IC and natural double stranded RNA, in creating an
enhanced tumor microenvironment for checkpoint blockage therapy in the journal of Cancer Research ( http://cancerres.aacrjournals.org/content/early/2018/05/31/0008-5472.CAN-17-3985 ).
In a head-to-head study in explant culture models, Ampligen activated the TLR3 pathway and promoted an accumulation of killer
T cells but, unlike the other two TLR3 agonists, it did so without causing regulatory T cell (Treg) attraction. These findings
were considered important because they indicate that Ampligen selectively reprograms the tumor microenvironment by inducing the
beneficial aspects of tumor inflammation (attracting killer T cells), without amplifying immune suppressive elements such as regulatory
T cells. The study was conducted at the University of Pittsburgh and Roswell Park as a part of the NIH-funded P01 CA132714 and
Ovarian Cancer Specialized Program of Research Excellence (SPORE). Based upon these findings we and Roswell Park expanded our
existing scientific collaboration to advance the clinical development of Ampligen which has shown promise in preclinical studies
when combined with checkpoint inhibitors (CPIs). The parties executed a Memorandum of Understanding (“MOU”) designed
to further assess the clinical potential of Ampligen in treating certain cancers. This phase I/II study will evaluate the potential
of Ampligen to enhance the immune mediated effects of CPIs in patients with advanced solid tumors including bladder, melanoma
and renal cell carcinoma. At the moment, this study is on hold as we await updates and next steps from Roswell Park.
In
2018, we completed production of two commercial-size batches of more than 16,000 vials of Ampligen, following its “Fill
& Finish” at Jubilant HollisterStier, the Contract Manufacturing Organization. These lots passed all required testing
for regulatory release for human use and are being used for multiple programs including the treatment of ME/CFS, the pancreatic
cancer EAP in the Netherlands, and will continue to be used for ongoing and future clinical studies in oncology. Additionally,
two lots of Ampligen were manufactured in December 2019 and January 2020 at Jubilant. The current manufactured lots of Ampligen
have been fully tested and released for commercial product launch in Argentina and for clinical trials. Additionally, in December
2020, we added Pharmaceutics International Inc. (“Pii”) as a “Fill & Finish” provider to enhance our
capacity to produce Ampligen. This addition amplifies our manufacturing capability by providing redundancy and cost savings. The
contracts augment our existing fill and finish capacity.
Alferon
N Injection®
Alferon
N Injection is the registered trademark for our injectable formulation of natural alpha interferon. Alferon is the only natural-source,
multi-species alpha interferon currently approved for sale in the U.S. and Argentina for the intralesional (within lesions) treatment
of refractory (resistant to other treatment) or recurring external genital warts in patients 18 years of age or older. Alferon
is also approved in Argentina for the treatment of refractory patients that failed or were intolerant to treatment with recombinant
interferons. Certain types of human papilloma viruses (“HPV”) cause genital warts, a sexually transmitted disease
(“STD”). According to the CDC, HPV is the most common sexually transmitted infection, with approximately 79 million
Americans — most in their late teens and early 20s — infected with HPV. In fact, the CDC states that “HPV is
so common that nearly all sexually active men and women get the virus at some point in their lives.” Although they do not
usually result in death, genital warts commonly recur, causing significant morbidity and entail substantial health care costs.
5
Interferons
are a group of proteins produced and secreted by cells to combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma and omega. Alferon N Injection contains a multi-species form of alpha interferon. The world-wide
market for injectable alpha interferon-based products has experienced rapid growth and various alpha interferon injectable products
are approved for many major medical uses worldwide. Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. All three of these types of alpha interferon are or were approved
for commercial sale in the U.S. Our natural alpha interferon is produced from human white blood cells.
The
potential advantages of natural alpha interferon over recombinant (synthetic) interferon produced and marketed by other pharmaceutical
firms may be based upon their respective molecular compositions. Natural alpha interferon is composed of a family of proteins
containing many molecular species of interferon. In contrast, commercial recombinant alpha interferon products each contain only
a single species. Researchers have reported that the various species of interferons may have differing antiviral activity depending
upon the type of virus. Natural alpha interferon presents a broad complement of species, which we believe may account for its
higher activity in laboratory studies. Natural alpha interferon is also glycosylated (partially covered with sugar molecules).
Such glycosylation is not present on the currently U.S. marketed recombinant alpha interferons. We believe that the absence of
glycosylation may be, in part, responsible for the production of interferon-neutralizing antibodies seen in patients treated with
recombinant alpha interferon. Although cell culture-derived interferon is also composed of multiple glycosylated alpha interferon
species, the types and relative quantity of these species are different from our natural alpha interferon.
Alferon
N Injection [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha
interferon product. There are essentially no neutralizing antibodies observed against Alferon N Injection to date and the product
has a relatively low side-effect profile. The recombinant DNA derived alpha interferon formulations have been reported to have
decreased effectiveness after one year of treatment, probably due to neutralizing antibody formation.
See
“Manufacturing” and “Marketing/Distribution” sections below for more details on the manufacture and marketing/distribution
of Alferon N Injection.
PATENTS
AND NON-PATENT EXCLUSIVITY RIGHTS
As
of December 31, 2020, we had 43 patents worldwide with 10 additional pending patent applications comprising our intellectual property.
Please see “Note 5: Patents, Trademark Rights and Other Intangibles (FASB ASC 350 General Intangibles Other than Goodwill)”
under Notes to Consolidated Financial Statements for more information on these patents. We continually review our patents’
rights to determine whether they have continuing value.
In
February 2020, we filed three provisional patent applications related to Ampligen in our efforts toward joining the global health
community in the fight against SARS-CoV-2. These include: 1) Ampligen as a therapy and prophylaxis for COVID-19; 2) Ampligen
as part of a proposed intranasal universal coronavirus vaccine; and 3) a high-volume manufacturing process for Ampligen.
In
2016, we received a new Ampligen composition of matter patent in the US (#9,315,538). In 2015, we were granted a new composition
of matter patent (#2340307) by the European Patent Office and we received twenty-eight new patents in various EU countries. In
2014, we were granted a new composition of matter patent in the United States (#8722874) covering Ampligen formulations.
The
Ampligen U.S. CFS treatment patent (#6130206) expired October 10, 2017 (we believe that the expiration of this patent will have
minimal impact on us; see details on U.S. #9315538, U.S. #8722874 and the information from the FDA has granted “orphan drug
status” to the drug for CFS below). Our U.S. Ampligen Trademark (#73617687) has been renewed through December 6, 2028. New
therapeutic use patent applications are pending. On May 13, 2014, the United States Patent Office issued patent U.S. #8722874
titled “Double-Stranded Ribonucleic Acids with Rugged Physiochemical Structure and Highly Specific Biologic Activity,”
with all rights assigned to us. The patent claims a novel form of rugged dsRNA. Rugged dsRNA are nucleic acids with a unique composition
and physical characteristic identified with high specificity of binding to Toll-Like Receptor 3 (TLR3), thereby conveying an important
range of therapeutic opportunities. The newly discovered form of dsRNA has increased bioactivity and binding affinity to the TLR
3 receptor because of its reduced tendency to form branched dsRNA which can inhibit receptor binding. Pharmaceutical formulations
containing the newly discovered nucleic acid as active ingredients and methods of treatment with those formulations are also described
in the issued patent. We believe that the issuance of U.S. Patents #9315538 and #8722874 will help ensure that we retain patent
protection for novel formulations of Ampligen products until at least 2029.
6
In
September 2015, the European Patent Office granted the European version of U.S. Patent #9315538, with all rights assigned to us.
In
addition to our patent rights relating to Ampligen, the FDA has granted “orphan drug status” to the drug for CFS,
HIV/AIDS, renal cell carcinoma, pancreatic cancer, and malignant melanoma. Orphan drug status grants us protection against the
potential subsequent approval of other sponsors’ versions of the drug for these uses for a period of seven years following
FDA approval of Ampligen for each of these designated uses. The first NDA approval for Ampligen as a new chemical entity will
also qualify for four or five years of non-patent exclusivity during which abbreviated new drug applications seeking approval
to market generic versions of the drug cannot be submitted to the FDA. (See “Government Regulation” below.)
In
May 2011, a new United States Patent #7943147 was granted for the use of Ampligen as a vaccine adjuvant for use with seasonal
influenza vaccine to induce an enhanced immune response against H5N1 avian influenza.
With
respect to Alferon, the composition is a complex mixture of natural interferon species that is manufactured from human leukocytes
obtained from human blood donors. In addition, while it is the current standard by the FDA to treat biological drug products like
interferon as “Well Characterized” biologics, a process for which chemical entities can have their identity, purity,
impurities, potency, and quality controlled by chemical testing, Alferon, as a natural interferon, does not lend itself well to
such testing. Moreover, FDA continues to require that each lot of Alferon we produce be tested and released by the FDA before
it can be distributed for commercial sales. Because of the complexity of the Alferon manufacturing process and these additional
regulatory requirements, we believe that potential manufacturers of generic, or so-called “bio-similar,” drug products
are focused on developing recombinant interferon products, rather than natural interferon products. For these reasons, we believe
that not having patent protection should have no or little impact on us. Additionally, at the receipt of the FDA certification
for the revised Alferon manufacturing process and techniques in New Brunswick, NJ, it is our intention to file for additional
patent protection.
RESEARCH
AND DEVELOPMENT (“R&D”)
Our
general focus during the past several fiscal years has been on the clinical development of new drug therapies based on natural
immune system enhancing technologies for the treatment of immune-based disorders including cancer and CFS. While we have previously
estimated milestone dates when significant progress could be reported, the reality of the ongoing SARS-CoV-2 pandemic could mean
the re-direction of resources away from ongoing clinical trials and toward the research and development of potential treatments
for the coronavirus. In this regard, we have widened our focus to include research and development of potential therapeutic
applications for the treatment of COVID-19, including the long-term effects of COVID-19.
Cancer
We
have been working with the University of Pittsburgh’s chemokine modulation research initiative which includes the use of
Ampligen as a potential adjuvant to modify the tumor microenvironment (TME) with the goal of increasing anti-tumor responses to
check point inhibitors (CPI). As part of this collaboration, we haves supplied Ampligen (rintatolimod) to the University. The
study, under the leadership of Robert P. Edwards, MD, chair of gynecologic services at Magee-Women’s Hospital of the University
of Pittsburgh School of Medicine, and Professor of Surgery Pawel Kalinski, M.D., Ph.D., at Roswell Park, Buffalo, N.Y., involved
the chemokine modulatory regimen developed by Dr. Kalinski’s group and successfully completed the Phase 1 dose escalation
in patients with resectable colorectal cancer. In the 1st quarter of 2017, Dr. Kalinski relocated to Roswell Park in Buffalo,
NY and has established a cancer program which will continue to require a supply of Ampligen.
In
October 2018, we signed a clinical trial agreement with Roswell Park to evaluate Ampligen in combination with checkpoint inhibitors
(CPIs). The Phase IIa clinical trial will evaluate the immune-mediated effects of cytokine modulation in combination with CPIs
in patients with primary resistance to CPI therapy. The protocol will seek to evaluate the combination of Ampligen and CPIs in
patients with advanced urothelial carcinoma, renal cell carcinoma and melanoma. Ampligen is our investigational immune-enhancing
TLR3 agonist that has demonstrated a robust anti-cancer effect in preclinical models when combined with CPIs. This new agreement
expands the extensive prior clinical and preclinical work into the clinical checkpoint blockade arena and offers the opportunity
to begin evaluation of this combination therapy in patients with a variety of solid tumors where large numbers of patients do
not respond or progress following treatment with standard CPI-based therapy. At the moment, this study is on hold as we
await updates and next steps from Roswell Park.
7
Currently,
six Ampligen clinical trials are underway at university cancer centers testing whether tumor microenvironments can be reprogrammed
to increase the effectiveness of cancer immunotherapy, including checkpoint inhibitors:
●
Advanced
Recurrent Ovarian Cancer - Phase 1 / 2 study of intraperitoneal chemo-immunotherapy in advanced recurrent ovarian cancer;
Phase 1 portion establishes intraperitoneal safety. Awaiting publication of Phase I results. https://clinicaltrials.gov/ct2/show/NCT02432378
●
Advanced
Recurrent Ovarian Cancer - A follow-up Phase 2 study of advanced recurrent ovarian cancer using cisplatin, pembrolizumab,
plus Ampligen; up to 45 patients to be enrolled; enrollment has commenced, and numerous patients have commenced treatment.
https://clinicaltrials.gov/ct2/show/NCT03734692
●
Stage
4 Metastatic Triple Negative Breast Cancer - Phase 2 study of metastatic triple-negative breast cancer using chemokine
modulation therapy, including Ampligen and pembrolizumab. All patients have been treated or are in treatment. https://www.clinicaltrials.gov/ct2/show/NCT03599453
●
Stage
4 Colorectal Cancer Metastatic to the Liver - Phase 2a study of Ampligen as component of chemokine modulatory regimen
on colorectal cancer metastatic to liver; the majority of the 12 planned patients enrolled and treated. https://clinicaltrials.gov/ct2/show/NCT03403634
●
Early-Stage
Prostate Cancer - Phase 2 study investigating the effectiveness and safety of aspirin and Ampligen with or without interferon-alpha
2b (Intron A) compared to no drug treatments in a randomized three-arm study of patients with prostate cancer before undergoing
radical prostatectomy. Patient enrollment has been initiated in this study designed for up to 45 patients. https://clinicaltrials.gov/ct2/show/NCT03899987
●
Early-Stage
Triple Negative Breast Cancer - Phase 1 study of chemokine modulation plus neoadjuvant chemotherapy in patients with early-stage
triple negative breast cancer has received FDA authorization; the objective of this study is to evaluate the safety and tolerability
of a combination of Ampligen, celecoxib with or without Intron A, when given along with chemotherapy; the goal of this approach
is to increase survival. This study is recruiting patients designed for up to 24 patients. https://clinicaltrials.gov/ct2/show/NCT04081389
Six
Ampligen clinical trials are planned for initiation in 2021:
●
Brain-Metastatic
Breast Cancer — Phase 2 study to assess the effectiveness of a three-pronged strategy combining distinct immunotherapy
approaches, including Ampligen. Roswell Park and Moffitt Cancer Center have both received “Breakthrough Awards”
from the U.S. Department of Defense (DOD). Together, these separate but parallel proposed clinical trials are receiving approximately
$15 million in DOD funding to study Ampligen. Roswell Park is currently working on its draft of the IND, which its study and
Moffitt’s study require before next steps can be taken.
●
Stage
4 Refractory Metastatic Colorectal Carcinoma — Phase 2 study that will evaluate Ampligen in combination with pembrolizumab
in refractory metastatic colorectal carcinoma at Roswell Park. Up to 25 patients to be enrolled. This is expected to be funded
by grants, testing Ampligen and pembrolizumab. See: https://www.clinicaltrials.gov/show/NCT04119830
●
Refractory
Melanoma — Phase 2 study that will evaluate polarized dendritic cell vaccine, interferon alpha-2, Ampligen and celecoxib
for the treatment of HLA-A2+ refractory melanoma at Roswell Park. Up to 24 patients to be enrolled. See: https://www.clinicaltrials.gov/show/NCT04093323
●
Stage
4 Urothelial, Melanoma and Renal Cell Carcinoma — Phase 2 study of advanced urothelial (bladder), melanoma and renal
cell carcinoma, resistant to checkpoint blockade, that will evaluate Ampligen in combination with a checkpoint blockade therapy
at Roswell Park. Protocol design and funding currently being finalized.
●
Non-Small
Cell Lung Cancer — First-line therapy for non-small cell lung cancer with SOC chemotherapy that will evaluate Ampligen
in combination with pembrolizumab at University of Nebraska Medical Center. Dr. V. Ernani, PI. Study design and budget being
developed. However, we now anticipate an extended delay, as other studies with funding have moved ahead of the Ampligen project.
Roswell Park is exploring a pilot study to establish proof of concept.
●
Advanced
Pancreatic Cancer — Phase 2 study in advanced pancreatic cancer using checkpoint blockade plus Ampligen at University
of Nebraska Medical Center and Erasmus University. Protocol and budget being developed. This proposed study may be based on
data from our Dutch EAP (see below) and UNMC animal experiment showing synergy between Ampligen and checkpoint therapy. A
second confirmatory animal trial has been completed; while it did not replicate the previous survival results, it did demonstrate
a significant anti-tumor effect.
8
In
addition, the National Cancer Institute awarded $14.5 million to Roswell Park to study Ampligen as part of five Roswell Park-led
chemokine modulation clinical trials in melanoma, colorectal and ovarian cancers.
In
January 2017, the EAP through our agreement with myTomorrows designed to enable access of Ampligen to ME/CFS patients was extended
to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider in Europe and Turkey
and will manage all EAP activities relating to the pancreatic cancer extension of the program. In February 2018, the agreement
with myTomorrows was extended to cover Canada to treat pancreatic cancer patients, pending government approval. There have been
no physician requests to date that would cause the program to move forward with the approval process.
As
of the date of this Report, 42 pancreatic cancer patients have received treatment with Ampligen immuno-oncology therapy under
the EAP program at Erasmus MC in the Netherlands. Supervised by Prof. Casper van Eijck, MD, the team at Erasmus MC found a statistically
significantly positive survival benefit when using Ampligen in patients with locally advanced/metastatic pancreatic cancer after
systemic chemotherapy. We will work with our Contract Research Organization, Amarex Clinical Research LLC, to seek FDA “fast-track”
and possibly even FDA “breakthrough” designations and to obtain IND authorizations to conduct a follow-up pancreatic
cancer Phase 2/3 clinical trial with sites in the Netherlands at Erasmus MC under Prof. van Eijck, and also at major cancer research
centers in the United States. Additionally:
●
In
December 2020, the FDA granted Ampligen Orphan Drug Designation status for the treatment of pancreatic cancer. The Orphan
Drug Designation program provides orphan status to drugs and biologics which are defined as those intended for the treatment,
prevention or diagnosis of a rare disease or condition, which is one that affects less than 200,000 persons in the United
States or meets cost recovery provisions of the act. The status helps incentivize the treatment of therapies to treat unmet
medical needs by providing a company with seven years of exclusivity rights once a drug reaches market.
●
In
February 2021, our subsidiary, NV Hemispherx Biopharma Europe, received formal notification from the European Commission (EC)
approving the Orphan Medicinal Product Application for Ampligen as a treatment for pancreatic cancer. Orphan products, once
commercially approved in the European Union (EU), receive benefits including up to ten years of protection from market competition
from similar medicines with similar active component and indication for use that are not shown to be clinically superior.
In
September, we reported receipt of statistically significant results of positive survival benefit when using Ampligen in patients
with locally advanced/metastatic pancreatic cancer after systemic chemotherapy versus matched historical controls.
Myalgic
Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS”)
Myalgic
Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS”), also known as Chronic Fatigue Immune Dysfunction Syndrome (“CFIDS”)
and Chronic Fatigue Syndrome (“CFS”), is a serious and debilitating chronic illness and a major public health problem.
ME/CFS is recognized by both the government and private sector as a significant unmet medical need, including the U.S. National
Institutes of Health (“NIH”), FDA and the CDC. The CDC states on its website at https://www.cdc.gov/me-cfs/
that “ Myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS) is a serious, long-term illness that affects many body
systems. People with ME/CFS are often not able to do their usual activities. At times, ME/CFS may confine them to bed. People
with ME/CFS have severe fatigue and sleep problems. ME/CFS may get worse after people with the illness try to do as much as they
want or need to do. This symptom is known as post-exertional malaise (PEM). Other symptoms can include problems with thinking
and concentrating, pain, and dizziness. ”
Many
severe ME/CFS patients become completely disabled or totally bedridden and are afflicted with severe pain and mental confusion
even at rest. ME/CFS is characterized by incapacitating fatigue with profound exhaustion and extremely poor stamina, sleep difficulties
and problems with concentration and short-term memory. It is also accompanied by flu-like symptoms, pain in the joints and muscles,
tender lymph nodes, sore throat and new headaches. A distinctive characteristic of the illness is a worsening of symptoms following
physical or mental exertion, which do not subside with rest.
In
October 2016, an analysis of a subset of CFS patients from the AMP-516 Phase 3 study was performed and presented at the IACFS/ME
annual meeting in Fort Lauderdale, FL. The ITT Population (n=208) was separated into two subsets based primarily on baseline CFS
symptom duration (2-8 years (n=75) and <2 years plus >8 years (n=133)). Responder analyses of the ITT Population and both
subsets were performed. Responder analyses of Ampligen vs. placebo patients improving ET duration from baseline by ≥25% shows
over twice the percentage of patients with clinical enhancement in ET effect in the Ampligen cohort compared to placebo for the
2-8-year subset vs. the ITT population. This subset may assist in the design of future clinical studies of Ampligen in the treatment
for ME/CFS patients.
The
high number of younger people being hospitalized for COVID-19 suggests considerable numbers of people in the prime of their lives
may have a COVID-induced ME/CFS-like illness in their future. Individuals with CFS lost an estimated $20,000 in 2002, implying
a total societal loss of $9.1 billion. Twenty-five percent ($2.3 billion) resulted from lost household productivity, and the remaining
75% ($6.8 billion) from lost labor force productivity.
9
In
June of 2020, we filed a provisional patent application for, among other discoveries, the use of Ampligen as a potential early-onset
therapy for the treatment of COVID-19 induced chronic fatigue.
Many
survivors of the first SARS-CoV-1 epidemic in 2003 continued to report chronic fatigue, difficulty sleeping and shortness of breath
months after recovering from the acute illness. “After one year, 17% of patients had not returned to work and 9% more had
not returned to their pre-SARS work levels” ( Simmaron Research ). Now there is increasing evidence that patients with
COVID-19 can develop a similar, ME/CFS-like illness. These patients are commonly referred to as “Long Haulers.” http://simmaronresearch.com/2020/04/will-covid-19-leave-an-explosion-of-me-cfs-cases-in-its-wake/
In
October 2020, we received Institutional Review Board (IRB) approval for the expansion of the AMP-511 Expanded Access Program (EAP)
clinical trial for Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS) to include patients previously diagnosed with SARS-CoV-2
following clearance of the virus, but who still demonstrate chronic fatigue-like symptoms.
On
November 2, 2020, we announced the publication of statistically significant data detailing how Ampligen could have a considerable
positive impact on people living with ME/CFS when administered in the early stages of the disease. The data were published in
PLOS ONE , a peer-reviewed open access scientific journal published by the Public Library of Science. AIM researchers found
that the TLR3 agonist Ampligen substantially improved physical performance in a subset of ME/CFS patients.
COVID-19
Following
the SARS-CoV-1 outbreak in 2002-03, Ampligen exhibited excellent antiviral properties and protective survival effect in NIH-contracted
studies of SARS-infected mice, which is very similar to SARS-CoV-2, the novel virus that causes COVID-19.
●
The
Barnard 2006 study ( https://journals.sagepub.com/doi/abs/10.1177/095632020601700505 ) found that Ampligen reduced virus
lung levels to below detectable limits.
●
The
Day 2009 study ( https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2787736/ ) found that, instead of 100% mortality, there
was 100% protective survival.
We
compared key transcription regulatory sequences of SARS-CoV-1 to SARS-CoV-2 and found significant similarities, suggesting highly
probable extension of the antiviral effects of Ampligen in the earlier NIH-contracted SARS experiments to COVID-19.
The
SARS-CoV-2 virus – which causes COVID-19 – shares important genomic and pathogenic similarities with SARS-CoV-1 (hence
its name). Since Ampligen has shown antiviral activity against more distantly related coronaviruses, there was a reasonable probability
that the antiviral effects of Ampligen against SARS-CoV-1 will likely extend to SARS-CoV-2, as discussed below, recently, Ampligen
has demonstrated in vitro antiviral activity against SARS-CoV-2. We believe that this creates a compelling case for clinical trials
to evaluate Ampligen as a potential tool in the fight against COVID-19.
Since
the late 2019 outbreak of SARS-CoV-2, we have been actively engaged in determining whether Ampligen could be an effective treatment
for this virus or could be part of a vaccine. We believe that Ampligen has the potential to be both an early-onset treatment for
and prophylaxis against SARS-Cov-2. We believe that prior studies of Ampligen in SARS-CoV-1 animal experimentation may predict similar protective
effects against the new virus.
In
February 2020, we filed three provisional patent applications related to Ampligen in our efforts toward joining the global health
community in the fight against the deadly coronavirus (See: https://aimimmuno.com/press-release/aim-immunotech-files-provisional-patent-application-for-the-use-of-ampligenr-as-a-potential-therapy-for-covid-19-induced-chronic-
fatigue/). Our three provisional patent applications include: 1) Ampligen as a therapy for the coronavirus; 2) Ampligen as part
of a proposed intranasal universal coronavirus vaccine that combines Ampligen with inactivated coronavirus, conveying immunity
and cross-protection and; 3) a high-volume manufacturing process for Ampligen. Under the Patent Cooperation Treaty of 1970, which
provides international protections for patents, these three provisional patent applications were converted in to two international
patent applications based on the date of their filings.
10
In
early April 2020, we entered into a Material Transfer Agreement (MTA) with Shenzhen Smoore Technologies located in Shenzhen China,
the world’s largest manufacturer of inhalation devices. Pursuant to this agreement, Smoore has agreed to run preliminary
tests in China to the efficacy of Smoore’s inhalation delivery device using Ampligen. Initial testing will include evaluation
of Ampligen with regards to safety and characterization of the inhaler vapor properties. Additional testing will study the particle
size of various Ampligen concentrations in aqueous solutions obtainable using Smoore’s technology. The goal of these studies
is to establish a reproducible method to obtain an Ampligen-containing atomized mist that can deliver biologically active Ampligen
deep into the lung airways of humans. There have been delays related to importing Ampligen to China. We are working with Smoore
to alleviate these issues and to identify a mutually beneficial course of action that would allow us to move forward with the
proposed testing of Ampligen. We will announce when the shipment for testing purposes has been completed. The MTA with Smoore
expires on April 1, 2021, with the possibility of continued cooperation between us and Smoore under ongoing consideration.
On
August 6, 2020, we contracted Amarex Clinical Research LLC (“Amarex”) to act as our Clinical Research Organization
and provide regulatory support with regard to a clinical trial testing Ampligen’s potential as a COVID-19 prophylaxis via
intranasal delivery. We anticipate conducting the Phase I study using the Centre for Human Drug Research (CHDR) in The Netherlands.
Amarex is expected to help provide monitoring support. For the subsequent Phase II/III studies we expected to incur clinical
trial costs of up to $4-5 million. We expect that Phase I will consist of 40 test subjects and cost about $1 million.
In March 2020, the
Japanese National Institute of Infectious Diseases (“NIID”) initiated preliminary laboratory testing of Ampligen as
a potential treatment for COVID-19. On July 1, 2020, we entered into a trilateral material transfer and research agreement with
the NIID and Shionogi & Co., Ltd. (“Shionogi”), one of Japan’s premier pharma companies, to test the Company’s
drug Ampligen as a potential vaccine adjuvant for COVID-19. Per this agreement, the details of all preclinical and clinical results
will remain confidential until released by NIID and Shionogi. The Company was notified by Shionogi on November 17, 2020 that Shionogi
intends to utilize a TLR agonist other than AIM’s Ampligen as Shionogi’s designated adjuvant in its ongoing efforts
to develop a potential Shionogi vaccine for COVID-19.
Beginning
in April 2020, we entered into confidentiality and non-disclosure agreements with numerous companies for the potential outsourcing
of the production of polymer, enzyme, placebo as well as Ampligen, and one Contract Research Organization, Amarex, which will
provide regulatory support related to a clinical trial testing Ampligen’s potential as a COVID-19 prophylaxis via intranasal
delivery.
In
addition, we joined with ChinaGoAbroad (CGA) to facilitate the entry of Ampligen into the People’s Republic of China (PRC)
for use as a prophylactic/early-onset therapeutic against COVID-19. CGA is a member-based online information platform and offline
advisory firm serving to facilitate two-way international transactions relating to the PRC in collaboration with the China Overseas
Development Association (CODA). The relationship with ChinaGoAbroad is ongoing.
On
May 11, 2020, the FDA authorized an IND for Roswell Park to conduct a Phase 1/2a study of a regimen of Ampligen and interferon
alpha in cancer patients with mild or moderate COVID-19 infections. This new clinical trial, sponsored by the Roswell Park in
collaboration with us, will test the safety of this combination regimen in patients with cancer and mild to moderate COVID-19,
and the extent to which this therapy will promote clearance of the SARS-CoV-2 virus from the upper airway. It is planned that
the phase 1/2a study will enroll up to 44 patients in two stages. Phase 1 will see 12-24 patients receiving both Ampligen and
interferon alfa-2b at escalating doses. Once that initial phase is complete, further study participants will be randomized to
two arms: one receiving the two-drug combination and a control group who will not receive Ampligen or interferon alfa but will
receive best available care. We intend to be a financial sponsor of the study and will provide Ampligen at no charge for this
study.
On
July 6, 2020, we entered into a clinical trial agreement with Roswell Park pursuant to which Roswell Park will conduct a Phase
1/2a trial of Ampligen (rintatolimod) in combination with interferon alfa, in cancer patients with COVID-19, the disease caused
by the SARS-CoV-2 coronavirus. We and the National Cancer Institute are supporting this trial. We reported in September 2020 that
recruitment in the trial had begun. See: clinicaltrials.gov/NCT04379518. On November 25, 2020, the first patient in the study
had been enrolled and treated.
We
also entered into a material transfer agreement with the University of Rochester for a series of in vitro experiments to test
the direct antiviral activity of Ampligen on SARS-CoV-2, as well as the mechanism of action. They are currently engaged in experiments
with multiple cell lines as they work to establish the study model system. We also entered into a specialized services agreement
with Utah State University and have supplied Ampligen to support the University’s Institute for Viral Research in its research
into SARS-CoV-2. The Utah State results show that Ampligen was able to decrease SARS-CoV-2 infectious viral yields by 90% at clinically
achievable intranasal Ampligen dosage levels.
On
October 6, 2020, we received Institutional Review Board (IRB) approval for the expansion of the AMP-511 Expanded Access Program
(EAP) clinical trial for Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS) to include patients previously diagnosed
with SARS-CoV-2, but who still demonstrate chronic fatigue-like symptoms. Patients in the trial are treated with our flagship
pipeline drug Ampligen. On January 6, 2021, we commenced with the treatment of the first previously diagnosed COVID-19
patient with long-COVID symptoms in the AMP-511 study.
11
On
November 29, 2020, we entered into a Material Transfer and Research Agreement with Leyden Laboratories, B.V., (“Leyden Lab”)
to facilitate two proposed studies/research projects:
●
An
assessment of protective potential of intranasal administration of Ampligen in SARS-CoV-2 Syrian hamster challenge model;
and
●
An
assessment of protective potential of intranasal Ampligen in lethal influenza mouse challenge model.
On
January 11, 2021, we entered into a Sponsor Agreement with the Centre for Human Drug Research (CHDR), a foundation located in
the Leiden in the Netherlands, to manage a proposed Phase 1 randomized, double-blind study to evaluate the safety and activity
of repeated intranasal administration of Ampligen. In February 2021, the Ethics Committee in the Netherlands issued its approval
for commencement of the study. The current study plans call for the enrollment of eight healthy subjects in each of four Ampligen
treatment groups and eight placebo subjects, for a total of 40 healthy subjects. This will assess the safety, tolerability and
biological activity of repeated administration of Ampligen intranasally. The subjects will receive intranasal dosing every other
day for 13 days, for a total of seven doses each. We are funding the clinical study. We consider such a study to be an important
part of our ongoing efforts to develop an intranasal COVID-19 treatment.
Other
Diseases
In
Europe, the EMA has approved the Orphan Medicinal Products Designation for rintatolimod (Ampligen) as a potential treatment of
Ebola virus disease and for Alferon N Injection, also known as interferon alfa-n3, as a potential treatment of MERS.
We
concluded our series of collaborations designed to determine the potential effectiveness of Ampligen and Alferon N as potential
preventative and/or therapeutic treatments for Ebola related disorders. Although we believe that the threat of both MERS and Ebola
globally may reemerge in the future, it appears that the spread of these disorders has somewhat diminished. As a result, we have
elected to focus our research and development efforts on other areas at this time.
MANUFACTURING
The
Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (ANMAT) in Argentina approved Ampligen for commercial distribution
for the treatment of Chronic Fatigue Syndrome (CFS) in 2016. Shipment of the drug product to Argentina was initiated in 2018 to
complete the release testing by ANMAT needed for commercial distribution. On September 19, 2019, we received clearance from the
FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. We are currently working with GP Pharma on the
commercial launch of Ampligen in Argentina See “Our Products; Ampligen” above.
Jubilant
HollisterStier (Jubilant) is our authorized CMO for Ampligen for our approval in Argentina. Since the 2017 engagement of Jubilant
to manufacture Ampligen, two lots of Ampligen consisting of more than 16,000 units have been manufactured and released in year
2018. The first lot was designated for human use in the US in the cost recovery CFS program and for expanded oncology clinical
trials. The second lot has been designated for these programs in addition to commercial distribution in Argentina for the treatment
of CFS. The production of additional polymer (Ampligen intermediates) took place in 2019 at our New Brunswick facility. Additionally,
two lots of Ampligen were manufactured in December 2019 and January 2020 at Jubilant. The current manufactured lots of Ampligen
have been fully tested and released for commercial product launch in Argentina and for clinical trials.
In
December 2020, we added Pharmaceutics International Inc. (“Pii”) as a “Fill & Finish” provider to
enhance our capacity to produce the drug Ampligen. This addition amplifies our manufacturing capability by providing redundancy
and cost savings. The contracts augment our existing fill and finish capacity.
Alferon
is approved by the FDA for commercial sales in the US for the treatment of genital warts. It is also approved by ANMAT in Argentina
for commercial sales for the treatment of genital warts and in patients who are refractory to treatment with recombinant interferons.
Commercial
sales of Alferon in the United States will not resume until new batches of commercial filled and finished product are produced
and released by the FDA. While our facility is approved by the FDA under the Biologics License Application (“BLA”)
for Alferon, this status will need to be reaffirmed by an FDA pre-approval inspection. We will also need the FDA’s approval
to release commercial product once we have submitted satisfactory stability and quality release data. Currently, the manufacturing
process is on hold and there is no definitive timetable to have the facility back online.
We
have reviewed our operations at the facility and believe that some of the equipment most likely should be upgraded to realize
greater efficiencies, when and if we require more API than is currently in storage. We are also exploring engaging a Contract
Manufacturing Organization (“CMO”) to produce API. While we believe we have sufficient API to meet our current needs,
we are also continually exploring new efficiencies so as to maximize our ability to fulfill future obligations.
12
Licensing/Collaborations/Joint
Ventures
To
maximize the availability of Ampligen to patients on a worldwide basis, we have embarked on a strategy to license the product
and/or to collaborate and/or create a joint venture with companies that have the demonstrated capabilities and commitment to successfully
gain approval and commercialize Ampligen in their respective territories of the world. Ideal partners would have the following
characteristics: well established global and regional experience and coverage, robust commercial infrastructure, strong track
record of successful development and registration of in-licensed products, as well as a therapeutic area fit (ME/CFS, immuno-oncology,
etc.).
MARKETING/DISTRIBUTION
In
May 2016, we entered into a five-year exclusive Renewed Sales, Marketing, Distribution and Supply Agreement (the “Agreement”)
with GP Pharm. Under this Agreement, GP Pharm was responsible for gaining regulatory approval in Argentina for Ampligen to treat
severe CFS in Argentina and for commercializing Ampligen for this indication in Argentina. We granted GP Pharm the right to expand
rights to sell this experimental therapeutic into other Latin America countries based upon GP Pharm achieving certain performance
milestones. We also granted GP Pharm an option to market Alferon N Injection in Argentina and other Latin America countries. See
“Our Products; Ampligen” above.
In
January 2017, the ANMAT granted a five-year extension to a previous approval to sell and distribute Alferon N Injection (under
the brand name “Naturaferon”) in Argentina. This extends the approval until 2022. In February 2013, we received the
ANMAT approval for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferon,
with Naturaferon in Argentina.
In
May 2016, we entered into a five-year agreement (the “Impatients Agreement”) with Impatients, N.V. (“myTomorrows”),
a Netherlands based company, for the commencement and management of an EAP in Europe and Turkey (the “Territory”)
related to ME/CFS. Pursuant to the agreement, myTomorrows, as our exclusive service provider and distributor in the Territory,
is performing EAP activities. These activities will be directed to (a) the education of physicians and patients regarding the
possibility of early access to innovative medical treatments not yet the subject of a Marketing Authorization (regulatory approval)
through named-patient use, compassionate use, expanded access and hospital exemption, (b) patient and physician outreach related
to a patient-physician platform, (c) the securing of Early Access Approvals (exemptions and/or waivers required by regulatory
authorities for medical treatments prior to Marketing Authorization) for the use of such treatments, (d) the distribution and
sale of such treatments pursuant to such Early Access Approvals, (e) pharmacovigilance (drug safety) activities and/or (f) the
collection of data such as patient-reported outcomes, doctor-reported experiences and registry data. We are supporting these efforts
and supplying Ampligen to myTomorrows at a predetermined transfer price. In the event that we receive Marketing Authorization
in any country in the Territory, we will pay myTomorrows a royalty on products sold. Pursuant to the Impatients Agreement, the
royalty would be a percentage of Net Sales (as defined in the Impatients Agreement) of Ampligen sold in the Territory where Marketing
Authorization was obtained, and the maximum royalty would be a percentage of Net Sales. The formula to determine the percentage
of Net Sales will be based on the number of patients that are entered into the EAP. We believe that disclosure of the exact maximum
royalty rate and royalty termination date could cause competitive harm. However, to assist the public in gauging these terms,
the actual maximum royalty rate is somewhere between 2% and 10% and the royalty termination date is somewhere between five and
fifteen years from the First Commercial Sale of a product within a specific country. The parties established a Joint Steering
Committee comprised of representatives of both parties to oversee the EAP. No assurance can be given that activities under the
EAP will result in Marketing Authorization or the sale of substantial amounts of Ampligen in the Territory.
In
January 2017, the EAP through our agreement with myTomorrows designed to enable access of Ampligen to ME/CFS patients has been
extended to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider in the Territory
and will manage all EAP activities relating to the pancreatic cancer extension of the program.
In
February 2018, we signed an amendment to the EAP with myTomorrows. This amendment extended the territory to cover Canada to treat
pancreatic cancer patients, pending government approval.
In
March 2018, we signed an amendment to the EAP with myTomorrows, pursuant to which myTomorrows will be our exclusive service provider
for special access activities in Canada for the supply of Ampligen for the treatment of ME/CFS.
In
December 2020, we entered into a signed Letter of Agreement with myTomorrows for the delivery of Ampligen for the treatment of
up to 16 pancreatic cancer patients.
In
August 2017, we extended our agreement with Asembia LLC, formerly Armada Healthcare, LLC, to undertake the marketing, education
and sales of Alferon N Injection throughout the United States. We are currently exploring an expansion of this relationship.
13
COMPETITION
The
major pharmaceutical competitors for Ampligen include Pfizer, GlaxoSmithKline, Merck & Co., Novartis and AstraZeneca. Biotech
competitors include Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma and Genta. When we recommence
sales of Alferon N Injection, it will compete with Intron® A, an injectable from Merck & Co.
GOVERNMENT
REGULATION
Regulation
by governmental authorities in the U.S. and foreign countries is and will be a significant factor in the manufacture and marketing
of Alferon products and our ongoing research and product development activities. Ampligen and other products developed from the
ongoing research and product development activities will require regulatory clearances prior to commercialization. In particular,
new drug products for humans are subject to rigorous pre-clinical and clinical testing as a condition for clearance by the FDA
and by similar authorities in foreign countries. The process of seeking these approvals, and the ongoing process of compliance
with applicable statutes and regulations, has and will continue to require the expenditure of substantial resources. Any failure
by us or our collaborators or licensees to obtain, or any delay in obtaining, regulatory approvals could materially adversely
affect the marketing of any products developed by us and our ability to receive product or royalty revenue. We have received Orphan
Drug designation for certain therapeutic indications, which we believe might under certain conditions help to accelerate the process
of drug development and commercialization. Alferon N Injection is only approved for use in intralesional treatment of refractory
or recurring external genital warts in patients 18 years of age or older. Use of Alferon N Injection for other applications requires
regulatory approval.
We
are subject to various federal, state and local laws, regulations and recommendations relating to such matters as safe working
conditions, laboratory and manufacturing practices, the experimental use of animals and the use of and disposal of hazardous or
potentially hazardous substances, including infectious disease agents, used in connection with our research work.
For
more information about the current status of Alferon N Injection and Ampligen, please see “Our Products” above.
HUMAN
CAPITAL
As
of December 31, 2020, we had personnel consisting of twenty-one (21) full-time employees and two (2) part-time employees. Five
(5) of the combined personnel are engaged in our research, development, clinical, and manufacturing effort with eighteen (18)
performing regulatory, general administration, data processing, including bio-statistics, financial and investor relations functions.
We have no union employees.
While
we have been successful in attracting skilled and experienced scientific personnel, there can be no assurance that we will be
able to attract or retain the necessary qualified employees and/or consultants in the future.
ITEM
1A:
Risk
Factors
The
following cautionary statements identify important factors that could cause our actual results to differ materially from those
projected in the forward-looking statements made in this Form 10-K. Please see “Special Note Regarding Forward Looking Statements”
below.
Risks
Associated with Our Business
The
COVID-19 coronavirus could adversely impact our business, including our clinical trials.
In
December 2019, a novel strain of coronavirus, COVID-19, was first reported in China. The coronavirus has since become a worldwide
pandemic, with more than 123 million global cases and approximately 2.7 million total deaths, as of March 12, 2021. As the pandemic
continues, we could very well experience disruptions that could severely impact our business and clinical trials, including:
●
delays
or difficulties in enrolling patients in our clinical trials;
●
delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical
site staff;
●
diversion
of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical
trial sites and hospital staff supporting the conduct of our clinical trials;
●
interruption
of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended
by federal or state governments, employers and others;
14
●
limitations
in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness
of employees or their families or the desire of employees to avoid contact with large groups of people;
●
delays
in issuing reports, results and publishing papers;
●
delays
in receiving approval from local regulatory authorities to initiate our planned clinical trials;
●
delays
in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
●
interruption
in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in
our clinical trials;
●
changes
in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in
which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
●
delays
in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations
in employee resources or forced furlough of government employees; and
●
refusal
of the FDA to accept data from clinical trials in affected geographies outside the United States.
The
global outbreak of the COVID-19 coronavirus is ongoing. The extent to which the COVID-19 coronavirus may impact our business and
clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as
the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the
United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United
States and other countries to contain and treat the disease.
The
COVID-19 coronavirus could force the closure of our offices and require workers to work from home.
As
of the date of this report, due to the importance of our COVID-19 work, our offices are open. The current pandemic could lead
to the complete or partial closure of one or more of our offices, or otherwise result in significant disruptions to our business
and operations. Such events could materially and adversely impact our operations. In addition, we may permit employees to work
remotely in certain cases and such policies may remain in place for an indeterminate amount of time or may be made mandatory by
relevant government authorities. There can be no assurance that our technological systems or infrastructure is or will be equipped
to facilitate effective remote working arrangements for our employees.
We
may require additional financing which may not be available.
The
development of our products requires the commitment of substantial resources to conduct the time-consuming research, preclinical
development, and clinical trials that are necessary to bring pharmaceutical products to market. As of December 31, 2020, we had
approximately $54,378,000 in cash, cash equivalents and marketable securities. We believe, based on our current financial condition,
that we have adequate funds to meet our anticipated operational cash needs and fund current clinical trials over approximately
the next twenty-four months. At present we do not generate any material revenues from our operations and we do not anticipate
doing so in the near future. We may need to obtain additional funding in the future for new studies and/or if current studies
do not yield positive results, require unanticipated changes and/or additional studies.
Given
our current focus on Ampligen and the high-cost estimates to bring our facility back online, should we focus on our facility,
we will need to allocate sufficient funds to finance the revalidation process to initiate commercial manufacturing, thereby readying
ourselves for an FDA Pre-Approval Inspection. We also will need to allocate capital to eventually commercialize and sell Ampligen
and/or recommence and increase sales of Alferon N Injection or our other products. We have reviewed our operations at our New
Brunswick facility and believe that some of the equipment most likely should be upgraded to realize greater efficiencies, when
and if we require more API than is currently in storage. We are also exploring engaging a Contract Manufacturing Organization
(“CMO”) to produce API. While we believe we have sufficient API to meet our current needs, we are also continually
exploring new efficiencies so as to maximize our ability to fulfill future obligations.
We
believe, based on our current financial condition, that we have adequate funds to meet our anticipated operational cash needs
and fund current clinical trials over approximately the next twenty-four months. If our funds are not adequate, and we are subsequently
unable to obtain additional funding, through joint venturing, sales of securities and/or otherwise, our ability to develop our
products, commercially produce inventory or continue our operations may be materially adversely affected.
15
We
may continue to incur substantial losses and our future profitability is uncertain.
As
of December 31, 2020, our accumulated deficit was approximately $342,605,000. As with many biotechnology companies we have not
yet generated significant revenues from our products and may incur substantial and increased losses in the future. We cannot assure
that we will ever achieve significant revenues from product sales or become profitable. We require, and will continue to require,
the commitment of substantial resources to develop our products. We cannot assure that our product development efforts will be
successfully completed or that required regulatory approvals will be obtained or that any products will be manufactured and marketed
successfully, or be profitable.
Our
drug and related technologies are investigational and subject to regulatory approval. If we are unable to obtain regulatory approval
in a timely manner, or at all, our operations will be materially harmed and our stock adversely affected.
While
we have received regulatory approval for the commercialization of Ampligen in Argentina (pending additional release testing and
subsequent steps), all of our drugs and associated technologies, other than Alferon N Injection, are investigational in the U.S.
and must receive prior regulatory approval by appropriate regulatory authorities for commercial distribution and sale and are
currently legally available only through clinical trials in the U.S. with specified disorders. At present, Alferon N Injection
is approved for the intralesional treatment of refractory or recurring external genital warts in patients 18 years of age or older.
Use of Alferon N Injection for other indications will require regulatory approval in the U.S. and abroad.
Our
products, including Ampligen, are subject to extensive regulation by numerous governmental authorities in the U.S. and other countries,
including, but not limited to, the FDA in the U.S., the Health Protection Branch (“HPB”) of Canada, the Agency for
the European Medicines Agency (“EMA”) in Europe and the Administracion Nacional de Medicamentos, Alimentos y Tecnologia
Medica (“ANMAT”) in Argentina. Obtaining regulatory approvals is a rigorous and lengthy process and requires the expenditure
of substantial resources. In order to obtain final regulatory approval of a new drug, we must demonstrate to the satisfaction
of the regulatory agency that the product is safe and effective for its intended uses and that we are capable of manufacturing
the product to the applicable regulatory standards. We require regulatory approval in order to market Ampligen or any other proposed
product and receive product revenues or royalties. We cannot assure you that Ampligen will ultimately be demonstrated to be safe
and efficacious. While Ampligen is authorized for use in clinical trials in the U.S., we cannot assure you that additional clinical
trial approvals will be authorized in the United States or in other countries, in a timely fashion or at all, or that we will
complete these clinical trials. In addition, although Ampligen has been authorized by the FDA for treatment use under certain
conditions, including provision for cost recovery, there can be no assurance that such authorization will continue in effect.
While
we received approval of our Argentinian NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen) in the Argentine
Republic for the treatment of severe ME/CFS, ANMAT approval is only an initial, but important, step in the overall successful
commercialization of our product. On September 19, 2019, we received clearance from the FDA to ship Ampligen to Argentina for
the commercial launch and subsequent sales. There are a number of additional actions that must occur before we would be able to
commence commercial sales in Argentina. For example, Ampligen is still in the process of release testing the product that has
already been sent.
The
FDA’s regulatory review and approval process is extensive, lengthy, expensive and inherently uncertain. To receive approval
for a product candidate, we must, among other things, demonstrate to the FDA’s satisfaction with substantial evidence from
well-controlled pre-clinical and clinical trials that the product candidate is both safe and effective for each indication for
which approval is sought. Before we can sell Ampligen for any use, or promote Alferon for any use other than as Alferon N Injection
for treatment of refractory or recurring genital warts, we will need to file the appropriate NDA with the FDA in the U.S. and
the appropriate regulatory agency outside of the U.S. where we intend to market and sell such products. At present the only NDA
we have filed with the FDA is the NDA for the use of Ampligen to treat CFS. The FDA issued a Complete Response Letter (“CRL”)
in February 2013 for this NDA and provided recommendations to address certain outstanding issues before they could approve Ampligen
for Commercial Sales. The Agency stated that the submitted data do not provide substantial evidence of efficacy of Ampligen for
the treatment of CFS and that the data do not provide sufficient information to determine whether the product is safe for use
in CFS due to the limited size of the safety database and multiple discrepancies within the submitted data. The FDA indicated
that we needed to conduct additional work. Therefore, ultimate FDA approval, if any, may be delayed indefinitely and may require
us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may
not be successful or considered sufficient by the FDA for approval or even to make our applications approvable. If any of these
outcomes occur, we may be forced to abandon one or more of our future applications for approval, which might significantly harm
our business and prospects. As a result, we cannot predict if or when we might receive regulatory approval for the use of Ampligen
to treat CFS or for the use of any other products. Even if regulatory approval from the FDA is received for the use of Ampligen
to treat CFS or eventually, for the use of any other product, any approvals that we obtain could contain significant limitations
in the form of narrow indications, patient populations, warnings, precautions or contra-indications or other conditions of use,
or the requirement that we implement a risk evaluation and mitigation strategy. In such an event, our ability to generate revenues
from such products could be greatly reduced and our business could be harmed.
16
If
we are unable to gain necessary FDA approvals related to Ampligen and Alferon on a timely basis, or we are unable to generate
the additional data, successfully complete inspections or obtain approvals as required by the FDA on a timely manner, or at all,
or determine that any of our clinical studies are not cost/justified to undertake or if, for that or any other reason, Ampligen,
Alferon or one of our other products or production processes do not receive necessary regulatory approval in the U.S. or elsewhere,
our operations most likely will be materially and/or adversely affected.
Generally,
obtaining approval of a NDA by the FDA, or a comparable foreign regulatory authority, is inherently uncertain. Even after completing
clinical trials and other studies, a product candidate could fail to receive regulatory approval for many reasons, including the
following:
●
not
be able to demonstrate to the satisfaction of the FDA that our product candidate is safe and effective for any indication;
●
the
FDA may disagree with the design or implementation of our clinical trials or other studies;
●
the
results of the clinical trials or other studies may not demonstrate that a product candidate’s clinical and other benefits
outweigh its safety risks;
●
the
FDA may disagree with our interpretation of data from clinical trials or other studies;
●
the
data collected from clinical trials and other studies of a product candidate may not be sufficient to support the submission
of a NDA;
●
the
approval policies or regulations of the FDA may significantly change in a manner rendering our clinical and other study data
insufficient for approval; and
●
the
FDA may not approve the proposed manufacturing processes and facilities for a product candidate.
We
may be subject to product liability claims from the use of Ampligen, Alferon N Injection, or other of our products which could
negatively affect our future operations. We have limited product liability and clinical trial insurance.
We
maintain a limited amount of Products Liability and Clinical Trial insurance coverage world-wide for Ampligen and Alferon due
to the minimal amount of historical loss claims regarding these products in the marketplace. Any claims against our products,
Ampligen and Alferon N Injection, could have a materially adverse effect on our business and financial condition.
We
face an inherent business risk of exposure to product liability claims in the event that the use of Ampligen, Alferon N Injection
or other of our products results in adverse effects. This liability might result from claims made directly by patients, hospitals,
clinics or other consumers, or by pharmaceutical companies or others manufacturing these products on our behalf. Our future operations
may be negatively affected from the litigation costs, settlement expenses and lost product sales inherent to these claims. While
we will continue to attempt to take appropriate precautions, we cannot assure that we will avoid significant product liability
exposure.
Uncertainty
of health care reimbursement for our products.
Our
ability to successfully commercialize our products will depend, in part, on the extent to which reimbursement for the cost of
such products and related treatment will be available from government health administration authorities, private health coverage
insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care
products, and from time to time legislation is proposed, which, if adopted, could further restrict the prices charged by and/or
amounts reimbursable to manufacturers of pharmaceutical products. We cannot predict what, if any, legislation will ultimately
be adopted or the impact of such legislation on us. There can be no assurance that third party insurance companies will allow
us to charge and receive payments for products sufficient to realize an appropriate return on our investment in product development.
There
are risks of liabilities associated with handling and disposing of hazardous materials.
Our
business involves the controlled use of hazardous materials, carcinogenic chemicals, and flammable solvents. Although we believe
that our safety procedures for handling and disposing of such materials comply in all material respects with the standards prescribed
by applicable regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident or the failure to comply with applicable regulations, we could be held liable for any damages
that result. However, we have obtained insurance coverage to mitigate any potential significant loss in this area.
17
We
rely upon information technology and any failure, inadequacy, interruption or security lapse of that technology, including any
cyber security incidents, could harm our ability to operate our business effectively.
Despite
the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable
to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and
electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result
in a material disruption of our business operations, in addition to possibly requiring substantial expenditures of resources to
remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our
costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage
to, our data or applications, or inappropriate public disclosure of confidential or proprietary information, we could incur liability
and our product development and commercialization efforts could be delayed.
The
loss of services of key personnel could hurt our chances for success.
Our
success is dependent on the continued efforts of our staff, especially certain doctors and researchers. The loss of the services
of personnel key to our operations could have a material adverse effect on our operations and chances for success. The loss of
key personnel or the failure to recruit additional personnel as needed could have a materially adverse effect on our ability to
achieve our objectives.
Risks
Associated with Our Products
In
addition to the risks disclosed above, the development of Ampligen is subject to a number of significant risks. Ampligen may be
found to be ineffective or to have adverse side effects, fail to receive necessary regulatory clearances, be difficult to manufacture
on a commercial scale, be uneconomical to market or be precluded from commercialization by proprietary right of third parties.
Our investigational products are in various stages of clinical and pre-clinical development and require further clinical studies
and appropriate regulatory approval processes before any such products can be marketed. We do not know when, if ever, Ampligen
or our other products will be generally available for commercial sale for any indication. Generally, only a small percentage of
potential therapeutic products are eventually approved by the FDA for commercial sale.
To
the extent that we are required by the FDA, pursuant to the Ampligen NDA, to conduct additional studies and take additional actions,
approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we
have available. It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient
by the FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon
one or more of our future applications for approval, which might significantly harm our business and prospects. As a result, we
cannot predict when or whether regulatory approval will be obtained for any product candidate we develop.
If
approved, one or more of the potential side effects of the drug might deter usage of Ampligen in certain clinical situations and,
therefore, could adversely affect potential revenues and physician/patient acceptability of our product.
Alferon
N Injection. Although Alferon N Injection is approved for marketing in the United States for intralesional treatment of refractory
or recurring external genital warts in patients 18 years of age or older, to date it has not been approved for other indications.
Possible
side effects from the use of Ampligen or Alferon N Injection could adversely affect potential revenues and physician/patient acceptability
of our product.
Ampligen.
We believe that Ampligen has been generally well tolerated with a low incidence of clinical toxicity, particularly given the severely
debilitating or life-threatening diseases that have been treated. A mild flushing reaction has been observed in approximately
15-20% of patients treated in our various studies. This reaction is occasionally accompanied by a rapid heartbeat, a tightness
of the chest, urticaria (swelling of the skin), anxiety, shortness of breath, subjective reports of “feeling hot”,
sweating and nausea. The reaction is usually infusion-rate related and can generally be controlled by reducing the rate of infusion.
Other adverse side effects include liver enzyme level elevations, diarrhea, itching, asthma, low blood pressure, photophobia,
rash, visual disturbances, slow or irregular heart rate, decreases in platelets and white blood cell counts, anemia, dizziness,
confusion, elevation of kidney function tests, occasional temporary hair loss and various flu-like symptoms, including fever,
chills, fatigue, muscular aches, joint pains, headaches, nausea and vomiting. These flu-like side effects typically subside within
several months.
18
The
FDA in its February 1, 2013 CRL, provided recommendations to address certain outstanding issues before they could approve Ampligen
for Commercial Sales. The Agency stated that the submitted data do not provide sufficient information to determine whether the
product is safe for use in CFS due to the limited size of the safety database and multiple discrepancies within the submitted
data.
If
approved, one or more of the potential side effects of the drug might deter usage of Ampligen in certain clinical situations and
therefore, could adversely affect potential revenues and physician/patient acceptability of our product.
Alferon
N Injection. At present, Alferon N Injection is approved for the intralesional (within the lesion) treatment of refractory or
recurring external genital warts in adults. In clinical trials conducted for the treatment of genital warts with Alferon N Injection,
patients did not experience serious side effects; however, there can be no assurance that unexpected or unacceptable side effects
will not be found in the future for this use or other potential uses of Alferon N Injection which could threaten or limit such
product’s usefulness.
Risks
Related to our activities associated with Ampligen’s potential effectiveness as a treatment for SARS-CoV-2
It
is not possible to predict the future of the ongoing SARS-CoV-2 global pandemic or the development of potential treatments. No
assurance can be given that Ampligen will aid in or be applied to the treatment of this virus.
Significant
additional testing and trials will be required to determine whether Ampligen will be effective in the treatment of SARS-CoV-2
in humans and no assurance can be given that it will be the case. We base our belief that Ampligen may be effective in the treatment
of SARS-CoV-2 on the result of studies that we reviewed and referenced. No assurance can be given that future studies will not
result in findings that are different from those in the studies that we have relied upon. We are one of many companies trying
to develop a treatment for this virus, most of whom have far greater resources than us. If one of these companies develops an
effective treatment, development of Ampligen for this virus most likely will be adversely affected.
Operating
in foreign countries carries with it many risks.
Some
of our studies are being conducted in the Netherlands and we may conduct other studies and or we may enter into agreements such
as supply agreements. Operating in foreign countries carries with it a number of risks, including potential difficulties in enforcing
intellectual property rights. We cannot assure that our potential foreign operations will not be adversely affected by these risks.
Risks
Associated with Our Intellectual Property
We
may not be profitable unless we can protect our patents and/or receive approval for additional pending patents.
We
need to preserve and acquire enforceable patents covering the use of Ampligen for a particular disease in order to obtain exclusive
rights for the commercial sale of Ampligen for such disease. We obtained all rights to Alferon N Injection, and we plan to preserve
and acquire enforceable patents covering its use for existing and potentially new diseases once we have had a successful FDA Pre
Approval Inspection. Our success depends, in large part, on our ability to preserve and obtain patent protection for our products
and to obtain and preserve our trade secrets and expertise. Certain of our know-how and technology is not patentable, particularly
the procedures for the manufacture of our experimental drug, Ampligen. We also have been issued a patent which affords protection
on the use of Ampligen in patients with Chronic Fatigue Syndrome. We have not yet been issued any patents in the United States
for the use of Ampligen as a sole treatment for any of the cancers which we have sought to target. For more information on Patents,
please see PART I, Item 1 – “Business; Patents”.
We
cannot assure that our competitors will not seek and obtain patents regarding the use of similar products in combination with
various other agents, for a particular target indication prior to our doing so. If we cannot protect our patents covering the
use of our products for a particular disease, or obtain additional patents, we may not be able to successfully market our products.
The
patent position of biotechnology and pharmaceutical firms is highly uncertain and involves complex legal and factual questions.
To
date, no consistent policy has emerged regarding the breadth of protection afforded by pharmaceutical and biotechnology patents.
There can be no assurance that new patent applications relating to our products, process or technology will result in patents
being issued or that, if issued, such patents will afford meaningful protection against competitors with similar technology. It
is generally anticipated that there may be significant litigation in the industry regarding patent and intellectual property rights.
Such litigation could require substantial resources from us and we may not have the financial resources necessary to enforce the
patent rights that we hold. No assurance can be made that our patents will provide competitive advantages for our products, process
and technology or will not be successfully challenged by competitors. No assurance can be given that patents do not exist or could
not be filed which would have a materially adverse effect on our ability to develop or market our products or to obtain or maintain
any competitive position that we may achieve with respect to our products. Our patents also may not prevent others from developing
competitive products or processes using related technology.
19
There
can be no assurance that we will be able to obtain necessary licenses if we cannot enforce patent rights we may hold. In addition,
the failure of third parties from whom we currently license certain proprietary information or from whom we may be required to
obtain such licenses in the future, to adequately enforce their rights to such proprietary information, could adversely affect
the value of such licenses to us.
If
we cannot enforce the patent rights we currently hold we may be required to obtain licenses from others to develop, manufacture
or market our products. There can be no assurance that we would be able to obtain any such licenses on commercially reasonable
terms, if at all. We currently license certain proprietary information from third parties, some of which may have been developed
with government grants under circumstances where the government maintained certain rights with respect to the proprietary information
developed. No assurances can be given that such third parties will adequately enforce any rights they may have or that the rights,
if any, retained by the government will not adversely affect the value of our license.
There
is no guarantee that our trade secrets will not be disclosed or known by our competitors.
To
protect our rights, we require all employees and certain consultants to enter into confidentiality agreements with us. There can
be no assurance that these agreements will not be breached, that we would have adequate and enforceable remedies for any breach,
or that any trade secrets of ours will not otherwise become known or be independently developed by competitors.
Risks
Associated with Our R&D
Due
to the inherent uncertainty involved in the design and conduct of clinical trials and the applicable regulatory requirements,
including the factors discussed above in “Our Products”, we cannot predict what additional studies and/or additional
testing or information may be required by the FDA. Accordingly, we are unable to estimate the nature, timing, costs and necessary
efforts to complete these projects nor the anticipated completion dates. In addition, we have no basis for estimating when material
net cash inflows may commence. We have yet to generate significant revenues from the sale of these developmental products. As
of December 31, 2020, we had approximately $54,378,000 in Cash, Cash Equivalents and Marketable Securities inclusive of Marketable
Securities. Please see “ We may require additional financing which may not be available ” above.
Risks
Associated with Our Manufacturing
Our
Alferon N Injection Commercial Sales were halted due to lack of finished goods inventory. If we are unable to gain the necessary
FDA approvals related to Alferon, our operations most likely will be materially and/or adversely affected.
While
our facility is FDA approved under the BLA by the FDA for Alferon, this status will need to be reaffirmed upon the completion
of the facility’s upgrades for Alferon. We cannot provide any guarantee that the facility will necessarily pass an FDA pre-approval
inspection for Ampligen or Alferon manufacture, which are conducted in separately dedicated areas within the overall New Brunswick
manufacturing complex. We have reviewed our operations at the facility and believe that some of the equipment most likely should
be upgraded to realize greater efficiencies, when and if we require more API than is currently in storage. We are also exploring
engaging a Contract Manufacturing Organization (“CMO”) to produce API.
If
we are unable to gain the necessary FDA approvals related to the manufacturing process and/or final product of new Alferon inventory
or contract with a CMO, our operations most likely will be materially and/or adversely affected. For more information on Alferon
N Injection regarding potential commercial sales, please see PART I, Item 1 - “Business; Manufacturing”.
There
are no long-term agreements with suppliers of required materials and services for Ampligen and there are a limited number of raw
material suppliers. If we are unable to obtain the required raw materials and/or services, we may not be able to manufacture Ampligen.
A
number of essential raw materials are used in the production of Ampligen as well as packaging materials utilized in the fill and
finish process. We do not have, but continue to work toward having, long-term agreements for the supply of such materials, when
possible. There can be no assurance we can enter into long-term supply agreements covering essential materials on commercially
reasonable terms, if at all.
20
There
are a limited number of suppliers in the United States and abroad available to provide the raw and packaging materials/reagents
for use in manufacturing Ampligen and Alferon. At present, we do not have any agreements with third parties for the supply of
any of these materials or we are relying on a limited source of reagent suppliers necessary for the manufacture of Alferon. Jubilant
Hollister-Stier LLC has manufactured batches of Ampligen for us pursuant to purchase orders. We anticipate that additional orders
will be placed upon approved quotes and purchase orders provided by us to Jubilant. On December 22, 2020, we added Pharmaceutics
International Inc. (“Pii”) as a “Fill & Finish” provider to enhance our capacity to produce the drug
Ampligen. This addition amplifies our manufacturing capability by providing redundancy and cost savings. The contracts augment
our existing fill and finish capacity. If we are unable to place adequate acceptable purchase orders with Jubilant or Pii in the
future at acceptable prices upon acceptable terms, we will need to find another manufacturer. If we need to find another contract
manufacturer to produce Ampligen, it would create a significant delay and expense to get the manufacturer up and running. The
costs and availability of products and materials we would need for the production of Ampligen are subject to fluctuation depending
on a variety of factors beyond our control, including competitive factors, changes in technology, ownership of intellectual property,
FDA and other governmental regulations. There can be no assurance that we will be able to obtain such products and materials on
terms acceptable to us or at all.
While
we have produced limited quantities of active pharmaceutical ingredients (“API”) for our products in our New Brunswick,
NJ facility, we have reviewed our operations at the facility and believe that some of the equipment most likely should be
upgraded to realize greater efficiencies, when and if we require more API than is currently in storage. We are also exploring
engaging a Contract Manufacturing Organization (“CMO”) to produce API. While we believe we have sufficient API to
meet our current needs, we are also continually exploring new efficiencies so as to maximize our ability to fulfill future obligations.
Currently, the Alferon manufacturing process is on hold and there is no definitive timetable to have the facility back online.
If we are unable to acquire FDA approvals related to the manufacturing process and/or final product of new Alferon inventory or
contract with a CMO, our operations most likely will be materially and/or adversely affected. In light of these contingencies,
there can be no assurances that the approved Alferon N Injection product will be returned to production on a timely basis, if
at all, or that if and when it is again made commercially available, it will return to prior sales levels.
If
we are unable to obtain or manufacture the required materials/reagents, and/or procure services needed in the final steps in the
manufacturing process, we may be unable to manufacture Ampligen. The costs and availability of products and materials we need
for the production of Ampligen are subject to fluctuation depending on a variety of factors beyond our control, including competitive
factors, changes in technology, ownership of intellectual property, FDA and other governmental regulations. There can be no assurance
that we will be able to obtain such products and materials on terms acceptable to us or at all. For more information on Ampligen
manufacturing, please see PART I, Item 1 - “Business; Our Products; Manufacturing” above.
There
are a limited number of organizations in the United States available to provide the final manufacturing steps of formulation,
fill, finish and packing sets for Alferon N Injection and Ampligen.
There
are a limited number of organizations in the United States available to provide the final steps in the manufacturing for Alferon
N Injection and Ampligen. To formulate, fill, finish and package our products (“fill and finish”), we require an FDA
approved third party CMO.
In
January 2017, we approved a quote and provided a purchase order with Jubilant Hollister-Stier LLC pursuant to which Jubilant manufactured
batches of Ampligen for us. We anticipate that additional orders will be placed upon approved quotes and purchase orders provided
by us to Jubilant. If we are unable to place adequate acceptable purchase orders with Jubilant in the future at acceptable prices
upon acceptable terms our business would be materially and adversely affected. Please see the prior risk factor.
In
December 2020, we added Pharmaceutics International Inc. (“Pii”) as a “Fill & Finish” provider to
enhance our capacity to produce the drug Ampligen. This addition amplifies our manufacturing capability by providing redundancy
and cost savings. The contracts augment our existing fill and finish capacity.
Should
there be an unanticipated delay in receiving new product or should we experience an unexpected demand for Ampligen, our ability
to supply Ampligen most likely will be adversely affected. If we are unable to procure services needed in the final steps in the
manufacturing process, we may be unable to manufacture Alferon N Injection and/or Ampligen. The costs and availability of products
and materials we need for the production of Ampligen and the commercial production of Alferon N Injection and other products which
we may commercially produce are subject to fluctuation depending on a variety of factors beyond our control, including competitive
factors, changes in technology, and FDA and other governmental regulations and there can be no assurance that we will be able
to obtain such products and materials on terms acceptable to us or at all. For more information on Ampligen and Alferon N Injection
manufacturing, please see PART I, Item 1 - “Business; Our Products; Manufacturing” above.
21
There
is no assurance that upon successful manufacture of a drug on a limited scale basis for investigational use will lead to a successful
transition to commercial, large-scale production.
Changes
in methods of manufacturing, including commercial scale-up, may affect the chemical structure of Ampligen and other RNA drugs,
as well as their safety and efficacy. The transition from limited production of pre-clinical and clinical research quantities
to production of commercial quantities of our products will involve distinct management and technical challenges and may require
additional management, technical personnel and capital to the extent such manufacturing is not handled by third parties. While
we believe that we could successfully upgrade our production capability at our New Brunswick, NJ facility in a commercial scale-up
of Ampligen, there can be no assurance that our manufacturing will be successful or that any given product will be determined
to be safe and effective, or capable of being manufactured under applicable quality standards, economically, and in commercial
quantities, or successfully marketed.
We
have limited manufacturing experience for Ampligen and Alferon. We may not be profitable unless we can produce Ampligen, Alferon
or other products in commercial quantities at costs acceptable to us .
Ampligen
has been produced to date in limited quantities for use in our clinical trials and Early Access Programs. In addition, in Argentina,
Ampligen is still in the process of release testing the product that has already been sent. To be successful, our products must
be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs. We believe that it
will not be necessary to increase our current product plans to meet our production obligations. We believe, but cannot assure,
that our enhancements to our manufacturing facilities will be adequate for our future needs for the production of our proposed
products for large-scale commercialization. We intend to ramp up our existing facility and/or utilize third party facilities if
and when the need arises or, if we are unable to do so, to build or acquire commercial-scale manufacturing facilities. We will
need to comply with regulatory requirements for such facilities, including those of the FDA pertaining to cGMP requirements or
maintaining our BLA status. There can be no assurance that such facilities can be used, built, or acquired on commercially acceptable
terms, or that such facilities, if used, built, or acquired, will be adequate for the production of our proposed products for
large-scale commercialization or our long-term needs.
We
have never produced Ampligen, Alferon or any other products in large commercial quantities. We must manufacture our products in
compliance with regulatory requirements in large commercial quantities and at acceptable costs in order for us to be profitable.
We intend to utilize third party manufacturers and/or facilities if and when the need arises or, if we are unable to do so, to
build or acquire commercial-scale manufacturing facilities. If we cannot manufacture commercial quantities of Ampligen and/or
Alferon, or continue to maintain third party agreements for its manufacture at costs acceptable to us, our operations will be
significantly affected. If and when the Ampligen NDA is approved, we may need to find an additional vendor to manufacture the
product for commercial sales. Also, each production lot of Alferon N Injection is subject to FDA review and approval prior to
releasing the lots to be sold. This review and approval process could take considerable time, which would delay our having product
in inventory to sell, nor can we provide any assurance as to the receipt of FDA approval of our finished inventory product. There
can be no assurances that the Ampligen and/or Alferon can be commercially produced at costs acceptable to us.
Risks
Associated with Our Licensing/Collaborations/Joint Ventures
If
we are unable to achieve licensing, collaboration and/or joint ventures, our marketing strategy for Ampligen will be part of the
differing health care systems around the world along with the different marketing and distribution systems that are used to supply
pharmaceutical products to those systems.
We
have received approval of our NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen) in the Argentine Republic
for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America. On September
19, 2019, we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. We
are currently working with GP Pharma on the commercial launch of Ampligen in Argentina. Commercialization in Argentina will require,
among other things, GP Pharm to establish disease awareness, medical education, creation of an appropriate reimbursement level,
design of marketing strategies and completion of manufacturing preparations for launch.
The
next steps in the commercial launch of Ampligen include ANMAT conducting a final inspection of the product and release tests before
granting final approval to begin commercial sales. This testing and approval process is currently delayed due to the COVID-19
pandemic and ANMAT’s internal processes. Once final approval by ANMAT is obtained, GP Pharm will begin distributing Ampligen
in Argentina. We continue to pursue our Ampligen NDA, for the treatment of CFS with the FDA.
22
Risks
Associated with Our Marketing and Distribution
We
have limited marketing and sales capability. If we are unable to obtain additional distributors and our current and future distributors
do not market our products successfully, we may not generate significant revenues or become profitable.
We
have limited marketing and sales capability. We are dependent upon existing and, possibly future, marketing agreements and third-party
distribution agreements for our products in order to generate significant revenues and become profitable. As a result, any revenues
received by us will be dependent in large part on the efforts of third parties, and there is no assurance that these efforts will
be successful.
Our
commercialization strategy for Ampligen, if and when it is approved for marketing and sale by the FDA, may include licensing/co-marketing
agreements utilizing the resources and capacities of a strategic partner(s). We continue to seek a world-wide marketing partner
with the goal of having a relationship in place before approval is obtained. In parallel to partnering discussions, appropriate
pre-marketing activities will be undertaken. It is our current intention to control manufacturing of Ampligen on a world-wide
basis.
Our
commercialization strategy for Alferon N Injection may include the utilization of internal functions and/or licensing/co-marketing
agreements that would utilize the resources and capacities of one or more strategic partners. Accordingly, we have engaged Asembia,
formerly Armada Healthcare, LLC, to undertake the marketing, education and sales of Alferon N Injection throughout the United
States along with GP Pharm for both Ampligen and Alferon in Argentina along with other South American countries.
We
cannot assure that our U.S. or foreign marketing strategy will be successful or that we will be able to establish future marketing
or third party distribution agreements on terms acceptable to us, or that the cost of establishing these arrangements will not
exceed any product revenues. Our inability to establish viable marketing and sales capabilities would most likely have a materially
adverse effect on us. There can be no assurances that the approved Alferon N Injection product will be returned to prior sales
levels.
Risks
Associated with Our Competition
Rapid
technological change may render our products obsolete or non-competitive.
The
pharmaceutical and biotechnology industries are subject to rapid and substantial technological change. Technological competition
from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is
intense and is expected to increase. Most of these entities have significantly greater research and development capabilities than
us, as well as substantial marketing, financial and managerial resources, and represent significant competition for us. There
can be no assurance that developments by others will not render our products or technologies obsolete or noncompetitive or that
we will be able to keep pace with technological developments.
Our
products may be subject to substantial competition.
Ampligen.
our flagship product, Ampligen is being evaluated as a potential treatment for COVID-19, myalgic encephalomyelitis/chronic
fatigue syndrome (ME/CFS) and COVID-induced CFS symptoms (“Long Haulers”); as well as multiple types of cancers. With
regards to COVID-19, multiple global companies are actively working to develop therapies for COVID-19, including several companies
which have successfully developed vaccines. It is possible that these or other companies may be developing therapies that are
similar to that which we are attempting to develop, and could therefore develop them first. Some of these potential products may
have an entirely different approach or means of accomplishing similar therapeutic effects to products being developed by us. These
competing products may be more effective and less costly than our products. In addition, conventional drug therapy, surgery and
other more familiar treatments may offer competition to our products. Furthermore, many of our competitors have significantly
greater experience than we do in preclinical testing and human clinical trials of pharmaceutical products and in obtaining FDA,
The Health Protection Branch of the Canada Department of National Health and Welfare (HPB) and other regulatory approvals of products.
Accordingly, our competitors may succeed in obtaining FDA, HPB or other regulatory product approvals more rapidly than us. There
are no drugs approved for commercial sale with respect to treating CFS in the United States. The dominant competitors with drugs
to treat disease indications which we plan to address include Pfizer, GlaxoSmithKline, Merck & Co., Novartis and AstraZeneca.
Biotech competitors include Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma and Genta. These potential
competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical community,
and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than we
have. Although we believe our principal advantage is the unique mechanism of action of Ampligen on the immune system, we cannot
assure that we will be able to compete.
23
Alferon
N Injection. Our competitors are among the largest pharmaceutical companies in the world, are well known to the public and
the medical community, and have substantially greater financial resources, product development, and manufacturing and marketing
capabilities than we have. Alferon N Injection currently competes with Merck’s injectable recombinant alpha interferon product
(Intron® A) for the treatment of genital warts. In addition, other pharmaceutical firms offer self-administered topical cream,
for the treatment of external genital and perianal warts such as Graceway Pharmaceuticals (Aldara®), Perrigo Company (Imiquimod
Cream - Generic Equivalent to Aldara®), Watson Pharma (Condylox®) and MediGene (Veregen®). Alferon N Injection also
competes with surgical, chemical, and other methods of treating genital warts. We cannot assess the impact products developed
by our competitors, or advances in other methods of the treatment of genital warts, will have on the commercial viability of Alferon
N Injection. If and when we obtain additional approvals of uses of this product, we expect to compete primarily on the basis of
product performance. Our competitors have developed or may develop products (containing either alpha or beta interferon or other
therapeutic compounds) or other treatment modalities for those uses. There can be no assurance that, if we are able to obtain
regulatory approval of Alferon N Injection for the treatment of new indications, we will be able to achieve any significant penetration
into those markets. In addition, because certain competitive products are not dependent on a source of human blood cells, such
products may be able to be produced in greater volume and at a lower cost than Alferon N Injection. Currently, our wholesale price
on a per unit basis of Alferon N Injection is higher than that of the competitive recombinant alpha and beta interferon products.
Please see risk factor “We may not be profitable unless we can protect our patents and/or receive approval for additional
pending patents” above for additional information.
Other
companies may succeed in developing products earlier than we do, obtaining approvals for such products from the FDA more rapidly
than we do, or developing products that are more effective than those we may develop. While we will attempt to expand our technological
capabilities in order to remain competitive, there can be no assurance that research and development by others or other medical
advances will not render our technology or products obsolete or non-competitive or result in treatments or cures superior to any
therapy we develop.
Risks
Associated with an Investment in Our Common Stock:
The
market price of our stock may be adversely affected by market volatility
The
market price of our common stock has been and is likely to be volatile. This is especially true given the current significant
instability in the financial markets, primarily caused by the COVID-19 coronavirus and the major adverse effects it has had and
will continue to have on US and worldwide economies and markets. The market price of our stock has significantly increased over
the past year, most likely due to our activities related to researching Ampligen’s effectiveness in treating SARS-CoV-2.
Should our progress slow or results of testing or activities by others negatively impact our efforts, it is just as likely that
our stock price will be significantly adversely affected, and in such case, investors could sustain substantial losses. In addition
to the foregoing and, general economic, political and market conditions, the price and trading volume of our stock could fluctuate
widely in response to many factors, including:
●
announcements
of the results of clinical trials by us or our competitors;
●
announcements
of availability or projections of our products for commercial sale;
●
announcements
of legal actions against us and/or settlements or verdicts adverse to us;
●
adverse
reactions to products;
●
governmental
approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory
agency comments regarding the safety or effectiveness of our products, or the adequacy of the procedures, facilities or controls
employed in the manufacture of our products;
●
changes
in U.S. or foreign regulatory policy during the period of product development;
●
developments
in patent or other proprietary rights, including any third-party challenges of our intellectual property rights;
●
announcements
of technological innovations by us or our competitors;
●
announcements
of new products or new contracts by us or our competitors;
●
actual
or anticipated variations in our operating results due to the level of development expenses and other factors;
●
changes
in financial estimates by securities analysts and whether our earnings meet or exceed the estimates;
●
conditions
and trends in the pharmaceutical and other industries;
24
●
new
accounting standards;
●
overall
investment market fluctuation;
●
restatement
of prior financial results;
●
notice
of NYSE American non-compliance with requirements; and
●
occurrence
of any of the risks described in these risk factors and the risk factors incorporated by reference herein.
Our
common stock is listed for quotation on the NYSE American. For the year ended December 31, 2020, the trading price of our common
stock has ranged from $0.56 to $6.10 per share. We expect the price of our common stock to remain volatile. The average daily
trading volume of our common stock varies significantly.
Sales
of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur, could
depress the market price of our common stock.
We
may issue shares to be used to meet our capital requirements or use shares to compensate employees, consultants and/or Directors.
In this regard, we completed a rights offering to our stockholders and certain option and warrant holders in March 2019, pursuant
to which we issued Preferred stock convertible into an aggregate of 26,560,000 shares of common stock and warrants exercisable
for up to an additional 26,560,000 shares of common stock. In September 2019 we sold 1,740,550 shares of our common stock and
warrant exercisable for 16,037,170 shares of common stock. All of these shares of common stock, including shares issuable upon
exercise of warrants, have been registered for public sale. In addition, we have registered securities for public sale pursuant
to a universal shelf registration statement and we had been selling shares under this shelf registration statement. Since December
31, 2020, we have sold an aggregate of 5,655,731 shares under our equity distribution agreement with Maxim. As of the date of
this report, we no longer have any equity distribution agreements.
We
are unable to estimate the amount, timing or nature of future sales of outstanding common stock or instruments convertible into
or exercisable for our common stock. Sales of a significant number of shares of our common stock in the public markets, or the
perception that such sales could occur as a result of our utilization of our shelf registration statement or otherwise could depress
the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.
We cannot predict the effect that future sales of our common stock or the market perception that we are permitted to sell a significant
number of our securities would have on the market price of our common stock. Please see Item 7- “Management’s Discussion
and Analysis of Financial Condition and Result of Operations; Liquidity and Capital Resources” in PART II.
Provisions
of our Certificate of Incorporation and Delaware law could defer a change of our Management which could discourage or delay offers
to acquire us.
Provisions
of our Certificate of Incorporation and Delaware law may make it more difficult for someone to acquire control of us or for our
stockholders to remove existing management, and might discourage a third party from offering to acquire us, even if a change in
control or in Management would be beneficial to our stockholders. For example, our Certificate of Incorporation allows us to issue
shares of preferred stock without any vote or further action by our stockholders. Our Board of Directors has the authority to
fix and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to issue
preferred stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series
of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend
payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. On November 14, 2017, at the direction of the Board, we amended and
restated the Rights Agreement between us and, American Stock Transfer & Trust Company, LLC, its current Rights Agent. Pursuant
to the original Rights Agreement, our Board of Directors declared a dividend distribution of one Right for each outstanding share
of common stock to stockholders of record at the close of business on November 29, 2002. Each Right entitles the registered holder
to purchase from us a unit consisting of one one-hundredth of a share (a “Unit”) of Series A Junior Participating
Preferred Stock, par value $0.01 per share at a Purchase Price of $21.00 per Unit, subject to adjustment.
Special
Note Regarding Forward Looking Statements
Certain
statements in this Report contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. These statements are based on our
management’s current beliefs, expectations and assumptions about future events, conditions and results and on information
currently available to us. Discussions containing these forward-looking statements may be found, among other places, in this “Risk
Factors” section; Item 1. “Business”, Part I; Item 3. “Legal Proceedings” and Part II; Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”.
25
All
statements, other than statements of historical fact, included or incorporated herein regarding our strategy, future operations,
financial position, future revenues, projected costs, plans, prospects and objectives are forward-looking statements. Words such
as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,”
“estimate,” “think,” “may,” “could,” “will,” “would,”
“should,” “continue,” “potential,” “likely,” “opportunity” and similar
expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of
identifying forward-looking statements.
Among
the factors that could cause actual results to differ materially from those indicated in the forward-looking statements are risks
and uncertainties inherent in our business including, without limitation: our ability to adequately fund our projects as we will
need additional funding to proceed with our objectives, the potential therapeutic effect of our products, the possibility of obtaining
regulatory approval, our ability to find senior co-development partners with the capital and expertise needed to commercialize
our products and to enter into arrangements with them on commercially reasonable terms, our ability to manufacture and sell any
products, our ability to enter into arrangements with third party vendors, market acceptance of our products, our ability to earn
a profit from sales or licenses of any drugs, our ability to discover new drugs in the future, changing market conditions, changes
in laws and regulations affecting our industry, and issues related to our New Brunswick, New Jersey facility.
With
the outbreak of the COVID-19 coronavirus and our prior research into Ampligen’s antiviral activity against Severe Acute
Respiratory Syndrome, or SARS, we now are focusing on the potential of Ampligen to serve as a protective prophylaxis and an early-onset
therapeutic for the virus. Significant testing and trials will be required to determine whether Ampligen will be effective in
the treatment of the COVID-19 coronavirus in humans and no assurance can be given that it will be the case. Our beliefs rely on
a number of studies. No assurance can be given that future studies will not result in findings that are different from those reported
in the studies we refer to. The pandemic is disrupting world health and world economies and most likely will continue to do so
for a long time. While we are able to continue to operate, clearly, like all businesses, we are unable to gauge how bad this pandemic
will affect our operations in the future. We reached out to numerous foreign governments related to the COVID-19 coronavirus and,
if successful, will be working in these countries. Operating in foreign countries carries with it a number of risks, including
potential difficulties in enforcing intellectual property rights. We cannot assure that our potential operations in foreign countries
will not be adversely affected by these risks. We have filed provisional patent applications related to the COVID-19 coronavirus.
However, these filings do not assure that patents will ultimately be granted.
In
February 2013, we received a Complete Response Letter (CRL) from the Food and Drug Administration, or FDA, for our Ampligen New
Drug Application, or NDA, for the treatment of CFS. The FDA communicated that we should conduct at least one additional clinical
trial, complete various nonclinical studies and perform a number of data analyses. Accordingly, the remaining steps to potentially
gain FDA approval of the Ampligen NDA, the final results of these and other ongoing activities could vary materially from our
expectations and could adversely affect the chances for approval of the Ampligen NDA. These activities and the ultimate outcomes
are subject to a variety of risks and uncertainties, including but not limited to risks that (i) the FDA may ask for additional
data, information or studies to be completed or provided; and (ii) the FDA may require additional work related to the commercial
manufacturing process to be completed or may, in the course of the inspection of manufacturing facilities, identify issues to
be resolved.
In
August 2016, we received approval of our NDA from Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica, or ANMAT,
for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine Republic for the treatment of severe CFS.
The product will be marketed by GP Pharm, our commercial partner in Latin America. We believe, but cannot assure, that this approval
provides a platform for potential sales in certain countries within the European Union under regulations that support cross-border
pharmaceutical sales of licensed drugs. In Europe, approval in a country with a stringent regulatory process in place, such as
Argentina, should add further validation for the product as the Early Access Program, or EAP, as discussed below and underway
in Europe in pancreatic cancer. ANMAT approval is only an initial, but important, step in the overall successful commercialization
of our product. There are a number of actions that must occur before we could be able to commence commercial sales in Argentina.
In September 2019, we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales.
We are currently working with GP Pharma on the commercial launch of Ampligen in Argentina. Commercialization in Argentina will
require, among other things, an appropriate reimbursement level, appropriate marketing strategies, completion of manufacturing
preparations for launch and ANMAT conducting a final inspection of the product and release tests before granting final approval
to begin commercial sales. This testing and approval process is currently delayed due to the COVID-19 pandemic and ANMAT’s
internal processes. Approval of rintatolimod for severe CFS in the Argentine Republic does not in any way suggest that the Ampligen
NDA in the United States or any comparable application filed in the European Union or elsewhere will obtain commercial approval.
26
In
May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for the commencement and management
of an EAP in Europe and Turkey related to CFS. Pursuant to the agreement, myTomorrows, as our exclusive service provider and distributor
in this territory, is performing EAP activities. In January 2017, the EAP was extended to pancreatic cancer patients beginning
in the Netherlands. In February 2018, we signed an amendment to extend the territory to cover Canada to treat pancreatic cancer
patients, pending government approval. In March 2018, we signed an amendment to which myTomorrows will be our exclusive service
provider for special access activities in Canada for the supply of Ampligen for the treatment of CFS. No assurance can be given
that we can sufficiently supply product should we experience an unexpected demand for Ampligen in our clinical studies, the commercial
launch in Argentina or pursuant to the EAPs. No assurance can be given that Ampligen will prove effective in the treatment of
pancreatic cancer.
Currently,
six Ampligen clinical trials are underway, in various phases of development and activity, with a number of subjects enrolled
at university cancer centers testing whether tumor microenvironments can be reprogrammed to increase the effectiveness of
cancer immunotherapy, including checkpoint blockade. One is at Roswell Park and the other is at the University of Pittsburgh
Medical Center. Two additional studies have been approved for enrollment and subjects are being screened for enrollment
recruited at Roswell Park and the University of Pittsburgh Medical Center using Ampligen in conjunction with pembrolizumab.
No assurance can be given as to the results of these underway trials. Four additional cancer trials in collaboration with
University Medical/Cancer Research Centers using Ampligen plus checkpoint blockade are in various pre-enrollment stages. No
assurance can be given as to whether some or all of the planned additional oncology clinical trials will occur and they are
subject to many factors including lack of regulatory approval(s), lack of study drug, or a change in priorities at the
sponsoring universities or cancer centers. Even if these additional clinical trials are initiated, as we are not the sponsor,
we cannot assure that these clinical studies or the two studies underway will be successful or yield any useful data. In
addition, initiation of planned clinical trials may not occur secondary to many factors including lack of regulatory
approval(s) or lack of study drug. Even if these clinical trials are initiated, we cannot assure that the clinical studies
will be successful or yield any useful data or require additional funding.
Our
overall objectives include plans to continue seeking approval for commercialization of Ampligen in the United States and abroad
as well as seeking to broaden commercial therapeutic indications for Alferon N Injection presently approved in the United States
and Argentina. We continue to pursue senior co-development partners with the capital and expertise needed to commercialize our
products and to enter into arrangements with them on commercially reasonable terms. Our ability to commercialize our products,
widen commercial therapeutic indications of Alferon N Injection and/or capitalize on our collaborations with research laboratories
to examine our products are subject to a number of significant risks and uncertainties including, but not limited to our ability
to enter into more definitive agreements with some of the research laboratories and others that we are collaborating with, to
fund and conduct additional testing and studies, whether or not such testing is successful or requires additional testing and
meets the requirements of the FDA and comparable foreign regulatory agencies. We do not know when, if ever, our products will
be generally available for commercial sale for any indication.
We
strived to maximize the outsourcing of certain components of our manufacturing, quality control, marketing and distribution while
maintaining control over the entire process through our quality assurance and regulatory groups. We cannot provide any guarantee
that the facility or our contract manufacturers will pass an FDA pre-approval inspection for Alferon manufacturing.
The
production of new Alferon Active Pharmaceutical Ingredient, or API, inventory will begin at our New Brunswick facility once the
validation phase is complete. While the facility has already been approved by the FDA under the Biological License Application,
or BLA, for Alferon, this status will need to be reaffirmed by a successful Pre-Approval Inspection by the FDA prior to commercial
sale of newly produced inventory product. If and when we obtain a reaffirmation of FDA BLA status and has begun production of
new Alferon API, it will need FDA approval as to the quality and stability of the final product before commercial sales can resume.
We will need additional funds to finance the revalidation process in our facility to initiate commercial manufacturing, thereby
readying ourselves for an FDA Pre-Approval Inspection. If we are unable to gain the necessary FDA approvals related to the manufacturing
process and/or final product of new Alferon inventory, our operations most likely will be materially and/or adversely affected.
In light of these contingencies, there can be no assurances that the approved Alferon N Injection product will be returned to
production on a timely basis, if at all, or that if and when it is again made commercially available, it will return to prior
sales levels.
There
have been delays related to importing Ampligen to China. We are working with Smoore to alleviate these issues and to identify
a mutually beneficial course of action that would allow us to move forward with the proposed testing of Ampligen. We will announce
when the shipment for testing purposes has been completed. If we are unable to resolve these issues, we will explore inhalation
therapy elsewhere. The MTA with Smoore expires on April 1, 2021, with the possibility of continued cooperation between us and
Smoore under ongoing consideration.
We
believe, and are investigating, Ampligen’s potential role in enhancing the activity of influenza vaccines. While certain
studies involving rodents, non-human primates (monkeys) and healthy human subjects indicate that Ampligen may enhance the activity
of influenza vaccines by conferring increased cross-reactivity or cross-protection, further studies will be required and no assurance
can be given that Ampligen will assist in the development of a universal vaccine for influenza or other viruses.
27
Because
forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified
and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events.
The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could
differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New
risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors
and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements
contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
This
Report also refers to estimates and other statistical data made by independent parties and by us relating to market size and growth
and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give
undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance
of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
ITEM
1B.
Unresolved
Staff Comments.
None.
ITEM
2.
Properties.
Our
principal executive office is located at 2117 SW Highway 484, Ocala FL 34473 and our finance and human resource office is located
at 604 Main Street, Suite 2, Riverton, NJ 08077. We currently lease our principal executive office for $2,100 per month and our
accounting and human resource office for about $1,500 per month.
On
March 16, 2018, we sold our property located at 783 Jersey Ave., New Brunswick, NJ. This property houses our development and production
facilities. The purchase price was $4,080,000 and purchaser received 3,225,806 warrants to purchase common stock. We believe that
the sale and lease-back of this building will not have a material impact on our business operations. Simultaneously with the closing
of the sale, the purchaser leased the facility back to us. The lease runs for 10 years, with two five-year extensions. The initial
annual base rent is $408,000 and will continue for the first and second year. In the third and fourth it will escalate at the
rate of 2.5% per year. For all subsequent years it will escalate at the rate of 3% per year. We also will be responsible for additional
rent consisting of taxes and certain insurance expenses of the purchaser. The lease contains a repurchase option pursuant to which
we can repurchase the facility within the initial 10 year lease period. The purchase price would be based on a multiple of the
sale price of $4,080,000. The multiple would be 1.05 plus .0025N where N represents the number of months between lease commencement
and closing of repurchase.
ITEM
3.
Legal
Proceedings.
We
commenced an action against BioLife in December of 2017 for Breach of Contract. The amount of damages we are seeking
in this matter have yet to be determined. Damages are not covered by insurance. BioLife, the defendant, has filed its Answer,
Affirmative Defenses and a Counterclaim in the amount of $96,676 representing the invoices withheld after BioLife indicated that
they were not intending to fulfill the balance of the contract. We have denied the allegations of the counterclaim. We conducted
one mediation session to date but have been unable to resolve the matter. The parties are currently waiting to start discovery,
which we believe will lead to an anticipated trial date. The scheduled dates for these events to transpire have yet to be determined,
as they are dependent on the reopening of the Courts, which have been temporarily closed in connection with the declared state
of emergency caused by the COVID-19 pandemic. Although it cannot be determined, we believe there is little chance for an unfavorable
outcome in this matter.
In
2019, we resolved the claim with our insurance carrier for Business Interruption losses and Extended Business Interruption losses
arising from flood damage which occurred at our New Brunswick facility on January 5, 2016. The outstanding matters under the insurance
policies were compromised and settled on terms agreeable to the parties.
On
October 20, 2020, the Company received correspondence from counsel in Scotland U.K. advising of their representation of Symbiosis
Pharmaceutical Services Limited in connection with Symbiosis’ claim that it is owed £110,250.00 (US $152,145.00).
The Company denies that any monies are due and owing and the Company has engaged counsel in Scotland to further represent its
interests. No judgment can be made as to the likelihood of an unfavorable outcome should a claim be asserted however the Company
believes and has been advised that it has meritorious defenses and positions which the Company intends to vigorously assert in
the event of the formal assertion of a claim.
ITEM
4.
Mine
Safety Disclosures.
Not
Applicable.
28
PART
II
ITEM
5.
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information
Our
common stock is listed and traded on the NYSE American under the symbol AIM.
Holders
of Common Stock
As
of March 26, 2021, there were approximately 148 holders of record of our Common Stock. This number was determined from
records maintained by our transfer agent and does not include beneficial owners of our securities whose securities are held in
the names of various dealers and/or clearing agencies.
Securities
Authorized for Issuance Under Equity Compensation Plans
Information
about securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12 of
Part III of this Annual Report.
Dividends
We
have not paid any cash dividends on our Common Stock in recent years. It is management’s intention not to declare or pay
dividends on our Common Stock, but to retain earnings, if any, for the operation and expansion of our business.
Recent
Sales of Unregistered Securities
During
the year ended December 31, 2020, we issued and sold the following unregistered securities:
All
share and per share numbers in this have been adjusted to reflect the one-for-44 reverse stock split of our issued and outstanding
shares of common stock effected on June 10, 2019.
On
July 7, 2020, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares from
us at the market price. As of August 31, 2020, we had issued 10,730 shares of our common stock at a price of $2.33 for a total
of $25,000. This plan expired September 10, 2020.
On
September 4, 2020, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares
from us at the market price. As of October 31, 2020, we have issued 12,316 shares of our common stock at a price of $2.03 for
a total of $25,000. This plan expired November 1 ,2020.
On
November 5, 2020, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares
from the Company at the market price. As of December 31, 2020, the Company has issued 14,435 shares of its common stock at a price
of $1.72 for a total of $25,000. This plan expired January 2, 2021.
On
June 11, 2019, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares
from the Company at the market price. As of June 28, 2019, the Company has issued 67,767 shares of its common stock at prices
between $4.03 and $4.37 for a total of $274,000. This plan expired August 19, 2019.
The
2009 Equity Incentive Plan, effective June 24, 2009, as amended, authorizes the grant of non-qualified and incentive stock options,
stock appreciation rights, restricted stock and other stock awards. A maximum of 500,000 shares of common stock is reserved for
potential issuance pursuant to awards under the 2009 Equity Incentive Plan. Unless sooner terminated, the 2009 Equity Incentive
Plan will continue in effect for a period of 10 years from its effective date. During 2018, there were 106,255 options granted
by the Company under this Plan.
The
2018 Equity Incentive Plan, effective September 12, 2018, authorizes the grant of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance
Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards. Initially, a maximum of 159,091 shares of common stock
is reserved for potential issuance pursuant to awards under the 2018 Equity Incentive Plan. Unless sooner terminated, the 2018
Equity Incentive Plan will continue in effect for a period of 10 years from its effective date. On October 17, 2018, the board
of directors issued 26,234 options to the officers and directors at the exercise price of $9.68 expiring in 10 years, and on November
14, 2018, the board of directors issued 23 options to each employee, officer and director at the exercise price of $9.68 expiring
in ten years. On January 28, 2019, 39,268 options were issued to the officers and directors with an exercise price of $9.68 for
a period of ten years with a vesting period of one year.
29
The
offers, sales and issuances of securities described above was deemed to be exempt from registration under the Securities Act in
reliance on either Section 4(a)(2) in that the issuance of securities to the accredited investors did not involve a public offering,
or Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided
under Rule 701.
ITEM
6.
Selected
Financial Data.
Not
Applicable.
ITEM
7.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis is related to our financial condition and results of operations for the two years ended December
31, 2020 This information should be read in conjunction with our consolidated financial statements and related notes thereto beginning
on F-1 of this Form 10-K. Please also see “Special Note Regarding Forward Looking Statements” in ITEM 1A. Risk Factors.
Fair
Value
We
have issued warrants (the “Warrants”) in August 2016, February 2017, June 2017, August 2017, April 2018, and March
2019 that are single compound derivatives containing both an embedded right to obtain stock upon exercise (a “Call”)
and a series of embedded rights to settle the Warrants for cash upon the occurrence of certain events (each, a “Put”).
Generally, the Put provisions allow the Warrant Holders liquidity protection; the right to receive cash in certain situations
where the Holders would not have a means of readily selling the shares issuable upon exercise of the Warrants (e.g., where there
would no longer be a significant public market for our common stock). However, because the contractual formula used to determine
the cash settlement value of the embedded Put requires use of certain assumptions, the cash settlement value of the embedded Put
can differ from the fair value of the unexercised embedded Call option at the time the embedded Put option is exercised.
We
recompute the fair value of the Warrants at the end of each quarterly reporting period. Such value computation includes subjective
input assumptions that are consistently applied each period. If we were to alter our assumptions or the numbers input based on
such assumptions, the resulting fair value could be materially different.
On
September 28, 2018, we entered into a $3,170,000 10% Secured Convertible Promissory Note (the “IR Note”) with Iliad
Research and Trading, L.P. (the “Holder”), which was issued to the Holder in conjunction with 500,000 shares of common
stock (the “Origination Shares”). We collected $3,000,000 in cash from the Holder during September 2018 and the remainder
$170,000 was retained by the Holder for the Holder’s legal fees of $20,000 for the issuance of the IR Note and the Original
Issue Discount of $150,000. We incurred $210,000 in third-party fees directly attributed to the issuance of the IR Note. We promised
to pay the principal amount, together with guaranteed interest at the annual rate of 10%, with principal and accrued interest
on the IR Note due and payable on September 28, 2019, unless converted under terms and provisions as set forth within the IR Note.
The IR Note provided the Holder with the right to convert, at any time, all or any part of the outstanding principal and accrued
but unpaid interest into shares of our common stock at a conversion price of $0.30 per share. In addition, beginning on March
28, 2019, the IR Note also provided the Holder with the right to redeem all or any portion of the IR Note (“Redemption Amount”).
The payments of each Redemption Amount may be made, at our option, in cash, by converting such Redemption Amount into shares of
common stock (“Redemption Conversion Shares”), or a combination thereof. The number of Redemption Conversion Shares
equals the portion of the applicable Redemption Amount being converted divided by the lesser of $0.30 or 80% of the lowest Volume
Weighted Average Price (“VWAP”) during the ten (10) trading days immediately preceding the applicable measurement
date (the “Market Price”). The Purchase Agreement required us to reserve at least 8,900,000 shares of common stock
from our authorized and unissued common stock to provide for all issuances of common stock under the IR Note. However, the IR
Note provided that the aggregate number shares of common stock issued to the Holder under the IR Note and Purchase Agreement shall
not exceed 19.99% of the total number of shares of common stock outstanding as of the closing date unless we have obtained stockholder
approval of the issuance. The Origination Shares were to be returned to us in the event that we could provide within 30 days of
the closing of the transaction certain requested assets as security for repayment of the IR Note. The security was not provided
so the Origination Shares remained with the Holder.
We
determined the IR Note should be recorded at fair value with subsequent changes in fair value recorded in earnings. This conclusion
is based on the redemption conversion feature, which allows the Holder to trigger the redemption of the IR Note for cash or conversion
of the IR Note for common shares prior to its maturity date at a price of the lesser of $0.30 per share or the Market Price as
defined within the IR Note. The choice of cash redemption or conversion of the IR Note for common shares was at our option. This
feature may require us to issue a variable number of common shares to settle the IR Note which was determined to have a predominantly
fixed monetary value at inception. On March 13, 2019, we amended the Purchase Agreement pursuant to which we issued the Convertible
IR Note (the “Amendment”). The Amendment extended the maturity of the IR Note to September 28, 2020. In addition,
the redemption conversion rates were revised to a price to be determined by mutual agreement between us and the Holder. In the
event that we and the Holder were unable to reach a mutually agreeable price, we would be required to pay the applicable redemption
amount in cash. The maximum amount of the IR Note the Holder will be able to redeem in any given calendar month was $300,000.
30
We
evaluated the Amendment in accordance with ASC 470, Debt (“ASC 470”) and determined the Amendment was considered
an extinguishment of the existing debt and issuance of net debt. As a result, we derecognized the liability and recorded a loss
on the extinguishment of debt of $345,000 in 2019 which was equal to the difference between the reacquisition price of the debt
and the net carrying amount (amount due at maturity, adjusted for unamortized discounts) of the extinguished debt. Subsequently,
the amended note was recorded in accordance with ASC 480 at the fair value that the note was issued with changes in fair value
recorded through earnings at each reporting period.
There
were a series of debt conversions during 2019 which partially converted $1,400,000 of the $3,408,000 convertible debt, as amended,
into stockholders’ equity, adding approximately $1,400,000 to stockholders’ equity. The number of shares issued in
these conversions were 204,246 shares. In October 2019 and November 2019 respectively, the Holder redeemed $300,000 pursuant to
the terms of the modification. In connection with the IR Note, we recorded a gain equal to $127,000 for the year-end December
31, 2019. See Note 14 Convertible Note Payable.
On
August 5, 2019, we issued a Secured Promissory Note (the “CV Note”) with Chicago Venture Partners, L.P. (“CV”).
The Note had an original principal amount of $2,635,000, bore interest at a rate of 10% per annum and was to mature in 24 months,
unless earlier paid in accordance with its terms. We received proceeds of $1,900,000 after an original issue discount and payment
of CV’s legal fees. Pursuant to a Security Agreement between us and CV, repayment of the Convertible Note is secured by
substantially all of our assets other than our intellectual property.
During
the quarter ending June 30, 2020, CV made redemptions of $650,000 reducing the principal to $1,985,000. On May 29, 2020, we paid
off the outstanding CV Note which consisted of principal of $1,985,000, and accrued interest payable of $220,000. The net payment
of $1,795,000, less the write off of the origination discount of $369,000 and issuance costs of $6,000, resulted in a gain on
extinguishment of $66,000.
On
December 5, 2019, we issued a secured Promissory Note (the “AS Note”) to Atlas Sciences L.P. (“AS”). The
AS Note has an original principal amount of $2,175,000, bears interest at a rate of 10% per annum and will mature in 24 months,
unless earlier paid in accordance with its term. In conjunction with the AS Note, we utilized $1,650,000 of the net proceeds from
the AS Note to pay off in full our obligation to Iliad, an entity with affiliations to AS, pursuant to the IR Note We evaluated
the IR Note in accordance with ASC 470, Debt (“ASC 470”) and determined the exchange is considered an extinguishment
of the existing debt and issuance of new debt. As a result, we derecognized the liability and recorded a loss on the extinguishment
of debt of $250,000 which was equal to the difference between the reacquisition price of the debt and the net carrying amount
(amount due at maturity, adjusted for unamortized discounts) of the extinguished debt. Subsequently, the AS Note will be recorded
in accordance with ASC 470 whereby we will record a liability equal to the proceeds received on December 5, 2019.
On
June 19, 2020, we paid off the outstanding AS note consisting of the original principal of $2,175,000 and accrued interest payable
of $122,000 less origination discount of $376,000 and issuance costs of $7,000, with a net note payable of $1,838,000, including
a gain on extinguishment of $76,000.
RESULTS
OF OPERATIONS
Year
ended December 31, 2020 versus year ended December 31, 2019
Our
net loss was approximately $14,400,000 and $9,404,000 for the years ended December 31, 2020 and 2019, respectively, representing
an increase in loss of approximately $4,996,000 or 53% when compared to the same period in 2019. This increase in loss
for the year ended December 31, 2020 was primarily due to the following:
●
an
increase in the loss of the quarterly revaluation of certain redeemable warrants of $1,633,000 which resulted in a non cash
loss of $123,000 in the year-ended December 31, 2020 compared to a non-cash gain of $1,510,000 in the year ended December
31, 2019;
●
an
increase in research and development expenses of $1,069,000 or 23%;
●
an
increase in general and administrative expenses of $1,615,000 or 23%;
●
an
increase in other assets impairment losses of $135,000;
●
an
increase in interest expense and finance costs of $245,000;
●
a
decrease in the gain resulting from a settlement with as insurance claim of $1,217,000 in 2019 which did not occur in 2020;
and
31
●
a
decrease of $90,000 in the gain for the fair value adjustment for the convertible note which was paid in full in 2019; offset
by:
●
a
decrease in the extinguishment of debt of $487,000 which resulted in a gain of $142,000 for the year ended December 31, 2020
compared to a loss of $345,000 in the year-ended December 31, 2019:
●
a
decrease in production costs of $87,000 or 10%;
●
an
increase in interest/other income of $130,000; and
●
an
increase in revenue from cost recovery of $23,000.
Net
loss per share was $ (0.45) and $(2.58) for the years ended December 31, 2020 and 2019, respectively. The weighted average
number of shares of our common stock outstanding as of December 31, 2020 was 31,842,799 as compared to 3,642,717 as of December
31, 2019.
Revenues
Revenues
from our Ampligen® Cost Recovery Program were $163,000 and $140,000 for the years ended December 31, 2020 and 2019, respectively.
The increase in revenues of $23,000, or 16%, between periods was primarily due to the clinical sites usage.
For
the years ended December 31, 2020 and 2019, we had no Alferon N Injection® Finished Good product to commercially sell and
all revenue was generated from the EAP and our FDA approved open-label treatment protocol, (“AMP 511”), that allows
patient access to Ampligen® for treatment in an open-label safety study.
Production
Costs
Production
costs were approximately $806,000 and $893,000, respectively, for the years ended December 31, 2020 and 2019, representing a decrease
of $87,000 related to repairs and maintenance in the current period.
Research
and Development Costs
Overall
Research and Development (“R&D”) costs for the year ended December 31, 2020 were approximately $5,720,000 as compared
to $4,651,000 for the same period a year ago, reflecting an increase of approximately $1,069,000. The primary reason for the increase
in research and development costs was due to increases in Scrap from expired material of $1,095,000, clinical trials of $197,000,
outside labs $194,000, patent and trademark abandonments of $113,000 offset by decreases in wages and benefits of $401,000 and
outside contractors $123,000.
General
and Administrative Expenses
General
and Administrative (“G&A”) expenses for the years ended December 31, 2020 and 2019, were approximately $8,654,000
and $7,039,000, respectively, reflecting an increase of approximately $1,615,000 or 23%. The increase in G&A expenses during
the current period was mainly due to increases in salaries and benefits of $973,000, accounting, professional and legal fees of
$349,000, stock compensation of $184,000, taxes and licenses of $163,000, scientific advisory board of $159,000, offset
by decreases in public relations of $90,000 and investment bank fees of $135,000, and travel of $31,000.
Interest
and Other Income
Interest
and other income for the years ended December 31, 2020 and 2019 was approximately $219,000 and $89,000, respectively, representing
an increase of approximately $130,000 or 146%. The primary cause for the increase in investment income during the current
period was primarily due to higher balances available to invest in the current period as compared to the prior period.
Impairment
of other assets
During
the year ended December 31, 2020 there was a loss of $135,000 related to the impairment of other assets consisting of the loss
of a deposit to a supplier for use of technology which we are no longer utilizing and was written off.
Interest
Expense and Finance Costs
Interest
and finance costs for the year ended December 31, 2020 was $672,000 compared to $427,000 in the prior year, an increase
of $245,000 or 57%. The increase is mainly attributed to the interest and amortization of costs of the Chicago Ventures and Atlas
notes which were extinguished in the second quarter of 2020.
32
Extinguishment
of debt
Debt
extinguishment costs decreased $487,000. There was a gain of $142,000 for the year ended December 31, 2020 compared to a loss
of $345,000 in the year-ended December 31, 2019.
Redeemable
Warrants
The
quarterly revaluation of certain redeemable warrants resulted in a non-cash adjustment to the redeemable warrants liability amounted
to a loss of $123,000 for the year ended December 31, 2020 compared to a gain of approximately $1,510,000 in December 31, 2019
which represents a decrease of $1,633,000 or 108% (see “Financial Statements: Note 18: Fair Value” for the various
factors considered in the valuation of redeemable warrants).
Gain
from sale of income tax operating losses
In
December 2020, we effectively sold $11,000,000 New Jersey state net operating loss for approximately $1,090,000 and recorded a
deferred tax asset of 96,000. In December 2019, we effectively sold $10,000,000 New Jersey state net operating loss for approximately
$776,000 and recorded a deferred tax asset of $129,000.
Convertible
Note Payable
The
quarterly revaluation of the convertible note resulted in a non-cash adjustment in 2020 of zero and in 2019 amounted to a gain
of $90,000.
Other
Transactions
During
the year ended December 31, 2020 there were no gains or losses from insurance claims, however, in 2019 there was a gain from the
insurance loss claim of $1,217,000.
Liquidity
and Capital Resources
In
September 2019, we raised approximately $8,000,000 in a public offering underwritten by A.G.P./Alliance Global Partners, LLC (“AGP”)
pursuant to which we issued (i) 1,740,550 shares of our common stock; (ii) pre-funded warrants exercisable for 7,148,310 shares
of common stock (the “Prefunded Warrants”), (iii) warrants to purchase up to an aggregate of 8,887,860 shares of common
stock (the “Warrants”); and (iv) a Representative’s Warrant to purchase up to an aggregate of 266,665 shares
of common stock (the “Representative’s Warrant”). During 2020, an aggregate of 8,874,000 shares of common stock
were issued upon exercise of the Prefunded Warrants.
During
the first quarter of 2020 an aggregate of 8,746,990 shares were issued upon exercise of the Warrants for gross proceeds of approximately
$8,658,000 and an aggregate of 1,870,000 shares were issued upon exercise of the Prefunded Warrants. In addition, on March 25,
2020, the Representative’s Warrant was amended to permit exercise of such warrant to commence on March 30, 2020. During
the first quarter of 2020, the amended warrants were exercised and an aggregate of 266,665 shares are being issued
upon exercise of the warrant for gross proceeds of approximately of $264,000.
We
entered into an Equity Distribution Agreement (the “2019 EDA”) with Maxim Group LLC (“Maxim”), pursuant
to which we could sell from time to time, shares of our Common Stock through Maxim, as agent (the “Offering”). During
the year ended December 31, 2020, we sold 20,444,807 shares under the 2019 EDA for total gross proceeds of $53,936,615, which
included a 3.5% fee to Maxim of $1,888,727. During 2021, we sold 5,655,731 shares under the 2019 EDA for total gross proceeds
of $13,301,526, which includes a 3.5% fee to Maxim of $465,553. The 2019 EDA was terminated in early February 2021.
Cash
used in operating activities for the year ended December 31, 2020 was approximately $10,368,000 compared to approximately
$9,067,000 for the same period in 2019, an increase of $1,301,000. The primary reasons for this increase in cash used in
operations in 2020 was related production cost of 2 Ampligen batches in the amount of $664,000, increase in New
Jersey NOL of $314,000, and decrease in accounts payable of $89,000.
Cash
used in investing activities for the year ended December 31, 2020 was approximately $9,164,000 compared to $6,147,000 for
the same period in 2019, representing a change of $3,017,000. The primary reason for the increase in cash used in investing
activities resulted from the purchase of marketable securities of approximately $12,831,000 offset by the sale of marketable securities
$10,044,000.
Cash
provided by financing activities for the year ended December 31, 2020 was approximately $56,563,000 compared to approximately
$16,385,000 for the same period in 2019, an increase of $40,178,000. The primary reasons for this increase was our receipt
of $61,216,000 in net proceeds from the sale of shares compared to $15,303,000 from the sale of shares in 2019.
33
As
of December 31, 2020, we had approximately $54,378,000 in cash, cash equivalents and marketable securities, inclusive of approximately
$15,877,000 in Marketable Securities, representing an increase of approximately $45,600,000 from December 31, 2019.
We
are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise
needed to commercialize the many potential therapeutic aspects of our experimental drugs and our FDA approved drug Alferon.
The
development of our products requires the commitment of substantial resources to conduct the time-consuming research, preclinical
development, and clinical trials that are necessary to bring pharmaceutical products to market. We believe, based on our current
financial condition, that we have adequate funds to meet our anticipated operational cash needs and fund current clinical trials
over approximately the next twenty-four months. At present we do not generate any material revenues from operations and
we do not anticipate doing so in the near future. We may need to obtain additional funding in the future for new studies and/or
if current studies do not yield positive results, require unanticipated changes and/or additional studies. If we are unable to
commercialize and sell Ampligen and/or recommence material sales of Alferon N Injection, our operations, financial position and
liquidity may be adversely impacted, and additional financing may be required. There can be no assurances that, if needed, we
will be able to raise adequate funds or enter into licensing, partnering or other arrangements to advance our business goals.
We may seek to access the public equity market whenever conditions are favorable, even if we do not have an immediate need for
additional capital at that time. We are unable to estimate the amount, timing or nature of future sales of outstanding common
stock or instruments convertible into or exercisable for our common stock. Any additional funding may result in significant dilution
and could involve the issuance of securities with rights, which are senior to those of existing stockholders. See Part I, Item
1A - “Risk Factors; We may require additional financing which may not be available ”.
Certain
Relationships and Related Transactions
Refer
to PART III, ITEM 13 - “Certain Relationships and Related Transactions, and Director Independence.”
New
Accounting Pronouncements
Refer
to “Note 2(h) – Recent Accounting Standards and Pronouncements” under Notes to Consolidated Financial Statements.
Disclosure
about Off-Balance Sheet Arrangements
None.
Critical
Accounting Policies
Financial
Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the
preparation of financial statements. Our significant accounting policies are described in the Notes to Consolidated Financial
Statements. The significant accounting policies that we believe are most critical to aid in fully understanding our reported financial
results are the following:
Long-Lived
Assets
We
assess long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of the assets
or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment review include
significant under-performance of a business or product line in relation to expectations, significant negative industry or economic
trends, and significant changes or planned changes in its use of the assets. We measure the recoverability of assets that it will
continue to use in its operations by comparing the carrying value of the asset grouping to our estimate of the related total future
undiscounted net cash flows. If an asset grouping’s carrying value is not recoverable through the related undiscounted cash
flows, the asset grouping is considered to be impaired.
We
measure the impairment by comparing the difference between the asset grouping’s carrying value and its fair value. Long-lived
assets are considered a non-financial asset and are recorded at fair value only if an impairment charge is recognized. Impairments
are determined for groups of assets related to the lowest level of identifiable independent cash flows. We make subjective judgments
in determining the independent cash flows that can be related to specific asset groupings. In addition, as we review our manufacturing
process and other manufacturing planning decisions, we must make subjective judgments regarding the remaining useful lives of
assets. When we determine that the useful lives of assets are shorter than originally estimated, we accelerate the rate of depreciation
over the assets’ new, shorter useful lives.
34
Redeemable
Warrants
We
utilize the guidance contained in ASC 480 in the determination of whether to record warrants and options as Equity and/or Liability.
If the guidance of ASC 480 is deemed inconclusive, we continue our analysis utilizing ASC 815.
Our
method of recording the related value is consistent with the standards as defined by the Financial Accounting Standards
Board utilizing the concept of “Fair Value” from ASC 820-10-55-1 that states that any fair value measurement requires
that the reporting entity, to determine the valuation technique(s) appropriate for the measurement, consider the availability
of data with which to develop inputs that represent the assumptions that market participants would use in pricing the asset or
liability and the level in the fair value hierarchy within which the inputs fall.
We
recomputed the value of the redeemable warrants at the end of each quarterly period. We use the Monte Carlo Simulation approach
which includes subjective input assumptions that are consistently applied each quarter. If we were to alter our assumptions or
the numbers input based on such assumptions, the resulting fair value could be materially different. As discussed in greater detail
in “Fair Value” at the beginning of this ITEM 7, the significant assumptions using this model are: (i) Risk-Free Interest
Rate; (ii) Expected Holding Period; (iii) Expected Volatility; (iv) Expected Dividend Yield; (v) Expected Probability of a Fundamental
Transaction; (vi) Expected Timing of Announcement of a Fundamental Transaction; (vii) Expected 100 Day Volatility at Announcement
of a Fundamental Transaction; (viii) Expected Risk-Free Interest Rate at Announcement of a Fundamental Transaction; and (ix) Expected
Time Between Announcement and Consummation of a Fundamental Transaction.
Concentration
of Credit Risk
Our
policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions
evaluated as being credit worthy, or in short-term money markets, which are exposed to minimal interest rate and credit risks.
We have had bank deposits and overnight repurchase agreements that exceed federally insured limits.
Concentration
of credit risk, with respect to receivables, is limited through our credit evaluation process. We do not require collateral on
our receivables. Our receivables historically consisted principally of amounts due from wholesale drug companies.
ITEM
7A.
Quantitative
and Qualitative Disclosures About Market Risk.
Not
Applicable.
ITEM
8.
Financial
Statements and Supplementary Data.
Please
see the “Index to Financial Statements and Financial Statement Schedule” on page F-1.
ITEM
9.
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosures.
Not
Applicable.
ITEM
9A.
Controls
and Procedures.
Effectiveness
of Control Procedures
As
of December 31, 2020, the end of the period covered by this report, we carried out an evaluation under the supervision and with
the participation of our Management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the Exchange Act. Our disclosure controls and procedures are intended to ensure that the information we are required to
disclose in the reports that we file or submit under the Securities Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities Exchange Commission’s rules and forms and (ii) accumulated and communicated
to our management, including the Chief Executive Officer and Chief Financial Officer, as the principal executive and financial
officers, respectively, to allow final decisions regarding required disclosures. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that the controls and procedures were effective as of December 31, 2020 to ensure
that material information was accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management has concluded that the
financial statements included in this Form 10-K present fairly, in all material respects our financial position, results of operations
and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
35
Changes
in Internal Control over Financial Reporting
We
made no changes in our internal control over financial reporting during the last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act).
Management’s
Report on Internal Control over Financial Reporting
Our
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is
defined in Rules 13a-15(f) or 15d-15(f), under the Exchange Act. Internal control over financial reporting is a process designed
by, or under the supervision of, our principal executive and principal financial officers and affected by our Board of Directors,
Management and other personnel, and to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on its financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management
has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment,
Management used the criteria set forth in the framework in 2013 established by the Committee of Sponsoring Organizations of the
Treadway Commission Internal Control—Integrated Framework, (COSO). Based on this assessment, Management has not identified
any material weaknesses as of December 31, 2020. A material weakness is a control deficiency, or combination of control deficiencies,
that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will
not be prevented or detected.
Management
has concluded that we did maintain effective internal control over financial reporting as of December 31, 2020, based on the criteria
set forth in “Internal Control—Integrated Framework” issued by the COSO.
ITEM
9B.
Other
Information.
None.
36
PART
III
ITEM 10.
Directors and Executive Officers and Corporate
Governance.
The
following sets forth biographical information about each of our Directors and Executive Officers as of the date of this report:
Name
Age
Position
Thomas
K. Equels, Esq
68
Chief
Executive Officer, President, and Director
Peter
W. Rodino III
69
Chief
Operating Officer, General Counsel & Secretary
William
M. Mitchell, M.D., Ph.D.
85
Chairman
of the Board and Director
Stewart
L. Appelrouth
67
Director
Ellen
M. Lintal
61
Chief
Financial Officer
Each
Director has been elected to serve until the next annual meeting of stockholders, or until his earlier resignation, removal from
office, death or incapacity. Each Executive Officer serves at the discretion of the Board of Directors, subject to rights, if
any, under contracts of employment.
We
believe our Board Members represent a desirable diversity of backgrounds, skills, education and experiences, and they all share
the personal attributes of dedication to be effective directors. In recommending Board candidates, Corporate Governance and Nomination
Committee considers a candidate’s: (1) general understanding of elements relevant to the success of a publicly traded company
in the current business environment; (2) understanding of our business; and (3) diversity in educational and professional background.
The Committee also gives consideration to a candidate’s judgment, competence, dedication and anticipated participation in
Board activities along with experience, geographic location and special talents or personal attributes. The following are qualifications,
experience and skills for Board members which are important to our business and its future:
Leadership
Experience : We seek directors who have demonstrated strong leadership qualities. Such leaders bring diverse perspectives and
broad business insight to our Company. The relevant leadership experience that we seek includes a past or current leadership role
in a large or entrepreneurial company, a senior faculty position at a prominent educational institution or a past elected or appointed
senior government position.
Industry
or Academic Experience : We seek directors who have relevant industry experience, both with respect to the disease areas where
we are developing new therapies as well as with the economic and competitive dynamics of pharmaceutical markets, including those
in which our drugs will be prescribed.
Scientific,
Legal or Regulatory Experience : Given the highly technical and specialized nature of biotechnology, we desire that certain
of our directors have advanced degrees, as well as drug development experience. Since we are subject to substantial regulatory
oversight, both here and abroad by the FDA and other agencies, we also desire directors who have legal or regulatory experience.
Finance
Experience : We believe that our directors should possess an understanding of finance and related reporting processes, particularly
given the complex budgets and long timelines associated with drug development programs.
THOMAS
K. EQUELS, has been a Director and serves as our Executive Vice Chairman (since 2008), Chief Executive Officer (since 2016)
and President (since 2015). Mr. Equels was the owner of and former President and Managing Director of the Equels Law Firm headquartered
in Miami, Florida that focused on litigation. For over a quarter century, Mr. Equels represented national and state governments
as well as companies in the banking, insurance, aviation, pharmaceutical and construction industries. Mr. Equels received his
Juris Doctor degree with high honors from Florida State University. He received his Bachelor of Science, summa cum laude, from
Troy University and also obtained his Masters’ of Science Degree from Troy University. Mr. Equels began his professional
career as a military pilot. He served in Vietnam and was awarded two Distinguished Flying Crosses, the Bronze Star, the Purple
Heart, and fifteen Air Medals. In 2012, he was Knighted by Pope Benedict.
THOMAS
K. EQUELS, Esq. - Director Qualifications:
●
Leadership
Experience – Military, Owner and former President, Managing Director of Equels Law Firm, Court appointed receiver in
numerous industries;
37
●
Industry
Experience –legal counsel, General Counsel, CFO and CEO to us; and
●
Scientific,
Legal or Regulatory Experience - Law degree with over 25 years as a practicing attorney specializing in litigation, development
of clinical trials, creating intellectual property concepts, and established plan to finance drug development.
WILLIAM
M. MITCHELL, M.D., Ph.D., has been a Director since July 1998 and Chairman of the Board since February 2016. Dr. Mitchell
is a Professor of Pathology at Vanderbilt University School of Medicine and is a board certified physician. Dr. Mitchell earned
a M.D. from Vanderbilt and a Ph.D. from Johns Hopkins University, where he served as House Officer in Internal Medicine, followed
by a Fellowship at its School of Medicine. Dr. Mitchell has published over 200 papers, reviews and abstracts that relate to viruses,
anti-viral drugs, immune responses to HIV infection, and other biomedical topics. Dr. Mitchell has worked for and with many professional
societies that have included the American Society of Investigative Pathology, the International Society for Antiviral Research,
the American Society of Clinical Oncology, the American Society of Biochemistry and Molecular Biology, the American Chemical Society,
and the American Society of Microbiology. Dr. Mitchell is a member of the American Medical Association. He has served on numerous
government review committees, among them the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health,
including the initial AIDS and Related Research Review Group. Dr. Mitchell previously served as one of our Directors from 1987
to 1989.
WILLIAM
M. MITCHELL, M.D., Ph.D. - Director Qualifications:
●
Leadership
Experience – Professor at Vanderbilt University School of Medicine. He is a member of the Board of Directors for Chronix
Biomedical and is Chairman of its Medical Advisory Board. Additionally, he has served on multiple governmental review committees
of the National Institutes of Health, Centers for Disease Control and Prevention and for the European Union, including key
roles as Chairman;
●
Academic
and Industry Experience – Well published medical researcher with extensive investigative experience on virus and immunology
issues relevant to our scientific business along with being a Director of an entrepreneurial diagnostic company (Chronix Biomedical)
that is involved in next generation DNA sequencing for medical diagnostics; and
●
Scientific,
Legal or Regulatory Experience - M.D., Ph.D. and professor at a top ranked school of medicine, and inventor of record on numerous
U.S. and international patents who is experienced in regulatory affairs through filings with the FDA.
STEWART
L. APPELROUTH, CPA was appointed as a director and head of the Audit Committee in August 2016 and is a certified public accountant
and partner at Appelrouth Farah & Co., P.A., Certified Public Accountants and Advisors. Mr. Appelrouth is also a certified
forensic accountant and possesses 40 years of experience in Accounting and Consulting. He is a member of or has affiliations with
the AICPA, American College of Forensic Examiners, Association of Certified Fraud Examiners, past member of the Florida
Bar Grievance Committee, Florida Institute of Certified Public Accountants and InfraGard Member, a national information sharing
program between the Federal Bureau of Investigation and the private sector.
Mr.
Appelrouth graduated from Florida State University in 1975 and received his Master’s Degree in Finance from Florida International
University in 1980. The Board has determined Mr. Appelrouth to be an Independent Director as required under Section 803(2) of
the NYSE: American Company Guide and Rule 10A-3 under the Exchange Act.
STEWART
L. APPELROUTH - Director Qualifications:
●
Leadership
Experience –has served in leadership positions on numerous Boards and other organizations;
●
Industry
Experience – Partner at certified public accounting and advisory firm; Certified Public Accountant and Certified Fraud
Examiner;
●
Regulatory
Experience – FINRA Arbitrator.
●
Financial
Expert – over 40 years of accounting and audit experience.
Information
about our Executive Officers
In
addition to Mr. Equels (discussed above), the following are (or were) our Executive Officers during fiscal 2020:
PETER
W. RODINO III has been a Director since July 2013. On September 30, 2016, Mr. Rodino resigned as a member of our Board to
permit him to serve us in a new capacity. Effective October 1, 2016, we retained Mr. Rodino as our Executive Director for Governmental
Relations, and as our General Counsel and, as of October 16, 2019, Mr. Rodino assumed the role of Chief Operating Officer. Mr.
Rodino has been our Secretary since November 2016. Mr. Rodino has broad legal, financial, and executive experience. In addition
to being President of Rodino Consulting LLC and managing partner at several law firms during his many years as a practicing attorney,
he served as Chairman and CEO of Crossroads Health Plan, the first major Health Maintenance Organization in New Jersey. He also
has had experience as an investment executive in the securities industry and acted as trustee in numerous Chapter 11 complex corporate
reorganizations. Previously, as founder and president of Rodino Consulting, Mr. Rodino provided business and government relations
consulting services to smaller companies with a focus on helping them develop business plans, implement marketing strategies and
acquire investment capital. Mr. Rodino holds a B.S. in Business Administration from Georgetown University and a J.D. degree from
Seton Hall University.
38
ELLEN
M. LINTAL has been our Chief Financial Officer since September 16, 2019. Ms. Lintal has more than two decades of prior public
company and non-profit experience. She earned a Bachelor of Science degree in Accounting from Elmira College. Mrs. Lintal served
for several years as a Chief Financial Officer and SVP of Finance & Control for an international non-profit Organization and
public accounting experience at Corning Inc, Carlisle Companies and AGY where she led the organizational focus on financial management,
strategic planning and mergers and acquisitions. Prior to joining the Company Mrs. Lintal was the CFO for the National Wild Turkey
Federation, an international non-profit organization.
Key
Employee
DAVID
R. STRAYER, M.D. has acted as our Medical Director and Chief Scientific Officer since 1986. He has served as Professor of
Medicine at the Medical College of Pennsylvania and Hahnemann University. Dr. Strayer is Board Certified in Medical Oncology and
Internal Medicine with research interests in the fields of cancer and immune system disorders. He has served as principal investigator
in studies funded by the Leukemia Society of America, the American Cancer Society, and the National Institutes of Health. Dr.
Strayer attended the School of Medicine at the University of California at Los Angeles where he received his M.D. in 1972.
Audit
Committee and Audit Committee Expert
The
Audit Committee of our Board of Directors consists of William Mitchell, M.D. and Stewart L. Appelrouth. Dr. Mitchell and Mr. Appelrouth
are determined by the Board of Directors to be Independent Directors as required under Section 803(2) of the NYSE: American Company
Guide and Rule 10A-3 under the Exchange Act. The Board has determined that Mr. Appelrouth qualifies as an “audit committee
financial expert” as that term is defined by Section 803B(2) of the NYSE: American Company Guide and the rules and regulations
of the SEC.
We
believe Dr. Mitchell and Mr. Appelrouth to be independent of management and free of any relationship that would interfere with
their exercise of independent judgment as members of this Committee. The principal functions of the Audit Committee are to (i)
assist the Board in fulfilling its oversight responsibility relating to the annual independent audit of our consolidated financial
statements and management’s assessment of internal control over financial reporting, the engagement of the independent registered
public accounting firm and the evaluation of the independent registered public accounting firm’s qualifications, independence
and performance; (ii) prepare the reports or statements as may be required by NYSE American or the securities laws; (iii) assist
the Board in fulfilling its oversight responsibility relating to the integrity of our financial statements and financial reporting
process and our system of internal accounting and financial controls; (iv) discuss the financial statements and reports with management,
including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management;
and (v) review disclosures by our independent registered public accounting firm concerning relationships with us and the performance
of our independent accountants.
This
Audit Committee formally met five times in 2020 with all committee members in attendance. Our General Counsel and Chief Financial
Officer support the Audit Committee in its work. The full text of the Audit Committee’s Charter, as approved by the Board,
is available on our website: www.aimimmuno.com in the “Investor Relations” tab under “Corporate Governance”.
Scientific
Advisory Board (“SAB”)
The
SAB was established to leverage its member’s scientific and pharmaceutical expertise and advice to advance our drug development
programs by providing guidance on steering us forward and capitalizing on business opportunities as well as interactions with
the FDA. It is responsible for: (i) reviewing all submissions made by us to the FDA and other regulators to ensure that the submissions
fully, accurately, and timely describe the status of any clinical trials, tests, or other studies or analyses of drug safety and
efficacy undertaken by us, and any agreements, protocols, or guidance provided by relevant regulatory agencies; and (ii) monitoring
and supervising our relationship with the FDA. The SAB shall have free and open access to our scientific and executive personnel,
including the Chief Scientific Officer and the members of our Board of Directors. The SAB is comprised of William Mitchell, M.D.,
Chairman, and Ronald Brus, M.D., W. Neal Burnette, M.D., Christopher Nicodemus, M.D., and Philip Ransom Roane, Ph.D. all of whom
are members. The SAB reports to the independent directors of the Company and closely interacts with the Disclosure Controls Committee.
The SAB met two times in 2020.
39
Disclosure
Controls Committee (“DCC”)
The
DCC reports to the Audit Committee and is responsible for procedures and guidelines on managing disclosure information. The purpose
of the DCC is to make certain that information required to be publicly disclosed is properly accumulated, recorded, summarized
and communicated to the Board and management. This process is intended to allow for timely decisions regarding communications
and disclosures and to help ensure that we comply with related SEC rules and regulations. Ellen M. Lintal is the DCC’s Investor
Relations Coordinator and Chairperson. The other members of the DCC are Peter Rodino, our General Counsel, William Mitchell, one
of our Independent Directors, Dr. David Strayer, Medical Director and Chief Scientific Officer, Julie Mierau, our Controller,
and Ann Marie Coverly, Director of HR and Administration serving as the Deputy Investor Relations Coordinator. The full text of
the DCC’s Charter, as approved by the Board, is available on our website: www.aimimmuno.com in the “Investor Relations”
tab under “Corporate Governance”. The DCC actively met on numerous occasions in 2020.
Executive
Committee
In
February 2016, our Board formed the Executive Committee. The Executive Committee reports to the Board and its purpose is to aid
the Board in handling matters which, in the opinion of the Chairman of the Board, should not be postponed until the next scheduled
meeting of the Board. Mr. Equels, our Chief Executive Officer is the chairman of the Committee, along with two of our independent
directors, Mr. Appelrouth and Dr. Mitchell. The full text of the Executive Committee Charter, as approved by the Board, is available
on our website: www.aimimmuno.com in the “Investor Relations” tab under “Corporate Governance”. The Committee
did not meet in 2020.
Code
of Ethics
Our
Board of Directors adopted a revision to the 2003 Code of Ethics and business conduct for officers, directors, employees, agents
and consultants. The principal amendments included broadening the Code’s application to our agents and consultants, adoption
of a regulatory compliance policy and adoption of a policy for protection and use of Company computer technology for business
purposes only. On an annual basis, this Code is reviewed and signed by each Officer, Director, employee and strategic consultant
with none of the amendments constituting a waiver of provision of the Code of Ethics on behalf of our Chief Executive Officer,
Chief Financial Officer, or persons performing similar functions.
You
may obtain a copy of this Code by visiting our web site at www.aimimmuno.com (Investor Relations / Corporate Governance) or by
written request to our office at 2117 SW Highway 484, Ocala, FL 34473.
ITEM 11.
Executive Compensation.
COMPENSATION
DISCUSSION AND ANALYSIS
This
discussion and analysis describes our executive compensation philosophy, process, plans and practices as they relate to our “Named
Executive Officers” (“NEO”) listed below and gives the context for understanding and evaluating the more specific
compensation information contained in the narratives, tables and related disclosures that follow. For the purposes of discussion
and analysis, the following NEOs are included in the narratives, tables and related disclosures that follow:
●
Thomas
K. Equels, Chief Executive Officer (“CEO”) and President.
●
Ellen
M. Lintal, Chief Financial Officer (“CFO”); and
●
Peter
Rodino, Chief Operating Officer (“COO”), General Counsel and Company Secretary (“CS”).
In
March 2021, subsequent to the fiscal year ended December 31, 2020, we entered into employment agreements with Peter Rodino
and Ellen Lintal. The agreements run for three years and one year, respectively. Compensation is divided into both short- and
long-term compensation. Short term (cash) compensation will consist of a base salary of $425,000 and $350,000, respectively.
Mr. Rodino and Ms. Lintal will be awarded a year-end target bonus based on performance and goals established by the
Compensation Committee. Long term compensation will be provided by 100,000 non-qualified yearly stock options with one-year
vesting commencing on November 30, 2021. In addition, Mr. Rodino and Ms. Lintal shall each be entitled to awards
(“Event Awards”) equal to 1% of the “Gross Proceeds” from specific events such as licensing
agreements or “therapeutic indication” (each, an “Event”). Gross Proceeds means those cash amounts
paid to us by the other parties for licensing agreements, therapeutic acquisitions or any other one time cash generating
event. Therapeutic indications are for example target organ specific pathologically defined cancer indications, vaccine
enhancers, broad spectrum antiviral indications, or medical entities associated with persistent severe fatigue. Mr. Rodino
and Ms. Lintal also will each be entitled to an award (an “Acquisition Award”) equal to 1% of the Gross Proceeds,
upon the sale of our Company or substantially all of its assets (an “Acquisition”). An Event Award or Acquisition
Award shall be paid in cash within 90 days of our receipt of the Gross Proceeds.
40
Governance
of Compensation Committee
The
Compensation Committee consists of the following two directors, each of whom is “independent” under applicable NYSE
American rules, a “Non-Employee Director” as defined in Rule 16b-3 under the Exchange Act, and an “Outside Director”
as defined under the U.S. Treasury regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the “Internal Revenue Code”): Dr. William Mitchell, M.D. (Chair) and Stewart L. Appelrouth. The Compensation Committee
makes recommendations concerning salaries and compensation for senior management and other highly paid professionals or consultants
to us. The full text of the Compensation Committee’s Charter, as approved by the Board, is available on our website: www.aimimmuno.com
in the “Investor Relations” tab under “Corporate Governance”.
This
Committee formally met six times in 2020 and all committee members were in attendance for the meetings. Our General Counsel, Chief
Financial Officer and Director of Human Resources support the Compensation Committee in its work.
Results
of Stockholder Advisory Vote on Executive Compensation
At
the October 7, 2020 Annual Meeting of Stockholders, the Stockholders approved the annual, non-binding advisory vote on Executive
Compensation.
Objectives
and Philosophy of Executive Compensation
The
primary objectives of the Compensation Committee of our Board of Directors with respect to Executive compensation are to attract
and retain the most talented and dedicated Executives possible, to tie annual and long-term cash and stock incentives to achievement
of measurable performance objectives, and to align Executives’ incentives with stockholder value creation. To achieve these
objectives, the Compensation Committee expects to implement and maintain compensation plans that tie a substantial portion of
Executives’ overall compensation to key strategic financial and operational goals such as the establishment and maintenance
of key strategic relationships, the development of our products, the identification and advancement of additional products and
the performance of our common stock price. The Compensation Committee evaluates individual Executive performance with the goal
of setting compensation at levels the Committee believes are comparable with Executives in other companies of similar size and
stage of development operating in the biotechnology industry while taking into account our relative performance, our own strategic
goals, governmental regulations and the results of Stockholder Advisory Votes regarding executive compensation.
EXECUTIVE
COMPENSATION
The
following table provides information on the compensation during the fiscal years ended December 31, 2020 and 2019 of Thomas Equels,
our Chief Executive Officer, Ellen Lintal, our Chief Financial Officer, and Peter Rodino, who, during 2018 was our General Counsel
and Secretary, constituting the Company’s Named Executive Officers, based on the year ended 2020 for each fiscal year.
Summary
Compensation Table
Name & Principal Position
Year
Salary / Fees
$ (2)
Bonus
$
Stock Awards $
Option Awards
$ (1)
Non-Equity Incentive Plan Compensation $
Change in Pension Valued and NQDC Earnings
$
All Other Compensation $
Total
$ (1)
Thomas K Equels
2020
806,599
652,000
—
1,139,267
—
—
65,509
2,663,375
CEO & President (2)3
2019
703,125
—
46,875
62,537
70,702
883,239
Ellen Lintal
2020
239,583
177,000
—
111,616
—
—
25,403
553,602
CFO (4)
2019
143,750
—
10,417
—
—
—
33,575
187,742
Peter Rodino
2020
394,792
244,500
—
111,616
—
—
42,570
793,478
COO, General Counsel & Secretary (5)
2019
333,333
—
21,875
29,184
45,710
430,102
Notes:
(1)
All
option awards were valued using the Black-Scholes method.
41
(2)
For
Named Executive Officers, who are also Directors that receive compensation for their services as a Director, the Salary/Fees
and Option Awards columns include compensation that was received by them for their role as a member of the Board of Directors.
As is required by Regulation S-K, Item 402(c), compensation for services as a Director have been reported within the “Summary
Compensation Table” (above) for fiscal years of 2020 and 2019 as well as reported separately in the “Compensation
of Directors” section (see below) for calendar year 2020.
As
stated in Thomas Equels’ prior employment contract, he is entitled to 5% of Ampligen sales. In the years 2019 and 2018,
a bonus of 5% of Ampligen sales totaled $37,425 and was accrued. In 2020 Mr. Equels’ was paid $44,100, representing the
2020 sales bonus of $6,675 and the previous years accrued sales bonuses of $37,425. Pursuant to his current employment
agreement, Mr. Equels is entitled to 3% of the “Gross Proceeds” (as defined in the employment agreement) for
“significant events” (as described in the employment agreement) There were no payments during 2020.
(3)
Mr.
Equels’ All Other Compensations consists of:
2020
2019
Life & Disability Insurance
$ 27,131
$ 32,642
Healthcare Insurance
20,378
20,060
Car Expenses/Allowance
18,000
18,000
401(k) Matching Funds
—
—
Total
$ 65,509
$ 70,702
(4)
Ms.
Lintal’s All Other Compensations consists of:
2020
2019
Life & Disability Insurance
$ 2,383
$ 3,407
Healthcare Insurance
8,620
19,368
Car Expenses/Allowance
14,400
10,800
401(k) Matching Funds
—
—
Total
$ 25,403
$ 33,575
(5)
Mr.
Rodino’s All Other Compensations consists of:
2020
2019
Life & Disability Insurance
$ 2,542
$ 4,560
Healthcare Insurance
25,629
26,750
Car Expenses/Allowance
14,400
14,400
401(k) Matching Funds
—
—
Total
$ 42,570
$ 45,710
42
Outstanding Equity Awards at
Fiscal Year End
Option Awards
Stock Awards
Name
Number of Securities Underlying Unexercised Options (#) Exercisable
Number of Securities Underlying Unexercised Options (#) Unexercisable
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
Options Exercise Price ($)
Option Expiration Date
Number of Shares or Units of Stock that Have Not Vested (#)
Market Value of Shares or Units of Stock that Have Not Vested ($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)
Thomas K Equels
569
—
—
216.48
6/24/2021
—
—
—
—
President and Chief
190
—
—
153.12
6/6/2022
—
—
—
—
Executive Officer
569
—
—
163.68
6/11/2022
—
—
—
—
569
—
—
163.68
6/6/2023
—
—
—
—
285
—
—
132.00
8/2/2023
—
—
—
—
569
—
—
190.08
6/6/2024
—
—
—
—
569
—
—
132.00
6/8/2025
—
—
—
—
569
—
—
73.92
6/8/2026
—
—
—
—
6,819
—
—
24.64
6/8/2027
—
—
—
—
323
—
—
21.56
6/15/2027
—
—
—
—
324
—
—
21.56
6/30/2027
—
—
—
—
412
—
—
21.12
7/15/2027
—
—
—
—
473
—
—
18.48
7/31/2027
—
—
—
—
485
—
—
18.04
8/15/2027
—
—
—
—
556
—
—
15.84
8/31/2027
—
—
—
—
8,446
—
—
16.28
2/13/2028
—
—
—
—
2,841
—
—
16.72
4/12/2028
—
—
—
—
6,819
—
—
13.20
5/16/2028
—
—
—
—
5,682
—
—
13.20
5/16/2028
—
—
—
—
2,444
1,222
—
13.64
7/18/2028
—
—
—
—
6,457
—
—
9.68
10/17/2028
—
—
—
—
23
—
—
9.68
11/14/2028
—
—
—
—
9,685
—
—
9.68
1/28/2029
—
—
—
—
—
300,000
—
3.05
8/12/2030
—
—
—
—
—
300,000
—
1.96
11/11/2030
—
—
—
—
Total
55,678
601,222
—
—
—
—
—
Ellen Lintal
23
—
—
9.68
11/14/2029
—
—
—
—
Chief Financial Officer
—
75,000
—
1.85
12/9/2030
—
—
—
Total
23
75,000
—
—
—
—
—
Peter Rodino
285
—
—
132.00
8/2/2023
—
—
—
—
COO, General Counsel and Secretary
285
—
—
68.65
6/21/2026
—
—
—
—
151
—
—
21.56
6/15/2027
—
—
—
—
151
—
—
21.56
6/30/2027
—
—
—
—
193
—
—
21.12
7/15/2027
—
—
—
—
221
—
—
18.48
7/31/2027
—
—
—
—
227
—
—
18.04
8/15/2027
—
—
—
—
260
—
—
15.84
8/31/2027
—
—
—
—
3,942
—
—
16.28
2/13/2028
—
—
—
—
2,273
—
—
16.72
4/12/2028
—
—
—
—
2,652
—
—
13.20
5/16/2028
—
—
—
—
1,142
569
—
13.64
7/18/2028
—
—
—
—
3,013
—
—
9.68
10/17/2028
—
—
—
—
23
—
—
9.68
11/14/2028
—
—
—
—
4,520
—
—
9.68
1/28/2029
—
—
—
—
—
75,000
—
1.85
12/9/2030
—
—
—
—
Total
19,339
75,569
—
—
—
—
—
43
Payments
on Disability
As
of December 31, 2020, we had an employment agreement with Mr. Equels which entitled him to his base salary, applicable benefits
otherwise due and payable through the last day of the month in which disability occurs and for an additional two year period.
All of his unvested options vest too. On March 24, 2021, we entered into employment agreements with Mr. Rodino and Ms. Lintal
which entitled them to their base salary, applicable benefits otherwise due and payable through the last day of the month in which
disability occurs and for an additional two year period. All of each NEO’s unvested options vest too. In addition, each
NEO has the same short and long-term disability coverage which is available to all eligible employees. The coverage for short-term
disability provides up to six months of full salary continuation up to 60% of weekly pay, less other income, with a $1,500 weekly
maximum limit. The coverage for group long-term disability provides coverage at the exhaustion of short-term disability benefits
of full salary continuation up to 60% of monthly pay, less other income, with a $10,000 monthly maximum limit. The maximum benefit
period for the group long-term disability coverage is 60 months for those age 60 and younger at the time of the claim with the
coverage period proportionately reduced with the advanced age of the eligible employee to a minimum coverage period of 12 months
for those of 69 years old and older as of the date of the claim. For the period June 2010 through December 2020, Mr. Equels was
entitled to receive total disability coverage of $400,000 pursuant to his employment agreement and payable by us.
Payments
on Death
Pursuant
to their employment agreements, the NEOS are entitled to their base salary and applicable benefits otherwise due and payable through
the last day of the month in which death occurs and for an additional two year period. In addition, all of their unvested options
vest. Each NEO, has coverage of group life insurance, along with accidental death and dismemberment benefits, consistent to the
dollar value available to all eligible employees. The benefit is equal to two times current salary or wage with a maximum limit
of $300,000, plus any supplemental life insurance elected and paid for by the NEO. For the period June 2010 and through December
2020, Mr. Equels is entitled to receive total death benefit coverage of $3,000,000 pursuant to his employment agreement and payable
by us.
Estimated
Payments Following Severance — Named Executive Officers (NEO)
Pursuant
to his employment agreement, Mr. Equels is entitled to severance benefits on certain types of employment terminations not related
to a change in control or termination not for cause. Mr. Rodino and Ms. Lintal are not covered by an employment severance agreement
and therefore would only receive severance as determined by the Compensation Committee in its discretion.
The
dollar amounts below assume that the termination occurred on January 1, 2021. The actual dollar amounts to be paid can only be
determined at the time of the NEO’s separation from us based on their prevailing compensation and employment agreements
along with any determination by the Compensation Committee in its discretion.
44
Name
Event
Cash
Severance
($)
Value of Stock
Awards That
Will Become
Vested (1) ($)
Continuation of
Medical Benefits
($)
Additional
Life
Insurance
($)
Total
($)
Thomas K. Equels,
Involuntary (no cause)
$ 4,180,000
$ 1,139,000
—
—
$ 5,319,000
CEO & President
Termination (for cause)
—
—
—
—
—
Death or disability
$ 4,180,000
$ 1,139,000
—
—
$ 5,319,000
Termination by employee or retirement
—
$ 1,139,000
—
—
$ 1,139,000
Ellen Lintal
Involuntary (no cause)
—
—
—
—
—
CFO
Termination (for cause)
—
—
—
—
—
Death or disability
—
—
—
—
—
Termination by employee or retirement
—
—
—
—
—
Peter Rodino
Involuntary (no cause)
—
—
—
—
—
COO, General Counsel and
Termination (for cause)
—
—
—
—
—
Secretary
Death or disability
—
—
—
—
—
Termination by employee or retirement
—
—
—
—
—
Notes:
(1)
Consists
of stock options contractually required per the employee’s respective employment agreement or arrangement to be granted
during each calendar year of the term under our 2018 Equity Incentive Plan. The stock options have a ten-year term and an
exercise price equal to the closing market price of our common stock on the date of grant. The value was obtained using the
Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718.
Payments
on Termination in Connection with a Change in Control of Named Executive Officers
Pursuant
to their employment agreements, each NEO is entitled to severance benefits on certain types of employment terminations related
to a change in control. In such event, the term of their employment agreements would automatically be extended for three additional
years, except where such change in control occurs as a result of certain “significant events” (as described in his
or her employment agreement).
The
dollar amounts in the chart below assume that change in control termination occurred on January 1, 2021, based on the employment
agreements that existed at that time. The actual dollar amounts to be paid can only be determined at the time of the NEO’s
separation from us based on their prevailing compensation and employment agreements along with any determination by the Compensation
Committee in its discretion.
Estimated
Benefits on Termination Following a Change in Control — December 31, 2020
The
following table shows potential payments to the NEO if employment terminates following a change in control under contracts, agreements,
plans or arrangements at December 31, 2020. The amounts assume a January 4, 2021 termination date regarding base pay and use of
the opening price of $1.79 on the NYSE American for our common stock at that date.
Name
Aggregate
Severance Pay
($)
PVSU
Acceleration
(2) ($)
Early
Vesting
of
Restricted
Stock (4) (5) ($)
Early
Vesting
of Stock
Options
and SARs
(3) ($)
Acceleration
and
Vesting of
Supplemental
Award
(5) ($)
Welfare
Benefits
Continuation
($)
Outplacement
Assistance
($)
Parachute
Tax
Gross-up
Payment
($)
Total
($)
Thomas K. Equels
3,472,000 (1)
—
—
1,139,000
$ 1,298,843 (4)
—
—
—
$ 5,909,843
Ellen Lintal
—
—
—
—
—
—
—
—
—
Peter Rodino
—
—
—
—
—
—
—
—
—
Notes:
(1)
This
amount represents the Base Salary and benefits for the remaining current term of the NEO’s employment agreement plus
a three-year extension in the term upon the occurrence of a termination from a change in control. The employment agreement
with Mr. Equels has a term through December 31, 2025. This amount excludes the following payments as they cannot be calculated
unless and until certain events occur: Mr. Equels is entitled to 3% of the “Gross Proceeds” (as defined in the
employment agreement) for “significant events” (as described in his employment agreement) and 3% of the Gross
Proceeds from any sale of our company or substantially all of our assets.
45
(2)
This
amount represents the payout of all outstanding performance-vesting share units (“PVSU”) awarded on a change in
control at the target payout level with each award then pro-rated based on the time elapsed for the applicable three-year
performance period.
(3)
This
amount is the intrinsic value [fair market value] on January 1, 2018 ($0.18 per share) minus the per share exercise price
of $0.30 of all unvested stock options for each NEO, including Stock Appreciation Rights (“SAR”). Any option with
an exercise price of greater than fair market value was assumed to be cancelled for no consideration and, therefore, had no
intrinsic value.
(4)
This
amount represents the options to be issued annually for the remaining term of the NEO’s employment agreement plus a
three-year extension in the occurrence of termination from a change in control. For the purpose of this schedule, a NYSE American
closing price at January 4, 2021of $1.79 was used with an estimated exercise price of $0.30 for Mr. Equels. The value was
obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718.
(5)
Any
purchase rights represented by the Option not then vested shall, upon a change in control, shall become vested.
Post-Employment
Compensation
The
following is a description of post-employment compensation payable to the respective NEO. If a NEO does not have a specific benefit,
they will not be mentioned in the subsection. In such event, the NEO does not have any such benefits upon termination unless otherwise
required by law.
Termination
for Cause
All
of our NEOs can be terminated for cause. For each NEO “Cause” means willful engaging by any NEO in illegal conduct,
gross misconduct or gross violation of our Code of Ethics and Business Conduct for Officers, which is demonstrably and materially
injurious to our company. Mr. Equel’s agreement provides that he shall not be deemed to have been terminated for Cause unless
and until we initiate a process by delivery to him a copy of a resolution duly adopted by the affirmative vote of not less than
a majority of the directors of the Board specifying the grounds for termination. After reasonable notice to Mr. Equels and an
opportunity for him to be heard, the issues shall be adjudicated by a retired Florida judge or a Florida certified mediator mutually
acceptable to the Board of Directors and Mr. Equels. Termination requires a finding that Mr. Equels was guilty of intentional
and material misconduct according to the standards set forth above, and specifying the particulars thereof in detail supported
by legally admissible evidence and utilizing the legal standard of beyond reasonable doubt. In the event that an NEO’s employment
is terminated for Cause, we shall pay such NEO, at the time of such termination, only the compensation and benefits otherwise
due and payable to him or her through the last day of his actual employment by us.
Termination
without Cause
In
the event that an NEO is terminated at any time without “Cause”, we shall pay to him or her, at the time of such termination,
the compensation and benefits otherwise due and payable through the last day of the then current term of his or her Agreement.
However, benefit distributions that are made due to a “separation from service” occurring while he or she is a Named
Executive Officer shall not be made during the first six months following separation from service. Rather, any distribution which
would otherwise be paid to him or her during such period shall be accumulated and paid to him or her in a lump sum on the first
day of the seventh month following the “separation from service”. All subsequent distributions shall be paid in the
manner specified.
Death
or Disability
An
NEO can be terminated for death or disability. “Disability” means the NEO’s inability effectively to carry out
substantially all of his or her duties by reason of any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. In the event
his or her employment is terminated due to his or her death or disability, we will pay him or her (or their estate as the case
may be), at the time of such termination, his or her base salary, applicable benefits, and immediate vesting of unvested stock
options. In the event of permanent disability, we will provide an additional two years of base salary.
46
Compensation
of Directors
Our
Compensation, Audit and Corporate Governance and Nomination Committees, consist of Dr. William M. Mitchell, Compensation and Corporate
Governance and Nomination Committee Chair, and Stewart L. Appelrouth, Audit Committee Chair, both of whom are independent Board
of Director members.
We
reimburse Directors for travel expenses incurred in connection with attending board, committee, stockholder and special meetings
along with other Company business-related expenses. We do not provide retirement benefits or other perquisites to non-employee
Directors under any current program.
There
was no cost of living increase granted in 2019 or 2020. Directors’ fees were being deferred beginning in August 2018. When
cash became available, they were paid their deferred fees in 2019.
All
Directors have been granted options to purchase common stock under our Stock Option Plans and/or Warrants to purchase common stock.
We believe such compensation and payments are necessary in order for us to attract and retain qualified outside directors. Options
shares for stock compensation were issued under the 2009 and 2018 Equity Incentive Plans.
Director
Compensation – 2020 & 2019
Name and Title of Director
Year
Fees Earned or Paid in
Cash $
Stock
Award $
Option
Award $
Non-Equity Incentive Plan Compensation $
Change in Pension Value & Nonqualified Deferred Compensation Earnings $
All Other Compensation As Director $
Total $
T. Equels
2020
—
—
—
—
—
—
—
Executive Vice Chairman
2019
—
—
—
—
—
—
—
W. Mitchell
2020
182,462
112,158
—
—
—
294,620
Chairman of the Board (1)
2019
182,462
—
37,766
—
—
—
220,228
S. Appelrouth Director (1)
2020
182,462
—
112,158
—
—
—
294,620
2019
182,462
—
37,766
—
—
—
220,228
Notes:
(1)
Independent
Director of the Company. Beginning August 16, 2018, the independent directors are deferring payment of 100% of their director’s
fees until cash is available. During 2019 cash became available and the directors were paid their deferred compensation.
ITEM 12.
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
The
following table sets forth as of March 26, 2021, the number and percentage of outstanding shares of Common Stock beneficially
owned by:
●
Each
person, individually or as a group, known to us to be deemed the beneficial owners of five percent or more of our issued and
outstanding Common Stock;
●
Each
of our Directors and the Named Executives Officers; and
●
All
of our officers and directors as a group.
●
Total
number of shares of Common Stock at March 26, 2021 was 47,821,935.
47
Name and Address of
Shares Beneficially
% Of Shares
Beneficial Owner
Owned
Beneficially Owned
Thomas K. Equels, Executive Vice Chairman, Chief Executive Officer, President*
866,530 (1)
**0.02 %
Peter W. Rodino III, Chief Operating Officer, General Counsel, Secretary*
144,153 (2)
** %
William M. Mitchell, M.D., Chairman of the Board of Directors*
156,482 (3)
** %
Stewart L. Appelrouth, Director*
171,753 (4)
** %
Ellen Lintal, Chief Financial Officer*
99,144 (5)
** %
All directors and executive officers as a group (5 persons)
1,438,062
0.03
%
** Less than 1%
(1)
For Mr. Equels, shares beneficially owned include 55,678 shares issuable upon exercise of options and excludes 601,222 shares
issuable upon exercise of options not vested or not exercisable within the next 60 days.
(2)
For Mr. Rodino, shares beneficially owned include 19,339 shares issuable upon exercise of options and excludes 75,569 shares issuable
upon exercise of options not vested or not exercisable within the next 60 days.
(3)
For Dr. Mitchell, shares beneficially owned include 29,328 shares issuable upon exercise of options and excludes 50,742 shares
issuable upon exercise of options not vested or not exercisable within the next 60 days. Also includes 190 shares of common stock
owned by his spouse and 194 shares owned by family trusts.
(4)
For Mr. Appelrouth, shares beneficially owned include 28,473 shares issuable upon exercise of options and excludes 50,742 shares
issuable upon exercise of options not vested or not exercisable within the next 60 days.
(5)
For Ms. Lintal, shares beneficially owned include 23 shares issuable upon exercise of options and excludes 75,000 shares issuable
upon exercise of options not vested or not exercisable within the next 60 days.
The
following table gives information about our Common Stock that may be issued upon the exercise of options, warrants and rights
under all of our equity compensation plans as of December 31, 2020:
Plan Category
Number of
Securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted
Average
Exercise
Price
Per Share
Number of
securities
Remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column) (a)
(a)
(c)
Equity compensation plans approved by security holders:
218,729
$ 2.759
28,268
Equity compensation plans not approved by security holders:
376,236
$ 13.09
—
Total
591,965
$ 2.63
228,268
48
ITEM 13.
Certain Relationships and Related Transactions,
and Director Independence.
Review,
Approval or Ratification of Transactions with Related Persons
Our
policy is to require that any transaction with a related party required to be reported under applicable SEC rules, other than
compensation related matters and waivers of our code of business conduct and ethics, be reviewed and approved or ratified by a
majority of independent, disinterested Directors. We have adopted procedures in which the Audit Committee shall conduct an appropriate
review of all related party transactions for potential conflict of interest situations on an annual and case-by-case basis with
the approval of this Committee required for all such transactions.
We
have employment agreements with certain of our executive officers and have granted such Officers and Directors options and warrants
to purchase our Common Stock, as discussed under the headings, Item 11. “Executive Compensation”, and Item 12. “Security
Ownership of Certain Beneficial Owners and Management”, as noted above.
ITEM 14.
Principal Accountant Fees and Services.
All audit and professional services are approved
in advance by the Audit Committee to assure such services do not impair the auditor’s independence from us. The total fees
by BDO USA, LLP (“BDO”) and Morrison, Brown, Argiz & Farra LLC (“MBAF”) for 2020 were $52,500 and
$301,000, respectively. Total fees by MBAF for 2019 were $391,000. The following table shows the aggregate fees for professional
services rendered during the year ended December 31, 2020 and 2019.
Amount ($)
2020
2019
Description of Fees:
Audit Fees
$ 260,000
$ 299,500
Audit-Related Fees
93,500
91,500
Tax Fees
—
—
All Other Fees
—
—
Total
$ 353,500
$ 391,000
Audit
Fees
Audit
fees include the audit of our annual financial statements and the review of our financial statements included in our quarterly
reports and services in connection with statutory and regulatory filings.
Audit-Related
Fees
Represents
the fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial
statements. Audit-related fees include professional services related to the Company’s filing of SEC Form S-3 and S-8 (i.e.,
stock shelf offering procedures).
The
Audit Committee has determined that BDO’s rendering of these audit-related services and all other fees were compatible with
maintaining auditor’s independence. The Board of Directors considered BDO to be well qualified to serve as our independent
public accountants. The Committee also pre-approved the charges for services performed in 2020 and 2019.
The
Audit Committee pre-approves all auditing and accounting services and the terms thereof (which may include providing comfort letters
in connection with securities underwriting) and non-audit services (other than non-audit services prohibited under Section 10A(g)
of the Exchange Act or the applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us
by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit
services for us if the “de minimus” provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied. This authority
to pre-approve non-audit services may be delegated to one or more members of the Audit Committee, who shall present all decisions
to pre-approve an activity to the full Audit Committee at its first meeting following such decision.
49
PART
IV
ITEM
15.
Exhibits
and Financial Statement Schedules.
Financial
Statements and Schedules - See index to financial statements on page F-1 of this Annual Report. All other schedules called for
under regulation S-X are not submitted because they are not applicable or not required, or because the required information is
included in the financial statements or notes thereto.
(i)
Exhibits
- See exhibit index below.
Exhibit
No.
Description
3.1(i)
Amended
and Restated Certificate of Incorporation of the Company, as amended, along with Certificates of Designations. (2)
3.2(i)
Amendment to Certificate of Incorporation. (3)
3.3(i)
Amendment to Certificate of Incorporation. (4)
3.4(i)
Amendment to Certificate of Incorporation. (52)
3.5(i)
Amendment to Certificate of Incorporation. (53)
3.6(i)
Certificate of Designation of Preference, Rights and Limitations of Series B Convertible Preferred Stock. (51)
3.7(ii)
Amended and Restated By-Laws of Registrant. (33)
4.1
Specimen
certificate representing our Common Stock. (2)
4.2
Amended and Restated Rights Agreement, dated as of November 14, 2017, between the Company and American Stock Transfer & Trust Company LLC. The Amended and Restated Right Agreement includes the Form of Certificate of Designation, Preferences and Rights of the Series A Junior Participating Preferred Stock, the Form of Rights Certificate and the Summary of the Right to Purchase Preferred Stock. (5)
4.3
Form of Indenture filed with Form S-3 Universal Shelf Registration Statement. (6)
4.4
Form of Warrant pursuant to August 30, 2016 Securities Purchase Agreement. (36)
4.5
Form of Warrant pursuant to February 1, 2017 Securities Purchase Agreement. (38)
4.6
Form of Series A Warrant-June 2017. (41)
4.7
Form of Series B Warrant-June 2017. (41)
4.8
Form of New Series A Warrant-August 2017. (40)
4.9
Form of New Series B Warrant-August 2017. (40)
4.10
Form of Warrant issued to Purchaser of facility. (21)
4.11
Form of Class A Warrant- April 2018. (44)
4.12
Form of Class B Warrant- April 2018. (44)
4.13
September 28, 2018 Secured Convertible Promissory Note from the Company to Iliad Research and Trading, L.P. (49)
4.14
Rights Offering Form of Non-Transferable Subscription Rights Certificate. (51)
4.15
Rights Offering Form of Warrant Agreement. (61)
50
4.16
Rights Offering Form of Warrant Certificate. (51)
4.17
Rights Offering Warrant Agency Agreement with American Stock Transfer & Trust. (50)
4.18
AGP Offering-Form of Pre-Funded Warrant. (58)
4.19
AGP Offering-Form of Warrant. (58)
4.20
AGP Offering-Form of Representative’s Warrant. (59)
4.21
March 2019 Amendment to September 28, 2018 Secured Convertible Promissory Note from the Company to Iliad Research and Trading, L.P. (1)
4.22
December 5, 2019 Secured Promissory Note with Atlas Sciences, LLC. (62)
4.23
Description of Common Stock.*
10.1
Form of Confidentiality,
Invention and Non-Compete Agreement. (2)
10.2
Form of Clinical
Research Agreement. (2)
10.3
Employee Wage or Hours Reduction Program. (7)
10.4
Supply Agreement with Hollister-Stier Laboratories LLC dated December 5, 2005. (9)
10.5
Amendment to Supply Agreement with Hollister-Stier Laboratories LLC dated February 25, 2010. (10)
10.6
Vendor Agreement with Bio Ridge Pharma, LLC dated August 15, 2011. (31).
10.7
Vendor Agreement with Armada Healthcare, LLC dated August 15, 2011. (31).
10.8
Amendment to Supply Agreement with Hollister-Stier Laboratories LLC executed September 9, 2011. (16)
10.9
Equity Distribution Agreement, dated July 23, 2012, with Maxim Group LLC (18)
10.10
Vendor Agreement extension with Bio Ridge Pharma, LLC dated August 14, 2012. (17)
10.11
Vendor Agreement extension with Armada Healthcare, LLC dated August 14, 2012. (19)
10.12
Vendor Agreement extension with Armada Healthcare, LLC dated July 19, 2013. (19)
10.13
Vendor Agreement extension with Bio Ridge Pharma, LLC dated July 19, 2013. (19)
10.14
Vendor Agreement extension with Bio Ridge Pharma, LLC and Armada Healthcare, LLC dated August 8, 2014.(20)
10.15
Sales, Marketing, Distribution, and Supply Agreement with Emerge Health Pty Ltd. dated March 9, 2015.(Confidential Treatment granted with respect to portions of the Agreement) (20)
10.16
August 4, 2015 Amendment to Equity Distribution Agreement between the registrant and Maxim Group LLC. (23)
10.17
Vendor Agreement extension with Armada Healthcare, LLC dated July 29, 2015. (24)
10.18
Vendor Agreement extension with Bio Ridge Pharma, LLC dated July 29, 2013. (24)
10.19
Early Access Agreement with Impatients N.V. dated August 3, 2015.(Confidential Treatment granted with respect to portions of the Agreement) (25)
10.20
Sales, Marketing, Distribution, and Supply Agreement with Emerge Health Pty Ltd. dated August 6, 2015. (Confidential Treatment granted with respect to portions of the Agreement) (25)
51
10.21
Addendum to Early Access Agreement with Impatients N.V. dated October 16, 2015.(Confidential Treatment granted with respect to portions of the Agreement) (25)
10.22
November 23, 2015 Thomas K. Equels Employment Agreement Waiver. (26)
10.23
Equity Distribution Agreement, dated December 15, 2015 with Chardan Capital Markets, LLC. (27)
10.24
Termination of Chardan Equity Distribution Agreement. (60)
10.25
2016 Senior Executive Deferred Cash Performance Award Plan. (29)
10.26
2016 Voluntary Incentive Stock Award Plan. (29)
10.27
Amended and Restated 2016 Senior Executive Deferred Cash Performance Award Plan. (30)
10.28
Sales, Marketing, Distribution and Supply Agreement (the “Agreement”) with Scientific Products Pharmaceutical Co. LTD dated March 3, 2016 (Confidential Treatment granted with respect to portions of the Agreement). (32)
10.29
Agreement between Avrio Biopharmaceuticals (“Avrio”) and the Company dated July 20, 2016 (Confidential Treatment granted with respect to portions of the Agreement). (34)
10.30
Licensing Agreement dated April 13, 2016 with Lonza Sales AG (Confidential Treatment granted with respect to portions of the Agreement). (35)
10.31
Form of Securities Purchase Agreement entered into on August 30, 2016. (36)
10.32
Amended and Restated Early Access Agreement with Impatients N.V. dated May 20, 2016. (Confidential Treatment granted with respect to portions of the Agreement) (37)
10.33
December 13, 2016 Amendment No. 1 to Amended and Restated Early Access Agreement with Impatients N.V. (21)
10.34
June 28, 2017 Amendment No. 2 to Amended and Restated Early Access Agreement with Impatients N.V. (21)
10.35
February 14, 2018 Amendment No. 3 to Amended and Restated Early Access Agreement with Impatients N.V. (21)
10.36
March 26, 2018 Amendment No. 4 to Amended and Restated Early Access Agreement with Impatients N.V. (21)
10.37
Form of Securities Purchase Agreement entered into on February 1, 2017. (38)
10.38
August 2017 Form of Employee Pay Reduction Plan. (39)
10.39
August 2017Form of Executive Compensation Deferral Plan. (39)
10.40
August 2017 Form of Directors’ Compensation Deferral Plan. (39)
10.41
Form of August 2017 Agreement between the Company and the Warrant holders. (40)
10.42
Form of June 2017 Agreement between the Company and the Warrant holders. (41)
10.43
Mortgage and Security Agreement with SW Partners LLC dated May 12, 2017. (42)
10.44
Promissory Note with SW Partners LLC dated May 12, 2017. (42)
10.45
September 11, 2017 Purchase and Sale Agreement- 5 Jules Lane. (21)
10.46
January 8, 2018 Purchase and Sale Agreement- 783 Jersey Lane. (21)
10.47
Lease Agreement for 783 Jersey Lane. (21)
52
10.48
Form of Stock Purchase Agreement entered into on March 21, 2018. (43)
10.49
Form of Securities Purchase Agreement entered into on May 24, 2018. (47)
10.50
2018 Equity Incentive Plan. (48)
10.51
September 28, 2018 Securities Purchase Agreement with Iliad Research and Trading, L.P. (49)
10.52
September 28, 2018 Security Agreement with Iliad Research and Trading, L.P. (49)
10.53
October 9, 2018, Clinical Trial Agreement with Roswell Park Comprehensive Cancer Center. (46)
10.54
October 8, 2018, Restated First Amendment to Purchase and Sale Agreement. (46)
10.55
October 9, 2018, Restated Bill of Sale for the Restated First Amendment and Sale Agreement. (46)
10.56
Form of Agreement between the Company and the Warrantholders.- May 2, 2019. (54)
10.57
Termination of August 4, 2015 Equity Distribution Agreement between the registrant and Maxim Group LLC. (55)
10.58
July 19, 2019 Equity Distribution Agreement between the registrant and Maxim Group LLC. (55)
10.59
Note Purchase Agreement dated August 5, 2019 with Chicago Venture Partners, L.P. (56)
10.60
Secured Promissory Note dated August 5, 2019 issued to Chicago Venture Partners, L.P. (56)
10.61
Security Agreement dated August 5, 2019 with Chicago Venture Partners, L.P. (56)
10.62
Salary Reduction and Restricted Stock Award Memo (August 2019). (57)
10.63
Form of Restricted Stock Award. (57)
10.64
December 5, 2019 Note Purchase Agreement with Atlas Sciences, LLC. (62)
10.65
December 5, 2019 Security Agreement with Atlas Sciences, LLC. (62)
10.66
March 20, 2020 Amendment to 2017 Material Transfer and Research Agreement with Roswell Park Cancer Institute. (63)
10.67
April
1, 2020 Material Transfer and Research Agreement with Shenzhen Smoore Technology Limited. (64)
10.68
April 21, 2020 Mutual Confidentiality Agreement with UMN Pharma Inc., National Institute of Infectious Diseases, and Shionogi & Co., Ltd.(65)
10.69
June 1, 2020, Material Transfer and Research Agreement with the University of Rochester. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10))(66)
10.70
June 23, 2020, Specialized Services Agreement with Utah State University. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10))(66)
10.71
July 1, 2020, Material Transfer and Research Agreement with the Japanese National Institute of Infectious Diseases and Shionogi & Co., Ltd. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10))(66)
10.72
July 6, 2020, Clinical Trial Agreement with Roswell Park Comprehensive Cancer Center. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10))(66)
53
10.73
August
6, 2020, Project Work Order with Amarex Clinical Research LLC. (Portions of this Agreement have been redacted in compliance
with Regulation S-K Item 601(b)(10))(66)
10.74
November
10, 2020 employment agreement with Thomas K. Equels.(67)
10.75
December 22, 2020 Master Service Agreement with Pharmaceutics International Inc. as a Fill & Finish provider for Ampligen.*
10.76
January 11, 2021 Sponsor Agreement with Centre for Human Drug Research. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)) *
10.77
November 29, 2020, Material Transfer and Research Agreement with Leyden Laboratories, B.V. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10))*
10.78
December 30, 2020 Amendment to Project Work Order with Amarex Clinical Research LLC. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10))*
10.79
December 23, 2020 Amendment to Master Service Agreement with Pharmaceutics International Inc. as a Fill & Finish provider for Ampligen.*
10.80
March 24, 2021 employment agreement with Peter Rodino.*
10.81
March 24, 2021 employment agreement with Ellen Lintal.*
16.1
January
16, 2021 Letter from MBAF (65)
21.1
List of Subsidiaries. (47)
23.1
Consent of BDO USA, LLP.*
23.2
Consent of Morrison, Brown, Argiz & Farra, LLC.*
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the Company’s Chief Executive Officer. *
31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the Company’s Chief Financial Officer. *
32.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the Company’s Chief Executive Officer. *
32.2
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the Company’s Chief Financial Officer. *
101
The
following materials from AIM’ Annual Report on Form 10-K for the year ended December 31, 2019, formatted in eXtensible
Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Statements of Income; (ii) the Condensed
Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated
Financial Statements.
*
Filed
herewith.
(1)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed March 15,
2019 and is hereby incorporated by reference.
54
(2)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Registration Statement on Form S-1 (No. 33-93314)
filed November 2, 1995 and is hereby incorporated by reference.
(3)
Filed
with the Securities and Exchange Commission as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A
filed on September 16, 2011 and is hereby incorporated by reference.
(4)
Filed
with the Securities and Exchange Commission as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A
filed on June 27, 2016 and is hereby incorporated by reference.
(5)
Filed
with the Securities and Exchange Commission on November 14, 2017 as an exhibit to the Company’s Registration Statement
on Form 8-A12B (No. 0-27072) and is hereby incorporated by reference.
(6)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Form S-3 Registration Statement (No. 333-205228)
on June 25, 2015 and is hereby incorporated by reference.
(7)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s annual report on Form 10-K (No. 000-27072)
for the year ended December 31, 2008 and is hereby incorporated by reference.
(8)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended June 30, 2010 and is hereby incorporated by reference.
(9)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s annual report on Form 10-K (No. 000-27072)
for the year ended December 31, 2005 and is hereby incorporated by reference.
(10)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Annual Report on Form 10-K (No. 000-27072)
for the year ended December 31, 2009 and is hereby incorporated by reference.
(11)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
dated May 28, 2010 and is hereby incorporated by reference.
(12)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended March 31, 2011 and is hereby incorporated by reference.
(13)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended September 30, 2011 and is hereby incorporated by reference.
(14)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed September 23, 2011 and is hereby incorporated by reference.
(15)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed December 12, 2011 and is hereby incorporated by reference.
(16)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Annual Report on Form 10-K (No. 000-27072)
for the year ended December 31, 2011 and is hereby incorporated by reference.
(17)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed August 15, 2012 and is hereby incorporated by reference.
(18)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed July 23, 2012 and is hereby incorporated by reference.
(19)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s annual report on Form 10-K (No. 000-27072)
for the year ended December 31, 2013 and is hereby incorporated by reference.
(20)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s annual report on Form 10-K (No. 000-27072)
for the year ended December 31, 2014 and is hereby incorporated by reference.
55
(21)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s annual report on Form 10-K (No. 000-27072)
for the year ended December 31, 2017 and is hereby incorporated by reference left blank.
(22)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed June 23, 2015 and is hereby incorporated by reference.
(23)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed August 4, 2015 and is hereby incorporated by reference.
(24)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended June 30, 2015 and is hereby incorporated by reference.
(25)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 1-13441)
for the period ended September 30, 2015 and is hereby incorporated by reference.
(26)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed November 23, 2015 and is hereby incorporated by reference.
(27)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed December 15, 2015 and is hereby incorporated by reference.
(28)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed January 14, 2016 and is hereby incorporated by reference.
(29)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed February 4, 2016 and is hereby incorporated by reference.
(30)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K (No. 000-27072)
filed March 1, 2016 and is hereby incorporated by reference.
(31)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s amended quarterly report on Form 10-Q/A (No.
000-27072) for the period ended September 30, 2011 and is hereby incorporated by reference.
(32)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q for the period
ended March 31, 2016 and is hereby incorporated by reference.
(33)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed June 10,
2016 and is hereby incorporated by reference.
(34)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q for the period
ended June 30, 2016 and is hereby incorporated by reference.
(35)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q/A for the period
ended March 31, 2016 and is hereby incorporated by reference.
(36)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed September
1, 2016 and is hereby incorporated by reference.
(37)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K/A filed May 8,
2017 and is hereby incorporated by reference.
(38)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed February
3, 2017 and is hereby incorporated by reference.
(39)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed August 29,
2017 and is hereby incorporated by reference.
(40)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed August 23,
2017 and is hereby incorporated by reference.
(41)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed June 1,
2017 and is hereby incorporated by reference.
56
(42)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended March 31, 2017 and is hereby incorporated by reference.
(43)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed March 22,
2018 and is hereby incorporated by reference.
(44)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed April 20,
2018 and is hereby incorporated by reference.
(45)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed May 6, 2018
and is hereby incorporated by reference.
(46)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended September 30, 2018 and is hereby incorporated by reference.
(47)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Registration Statement on Form S-1 (No. 333-226057)
filed July 2, 2018 and is hereby incorporated by reference.
(48)
Filed
with the Securities and Exchange Commission as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A
filed on August 3, 2018 and is hereby incorporated by reference.
(49)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed October
4, 2018 and is hereby incorporated by reference.
(50)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed March 8,
2019 and is hereby incorporated by reference.
(51)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Registration Statement on Form S-1/A (No.
333-229051) filed February 6, 2019 and is hereby incorporated by reference.
(52)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed June 5,
2019 and is hereby incorporated by reference.
(53)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed August 23,
2019 and is hereby incorporated by reference.
(54)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed May 2, 2019
and is hereby incorporated by reference.
(55)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed July 22,
2019 and is hereby incorporated by reference.
(56)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended June 30, 2019 and is hereby incorporated by reference.
(57)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed August 26,
2019 and is hereby incorporated by reference.
(58)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed September
27, 2019 and is hereby incorporated by reference.
(59)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Registration Statement on Form S-1/A (No.
333-233657) filed September 24, 2019 and is hereby incorporated by reference.
(60)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed December
11, 2018 and is hereby incorporated by reference.
(61)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed February
27, 2019 and is hereby incorporated by reference.
57
(62)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed December
11, 2019 and is hereby incorporated by reference.
(63)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed March 26,
2020 and is hereby incorporated by reference.
(64)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed April 6,
2020 and is hereby incorporated by reference.
(65)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s Current Report on Form 8-K filed April 27,
2020 and is hereby incorporated by reference.
(66)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended June 30, 2020 and is hereby incorporated by reference.
(67)
Filed
with the Securities and Exchange Commission as an exhibit to the Company’s quarterly report on Form 10-Q (No. 000-27072)
for the period ended September 30, 2020 and is hereby incorporated by reference.
(b)
Financial Statement Schedules
All
schedules have been omitted because either they are not required, are not applicable or the information is otherwise set forth
in the financial statements and related notes thereto.
Item
16.
Form
10-K Summary
None.
58
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
AIM
IMMUNOTECH INC.
By:
/s/
Thomas K. Equels
Thomas
K. Equels
Chief
Executive Officer
March
30, 2021
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange of 1934, as amended, this report has been signed below by
the following persons on behalf of this Registrant and in the capacities and on the dates indicated.
/s/
Thomas K Equels
Chief
Executive Officer & President,
March
30, 2021
Thomas
K. Equels
Director
of the Board
/s/
William Mitchell
Chairman
of the Board
March
30, 2021
William
Mitchell, M.D., Ph.D.
and
Director
/s/
Stewart L Appelrouth
Director
March
30, 2021
Stewart
L. Appelrouth
/s/
Ellen M Lintal
Chief
Financial Officer
March
30, 2021
Ellen
M Lintal
59
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Index
to Consolidated Financial Statements
Page
Report
of Independent Registered Public Accounting Firms
F-2
Consolidated Balance Sheets at December 31, 2020 and 2019
F-4
Consolidated Statements of Comprehensive Loss for each of the years in the two-year period ended December 31, 2020
F-5
Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the two-year period ended December 31, 2020
F-6
Consolidated Statements of Cash Flows for each of the years in the two-year period ended December 31, 2020
F-7
Notes to Consolidated Financial Statements
F-8
F- 1
Report
of Independent Registered Public Accounting Firm
Stockholders
and Board of Directors
AIM
ImmunoTech Inc.
Ocala,
Florida
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheet of AIM ImmunoTech Inc. (the “Company”) as of December 31,
2020, the related consolidated statement of operations and comprehensive loss, stockholders’ equity, and cash flows for
the year ended December 31, 2020 and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020 ,
in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical
Audit Matter
The
critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Calculation
of the fair value of redeemable warrants
As
discussed in Note 18 to the consolidated financial statements, the Company has certain redeemable warrants issued in conjunction
with offerings that contain a cash settlement feature upon the occurrence of a Fundamental Transaction. The Company calculates
the fair value of the redeemable warrants at the end of each quarterly reporting period using a Monte Carlo Simulation, which
includes subjective assumptions. Subsequent changes in the fair value of the redeemable warrants are recorded in the consolidated
statement of operations and comprehensive loss. As of December 31, 2020, the fair value of the redeemable warrants was approximately
$180 thousand.
We
identified the calculation of the fair value of the redeemable warrants as a critical audit matter. Specifically, there was a
high degree of management subjectivity and judgment in selecting the assumptions used in the Monte Carlo Simulation, including
the expected probability of a Fundamental Transaction and the expected stock price volatility. Auditing these elements involved
especially subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including
the use of personnel with specialized skill and knowledge to evaluate the Company’s Monte Carlo Simulation.
The
primary procedures we performed to address this critical audit matter included:
●
Testing
management’s process for developing the fair value estimate and evaluating the significant assumptions used to calculate
the fair value of the redeemable warrants, including the probability of a Fundamental Transaction and testing the accuracy
and completeness of data used by management to estimate the fair value of the redeemable warrants, including considering evidence
obtained in other areas of the audit to determine if contradictory evidence existed.
●
Utilizing
personnel with specialized skills and knowledge in valuation to assist in evaluating (i) the appropriateness of the Monte
Carlo Simulation model, and (ii) the expected stock price volatility range that was independently developed in consideration
of daily historical stock price volatility information.
/s/
BDO USA, LLP
We
have served as the Company’s auditor since 2021.
Miami,
Florida
March
30, 2021
F- 2
Report of Independent Registered Public Accounting
Firm
Board
of Directors and Stockholders of AIM ImmunoTech Inc.
Opinion
on the Financial Statement
We
have audited the accompanying balance sheet of AIM ImmunoTech Inc. (the “Company”) as of December 31, 2019, and the
related statement of operations, stockholders’ equity and cashflows for the year in the period ended December 31, 2019,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its
operations and its cash flows for the year in the period ended December 31, 2019, in conformity with accounting principles generally
accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Morrison, Brown, Argiz & Farra, LLC
We
have served as the Company’s auditor since 2018.
Miami,
Florida
March
30, 2020
F- 3
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
December
31, 2020 and 2019
(in
thousands, except for share and per share amounts)
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
$ 38,501
$ 1,470
Marketable securities
501
7,308
Funds receivable from New Jersey net operating loss
1,090
776
Accounts receivable, net
34
44
Prepaid expenses and other current assets
184
848
Total current assets
40,310
10,446
Property and equipment, net
6,473
7,116
Right of use asset, net
179
152
Patent and trademark rights, net
1,498
1,151
Marketable securities, long term
15,376
—
Other assets
748
1,889
Total assets
$ 64,584
$ 20,754
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$ 383
$ 472
Accrued expenses
442
403
Current portion of operating lease liability
47
38
Current portion of financing obligation
230
214
Total current liabilities
1,102
1,127
Long-term liabilities:
Operating lease liability
132
114
Notes payable
—
3,910
Financing obligation arising from sale leaseback transaction (Note 19)
1,876
2,104
Redeemable warrants
180
57
Commitments and contingencies (Notes 9, 11, 12, 14, 15 and 19)
Stockholders’ equity:
Series B Convertible Preferred Stock, stated value $1,000 per share, 732 shares designated, 778 shares issued and outstanding
732
778
Common Stock, par value $0.001 per share, authorized 350,000,000 shares; issued and outstanding 42,154,371 and 10,386,754, respectively
42
10
Additional paid-in capital
402,541
340,228
Accumulated other comprehensive loss
(47 )
—
Accumulated deficit
(341,974 )
(327,574 )
Total stockholders’ equity
61,294
13,442
Total liabilities and stockholders’ equity
$ 64,584
$ 20,754
See
accompanying notes to consolidated financial statements.
F- 4
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
(in
thousands, except share and per share data)
Years ended December 31,
2020
2019
Revenues:
Clinical treatment programs - US
$ 144
$ 110
Clinical treatment programs - Europe
19
30
Total Revenues
163
140
Costs and Expenses:
Production costs
806
893
Research and development
5,720
4,651
General and administrative
8,654
7,039
Impairment of other assets
135
—
Total Costs and Expenses
15,315
12,583
Operating loss
(15,152 )
(12,443 )
Interest and other income
219
89
Interest expense and other finance costs
(672 )
(427 )
Settlement of litigation/Insurance Claim
—
1,217
Extinguishment of debt
142
(345 )
Fair value of convertible note adjustment
—
90
Redeemable warrants valuation adjustment
(123 )
1,510
Gain from sale of income tax operating losses
1,186
905
Net Loss
(14,400 )
(9,404 )
Other comprehensive (loss)
Unrealized loss on marketable securities
(47 )
—
Net comprehensive loss
$ (14,447 )
$ (9,404 )
Basic and diluted loss per share
$ (0.45 )
$ (2.58 )
Weighted average shares outstanding basic and diluted
31,842,799
3,642,717
See
accompanying notes to consolidated financial statements.
F- 5
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders’ Equity
(in
thousands except share data)
Common
Accumulated
Series
B
Common
Stock
Additional
other
Total
Preferred
Stock
.001
Paid-in
Comprehensive
Accumulated
Stockholders’
Shares
Shares
Par Value
Capital
Income
(Loss)
Deficit
Equity
Balance
December 31, 2018
—
1,107,607
$ 1
$ 323,749
$ —
$ (318,170 )
$ 5,580
Shares
issued for:
Common
Stock issuance, net of costs
—
8,956,228
9
16,946
—
—
16,955
Convertible
note origination shares
—
204,246
—
1,473
—
—
1,473
Deemed
dividends
—
—
—
(135 )
—
—
(135 )
Equity
based compensation
—
1,932
—
853
—
—
853
Redeemable
warrants
—
—
—
(2,787 )
—
—
(2,787 )
Shares
issued to pay accounts payable
—
116,741
—
129
—
—
129
Series
B preferred shares issued, net of offering costs
5,312
—
—
—
—
—
5,312
Series
B preferred shares converted to Common shares
(4,534 )
—
—
—
—
—
(4,534 )
Net
comprehensive loss
—
—
—
—
—
(9,404 )
(9,404 )
Balance
December 31, 2019
778
10,386,754
10
340,228
—
(327,574 )
13,442
Shares
issued for:
Common
Stock issuance, net of costs
—
31,761,210
32
61,216
—
—
61,248
Warrant
Modification
—
—
—
46
—
—
46
Equity-based
compensation
—
—
—
1,036
—
—
1,036
Shares
issued to pay accounts payable
—
6,407
—
15
—
—
15
Series
B preferred shares converted to Common shares
(46 )
—
—
—
—
—
(46 )
Net
comprehensive loss
—
—
—
—
(47 )
(14,400 )
(14,447 )
Balance
December 31, 2020
732
42,154,371
$ 42
$ 402,541
$ (47 )
$ (341,974 )
$ 61,294
See
accompanying notes to consolidated financial statements
F- 6
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(in
thousands)
Years
ended December 31,
2020
2019
Cash flows from operating activities:
Net loss
$ (14,400 )
$ (9,404 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment
665
735
Redeemable warrants valuation adjustment
123
(1,236 )
Abandonment
of patents and trademarks
158
—
Fair value of convertible note adjustment
—
(70 )
Allowance
for bad debt recovery
(30 )
—
Warrant modification
46
—
Extinguishment of convertible note
142
345
Amortization of patent, trademark rights
68
57
Changes in ROU assets
(27 )
37
Inventory write-off
1,095
—
Impairment of other assets
135
—
Gain from sale of income tax operating losses
(96 )
(129 )
Equity-based compensation
1,036
853
Amortization of finance and debt issuance costs
112
288
Change in assets and liabilities:
Accounts receivables
40
191
Funds receivable from New Jersey net operating loss
(314 )
83
Prepaid expenses and other current assets and other non current assets
671
29
Lease liability
27
(37 )
Accounts payable
(89 )
(207 )
Accrued interest expense
231
129
Accrued expenses
39
(731 )
Net cash used in operating activities
(10,368 )
(9,067 )
Cash flows from investing activities:
Proceeds from sale of marketable securities
10,044
—
Purchase of short-term marketable securities
(18,613 )
(5,782 )
Purchase of property and equipment
(22 )
(68 )
Purchase of patent and trademark rights
(573 )
(297 )
Net cash used in investing activities
(9,164 )
(6,147 )
Cash flows from financing activities:
Financing obligation payments
(355 )
(340 )
Proceeds from note payable, net of issuance costs
—
3,632
Payoff of note payable
(4,330 )
(2,210 )
Proceeds from sale of stock, net of issuance costs
61,248
15,303
Net cash provided by financing activities
56,563
16,385
Net increase in cash and cash equivalents
37,031
1,171
Cash and cash equivalents at beginning of period
1,470
299
Cash and cash equivalents at end of period
$ 38,501
$ 1,470
Supplemental disclosures of non-cash investing and financing cash flow information:
Stock issued to settle accounts payable
$ 15
$ 129
Conversion of note payable in shares
$ —
1,236
Conversion of Series B preferred
$ 46
4,534
Operating Lease – Right of Use Assets
$ 66
$ 188
See
accompanying notes to consolidated financial statements.
F- 7
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
AIM
ImmunoTech Inc. and its subsidiaries (collectively, “AIM” or the “Company”) are an immuno-pharma company
headquartered in Ocala, Florida and focused on the research and development of therapeutics to treat multiple types of cancers,
various viruses and immune-deficiency disorders. The Company has established a strong foundation of laboratory, pre-clinical and
clinical data with respect to the development of nucleic acids and natural interferon to enhance the natural antiviral defense
system of the human body and to aid the development of therapeutic products for the treatment of certain cancers and chronic diseases.
AIM’s
flagship products include Ampligen® (rintatolimod), a first-in-class drug of large macromolecular RNA (ribonucleic acid) molecules,
and Alferon N Injection® (Interferon Alfa-N3). A first-in-class drug is also known as a new molecular entity that contains
an active moiety. Ampligen has not been approved by the FDA or marketed in the US.
Since
the outbreak of SARS-CoV-2, the novel virus that causes COVID-19, the Company has been actively engaged in determining whether
Ampligen could be an effective treatment for this virus or could be part of a vaccine. The Company believes that Ampligen has
the potential to be both an early-onset treatment for and prophylaxis against SARS-CoV-2. Ampligen also has potential as a COVID-19
vaccine strategy that combines Ampligen as an immune enhancer seeking to boost the efficacy of the vaccine and also convey cross-reactivity
and cross-protection against future mutations. The Company believes that prior studies of Ampligen in SARS-CoV-1 animal experimentation
may predict similar protective effects against the new virus.
Beginning
in April 2020, the Company entered into confidentiality and non-disclosure agreements with numerous companies for the potential
outsourcing of the production of polymer, enzyme, placebo as well as Ampligen and one Contract Research Organization which may
also assist with the planning, presentation and filing of documents with the FDA. These confidentiality and non-disclosure agreements
are only the initial step in forging relationships with these entities to obtain contract manufacturers and research partners.
No assurance can be given as to how many of these, initial explorations, if any, will result in definitive arrangements or, with
regard to potential research partners, what research arrangements will develop and thereafter prove fruitful.
Ampligen
represents an RNA being developed for globally important cancers, viral diseases and disorders of the immune system. Ampligen
has in the clinic demonstrated the potential for standalone efficacy in a number of solid tumors. The Company has also seen success
in increasing survival rates and efficacy in the treatment of animal tumors when Ampligen is used in combination with checkpoint
blockade therapies. This success in the field of immuno-oncology has guided our focus toward the potential use of Ampligen as
a combinational therapy for the treatment of a variety of solid tumor types. There are currently multiple Ampligen clinical trials
testing Ampligen in humans — both underway and planned — at major cancer research centers. Ampligen was used as a
monotherapy to treat pancreatic cancer patients in an Early Access Program (EAP) approved by the Inspectorate of Healthcare in
the Netherlands at Erasmus Medical Center. In September, AIM reported receipt of statistically significantly results of positive
survival benefit when using Ampligen in patients with locally advanced/metastatic pancreatic cancer after systemic chemotherapy.
AIM will work with its Contract Research Organization, Amarex Clinical Research LLC, to seek FDA “fast-track” and
possibly even FDA “breakthrough” designations and to obtain authorization to conduct a follow-up pancreatic cancer
Phase 2/3 clinical trial with sites in the Netherlands at Erasmus MC under Prof. van Eijck, and also at major cancer research
centers in the United States.
Ampligen
is also being evaluated for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS). AIM is currently sponsoring
an expanded access program for ME/CFS patients in the U.S. In August 2016, the Company received approval of our NDA from Administracion
Nacional de Medicamentos, Alimentos y Tecnologia Medica (ANMAT) for commercial sale of Ampligen in the Argentine Republic for
the treatment of severe CFS. With regulatory approval in Argentina, Ampligen is the world’s only approved therapeutic for
ME/CFS. On June 10, 2020, the Company received import clearance from ANMAT to import the first shipment of commercial grade vials
of Ampligen to Argentina. The next steps in the commercial launch of Ampligen include ANMAT conducting a final inspection of the
product and release tests before granting final approval to begin commercial sales. AIM has supplied GP Pharm with the Ampligen
required for testing and ANMAT release. Once final approval by ANMAT is obtained, GP Pharm will begin distributing Ampligen in
Argentina. The Company continues to pursue our Ampligen New Drug Application, or NDA, for the treatment of CFS with the FDA.
Alferon
N Injection is approved for a category of sexually transmitted diseases infection and patients that are intolerant to recombinant
interferon in Argentina. Alferon is the only natural-source, multi-species alpha interferon currently approved for sale in the
U.S. for the intralesional treatment of refractory (resistant to other treatment) or recurring external condylomata acuminata/genital
warts (GW) in patients 18 years of age or older. Certain types of human papilloma viruses cause GW. AIM also has approval from
ANMAT for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferon in Argentina.
F- 8
The
Company operates a 30,000 sq. ft. facility in New Brunswick, NJ, where it conducts testing and has produced limited quantities
of active pharmaceutical ingredients (“API”) for its products. The Company has reviewed its operations at the facility
and believes that some of the equipment most likely should be upgraded to realize greater efficiencies, when and if it requires
more API than is currently in storage. The Company is also exploring engaging a Contract Manufacturing Organization (“CMO”)
to produce API. While the Company believes it has sufficient API to meet its current needs, is also continually exploring new
efficiencies so as to maximize its ability to fulfill future obligations.
The
consolidated financial statements include the financial statements of AIM ImmunoTech Inc. and its wholly-owned subsidiaries, which
are incorporated in Delaware and are dormant. The Company’s foreign subsidiary, Hemispherx Biopharma Europe N.V./S.A., was
established in Belgium in 1998. All significant intercompany balances and transactions have been eliminated in consolidation.
(2) Summary
of Significant Accounting Policies
(a)
Cash and Cash Equivalents
Cash
and Cash Equivalents consist of cash and money market accounts and total $38,501,000 and $1,470,000 at December 31, 2020 and 2019,
respectively.
(b)
Marketable Securities
Marketable
securities consist of mutual funds and debt securities. The Company’s securities are stated at fair value. The Company records
changes in fair value of mutual funds in results of operations and the changes in fair value of debt securities in other comprehensive
income.
(c)
Property and Equipment, net
(in thousands)
December 31,
2020
2019
Land, buildings and improvements
$ 10,547
$ 10,547
Furniture, fixtures, and equipment
5,136
5,114
Total property and equipment
15,683
15,661
Less: accumulated depreciation and amortization
(9,210 )
(8,545 )
Property and equipment, net
$ 6,473
$ 7,116
Property
and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the respective assets, ranging from three to thirty-nine years.
(d)
Patent and Trademark Rights, net
Patents
and trademarks are stated at cost (primarily legal fees) and are amortized using the straight line method over the established
useful life of 17 years. The Company reviews its patents and trademark rights periodically to determine whether they have continuing
value or their value has become impaired. Such review includes an analysis of the patent and trademark’s ultimate revenue
and profitability potential. Management’s review addresses whether each patent continues to fit into the Company’s
strategic business plans.
(e)
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
(“GAAP”) of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ from those estimates, and those differences may be
material. Accounts requiring the use of significant estimates include valuation allowances for inventory, determination of other-than-temporary
impairment on securities, valuation of deferred taxes, patent and trademark valuations, stock-based compensation calculations,
building valuation, fair value of warrants, convertible note payable and contingency accruals.
F- 9
Impact
of the Novel Coronavirus
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain
of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community
as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic,
based on the rapid increase in exposure globally.
The
full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full
magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations.
Management
is actively monitoring the global situation on its financial condition, liquidity, operations, scientific collaborations, suppliers,
industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company
is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for
fiscal year 2021.
Although
the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues,
it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity for
the fiscal year 2021.
Coronavirus
Aid, Relief and Economic Security Act
On
March 27, 2020, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was
signed into law. The CARES Act includes various income and payroll tax provisions. The Company has analyzed the tax provisions
of the CARES Act and determined they have no significant financial impact to the consolidated financial statements. The Company
has no intention of taking advantage of other benefits but will continue to evaluate the impact on the Company’s financial
position.
(f)
Revenue
Effective
January 1, 2018, the Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers,
using the modified retrospective method and there was no impact to financial position and results of operations as a result of
the adoption. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards,
such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue
when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity
expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines
are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer;
(ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance
obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration
it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract
is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and
determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company
then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when
(or as) the performance obligation is satisfied. Overall, adoption of the new standard did not result in an adjustment to amounts
previously reported in our consolidated financial statements and there were no other significant changes impacting the timing
or measurement of our revenue or our business processes and controls.
Revenue
from the sale of Ampligen under cost recovery clinical treatment protocols approved by the FDA is recognized when the product
is shipped. The Company has no other obligation associated with its products once shipment has been accepted by the customer.
Revenue
from the sale Ampligen under the EAP is recognized as the product is distributed and administered to patients involved in the
cost recovery program.
(g)
Accounting for Income Taxes
Deferred
income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to
reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits
which are not expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized
in the period that such tax rate changes are enacted.
F- 10
The Company applies
the provisions of FASB ASC 740-10 Uncertainty in Income Taxes. As a result of the implementation, there has been no material change
to the Company’s tax positions as they have not paid any corporate income taxes due to operating losses. With the exception of
net operating losses generated in New Jersey, all tax benefits will likely not be recognized due to the substantial net operating
loss carryforwards which will most likely not be realized prior to expiration. With no tax due for the foreseeable future,
the Company has determined that a policy to determine the accounting for interest or penalties related to the payment of tax is
not necessary at this time.
Immaterial Revision of
Previously Reported Amounts
During the preparation
of the consolidated financial statements as of and for the period ended December 31, 2020, Management noted an error in the Company’s
previously issued Consolidated Financial Statements. The error in the amount of approximately $535,000 related to the Company’s
accounting for income taxes that resulted in a deferred tax benefit associated with the sale of net operating losses. In evaluating
whether the previously issued Consolidated Financial Statements were materially misstated, the Company applied the guidance of
ASC 250, Accounting Changes and Error Corrections, SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Assessing Materiality
and SAB Topic 1.N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements and concluded that the effect of the errors on prior period financial statements was immaterial. The cumulative
effect of adjustments required to correct the misstatements in the Consolidated Financial Statements years prior to 2019 are reflected
in the revised opening accumulated deficit balance as of January 1, 2019. The cumulative effect of those adjustments on all
periods reduced previously reported accumulated deficit by approximately $406,000. As a result, certain amounts presented in
the Company’s Consolidated Balance Sheet and Consolidated Statement of Operations have been revised from the amounts previously
reported to correct this error which include an adjustment to decrease Accumulated deficit in the amount of approximately $406,000,
increase Other assets in the amount of approximately $535,000, increase Gain from the sale of income tax operating losses of approximately
$129,000, decrease Net loss in the amount of approximately $129,000 and increase Basic and diluted loss per share of $(0.04).
(h)
Recent Accounting Standards and Pronouncements
In
February 2016, the FASB issued ASU 2016-02 - Leases, which amends the existing accounting standards for lease accounting,
including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.
ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption of is permitted
as of the standard’s issuance date. ASU 2016-02 allows a modified retrospective transition approach for all leases existing
at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company evaluated
the effects and the adoption of this guidance will have on the consolidated financial statements. (See Note 12 : Leases).
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, and
subsequent amendments to the guidance, ASU 2018-19 in November 2018 and ASU 2020-02 in February 2020. The standard significantly
changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured
at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected
loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required
to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model.
It also simplifies the accounting model for purchased credit-impaired debt securities and loans. The amendment will affect loans,
debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and
any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies
that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments
should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU will
be effective for us beginning the first day of our 2023 fiscal year. Early adoption is permitted. We are evaluating the impact
of adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate
the effect the adoption of the new standard will have on our financial statements.
Other
recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the
Company’s present or future financial statements.
(i)
Stock-Based Compensation
The
Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, “Compensation – Stock
Compensation”, which requires recognition of compensation expense related to stock-based compensation awards over the period
during which an employee is required to provide service for the award. Compensation expense is equal to the fair value of the
award at the date of grant, net of estimated forfeitures.
F- 11
(j)
Accounts Receivable, net
Concentration
of credit risk, with respect to accounts receivable, is limited due to the Company’s credit evaluation process. The Company
does not require collateral on its receivables. The Company’s receivables were $34,000 and $44,000, net of $30,000 allowance
for doubtful accounts, as of December 31, 2020 and 2019, respectively.
(k)
Common Stock Per Share Calculation
Basic
and diluted net loss per share is computed using the weighted average number of shares of Common Stock outstanding during the
period. Equivalent Common shares, consisting of 548,374, and 8,351,113 of stock options and warrants, are excluded from the calculation
of diluted net loss per share for the years ended December 31, 2020 and 2019, respectively, since their effect is antidilutive
due to the net loss of the Company.
(l)
Long-Lived Assets
The
Company assesses long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of
the assets or the asset grouping may not be recoverable. Factors that the Company considers in deciding when to perform an impairment
review include significant under-performance of a business or product line in relation to expectations, significant negative industry
or economic trends, and significant changes or planned changes in its use of the assets. The Company measures the recoverability
of assets that it will continue to use in its operations by comparing the carrying value of the asset grouping to our estimate
of the related total future undiscounted net cash flows. If an asset grouping’s carrying value is not recoverable through
the related undiscounted cash flows, the asset grouping is considered to be impaired.
The
Company measures the impairment by comparing the difference between the asset grouping’s carrying value and its fair value.
Long-lived assets are considered a non-financial asset and are recorded at fair value only if an impairment charge is recognized.
Impairments are determined for groups of assets related to the lowest level of identifiable independent cash flows. The Company
makes subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition,
as the Company reviews its manufacturing process and other manufacturing planning decisions, the useful lives of assets are
shorter than the Company had originally estimated, it accelerates the rate of depreciation over the assets’ new, shorter
useful lives.
(3) Inventories
The
Company uses the lower of first-in, first-out (“FIFO”) cost or net realizable value method of accounting for inventory.
Commercial
sales of Alferon in the U.S. will not resume until new batches of commercial filled and finished product are produced and released
by the Food and Drug Administration (“FDA”). While the facility is approved by the FDA under the Biologics License
Application (“BLA”) for Alferon, this status will need to be reaffirmed by an FDA pre-approval inspection. The Company
also will need the FDA’s approval to release commercial product once it has submitted satisfactory stability and quality
release data. Currently, the manufacturing process is on hold and there is no definitive timetable to have the facility back online.
The Company estimates it will need approximately $10,000,000 to commence the manufacturing process. Due to the Company extending
the timeline of Alferon production to an excess of one year, the Company reclassified Alferon work in process inventory of $1,095,000
to other assets within our balance sheet as of December 31, 2019.
Based
on the Company’s current oncology and growing projects related to COVID-19 and ability to ready the manufacturing plant
to utilize the current Alferon work in process in a timely manner prior to expiration of the WIP the Company concluded to write
off the value of the Alferon as of December 31, 2020 and included within Research and Development expenses on the Consolidated
Statement of Comprehensive Loss.
(4) Marketable
Securities
Marketable
securities consist of mutual funds and debt securities. At December 31, 2020 and 2019, it was determined that none of the marketable
securities had an other-than-temporary impairment. At December 31, 2020 and December 31, 2019, all securities were measured as
Level 1 instruments of the fair value measurements standard (See Note 18: Fair Value). As of December 31, 2020 and December 31,
2019 the Company held $15,877,000 and $7,308,000 in debt and equity securities respectively. As of December 31, 2019 there were
no debt securities.
F- 12
Debt
Securities classified as available for sale consisted of:
December
31, 2020
(in
thousands)
Securities
Amortized
Cost
Gross
Unrealized
Gains /(Losses)
Gross
Unrealized
Gains /(Losses)
Fair
Value
Marketable Securities
U.S. Treasury notes
$ 5,746
$ —
$ (47 )
$ 5,699
$ 5,699
U.S. Government mortgage backed securities
4,890
—
(52 )
4,838
4,838
Corporate bonds
5,288
—
52
5,340
5,340
Totals
$ 15,924
$ —
$ (47 )
$ 15,877
$ 15,877
December
31, 2020
(in thousands)
Less than 12 Months
12 Months or More
Total
Securities
Fair Value
Gross
Unrealized
Gains
Fair Value
Gross
Unrealized
Gains
Fair Value
Gross
Unrealized
Gains
U.S. Treasury notes
$ 501
$ —
$ 5,245
$ (47 )
$ 5,699
$ (47 )
U.S. Government mortgage backed securities
—
—
4,890
(52 )
4,838
(52 )
Corporate bonds
—
—
5,288
52
5,340
52
Totals
$ 501
$ —
$ 15,423
$ (47 )
$ 15,877
$ (47 )
December
31, 2019
(in
thousands)
Securities
Fair
Value
Short-Term
Investments
Mutual Funds
$ 7,308
$ 7,308
Totals
$ 7,308
$ 7,308
Net
gain and loss recognized during 2020 and 2019 respectively was $1,000 and $3,000.
(5) Patents,
Trademark Rights, net
December 31, 2018
$ 911
Acquisitions
297
Amortization
(57 )
December 31, 2019
$ 1,151
Acquisitions
573
Amortization
(68 )
Abandonments
(158 )
December 31, 2019
$ 1,498
F- 13
Patents
and trademarks are stated at cost (primarily legal fees) and are amortized using the straight-line method of the estimated useful
life of 17 years. During the years ended December 31, 2020, the Company decided not to pursue certain patents in various
countries for strategic reasons and recorded abandonment charges which are included in research and development.
Amortization
of patents and trademarks for each of the next five years is as follows:
Year Ending December 31,
2021
$ 75
2022
89
2023
105
2024
124
2025
146
Thereafter
959
Total
$ 1,498
(6) Accrued
Expenses
Accrued
expenses at December 31, 2020 and 2019 consist of the following:
(in thousands)
December 31,
2020
2019
Compensation
$ 2
$ 94
Professional fees
124
73
Clinical trial expenses
—
56
Other expenses
316
180
$ 442
$ 403
(7) Stockholders’
Equity
(a)
Preferred Stock
The
Company is authorized to issue 5,000,000 shares of $0.01 par value preferred stock with such designations, rights and preferences
as may be determined by the Board of Directors. Of our authorized preferred stock, 250,000 shares have been designated as Series
A Junior Participating Preferred Stock and 8,000 shares have been designated as Series B Convertible Preferred Stock. The Series
B Convertible Preferred Stock has a stated value $1,000 per share.
The
Company is authorized to issue 8,000 Series B Convertible Preferred Stock, no par value, stated value $1,000 per share. As of
December 31, 2020, and December 31, 2019, the Company had 732 and 778 shares of Series B Convertible Preferred Stock outstanding,
respectively. Each such Preferred Share is convertible into 114 shares of common stock.
Pursuant
to a registration statement relating to a rights offering declared effective by the SEC on February 14, 2019, AIM distributed
to its holders of common stock and to holders of certain options and warrants as of February 14, 2019, at no charge, one non-transferable
subscription right for each share of common stock held or deemed held on the record date. Each right entitled the holder to purchase
one unit, at a subscription price of $1,000 per unit, consisting of one share of Series B Convertible Preferred Stock with a face
value of $1,000 (and immediately convertible into common stock at an assumed conversion price of $8.80) and 114 warrants with
an assumed exercise price of $8.80. The warrants are exercisable for five years after the date of issuance. The net proceeds realized
from the rights offering were approximately $4,700,000. During the twelve months ending December 31, 2020, 46 shares of Series
B Convertible Preferred Stock were converted into common stock.
(b)
Common Stock
The
Company has authorized shares of 350,000,000 with specific limitations and restrictions on the usage of 8,000,000 of the 350,000,000
authorized shares.
F- 14
In
June 2019, the Company effected a 44-to-1 reverse stock split of the outstanding shares, in order to become compliant with the
NYSE regulations. This did not affect the number of authorized shares. All references herein to shares of common stock, options,
warrants and preferred stock have been adjusted to give effect to this reverse stock split.
On
July 7, 2020, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares from
the Company at the market price. As of August 31, 2020, the Company has issued 10,730 shares of its common stock at a price of
$2.33 for a total of $25,000. This plan expired September 10,2020.
On
September 4, 2020, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares
from the Company at the market price. As of October 31, 2020, the Company has issued 12,316 shares of its common stock at a price
of $2.03 for a total of $25,000. This plan expired November 1,2020.
On
November 5, 2020, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares
from the Company at the market price. As of December 31, 2020, the Company has issued 14,435 shares of its common stock at a price
of $1.72 for a total of $25,000. This plan expired January 2, 2021.
On
June 11, 2019, the board of directors approved up to $500,000 for all directors, officers and employees to buy company shares
from the Company at the market price. As of June 28, 2019, the Company has issued 67,767 shares of its common stock at prices
between $4.03 and $4.37 for a total of $274,000. This plan expired August 19, 2019.
On
September 27, 2019, the Company closed a public offering underwritten by A.G.P./Alliance Global Partners, LLC (the “Offering”)
of (i) 1,740,550 shares of Common Stock; (ii) pre-funded warrants exercisable for 7,148,310 shares of Common Stock (the “Pre-funded
Warrants”), and (iii) warrants to purchase up to an aggregate of 8,888,860 shares of Common Stock (the “Warrants”).
In conjunction with the Offering, a Representative’s Warrant to purchase up to an aggregate of 266,665 shares of common
stock (the “Representative’s Warrant”). The shares of Common Stock and Warrants were sold at a combined Offering
price of $0.90, less underwriting discounts and commissions. Each Warrant sold with the shares of Common Stock represents the
right to purchase one share of Common Stock at an exercise price of $0.99 per share. The Pre-Funded Warrants and Warrants were
sold at a combined Offering price of $0.899, less underwriting discounts and commissions. The Pre-Funded Warrants were sold to
purchasers whose purchase of shares of Common Stock in the Offering would otherwise result in the purchaser, together with its
affiliates and certain related parties, beneficially owning more than 4.99% of the Company’s outstanding Common Stock immediately
following the consummation of the Offering, in lieu of shares of Common Stock. Each Pre-Funded Warrant represents the right to
purchase one share of Common Stock at an exercise price of $0.001 per share. The Pre-Funded Warrants are exercisable immediately
and may be exercised at any time until the Pre-Funded Warrants are exercised in full. A registration statement on Form S-1, relating
to the Offering was filed with the SEC and was declared effective on September 25, 2019, the net proceeds were approximately $7,200,000.
During the year ending December 31, 2020, 1,870,000 of the Pre-funded Warrants were exercised and 7,687,860
Warrants were exercised. In addition, on March 25, 2020, the Representative’s Warrant was amended to permit
exercise of such warrant to commence on March 30, 2020. These warrants were exercised on March 31, 2020 and an aggregate of 266,665
shares were issued upon exercise of this warrant for gross proceeds of approximately $264,000 and a $46,000 expense for the warrant
modification.
On
April 20, 2018, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain investors
(the “Investors”) for the sale by the Company of an aggregate of 150,000 shares (the “Common Shares”)
of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), at a purchase price of $17.16
per share. Concurrently with the sale of the Common Shares, pursuant to the Purchase Agreements the Company also sold 150,000
warrants, 50% of which are Class A Warrants and 50% of which are Class B Warrants (collectively, the “Warrants”).
The Company received gross proceeds from the sale of the Warrants solely to the extent such Warrants are exercised for cash. Both
classes of Warrants will not be exercisable until six months after issuance and will have an exercise price of $17.16 per share,
subject to adjustments as provided under the terms of the Warrants. The Class A Warrants and Class B Warrants will expire, respectively,
two and five years after the date on which they are first exercisable. The closing of the sales of these securities under the
Purchase Agreements took place on April 24, 2018. The Company received net proceeds from the transactions of $2,343,820 after
deducting certain fees due to the placement agent and the Company’s transaction expenses.
On
May 2, 2019, the Company entered into an agreement with the holders of the August 23, 2017 and April 20, 2018 respectively.
The warrant exercise price was reduced to $6.60 and 103,410 warrants were exercised, reducing the liability attributed to the
warrants by approximately $404,000, and the Company realized about $682,000 in net proceeds, resulting in an addition to
stockholders’ equity of approximately $1,086,000.
On
November 27, 2017, the Company reactivated its equity distribution agreement (the “EDA”) with Maxim Group LLC (“Maxim”).
During the year ended December 31, 2019, the Company sold an aggregate of 49,463 shares under the EDA for proceeds of $827,000
net of $25,000 in commissions.
F- 15
On
July 19, 2019, the Company entered into a new Equity Distribution Agreement (the “2019 EDA”) with Maxim, pursuant
to which it could sell from time to time, shares of its Common Stock through Maxim, as agent (the “Offering”). The
2019 EDA replaced the EDA with Maxim. For the year ended December 31, 2020, the Company sold 20,444,807 shares under the 2019
EDA for total gross proceeds of $53,936,615, which includes a 3.5% fee to Maxim of $1,888,727.
The
2018 Equity Incentive Plan, effective September 12, 2018, authorizes the grant of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance
Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards. Initially, a maximum of 7,000,000 shares of Common
Stock is reserved for potential issuance pursuant to awards under the 2018 Equity Incentive Plan. Unless sooner terminated, the
2018 Equity Incentive Plan will continue in effect for a period of 10 years from its effective date. On October 17, 2018, the
Board of Directors issued 26,324 options to the officers and directors at the exercise price of $9.68 expiring in 10 years, and
on November 14, 2018, the Board of Directors issued 23 options to each employee, officer and director at the exercise price of
$9.68 expiring in ten years. On January 28, 2019, 27,570 options were issued to each of these officers with an exercise price
of $9.68 for a period of ten years with a vesting period of one year. In August 2020, 400,000 options were issued to each of these
officers with an exercise price range of $2.77 to $3.07 for a period of ten years with a vesting period of one year. During
December 2020, 675,000 options were issued to employees with an exercise price range of $1.85 to $1.96 for a period of ten years
with a vesting period of one year.
As
of December 31, 2020, and 2019, there were 42,154,371 and 10,386,754 shares outstanding, respectively.
(c)
Equity Financings
See
(b) above
(d)
Common Stock Options and Warrants
(i)
Stock Options
The
Equity Incentive Plan of 2009, effective June 24, 2009, as amended, authorizes the grant of non-qualified and incentive stock
options, stock appreciation rights, restricted stock and other stock awards. A maximum of 22,000,000 shares of common stock is
reserved for potential issuance pursuant to awards under the Equity Incentive Plan of 2009. Unless sooner terminated, the Equity
Incentive Plan of 2009 will continue in effect for a period of 10 years from its effective date.
The
2018 Equity Incentive Plan, effective September 12, 2018, authorizes the grant of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance
Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards. Initially, a maximum of 7,000,000 shares of common
stock is reserved for potential issuance pursuant to awards under the 2018 Equity Incentive Plan. Unless sooner terminated, the
2018 Equity Incentive Plan will continue in effect for a period of 10 years from its effective date. On October 17, 2018, the
Board of Directors issued 26,234 options to the officers and directors at the exercise price of $9.68 expiring in 10 years, and
on November 14, 2018, the Board of Directors issued 23 options to each employee, officer and director at the exercise price of
$9.68 expiring in ten years. On January 28, 2019, 27,570 options were issued to each of these officers with an exercise price
of $9.68 for a period of ten years with a vesting period of one year.
The
Equity Incentive Plans of 2009 and 2018 are administered by the Board of Directors. The Plans provide for awards to be made to
such Officers, other key employees, non-employee Directors, consultants and advisors of the Company and its subsidiaries as the
Board may select.
Stock
options awarded under the Plans may be exercisable at such times (not later than 10 years after the date of grant) and at such
exercise prices (not less than fair market value at the date of grant) as the Board may determine. The Board may provide for options
to become immediately exercisable upon a “change in control”, which is defined in the Plans to occur upon any of the
following events: (a) the acquisition by any person or group, as beneficial owner, of 20% or more of the outstanding shares or
the voting power of the outstanding securities of the Company; (b) either a majority of the Directors of the Company at the annual
stockholders meeting has been nominated other than by or at the direction of the incumbent Directors of the Board, or the incumbent
Directors cease to constitute a majority of the Company’s Board; (c) the Company’s stockholders approve a merger or
other business combination pursuant to which the outstanding common stock of the Company no longer represents more than 50% of
the combined entity after the transaction; (d) the Company’s stockholders approve a plan of complete liquidation or an agreement
for the sale or disposition of all or substantially all of the Company’s assets; or (e) any other event or circumstance
determined by the Company’s Board to affect control of the Company and designated by resolution of the Board as a change
in control.
F- 16
The
fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model.
Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate
is based on U.S. Treasury issues with a term equal to the expected life of the option and equity warrant. The Company uses historical
data to estimate expected dividend yield, life and forfeiture rates. The expected life of the options and equity warrants was
estimated based on historical option and equity warrant holders’ behavior and represents the period of time that options
and equity warrants are expected to be outstanding. The fair values of the options and equity warrants granted were estimated
based on the following weighted average assumptions:
Year Ended December 31,
2020
2019
Risk-free interest rate
0.3% - 0.46 %
2.6 %
Expected dividend yield
—
—
Expected life
5 years
5 years
Expected volatility
115.24% - 116.79 %
82.60 %
Weighted average grant date fair value for options and equity warrants issued
$2.28 per option for 1,025,000 options
$9.68 per option for 39,267 options
The
exercise price of all stock options and equity warrants granted was equal to or greater than the fair market value of the underlying
common stock on the date of the grant.
Information
regarding the options approved by the Board of Directors under Equity Plan of 2009 is summarized below. The plan expired June
24, 2019:
2020
2019
Shares
Option
Price
Weighted
Average
Exercise
Price
Shares
Option
Price
Weighted
Average
Exercise
Price
Outstanding, beginning of year
132,615
13.20 – 2,127.84
31.65
144,060
13.20 -2,127.84
15.84
Granted
—
—
—
—
—
Forfeited
(2,935 )
9.68 – 380.16
82.38
(11,445 )
13.20 – 2,127.84
37.45
Exercised
—
—
—
—
—
Outstanding, end of year
129,680
13.20-2,127.84
23.05
132,615
13.20 - 2,127.84
31.65
Exercisable, end of year
98,138
13.20-2,127.84
50,552
13.20 – 2,127.84
Weighted average remaining contractual life (years)
5.6
years
6.7
years
Information
regarding the options approved by the Board of Directors under the Equity Plan of 2018 is summarized below:
2020
2019
Shares
Option
Price
Weighted
Average
Exercise
Price
Shares
Option
Price
Weighted
Average
Exercise
Price
Outstanding, beginning of year
61,806
9.68
9.68
27,029
—
—
Granted
1,025,000
1.85 – 3.07
2.33
39,268
9.68
9.68
Forfeited
(257 )
9.68 – 16.72
2.75
(4,491 )
—
—
Exercised
—
—
—
—
—
—
Outstanding, end of year
1,086,549
1.85 – 9.68
2.75
61,806
9.68
9.68
Exercisable, end of year
243,750
1.85 – 9.68
2.75
49,376
9.68
9.68
Weighted average remaining contractual life (years)
9.4
years
9.1 years
Available for future grants
38,268
87,798
F- 17
Stock
option activity during the years ended December 31, 2020 and 2019 is as follows:
Stock
option activity for employees
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contracted
Term
(Years)
Aggregate
Intrinsic
Value
Outstanding December 31, 2018
116,149
$ 33.00
5.89
—
Granted
27,570
9.68
—
—
Forfeited
(15,972 )
19.76
—
—
Outstanding December 31, 2019
127,747
$ 29.61
6.41
—
Granted
925,000
2.28
9.78
—
Forfeited
(2,483 )
19.50
Expired
(569 )
348.48
—
—
Outstanding December 31, 2020
1,049,695
$ 5.38
9.28
—
Vested and expected to vest at December 31, 2020
1,049,695
$ 5.38
9.28
—
Exercisable at December 31, 2020
282,666
$ 6.57
8.00
—
The
weighted-average grant-date fair value of employee options granted during the year 2020 was $2,110,250 for 925,000 options at
$2.28 per option and during year 2019 was $267,000 for 27,570 options at $9.68 per option.
Unvested
stock option activity for employees:
Number of
Options
Weighted
Average
Exercise
Price
Average
Remaining
Contracted
Term
(Years)
Aggregate
Intrinsic
Value
Unvested December 31, 2018
100,177
$ 21.12
8.62
—
Granted
27,570
9.68
9.10
—
Vested
(59,464 )
12.02
8.40
—
Forfeited
—
—
—
—
Unvested December 31, 2019
68,283
$ 23.79
7.48
—
Granted
925,000
2.28
9.78
—
Vested
(226,254 )
3.93
7.53
—
Forfeited
—
—
—
—
Unvested December 31, 2020
726,209
$ 3.71
10.16
—
F- 18
Stock
option activity for non-employees during the year:
Number
of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contracted
Term
(Years)
Aggregate
Intrinsic
Value
Outstanding December 31, 2018
55,130
$ 29.92
5.69
—
Granted
11,697
9.68
—
—
Exercised
—
—
—
—
Forfeited
(152 )
151.52
—
—
Outstanding December 31, 2019
66,675
$ 24.09
5.47
—
Granted
100,000
2.77
9.58
—
Exercised
—
—
—
—
Forfeited
(142 )
104.29
—
—
Outstanding December 31, 2020
166,533
$ 11.03
7.54
—
Vested and expected to vest at December 31, 2020
166,533
$ 11.03
7.54
—
Exercisable at December 31, 2020
59,222
$ 5.95
9.15
—
The
weighted-average grant-date fair value of non-employee options granted during year 2020 was $277,000 for 100,000 options at $2.77
per option and during the year 2019 was $113,000 for 11,697 options at $9.68 per option.
Unvested
stock option activity for non-employees:
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contracted
Term
(Years)
Aggregate
Intrinsic
Value
Unvested December 31, 2018
55,130
$ 13.64
5.84
—
Granted
11,697
9.68
—
—
Vested
—
—
—
—
Forfeited
(152 )
151.52
—
—
Unvested December 31, 2019
66,675
$ 12.80
5.59
—
Granted
100,000
2.77
9.58
—
Vested
(59,364 )
5.95
—
—
Forfeited
—
—
—
—
Unvested December 31, 2020
107,311
$ 7.24
6.88
—
Stock-based
compensation expense was approximately $1,036,000 and $853,000 for the years ended December 31, 2020, and 2019 resulting in an
increase in general and administrative expenses and loss per share of $0.03 and $0.23, respectively.
As
of December 31, 2020, and 2019, there was $1,599,000 and $696,000, respectively, of unrecognized stock-based compensation cost
related to options granted under the Equity Incentive Plans. Stock-based compensation related to options granted under the Equity
Incentive Plans will be recorded over the vesting period which is typically one year or upon reaching agreed upon company and/or
individual performance milestones being met which is indefinite.
F- 19
(ii)
Stock Warrants
Stock
warrants are issued as needed by the Board of Directors and have no formal plan.
The
fair value of each warrant award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model.
Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate
is based on U.S. Treasury issues with a term equal to the expected life of the warrant. The Company uses historical data to estimate
expected dividend yield, life and forfeiture rates. The expected life of the warrants was estimated based on historical option
holder’s behavior and represents the period of time that options are expected to be outstanding. There were 16,907,471
granted in 2019 at $0.99 - $8.80 per warrant. No warrants were granted in 2020.
Information
regarding warrants outstanding and exercisable into shares of common stock is summarized below:
2020
2019
Shares
Warrant
Price
Weighted Average Exercise Price
Shares
Warrant
Price
Weighted
Average
Exercise
Price
Outstanding, beginning of year
10,201,761
$ .909 – 469.92
$ 1.54
325,802
$ 17.16-469.92
$ 15.84
Granted
—
—
—
16,907,471
0.99-8.80
1.23
Forfeited
—
—
—
(930 )
269.28
269.28
Exercised
(9,826,661 )
0.90-8.80
0.97
(7,030,582 )
0.80-8.80
1.42
Outstanding, end of year
375,100
$ 0.99-469.92
$ 116.38
10,201,761
$ 0.90
– 469.92
$ 1.54
Exercisable
375,100
$ 0.99-469.92
$ 116.38
10,201,761
$ 0.90 – 469.92
$ 1.54
Weighted average remaining contractual life
5.75 years
6.75 years
Years exercisable
2021-2024
2020-2024
Stock
warrants are issued at the discretion of the Board. In 2020 there were no warrants issued and in 2019, there were 16,907,471 warrants
issued at a weighted average price of $1.23. 9,826,661 warrants were exercised in 2020 and 7,030,582 were exercised
in 2019.
(8) Segment
and Related Information
The
Company operates in one segment, which performs research and development activities related to Ampligen and other drugs under
development. The Company’s revenues for the two-year period ended December 31, 2020, were earned in the United States and
overseas. All assets are maintained in the United States of America.
(9) Research,
Consulting and Supply Agreements
In
2016, the Company entered into a five-year agreement (the “Impatients Agreement”) with Impatients, N.V. (“myTomorrows”),
a Netherlands based company, for the commencement and management of an EAP in Europe and Turkey (the “Territory”)
related to ME/CFS. Pursuant to the agreement, myTomorrows, as the exclusive service provider and distributor in the Territory,
is performing EAP activities.
Jubilant
HollisterStier (Jubilant) is AIM’s authorized CMO for Ampligen for the approval in Argentina. In 2017, the Company entered
into a purchase order with Jubilant pursuant to which Jubilant will manufacture batches of Ampligen® for the Company. Since
the 2017 engagement of Jubilant, four lots of Ampligen consisting of more than 16,000 units have been manufactured and released
in year 2018. The first lot was designated for human use in the US in the cost recovery CFS program and for expanded oncology
clinical trials. The second lot has been designated for these programs in addition to commercial distribution in Argentina for
the treatment of CFS. We paid Jubilant $320,000 in 2017 and $1,078,000 in 2018 for a total of $1,398,000 to date for these services.
In 2019, the Company entered into a purchase order with Jubilant pursuant to which Jubilant will manufacture two additional batches
of Ampligen for the Company. Two commercial size batches will be filled and finished for human use in early 2020. The company
paid Jubilant $383,320 in 2019 to date for these services.
The
production of additional polymer (Ampligen intermediates) took place in 2019 at the Company’s New Brunswick facility. Additionally,
two lots of Ampligen were manufactured in December 2019 and January 2020 at Jubilant. The current manufactured lots of Ampligen
have been fully tested and released for commercial product launch in Argentina and for clinical trials.
F- 20
In
December 2020, AIM added Pharmaceutics International Inc. (“Pii”) as a “Fill & Finish” provider to
enhance the Company’s capacity to produce the drug Ampligen. This addition amplifies AIM’s manufacturing capability
by providing redundancy and cost savings. The contracts augment AIM’s existing fill and finish capacity. As agreed
to in the Master Services Agreement, the terms of each of AIM’s projects with Pii will be negotiated separately and defined
in individual Service Contracts.
(10) 401(k)
Plan
The
Company has a defined contribution plan, entitled the AIM ImmunoTech Employees 401(k) Plan and Trust Agreement (the “401(k)
Plan”). Full time employees of the Company are eligible to participate in the 401(k) Plan following one year of employment.
Subject to certain limitations imposed by federal tax laws, participants are eligible to contribute up to 15% of their salary
(including bonuses and/or commissions) per annum. Participants’ contributions to the 401(k) Plan may be matched by the Company
at a rate determined annually by the Board of Directors.
Each
participant immediately vests in his or her deferred salary contributions, while Company contributions will vest over one year.
A 6% Company matching contribution was established, effective as of January 1, 2010 through December 31, 2015. As of January 1,
2016, the matching has been terminated. For 2020 and 2019, the Company made no contributions towards the 401(k) Plan in these
years.
(11) Royalties,
License and Employment Agreements
The
Company had contractual agreements with Named Executive Officers, exclusive of Mr. Pascale, who retired in September 2019, (“Officers”)
in 2020, and 2019. The aggregate annual base compensation for these Officers under their respective contractual agreements for
2020, and 2019 was $ 850,000, and $750,000, respectively. In addition, certain of these Officers were entitled to receive performance
bonuses of up to 25% or 20% of their respective annual base salary, at the sole discretion of the Compensation Committee of the
Board of Directors. In 2020 and 2019, Officers’ bonuses were $913,500 and $0 respectively.
In
2020, equity was granted as a form of compensation to these Officers.
a.
The Company granted 300,000 ten-year options to purchase
common stock with exercise prices of $3.05 per share to vest in a year to Thomas K. Equels, Chief Executive Officer.
b.
The Company granted 300,000 ten-year options to purchase
common stock with exercise prices of $1.96 per share to vest in a year to Thomas K. Equels, Chief Executive Officer.
c.
The Company granted 75,000 ten-year options to purchase common
stock with exercise prices of $1.85 per share which vest in one year to Peter Rodino, Chief Operating Officer and General
Counsel.
d.
The Company granted 75,000 ten-year options to purchase common
stock with exercise prices of $1.85 per share which vest in one year to Ellen Lintal, Chief Financial Officer.
In
2019, equity was granted as a form of compensation to these Officers:
a.
The
Company granted 9,685 ten-year options to purchase common stock with exercise prices of $9.68 per share to vest in a year
to Thomas K. Equels, Chief Executive Officer.
b.
The
Company granted 4,520 ten-year options to purchase common stock with exercise prices of $9.68 per share which vest in one
year to Peter Rodino, Chief Operating Officer and General Counsel.
c.
The
Company granted to Thomas K. Equels, Chief Executive Officer, 97,500 shares of Restricted Stock Awards with an exercise price
ranging from $0.40 to $0.55 per share which vest in 6 months, for 25% cut in salary.
d.
The
Company granted to Peter Rodino, Chief Operating Officer General Counsel, 45,500 Restricted Stock Awards with an exercise
price ranging from $0.40 to $0.55 per share which vest in 6 months, for 25% cut in salary.
e.
The
Company granted to Ellen M. Lintal, Chief Financial Officer, 22,528 shares of Restricted Stock Awards with an exercise price
ranging from $0.40 to $0.55 per share which vest in 6 months, for 25% cut in salary.
The
Company recorded stock compensation expense of approximately $433,000 and $118,000 during the years ended December 31,
2020 and 2019 respectively with regard to these issuances.
(12) Leases
In
February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize leases
on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01,
Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases;
ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The new standard establishes
a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases
with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern
and classification of expense recognition in the income statement.
F- 21
The
new standard was effective for the Company on January 1, 2019, with early adoption permitted. A modified retrospective transition
approach was required, applying the new standard to all leases existing at the date of initial application. An entity may choose
to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements
as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also
apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative
period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company
adopted the new standard on January 1, 2019 and used the effective date as the date of initial application.
The
new standard provides several optional practical expedients in transition. The Company elected the ‘package of practical
expedients’, which permits it not to reassess under the new standard our prior conclusions about lease identification, lease
classification and initial direct costs. The Company elected all the new standard’s available transition practical expedients
other than the use-of hindsight.
The
new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease
recognition exemption for all leases that qualify. This means, for those leases that qualify, it will not recognize ROU assets
or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those
assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for leases
of office equipment.
This
standard had a material effect on the Company’s financial statements. The most significant effect related to the
recognition of new ROU assets and lease liabilities on the balance sheet for real estate and equipment operating leases and providing
significant new disclosures about the Company’s leasing activities.
The
Company entered into a Lease Agreement for a term of five years commencing on September 14, 2020 with Fraser Advanced Information
Systems, pursuant to which the Company agreed to lease two Sharp copiers. The base of $1,415 per month.
On
June 13, 2018, the Company entered into a Lease Agreement for a term of six years commencing on July 1, 2018 with SML FL Holdings
LLC, pursuant to which the Company agreed to lease approximately 3,000 rentable square feet. The base rent increases by 3% each
year, and ranges from $2,100 per month for the first year to $2,785 per month for the sixth year.
On
May 1, 2019, the Company entered into a Lease Agreement for a term of three years commencing on May 1, 2019 with 604 Associates
LLC, pursuant to which the Company agreed to lease approximately 3,000 rentable square feet. The base rent is $1,500 per month
for the term of the lease.
The
expected lease term includes both contractual lease periods and, when applicable, cancelable option periods when it is reasonably
certain that the Company would exercise such options. The Company’s leases have remaining lease terms between 6 months and
4 years. As of December 31, 2020, the weighted-average remaining term is 1.92 years.
The
Company has determined that the incremental borrowing rate is 10% as of December 31, 2020 based upon the recently completed financing
transaction in December 2019.
Year Ending December 31,
2021
$ 52
2022
48
2023
47
2024
34
2025
18
Less imputed interest
(20 )
Total
$ 179
As
of December 31, 2020, the balance of the right of use assets was $179,000 and the corresponding lease liability balance was $179,000.
The total rent expense for the years ended December 31, 2020 and 2019 amounted to approximately $53,000 and $59,000, respectively.
The total short term rent expense for the years ended December 31, 2020 and 2019 amounted to approximately $34,000 and $23,000,
respectively.
F- 22
(13) Income
Taxes (FASB ASC 740 Income Taxes)
The
Company’s applies the provisions of FASB ASC 740-10 Uncertainty in Income Taxes. As a result of the implementation,
there has been no material change to the Company’s tax positions as they have not paid any corporate income taxes due to
operating losses. With the exception of net operating losses and research and development credits generated in New Jersey, all
tax benefits will likely not be recognized due to the substantial net operating loss carryforwards which will most likely not
be realized prior to expiration.
As
of December 31, 2020, the Company has approximately $180.8M of Federal net operating loss carryforwards (expiring in the years
2021 through 2038) and $33.7M of Federal net operating loss with no expiration date available to offset future federal taxable
income. The Company also has approximately $13.1M of New Jersey state net operating loss carryforwards (expiring in 2041) available
to offset future state taxable income and net operating loss carryforwards in Belgium of approximately $2.8M with no expiration.
In December 2020, the Company effectively sold $10,000,000 of its New Jersey state net operating loss carryforward for
the year 2019 for approximately $1,090,000. In December 2019, the Company effectively sold $8,000,000 of its New Jersey state
net operating loss carryforward for the year 2018 for approximately $776,000.
The
utilization of certain state net operating loss carryforwards may be subject to annual limitations. With no tax due for the foreseeable
future, the Company has determined that a policy to determine the accounting for interest or penalties related to the payment
of tax is not necessary at this time.
Under
the Tax Reform Act of 1986, the utilization of a corporation’s net operating loss carryforward is limited following a greater
than 50% change in ownership. Due to the Company’s prior and current equity transactions, the Company’s net operating
loss carryforwards may be subject to an annual limitation generally determined by multiplying the value of the Company on the
date of the ownership change by the federal long-term tax-exempt rate. Any unused annual limitation may be carried forward to
future years for the balance of the net operating loss carryforward period.
Deferred
income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial
reporting purposes and the carrying amounts used for income tax purposes. In assessing the realizability of deferred tax assets,
Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. With the exception of net operating losses generated
in New Jersey which can be surrendered for 80% of their values, due to the uncertainty of the Company’s ability to realize
the benefit of the deferred tax asset, the remainder of our deferred tax assets are fully offset by a valuation allowance at December
31, 2020 and 2019.
The
components of the net deferred tax assets and liabilities as of December 31, 2020 and 2019 consist of the following:
(in thousands)
Deferred tax assets:
December 31,
2020
2019
Net operating losses
$ 46,648
$ 44,653
Amortization & depreciation
150
150
R&D credits
—
69
Stock compensation
271
223
Total deferred tax assets
47,069
45,095
Deferred tax liabilities:
Research and development costs
(91 )
(91 )
Deferred tax assets, net
46,978
45,004
Less: Valuation allowance
(46,346 )
(44,468 )
Deferred tax assets, net
632
536
F- 23
Deferred
tax assets are included within other assets in the accompanying Consolidated Balance Sheets. The benefits of deferred tax assets
are included within the gain from sale of income tax operating losses in the accompanying Consolidated Statements of Comprehensive
Loss.
(14) Convertible
Note Payable
On
September 28, 2018, the Company entered into a $3,170,000 10% Secured Convertible Promissory Note (the “IR Note”)
with Iliad Research and Trading, L.P. (the “Holder”), which was issued to the Holder in conjunction with 500,000 shares
of common stock (the “Origination Shares”). The Company collected $3,000,000 in cash from the Holder during September
2018 and the remainder $170,000 was retained by the Holder for the Holder’s legal fees of $20,000 for the issuance of the
IR Note and the Original Issue Discount of $150,000. The Company incurred $210,000 in third-party fees directly attributed to
the issuance of the IR Note. The Company promised to pay the principal amount, together with guaranteed interest at the annual
rate of 10%, with principal and accrued interest on the IR Note due and payable on September 28, 2019, unless converted under
terms and provisions as set forth within the IR Note. The IR Note provides the Holder with the right to convert, at any time,
all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company’s common stock at
a conversion price of $0.30 per share. In addition, beginning on March 28, 2019, the IR Note also provides the Holder with the
right to redeem all or any portion of the IR Note (“Redemption Amount”). The payments of each Redemption Amount may
be made, at the option of the Company, in cash, by converting such Redemption Amount into shares of common stock (“Redemption
Conversion Shares”), or a combination thereof. The number of Redemption Conversion Shares equals the portion of the applicable
Redemption Amount being converted divided by the lesser of $0.30 or 80% of the lowest Volume Weighted Average Price (“VWAP”)
during the ten (10) trading days immediately preceding the applicable measurement date (the “Market Price”). The Purchase
Agreement requires the Company to reserve at least 8,900,000 shares of common stock from its authorized and unissued common stock
to provide for all issuances of common stock under the IR Note. However, the IR Note provides that the aggregate number shares
of common stock issued to the Holder under the IR Note and Purchase Agreement shall not exceed 19.99% of the total number of shares
of common stock outstanding as of the closing date unless the Company has obtained stockholder approval of the issuance. The Origination
Shares were to be returned to the Company in the event that the Company could provide within 30 days of the closing of the transaction
certain requested assets as security for repayment of the IR Note. The security was not provided so the Origination Shares remained
with the Holder.
The
Company determined the IR Note should be recorded at fair value with subsequent changes in fair value recorded in earnings. This
conclusion is based on the redemption conversion feature, which allows the Holder to trigger the redemption of the IR Note for
cash or conversion of the IR Note for common shares prior to its maturity date at a price of the lesser of $0.30 per share or
the Market Price as defined within the IR Note. The choice of cash redemption or conversion of the IR Note for common shares is
at the option of the Company. This feature may require the Company to issue a variable number of common shares to settle the IR
Note which was determined to have a predominantly fixed monetary value at inception.
On
March 13, 2019, the Company amended the Purchase Agreement pursuant to which it issued the Convertible IR Note (the “Amendment”).
The Amendment extends the maturity of the IR Note to September 28, 2020. In addition, the redemption conversion rates were revised
to a price to be determined by mutual agreement between the Company and the Holder. In the event that the Company and the Holder
are unable to reach a mutually agreeable price, the Company will be required to pay the applicable redemption amount in cash.
The maximum amount of the IR Note the Lender will be able to redeem in any given calendar month is $300,000.
The
Company evaluated the Amendment in accordance with ASC 470, Debt (“ASC 470”) and determined the Amendment is
considered an extinguishment of the existing debt and issuance of net debt. As a result, the Company derecognized the liability
and recorded a loss on the extinguishment of debt of $345,000 in 2019 which was equal to the difference between the reacquisition
price of the debt and the net carrying amount (amount due at maturity, adjusted for unamortized discounts) of the extinguished
debt. Subsequently, the amended note was recorded in accordance with ASC 480 at the fair value that the note was issued with changes
in fair value recorded through earnings at each reporting period.
There
were a series of debt conversions during 2019 which partially converted $1,400,000 of the $3,408,000 convertible debt, as amended,
into stockholders’ equity, adding approximately $1,400,000 to stockholders’ equity. The number of shares issued in
these conversions were 204,246 shares. In October 2019 and November 2019 respectively, the lender redeemed $300,000 pursuant to
the terms of the modification. In connection with the IR Note, the Company recorded a gain equal to $127,000 for the year-end
December 31, 2019. See Note 15: Note Payable.
F- 24
Interest
expense associated with the IR Note was $0 for the year ended December 31, 2020, and $224,000 for the year ended December 31,
2019.
(15) Note
Payable
On
August 5, 2019, the Company issued a Secured Promissory Note (the “CV Note”) with Chicago Venture Partners, L.P. (the
“CV”). The Note has an original principal amount of $2,635,000, bears interest at a rate of 10% per annum and will
mature in 24 months, unless earlier paid in accordance with its terms. The Company received proceeds of $1,900,000 after an original
issue discount and payment of Lender’s legal fees. Pursuant to a Security Agreement between the Company and the Lender,
repayment of the Note is secured by substantially all of our assets other than its intellectual property.
During
the quarter ending June 30, 2020, the Holder made redemptions of $650,000 reducing the principal to $1,985,000. On May 29, 2020,
the Company paid off the outstanding CV note consisting of principal of $1,985,000, and accrued interest payable of $220,000.
The net payment of $1,795,000, less the write off of the origination discount of $369,000 and issuance costs of $6,000, resulted
in a gain on extinguishment of $66,000.
Interest
expense associated with the CV Note was approximately $116,000, for the year ended December 31, 2020 and was approximately $241,000,
for the year ended December 31, 2019, which included approximately $127,000 associated with the amortization of applicable discounts
to the CV Note.
On
December 5, 2019, the Company issued a secured Promissory Note (the “AS Note”) to Atlas Sciences L.P. (“AS”).
The AS Note has an original principal amount of $2,175,000, bears interest at a rate of 10% per annum and will mature in 24 months,
unless earlier paid in accordance with its term. In conjunction with the AS Note, the Company utilized $1,650,000 of the net proceeds
from the AS Note to pay off in full its obligation to Iliad, an entity with affiliations to AS, pursuant to the IR Note (see Note
14).
The
Company evaluated the IR Note transaction in accordance with ASC 470, Debt (“ASC 470”) and determined the exchange
is considered an extinguishment of the existing debt and issuance of new debt. As a result, the Company derecognized the liability
and recorded a loss on the extinguishment of debt of $250,000 which was equal to the difference between the reacquisition price
of the debt and the net carrying amount (amount due at maturity, adjusted for unamortized discounts) of the extinguished debt.
Subsequently, the AS Note was recorded in accordance with ASC 470 whereby the Company recorded a liability equal to the proceeds
received on December 5, 2019.
On
June 19, 2020, the Company paid off the outstanding AS note which consisted of original principal of $2,175,000, and accrued
interest payable of $122,000 less origination discount of $376,000 and issuance costs of $7,000, with a net note payable of $1,838,000,
including a gain on extinguishment of $76,000.
Interest
expense associated with AS Note for the period ending December 31, 2020 was $106,000, and was approximately $37,000 for the year
ended December 31, 2019.
(16)
Certain
Relationships and Related Transactions
The
Company has an employment agreement with its Chief Executive Officer and has granted its executive officers and directors options
and warrants to purchase its common stock. Please see details of these Employment Agreements in Note 11 - Royalties, License and
Employment Agreements.
As
set forth in Section 3(c)(ii) of his prior employment agreement, Mr. Equels earned $8,000 and $7,000 for 5% of the Ampligen cost
recovery sales in 2020 and 2019, respectively.
(17)
Concentrations
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents,
investments and accounts receivable. The Company places its cash with high-quality financial institutions and, at times, such
amounts in non-interest-bearing accounts may be in excess of Federal Deposit Insurance Corporation insurance limits. There were
no credit-based sales for 2020 and 2019.
(18)
Fair
Value
The
Company is required under U.S. GAAP to disclose information about the fair value of all the Company’s financial instruments,
whether or not these instruments are measured at fair value on the Company’s consolidated balance sheets.
F- 25
The
Company estimates that the fair values of cash and cash equivalents, other assets, accounts payable and accrued expenses approximate
their carrying values due to the short-term maturities of these items. The Company also has certain warrants with a cash settlement
feature in the occurrence of a Fundamental Transaction. The fair value of the redeemable warrants (“Warrants”) related
to the Company’s August 2016, February 2017, June 2017, August 2017, April 2018, and March 2019 common stock and warrant
issuance, are calculated using a Monte Carlo Simulation. While the Monte Carlo Simulation is one of a number of possible pricing
models, the Company has determined it to be industry accepted and fairly presented the fair value of the Warrants. As an additional
factor to determine the fair value of the Put’s liability, the occurrence probability of a Fundamental Transaction event
was factored into the valuation.
The
Company recomputes the fair value of the Warrants at the issuance date and the end of each quarterly reporting period. Such value
computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its
assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different.
The
Company utilized the following assumptions to estimate the fair value of the August 2016 Warrants:
December 31,
December 31,
2020
2019
Underlying price per share
$ 1.79
$ 0.54
Exercise price per share
$ 82.50
$ 82.50
Risk-free interest rate
0.09 %
1.58 %
Expected holding period
0.67
1.67
Expected volatility
90 %
96 %
Expected dividend yield
—
—
The
Company utilized the following assumptions to estimate the fair value of the February 2017 Warrants:
December 31,
December 31,
2020
2019
Underlying price per share
$ 1.79
$ 0.54
Exercise price per share
$ 30.25-$33.00
$ 30.25-$33.00
Risk-free interest rate
0.12 %
1.6 %
Expected holding period
1.58-1.60
2.59-2.60
Expected volatility
160 %
89 %
Expected dividend yield
—
—
The
Company utilized the following assumptions to estimate the fair value of the June 2017 Warrants:
December 31,
December 31,
2020
2019
Underlying price per share
$ 1.79
$ 0.54
Exercise price per share
$ 27.50
$ 27.72
Risk-free interest rate
0.11 %
1.60 %
Expected holding period
1.42
2.42
Expected volatility
175 %
91 %
Expected dividend yield
—
—
F- 26
The
Company utilized the following assumptions to estimate the fair value of the August 2017 Warrants:
December 31,
December 31,
2020
2019
Underlying price per share
$ 1.79
$ 0.54
Exercise price per share
$ 19.80
$ 19.80
Risk-free interest rate
0.11 %
1.59 %
Expected holding period
1.18
2.18
Expected volatility
165 %
94 %
Expected dividend yield
—
—
The
Company utilized the following assumptions to estimate the fair value of the April 2018 Warrants:
December 31,
December 31,
2020
2019
Underlying price per share
$ 1.79
$ 0.54
Exercise price per share
$ 17.16
$ 17.16
Risk-free interest rate
0.16 %
1.59%-1.65%
Expected holding period
2.81
0.82-3.82
Expected volatility
130 %
86% - 124%
Expected dividend yield
—
—
The
Company utilized the following assumptions to estimate the fair value of the March 2019 Warrants:
December 31,
December 31,
2020
2019
Underlying price per share
$ 1.79
$ 0.54
Exercise price per share
$ 8.80
$ 8.80
Risk-free interest rate
0.19 %
1.66 %
Expected holding period
3.19
4.19
Expected volatility
125 %
87 %
Expected dividend yield
—
—
The
significant assumptions using the Monte Carlo Simulation approach for valuation of the Warrants are:
(i)
Risk-Free
Interest Rate . The risk-free interest rates for the Warrants are based on U.S. Treasury constant maturities for periods
commensurate with the remaining expected holding periods of the warrants.
(ii)
Expected
Holding Period . The expected holding period represents the period of time that the Warrants are expected to be outstanding
until they are exercised. The Company utilizes the remaining contractual term of the Warrants at each valuation date as the
expected holding period.
(iii)
Expected
Volatility . Expected stock volatility is based on daily observations of the Company’s historical stock values for
a period commensurate with the remaining expected holding period on the last day of the period for which the computation is
made.
(iv)
Expected
Dividend Yield . Expected dividend yield is based on the Company’s anticipated dividend payments over the remaining
expected holding period. As the Company has never issued dividends, the expected dividend yield is 0% and this assumption
will be continued in future calculations unless the Company changes its dividend policy.
(v)
Expected
Probability of a Fundamental Transaction. The possibility of the occurrence of a Fundamental Transaction triggering a
Put right is extremely remote. As discussed above, a Put right would only arise if a Fundamental Transaction 1) is an all
cash transaction; (2) results in the Company going private; or (3) is a transaction involving a person or entity not traded
on a national securities exchange. The Company believes such an occurrence is highly unlikely because:
1.
The
Company only has one product that is FDA approved but is currently not available for commercial sales.
2.
The
Company will have to perform additional clinical trials for FDA approval of its flagship product.
F- 27
3.
Industry
and market conditions continue to include a global market recession, adding risk to any transaction.
4.
Available
capital for a potential buyer in a cash transaction continues to be limited.
5.
The
nature of a life sciences company is heavily dependent on future funding and high fixed costs, including Research & Development.
6.
The
Company has minimal revenues streams which are insufficient to meet the funding needs for the cost of operations or construction
at their manufacturing facility; and
7.
The
Company’s Rights Agreement and Executive Agreements make it less attractive to a potential buyer.
With
the above factors utilized in analysis of the likelihood of the Put’s potential Liability, the Company estimated the range
of probabilities related to a Put right being triggered as:
Range of Probability
Probability
Low
0.5 %
Medium
1.0 %
High
5.0 %
The
Monte Carlo Simulation has incorporated a 5.0% probability of a Fundamental Transaction to date for the life of the securities.
(vi)
Expected
Timing of Announcement of a Fundamental Transaction. As the Company has no specific expectation of a Fundamental Transaction,
for reasons elucidated above, the Company utilized a discrete uniform probability distribution over the Expected Holding Period
to model in the potential announcement of a Fundamental Transaction occurring during the Expected Holding Period.
(vii)
Expected
100 Day Volatility at Announcement of a Fundamental Transaction . An estimate of future volatility is necessary as there
is no mechanism for directly measuring future stock price movements. Daily observations of the Company’s historical
stock values for the 100 days immediately prior to the Warrants’ grant dates, with a floor of 100%, were utilized as
a proxy for the future volatility.
(viii)
Expected
Risk-Free Interest Rate at Announcement of a Fundamental Transaction . The Company utilized a risk-free interest rate corresponding
to the forward U.S. Treasury rate for the period equal to the time between the date forecast for the public announcement of
a Fundamental Transaction and the Warrant expiration date for each simulation.
(ix)
Expected
Time Between Announcement and Consummation of a Fundamental Transaction. The expected time between the announcement and
the consummation of a Fundamental Transaction is based on the Company’s experience with the due diligence process performed
by acquirers and is estimated to be six months. The Monte Carlo Simulation approach incorporates this additional period to
reflect the delay Warrant Holders would experience in receiving the proceeds of the Put.
While
the assumptions remain consistent from period to period (e.g., utilizing historical stock prices), the numbers input change from
period to period (e.g., the actual historical prices input for the relevant period). The carrying amount and estimated fair value
of the above Warrants was approximately $180,000 and $57,000 at December 31, 2020 and 2019, respectively.
The
Company applies FASB ASC 820 (formerly Statement No. 157 Fair Value Measurements ) that defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.
The guidance does not impose any new requirements around which assets and liabilities are to be measured at fair value, and instead
applies to asset and liability balances required or permitted to be measured at fair value under existing accounting pronouncements.
The Company measures its warrant liability for those warrants with a cash settlement feature at fair value.
FASB
ASC 820-10-35-37 (formerly SFAS No. 157) establishes a valuation hierarchy based on the transparency of inputs used in the valuation
of an asset or liability. Classification is based on the lowest level of inputs that is significant to the fair value measurement.
The valuation hierarchy contains three levels:
●
Level
1 – Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally,
this includes debt and equity securities that are traded in an active market.
●
Level
2 – Observable inputs other than Level 1 prices such as quote prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an
active market.
F- 28
●
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination
of fair value requires significant management judgment or estimation. As of December 2020, the Company has classified the
warrants with cash settlement features and a convertible note payable as Level 3. Management evaluates a variety of inputs
and then estimates fair value based on those inputs. As discussed above, the Company utilized the Monte Carlo Simulation Model
in valuing the warrants and the convertible note.
The
table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy
as:
(in thousands)
As of December 31, 2020
Total
Level 1
Level 2
Level 3
Assets:
Marketable securities
$ 15,877
$ 15,877
$ —
$ —
Liabilities:
Redeemable warrants
$ 180
—
—
$ 180
(in thousands)
As of December 31, 2019
Total
Level 1
Level 2
Level 3
Assets:
Marketable securities
$ 7,308
$ 7,308
$ —
$ —
Liabilities:
Redeemable warrant
$ 57
—
—
$ 57
The
changes in Level 3 Liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):
Redeemable warrants:
Balance at December 31, 2019
$ 57
Fair value adjustments
123
Balance at December 31, 2020
$ 180
(19)
Financing
Obligation Arising from Sale Leaseback Transaction
On
March 16, 2018, the Company sold land and a building for $4,080,000 and concurrently entered into an agreement to lease the property
back for ten years at $408,000 per year for two years through March 31, 2020. The lease payments will increase 2.5% per year for
the next three years through March 31, 2023 and the lease payments will increase 3% for the remaining five years through March
31, 2028. The sale of the property includes an option to repurchase the property at fair value which does not permanently transfer
all the risks and rewards of ownership to the buyer. The option to repurchase the property also would be at a higher price than
the sales price and is considered likely based upon the Company’s plans going forward. Because the sale of the property
includes the option to repurchase the property and includes the above attributes, the transaction was accounted for as a financing
transaction whereby the Company debited cash for the amount of cash received and credited financing obligation. The Company will
continue to report the property as an asset and the property will continue to be depreciated. If the option is exercised, the
cash payment by the seller-lessee is to pay off the financing obligation. As part of the sale of this building, warrants were
provided to the buyer for the purchase of up to 3,225,806 shares of Company common stock for a period of five years at an exercise
price of $0.3875 per share, 125% of the closing price of the common stock on the NYSE American on the date of execution of the
letter of intent for the purchase. The warrants cannot be exercised to the extent that any exercise would result in the purchaser
owning in excess of 4.99% of the Company’s issued and outstanding shares of common stock.
The
Property and equipment in “Note 7 Stockholders’ Equity” above are the property and equipment involved in this
transaction. Depreciation on the building will continue until a sale has been recognized.
Future
minimum payments required under the Financing Obligation and the balance of the Finance Obligation as of December 31, 2020, are
as follows:
During the Year:
(amount in thousands)
2021
$ 426
2022
437
2023
449
2024
463
2025
477
Thereafter
1,091
Total of Payments
$ 3,343
Less Deferred Issuance Costs
(192 )
Less Discount on Debt Instrument
(824 )
Less Imputed Interest
(221 )
Total Balance
$ 2,106
Less Current Portion
(230 )
Long Term Portion
$ 1,876
Interest
expense relating to this financing agreement was $61,000 for the year ended December 31, 2020 an $67,000 for the year ended December
31, 2019.
F- 29
(20)
Subsequent
Events
In
January 2021, the Company entered into a sponsorship agreement with the Centre for Human Drug Research (“CHDR”) for
a proposed clinical study on the safety of the Company’s drug Ampligen as an intranasal therapy. CHDR, an independent institute
located in Leiden in the Netherlands, will conduct and manage the proposed clinical study, titled “A Phase I, Randomized,
Double-Blind, Placebo-Controlled Study to Evaluate the Safety and Activity of Repeated Intranasal Administration of Ampligen (Poly
I:Poly C12U) in Healthy Subjects.” The Company is funding the clinical study at a cost of approximately $980,000.
In
February 2021, the Company completed its At-The-Market (ATM) facility and closed the ATM’s Equity Distribution Agreement
(EDA) with Maxim Group LLC.
In
February 2021, the Company received formal notification from the European Commission (“EC”) that the European Medicines
Agency (“EMA”) has designated Ampligen as an Orphan Medicinal Product (“OMP”) for treatment of pancreatic
cancer. Medications that have an OMP designation by the EMA, once commercially approved in the European Union (“EU”),
receive benefits including up to ten years of protection from market competition from similar medicines with similar active component
and indication for use that are not shown to be clinically superior.
In
March 2021, the Company entered into employment agreements with Peter Rodino and Ellen Lintal. The agreements run for three years
and one year, respectively. Compensation is divided into both short- and long-term compensation. Short term (cash) compensation
will consist of a base salary of $425,000 and $350,000, respectively. Mr. Rodino and Ms. Lintal will be awarded a year-end target
bonus based on performance and goals established by the Compensation Committee. Long term compensation will be provided by 100,000
non-qualified yearly stock options with one-year vesting commencing on November 30, 2021. In addition, Mr. Rodino and Ms. Lintal
shall each be entitled to awards (“Event Awards”) equal to 1% of the “Gross Proceeds” from specific
events such as licensing agreements or “therapeutic indication” (each, an “Event”). Gross Proceeds means
those cash amounts paid to the Company by the other parties for licensing agreements, therapeutic acquisitions or any other one
time cash generating event. Therapeutic indications are for example target organ specific pathologically defined cancer indications,
vaccine enhancers, broad spectrum antiviral indications, or medical entities associated with persistent severe fatigue. Mr. Rodino
and Ms. Lintal also will each be entitled to an award (an “Acquisition Award”) equal to 1% of the Gross Proceeds,
upon the sale of the Company or substantially all of its assets (an “Acquisition”). An Event Award or Acquisition
Award shall be paid in cash within 90 days of our receipt of the Gross Proceeds.
F- 30
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