Aeolus Pharmaceuticals (AOLS) Risk Analysis
Risk Overview Q2, 2017
Source: the company's latest filing for the period ended Jun 30, 2017, filed Aug 14, 2017
Risk Change Over Time
No filing history is available.
- Debt & Financing - Risk 1We may need substantial additional funding to continue our operations and may be unable to raise capital when needed, or at all, which would force us to delay, curtail or eliminate our clinical programs and our product development programs.
We may need to raise substantial additional capital to fund human clinical trials and continue our research and development, unless and until we receive a procurement of sufficient size from the U.S. Government for the Strategic National Stockpile. In addition, we may need to raise substantial additional capital to enforce our proprietary rights, defend, in litigation or otherwise, any claims that we infringe third party patents or other intellectual property rights, and commercialize, for non-government related indications, any of our products that may be approved by the FDA or any international regulatory authority. As of September 30, 2016, we had cash of approximately $3,155,000. During fiscal year 2016, our monthly cash requirements to operate our business that are not reimbursed under the BARDA Contract were approximately $206,000. However, this historical cash does not include amounts described in our Form 10-K whereby we expect that our own capital will be used to fund part of the future costs of ongoing commercial development programs to the extent they are not funded by the BARDA Contract. To the extent we do not have sufficient cash to fund our working capital requirements, we may not be able to pay our payables timely, which may cause vendors to cease providing services to us, and we may not be able to advance certain, if not all, development programs. On March 23, 2017, we announced that we had received notification from the Assistant Secretary for Preparedness and Response that BARDA had elected not to exercise additional options under the contract at this time based upon an "In-Process Review" meeting held with BARDA on February 2, 2017. The notification did not terminate the BARDA Contract, which currently has a term that runs through May 2019. We plan to continue discussions with BARDA to determine the possibility of additional option exercises to continue the development work under the contract. In order to fund on-going operating cash requirements, or to accelerate or expand our oncology and other programs we will need to raise significant additional funds. We are continuously considering additional strategic and financial options available to us, including public or private equity offerings, debt financings or collaboration arrangements. If we raise additional funds by issuing equity securities, our stockholders will experience dilution of their ownership interest. Debt financings, if available, may involve restrictive covenants and require significant interest payments. If we do not receive additional financing to fund our operations not reimbursed under the BARDA Contract, or if BARDA does not exercise any additional options under the BARDA Contract, which is possible given the review described above, and we are unable to raise sufficient capital for operations, we would have to discontinue some or all of our activities, merge with or sell, lease or license some or all of our assets to another company, or cease operations entirely, and our stockholders might lose all or part of their investments. In addition, a lack of funding from BARDA would increase the likelihood that we would seek additional equity or debt financings to meet our cash requirements, which could lead to dilution of the ownership interest of our stockholders. In addition, if our catalytic antioxidant program shows scientific progress, we will need significant additional funds to move our compounds through continued development and clinical trials. If we are unable to raise the amount of capital necessary, or do not receive a sufficient procurement from the U.S. Government forthe Strategic National Stockpile, to complete development and reach commercialization of any of our catalytic antioxidant products, we will need to delay or cease development of one or more of these products or partner with another company for the development and commercialization of these products.
Risk Highlights Q2, 2017
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 46
- Share Price & Shareholder Rights - Risk 1Our principal stockholders own a significant percentage of our outstanding common stock and are, and will continue to be, able to exercise significant influence over our affairs.
As of September 30, 2016, Xmark Opportunity Partners, LLC ("Xmark") possessed voting power over 97,214,694 shares, or 63.9%, of our outstanding common stock as of such date, through its management of Goodnow Capital, L.L.C. ("Goodnow"), Xmark Opportunity Fund, L.P., Xmark Opportunity Fund, Ltd. and Xmark JV Investment Partners, LLC (collectively, the "Xmark Funds"),. As a result, Xmark is able to determine a significant part of the composition of our board of directors, holds significant voting power with respect to matters requiring stockholder approval and is able to exercise significant influence over our operations. The interests of Xmark may be different than the interests of other stockholders on these and other matters. This concentration of ownership also could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could reduce the price of our common stock. David Cavalier, an employee and our Chairman of the board of directors and Mitchell D. Kaye, a Director, are affiliated with Xmark, which possessed voting power of 63.9% of our outstanding common stock as of September 30, 2016. Accordingly, Mr. Cavalier and Mr. Kaye currently have, and will continue to have, a significant influence over the outcome of all corporate actions requiring stockholder approval. Our executive officers and directors and holders of greater than five percent of our outstanding common stock, together with entities that may be deemed affiliates of, or related to, such persons or entities, beneficially owned greater than 74% of our outstanding common stock as of September 30, 2016. As a result, these stockholders, acting together, may be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. The interests of our current major stockholders may not always coincide with the interests of other stockholders and they may take actions to advance their respective interests to the detriment of other stockholders.
- Share Price & Shareholder Rights - Risk 2We may need to sell additional shares of our common stock, preferred stock or other securities to meet our capital requirements and these future sales could cause dilution and adversely affect our stock price.
Sales of substantial amounts of capital stock, or the perception that such sales could occur, could adversely affect the prevailing market price of the common stock and our ability to raise capital. We may issue additional common stock in future financing transactions or as incentive compensation for our executive management and other key personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests represented by our then-outstanding shares of common stock. The market price for our common stock could decrease as the market takes into account the dilutive effect of any of these issuances.
- Share Price & Shareholder Rights - Risk 3In the event of the conversion of our preferred stock and exercises of currently outstanding options and warrants, the ownership interests of our current stockholders could be substantially diluted, which would reduce the market price of our common stock and could make it more difficult for us to raise funds in the future.
As of September 30, 2016, we had 152,085,825 shares of common stock outstanding. We may grant to our employees, directors and consultants, options to purchase shares of our common stock under our 2016 Stock Incentive Plan. In addition, as of September 30, 2016, options to purchase 12,204,000 shares were outstanding at exercise prices ranging from $0.19 to $1.19 per share, with a weighted average exercise price of $0.38 per share, and 25,000,000 shares were reserved for issuance under the 2016 Stock Incentive Plan. In addition, as of September 30, 2016, warrants to purchase 52,947,877 shares of common stock were outstanding at exercise prices ranging from $0.22 to $0.49 per share, with a weighted exercise price of $0.23 per share.
- Share Price & Shareholder Rights - Risk 4Substantial blocks of our total outstanding common stock may be sold into the market through this registration statement. If there are substantial sales of shares of our common stock, the price of our common stock could decline.
The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders. As of the date of this prospectus, substantially all of our outstanding common stock and substantially all common stock underlying outstanding warrants and Series C Convertible Preferred Stock are covered by this registration statement and/or otherwise freely tradeable without restrictions or further registration under the Securities Act. The market price of our common stock could decline as a result of the sale of a substantial number of our common stock or due to the perception in the market that the holders of a large number of shares intend to sell their common stock.
- Share Price & Shareholder Rights - Risk 5Our common stock is not listed on a national securities exchange, is illiquid and is characterized by low and/or erratic trading volume, and the intraday per share price of our common stock has fluctuated from $0.15 to $0.50 during the last two fiscal years.
Our common stock is quoted on the OTCQB under the symbol "AOLS." An active public market for our common stock is unlikely to develop as long as we are not listed on a national securities exchange. Even if listed, the market for our stock may be impaired because of the limited number of investors, the significant ownership stake of Xmark, and our small market capitalization, which is less than that authorized for investment by many institutional investors. Historically, the public market for our common stock has been characterized by low and/or erratic trading volume, often resulting in price volatility. For the fiscal year ended September 30, 2016 the average daily trading volume for our common stock was approximately 30,000 shares. In addition, the price of our common stock has been volatile. Our common stock had a closing price of $0.25 on October 1, 2015 and ended fiscal year 2016 at a closing price of $0.19. During the twelve month period ended September 30, 2016, our common stock had a low closing price of $0.15, which occurred on July 5, 2016, and had a high closing price of $0.30, which occurred on November 30, 2015. The market price of our common stock is subject to wide fluctuations due to factors that we cannot control, including the results of preclinical and clinical testing of our products under development, decisions by collaborators regarding product development, regulatory developments, market conditions in the pharmaceutical and biotechnology industries, future announcements concerning our competitors, adverse developments concerning proprietary rights, public concern as to the safety or commercial value of any products and general economic conditions. Furthermore, the stock market has experienced significant price and volume fluctuation unrelated to the operating performance of particular companies. These market fluctuations can adversely affect the market price and volatility of our common stock.
- Share Price & Shareholder Rights - Risk 6Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include a prohibition on certain actions by written consent of our stockholders and the ability of our board of directors to issue up to 7,150,000 shares of "blank check" preferred stock without stockholder approval. As a result, our board of directors has the power to issue shares without stockholder approval, and such shares can be issued with such rights, preferences, and limitations as may be determined by our board of directors. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.
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