Acura Pharmaceuticals (ACUR) Risk Analysis
Risk Overview Q3, 2021
Source: the company's latest filing for the period ended Sep 30, 2021, filed Nov 15, 2021
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1Prior ownership changes may limit have limited our ability to use our tax net operating loss carryforwards as part of an a corporate restructure or reorganization. reorganization:
Significant equity restructuring often results in an Internal Revenue Section 382 ownership change that limits the future use of Net Operating Loss ("NOL"), carryforwards and other tax attributes. In addition, under the Tax Cuts and Jobs Act of 2017, NOL usage in any given year will be limited to 80% of taxable income, without regard to the NOL deduction, and losses incurred in 2018 and forward may not be carried back but can be carried forward indefinitely, but losses incurred prior to 2018 can only be carried forward for 20 years. We have determined that we have undergone ownership changes in both 2004 and 2017 (as defined by Section 382 of the Internal Revenue Code) and as a result, our use of NOL carryforwards on an annual basis will be very limited. As such, an entity that may seek to acquire the Company would likely be limited in the amount of NOLs they may be able to utilize. Neither the amount of our NOL carryforwards nor the amount of limitation of such carryforwards claimed by us have been audited or otherwise validated by the Internal Revenue Service, which could challenge the amount we have calculated. The recognition and measurement of our tax benefit includes estimates and judgment by our management, which includes subjectivity. Changes in estimates may create volatility in our tax rate in future periods based on new information about particular tax positions that may cause management to change its estimates.
- Share Price & Shareholder Rights - Risk 2Approximately 45.6% As of February 15, 2021, approximately 44.8% of our common stock, after giving effect to exercise of a warrant, is owned by a single individual, who is also a principal of AD Pharma LLC and MainPointe Pharmaceuticals LLC, and that individual is also party has right to our Second Amended and Restated Voting Agreement. designate a director:
A significant amount of our common stock is owned by a single individual, Mr. Schutte. On July 24, 2017, we completed a $4.0 million private placement with him for the sale of 8,912,655 shares and warrants to purchase 1,782,531 shares at an exercise price of $0.528 and expiring on July 24, 2022. Mr. Schutte is a principal of MainPointe. In March 2017, we granted MainPointe an exclusive license to our Impede Technology to commercialize our Nexafed and Nexafed Sinus Pressure + Pain Products in the United States and Canada. MainPointe also has options to expand the territory and products covered for additional sums. Further, Mr. Schutte has the right to designate a director (he has not done so). During 2018 and through June 28, 2019, Mr. Schutte had lent us an aggregate of $6.0 million (including accrued interest) on a secured basis with a security interest in all of our assets, including our intellectual property. At June 28, 2019, we entered into a Promissory Note with Mr. Schutte that consolidated existing promissory notes into a single Note with a principal amount of $6.0 million (after including accrued and unpaid interest through that date). To secure our performance of our obligations under the Note, we granted Mr. Schutte a security interest in all of our assets. Terms of the consolidated Note provide for a July 1, 2023 maturity date rather than the previous maturity date of January 2, 2020, interest at fixed rate of 7.5% per annum with all payments of principal and interest deferred to maturity. The Note is convertible into Acura common stock at $0.16 per share. As additional consideration, Mr. Schutte received a warrant to purchase 10 million shares of the Company's common stock at a price of $0.01 per share. With our consent, Mr. Schutte assigned and transferred to AD Pharma, effective June 28, 2019, all of his right, title and interest in this Note, its associated Security Agreement and the Warrant to purchase 10 million common shares of our stock. Mr. Schutte is an investor in AD Pharma. The combination of Mr. Schutte's direct share ownership, control of one of our key licensing partners, the right to designate a director to oversee the long-term affairs of our company, his ownership interest in AD Pharma LLC and the security interest AD Pharma has in all of our assets gives him considerable influence over our business and affairs. As a result, Mr. Schutte, as a practical matter, is able to control all matters requiring approval by our shareholders, including the approval or rejection of mergers, sales or licenses of all or substantially all of our assets, or other business combination transactions. The interests of Mr. Schutte as a shareholder and creditor may not always coincide with the interests of our other shareholders and as such he may and cause the Company to take action to advance his interests to the detriment of our other shareholders. Accordingly, you may not be able to influence any action we take or consider taking, even if it requires a shareholder vote.
Risk Highlights Q3, 2021
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 37
- Share Price & Shareholder Rights - Risk 1Prior ownership changes have limited our ability to use our tax net operating loss carryforwards as part of a corporate restructure or reorganization:
Significant equity restructuring often results in an Internal Revenue Section 382 ownership change that limits the future use of Net Operating Loss ("NOL"), carryforwards and other tax attributes. In addition, under the Tax Cuts and Jobs Act of 2017, NOL usage in any given year will be limited to 80% of taxable income, without regard to the NOL deduction, and losses incurred in 2018 and forward may not be carried back but can be carried forward indefinitely, but losses incurred prior to 2018 can only be carried forward for 20 years. We have determined that we have undergone ownership changes in both 2004 and 2017 (as defined by Section 382 of the Internal Revenue Code) and as a result, our use of NOL carryforwards on an annual basis will be very limited. As such, an entity that may seek to acquire the Company would likely be limited in the amount of NOLs they may be able to utilize. Neither the amount of our NOL carryforwards nor the amount of limitation of such carryforwards claimed by us have been audited or otherwise validated by the Internal Revenue Service, which could challenge the amount we have calculated. The recognition and measurement of our tax benefit includes estimates and judgment by our management, which includes subjectivity. Changes in estimates may create volatility in our tax rate in future periods based on new information about particular tax positions that may cause management to change its estimates.
- Share Price & Shareholder Rights - Risk 2Our results of operations will fluctuate, and these fluctuations could cause our stock price to decline:
Our quarterly and annual operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline. The nature of our business involves variable factors, such as the timing of any license agreement, the timing of launch and market acceptance of our products, and the timing of the research, development and regulatory submissions of our products in development that could cause our operating results to fluctuate. The forecasting of the timing and amount of sales of our products is difficult due to market uncertainty and the uncertainty inherent in seeking FDA and other necessary approvals for our product candidates. As a result, in some periods, our clinical, financial or operating results may not meet the expectations of securities analysts and investors, which could result in a decline in the price of our stock.
- Share Price & Shareholder Rights - Risk 3Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline:
During 2020, our stock traded as high as $0.43 per share and as low as $0.14 per share. The trading price of our common stock is likely to continue to exhibit wide fluctuations in response to various factors, some of which are beyond our control. These factors could include: - results from our pre-clinical and clinical development programs, including our LIMITx product candidates;- FDA actions related to our products in development;- FDA actions related to any of our potential products;- announcements regarding the progress of our preclinical and clinical programs;- announcements regarding the execution of license agreements with third parties for our products or product candidates;- failure of any of our products in development, if approved, to achieve commercial success;- quarterly variations in our results of operations or those of our competitors;- our ability to develop and market new and enhanced products on a timely basis;- announcements by us or our competitors of acquisitions, regulatory approvals, clinical milestones, new products, significant contracts, commercial relationships or capital commitments;- third-party coverage and reimbursement policies;- additions or departures of key personnel;- commencement of, or our involvement in, litigation;- the inability of our contract manufacturers to provide us with adequate commercial supplies of our products;- changes in governmental regulations or in the status of our regulatory approvals;- changes in earnings estimates or recommendations by securities analysts;- any major change in our board or management;- general economic conditions and slow or negative growth of our market; and - political instability, natural disasters, war and/or events of terrorism. From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals or milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. Also, from time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, our stock price may decline and the commercialization of our products and potential products may be delayed. In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of publicly traded companies. Broad market and industry factors may seriously affect the market price of companies' stock, including ours, regardless of actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company's securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.
- Share Price & Shareholder Rights - Risk 4Any future sale of a substantial number of shares in a capital raising transaction could depress the trading price of our stock:
In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the then current trading price of our common stock. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the then current trading price of our common stock. As of February 15, 2021, our two largest shareholders own an aggregate of 12,651,582 shares (including 1,782,531 shares underlying warrants) (representing approximately 53.0% of our outstanding shares, including shares issuable upon exercise of these warrants but not including any other warrants, options or convertible debt outstanding to other entities). If some or all of such shares are sold by such stockholders, it may have the effect of depressing the trading price of our common stock and could make it more difficult for us to raise capital if needed in the future.
- Share Price & Shareholder Rights - Risk 5As of February 15, 2021, approximately 44.8% of our common stock, after giving effect to exercise of a warrant, is owned by a single individual, who is also a principal of AD Pharma LLC and MainPointe Pharmaceuticals LLC, and that individual has right to designate a director:
A significant amount of our common stock is owned by a single individual, Mr. Schutte. On July 24, 2017, we completed a $4.0 million private placement with him for the sale of 8,912,655 shares and warrants to purchase 1,782,531 shares at an exercise price of $0.528 and expiring on July 24, 2022. Mr. Schutte is a principal of MainPointe. In March 2017, we granted MainPointe an exclusive license to our Impede Technology to commercialize our Nexafed and Nexafed Sinus Pressure + Pain Products in the United States and Canada. MainPointe also has options to expand the territory and products covered for additional sums. Further, Mr. Schutte has the right to designate a director (he has not done so). During 2018 and through June 28, 2019, Mr. Schutte had lent us an aggregate of $6.0 million (including accrued interest) on a secured basis with a security interest in all of our assets, including our intellectual property. At June 28, 2019, we entered into a Promissory Note with Mr. Schutte that consolidated existing promissory notes into a single Note with a principal amount of $6.0 million (after including accrued and unpaid interest through that date). To secure our performance of our obligations under the Note, we granted Mr. Schutte a security interest in all of our assets. Terms of the consolidated Note provide for a July 1, 2023 maturity date rather than the previous maturity date of January 2, 2020, interest at fixed rate of 7.5% per annum with all payments of principal and interest deferred to maturity. The Note is convertible into Acura common stock at $0.16 per share. As additional consideration, Mr. Schutte received a warrant to purchase 10 million shares of the Company's common stock at a price of $0.01 per share. With our consent, Mr. Schutte assigned and transferred to AD Pharma, effective June 28, 2019, all of his right, title and interest in this Note, its associated Security Agreement and the Warrant to purchase 10 million common shares of our stock. Mr. Schutte is an investor in AD Pharma. The combination of Mr. Schutte's direct share ownership, control of one of our key licensing partners, the right to designate a director to oversee the long-term affairs of our company, his ownership interest in AD Pharma LLC and the security interest AD Pharma has in all of our assets gives him considerable influence over our business and affairs. As a result, Mr. Schutte, as a practical matter, is able to control all matters requiring approval by our shareholders, including the approval or rejection of mergers, sales or licenses of all or substantially all of our assets, or other business combination transactions. The interests of Mr. Schutte as a shareholder and creditor may not always coincide with the interests of our other shareholders and as such he may and cause the Company to take action to advance his interests to the detriment of our other shareholders. Accordingly, you may not be able to influence any action we take or consider taking, even if it requires a shareholder vote.
- Share Price & Shareholder Rights - Risk 6Our common stock is deemed a "penny stock," which would make it more difficult for our investors to sell their shares:
Our common stock is subject to the "penny stock" rules adopted under the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have net tangible assets of at least $5,000,000 ($2,000,000 if the company (such as Acura) has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
- Share Price & Shareholder Rights - Risk 7Our shares of common stock have been thinly traded, so you may be unable to sell at or near ask prices or even at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares:
Our common stock is quoted on the OTCQB Market. Our common stock experiences periods when it could be considered "thinly-traded." This situation may be attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. In addition, certain institutions are prohibited or limited from trading in shares priced at less than specified levels, including the prices at which our shares currently trade. As a consequence, there may be periods of several days, weeks or months when trading activity in our shares is minimal, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will be sustained, or that current trading levels will be sustained or not diminish.
- Share Price & Shareholder Rights - Risk 8We are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors:
We are currently a "smaller reporting company," meaning that we are not an investment company, an asset- backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million. "Smaller reporting companies" are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in certain registration statements. Decreased disclosures in our SEC filings due to our status as a "smaller reporting company" may make it harder for investors to analyze our results of operations and financial prospects.
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