Innovation Pharmaceuticals risk analysis
Innovation Pharmaceuticals (IPIX) Risk Analysis
Risk Overview Q1, 2020
Source: the company's latest filing for the period ended Mar 31, 2020, filed May 14, 2020
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1There are conflicts of interest among our officers, directors and stockholders.
Certain of our executive officers and directors and their affiliates are engaged in other activities and have interests in other entities on their own behalf or on behalf of other persons. Neither we nor any of our stockholders will have any rights in these ventures or their income or profits. In particular, our executive officers or directors or their affiliates may have an economic interest in, or other business relationship with, partner companies that invest in us or are engaged in competing drug development. Our executive officers or directors may have a conflict between our current interests and their personal financial and other interests in another business venture. In addition, our executive officers or directors may have conflicting fiduciary duties to us and the other entity. While the Company is not aware of any conflict that has arisen to date, the Company does not have any policy in place to deal with such should such a conflict arise.
- Share Price & Shareholder Rights - Risk 2The dual class structure of our common stock can have the effect of concentrating voting control with Dr. Menon and/ or Mr. Ehrlich, which will limit or preclude your ability to influence corporate matters.
Our Class B common stock entitles holders to ten (10) votes per share on all matters submitted to a vote of our stockholders and our Class A Common Stock entitles holders to one (1) vote per share on all matters submitted to a vote of our stockholders. Dr. Menon and Mr. Ehrlich each have vested options that they can exercise and convert into 18,000,000 shares of Class B common stock. That alone could result in the equivalent of 360,000,000 votes of Class A Common Stock. As of June 30, 2018, we had 163,103,927 shares of Class A Common Stock outstanding and no shares of Class B common stock outstanding. Because of the ten-to-one voting ratio between our Class B common stock and Class A Common Stock, upon exercise and conversion of such options into shares of Class B common stock, the Class B common stock holders can collectively control a majority of the combined voting power of our common stock (i.e., approximately 69%) and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future.
- Share Price & Shareholder Rights - Risk 3The sale of our Class A Common Stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares of Class A Common Stock acquired by Aspire Capital could cause the price of our Class A Common Stock to decline, which could have a materially adverse effect on our business.
On September 6, 2017, the Company entered into a common stock purchase agreement (the "Purchase Agreement") with Aspire Capital Fund, LLC, an Illinois limited liability company ("Aspire Capital") which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company's common stock over the 36-month term of the Purchase Agreement. The Company also issued 300,000 shares of its Class A Common Stock to Aspire Capital as a commitment fee. On June 28, 2018, the Company entered into a Securities Purchase Agreement with Aspire Capital that provides for the sale of up to $7 million of common stock and includes warrants to purchase up to 8,000,000 shares of common stock. The Company has registered the sale of any shares that Aspire Capital may purchase under the Purchase Agreement and Securities Purchase Agreement. To the extent Aspire Capital purchases shares under the Purchase Agreement or Securities Purchase Agreement and subsequently sells those shares, the other holders of our Class A Common Stock may experience dilution, which may be substantial. In addition, the sale of a substantial number of shares of our Class A common stock by Aspire Capital, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
- Share Price & Shareholder Rights - Risk 4Large amounts of our Class A Common Stock will be eligible for resale under Rule 144.
As of June 30, 2018, 35,161,586 shares of the 163,103,927 outstanding shares of our Class A Common Stock are restricted securities as defined under Rule 144 of the Securities Act and under certain circumstances may be resold without registration pursuant to Rule 144. Approximately 8.9 million shares of our restricted shares of Class A Common Stock are held by non-affiliates who may avail themselves of the public information requirements and sell their shares in accordance with Rule 144. As a result, some or all of these shares may be sold in accordance with Rule 144 potentially causing the price of the Company's shares to decline. In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a six-month holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of Class A Common Stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate, as such term is defined in Rule 144(a)(1), of the Company and who has satisfied a one-year holding period. Any substantial sale of the Company's Class A Common Stock pursuant to Rule 144 may have an adverse effect on the market price of the Class A Common Stock.
Risk Highlights Q1, 2020
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 34
- Share Price & Shareholder Rights - Risk 1Our Series B preferred stock converts into shares of Class A common stock at a discount to the market price of our Class A common stock. As a result, our common stockholders will experience substantial additional dilution when shares of our Series B preferred stock are converted into common stock.
Our Series B preferred stock may be converted at any time at the holder's option into shares of our common stock at a conversion price equal of the lower of (i) $0.31625 per share and (ii) 85% of the lowest volume weighted average sale prices of our Class A common stock as reported on Bloomberg L.P. on a trading day during the ten trading days prior to and ending on, and including, the conversion date. In addition, the conversion price may be decreased following certain triggering events. Our Series B preferred stock, of which 1,196 shares and warrants to purchase an additional 7,720 shares were outstanding as of June 30, 2019, has substantially similar provisions. As a result, the number of shares of Class A common stock that the holders of our Series B preferred stock will receive upon conversion will increase as our Class A common stock price decreases, and there is no floor to the conversion price, and our common stockholders will experience substantial dilution as shares of our Series B preferred stock are converted into our common stock. Any dilution or potential dilution may cause our stockholders to sell their shares, which may contribute to a downward movement in the stock price of our common stock.
- Share Price & Shareholder Rights - Risk 2In addition to potential dilution associated with future fundraising transactions, we currently have significant numbers of securities outstanding that are exercisable for our common stock, which will result in significant additional dilution and downward pressure on our stock price.
As of June 30, 2019, there were 202.4 million shares of our Class A common stock outstanding and 0.9 million shares of our Class B common stock outstanding. In addition, as of June 30, 2019, there were outstanding stock options, warrants and a convertible note representing the potential issuance of approximately an additional 36.3 million shares of our common stock, and 1,196 shares of our Series B preferred stock convertible into approximately 8.3 million shares of our Class A common stock and warrants to purchase an additional 7,720 shares of our Series B preferred stock convertible into approximately 51.6 million shares of our Class A common stock, in each case assuming a conversion price of $0.1615 per share, 85% of the closing price of our Class A common stock on June 28, 2019. The issuance of these shares in the future would result in significant dilution to our current stockholders and could adversely affect the price of our common stock and the terms on which we could raise additional capital. In addition, the issuance and subsequent trading of shares could cause the supply of our common stock available for purchase in the market to exceed the purchase demand for our common stock. Such supply in excess of demand could cause the market price of our common stock to decline.
- Share Price & Shareholder Rights - Risk 3Because our common stock is quoted on the OTC your ability to sell your shares in the secondary trading market may be limited.
Our Class A Common Stock is currently quoted on the OTC. Consequently, the liquidity of our Class A Common Stock is impaired, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if any, of our Company. As a result, prices for shares of our Class A Common Stock may be lower than might otherwise prevail if our Class A Common Stock were listed on a national securities exchange.
- Share Price & Shareholder Rights - Risk 4Because our Class A Common Stock is considered "penny stock" you may have difficulty selling them in the secondary trading market.
Federal regulations under the Securities Exchange Act of 1934 (the "Exchange Act") regulate the trading of so-called "penny stocks," which are generally defined as any security not listed on a national securities exchange, priced at less than $5.00 per share and offered by an issuer with limited net tangible assets and revenues. Since our Class A Common Stock currently is quoted on the OTC at less than $5.00 per share, our shares are "penny stocks" and may not be traded unless a disclosure schedule explaining the penny stock market and the risks associated therewith is delivered to a potential purchaser prior to any trade. In addition, because our Class A Common Stock is not listed on any national securities exchange and currently is quoted at and trades at less than $5.00 per share, trading in our Class A Common Stock is subject to Rule 15g-9 under the Exchange Act. Under this rule, broker-dealers must take certain steps prior to selling a "penny stock," which steps include: - obtaining financial and investment information from the investor; - obtaining a written suitability questionnaire and purchase agreement signed by the investor; and - providing the investor a written identification of the shares being offered and the quantity of the shares. If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will make it more difficult for broker-dealers to sell our Class A Common Stock and our stockholders, therefore, may have difficulty in selling their shares in the secondary trading market.
- Share Price & Shareholder Rights - Risk 5Our stock price may be volatile and your investment in our Class A Common Stock could suffer a decline in value.
As of June 30, 2019, the last closing price of our Class A Common Stock, as quoted on the OTC, was $0.19 per share. The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include: - progress of our products through the regulatory process; - results of preclinical studies and clinical trials; - announcements of technological innovations or new products by us or our competitors; - government regulatory action affecting our products or our competitors' products in both the United States and foreign countries; - developments or disputes concerning patent or proprietary rights; - general market conditions for emerging growth and pharmaceutical companies; - economic conditions in the United States or abroad; - actual or anticipated fluctuations in our operating results; - broad market fluctuations; and - changes in financial estimates by securities analysts.
- Share Price & Shareholder Rights - Risk 6Short sellers of our stock may be manipulative and may drive down the market price of our common stock.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities, as the short seller expects to pay less in the covering purchase than it received in the sale. It is therefore in the short seller's interest for the price of the stock to decline, and some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, often involving deliberate misrepresentations of the issuer's business prospects and similar matters calculated to create negative market momentum. Penny stocks which do not trade on an exchange, such as our common stock, are particularly susceptible to short sales. As a public entity in a highly digital world, we have been and in the future may be the subject of so-called "fake news," a type of yellow journalism constructed to look legitimate while consisting of intentional misinformation and misrepresentations deliberately propagated by profiteering short sellers seeking to gain an illegal market advantage by spreading false information concerning the Company's name, compounds, intellectual property, personnel, and affiliates. In the past, the publication of intentional misinformation concerning the Company by a disclosed short seller has been associated with the selling of shares of our common stock in the market on a large scale, resulting in a precipitous decline in the market price per share of our common stock. In addition, the publication of intentional misinformation may also result in lawsuits, the uncertainty and expense of which could adversely impact our business, financial condition and reputation. While we maintain directors' and officers' liability insurance, certain costs, such as those below a retention amount, are not covered by our insurance policies. In addition, our insurance carriers could refuse to cover some or all of these claims in whole or in part. While utilizing all available tools to defend the Company and its assets against fake news, there is limited regulatory control, making fake news an ongoing concern for any public company. While we move forward in our business development strategies in good faith, there are no assurances that we will not face more fake news or similar tactics by bad actors in the future, and the market price of our common stock may decline as a result of their actions or the action of other short sellers.
- Share Price & Shareholder Rights - Risk 7Our directors and executive officers own or control a sufficient number of shares of our common stock to control our Company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders.
At June 30, 2019, our directors and executive officers own or control approximately 10% of the outstanding voting power of our common stock, excluding common stock issuable upon the exercise of options or conversion of other instruments. Mr. Leo Ehrlich, our CEO and Chairman, also holds an option to purchase 17,090,910 shares of our Class B common stock, each share of which carries ten votes, compared to one vote for each share of our Class A common stock. If Mr. Ehrlich were to exercise this option, our directors and executive officers own or control approximately 50% of the outstanding voting power of our common stock. Accordingly, our directors and executive officers, individually and as a group, may be able to influence the outcome of stockholder votes, involving votes concerning the election of directors, the adoption or amendment of provisions in our Articles of Incorporation and bylaws and the approval of certain mergers or other similar transactions, such as sales of substantially all of our assets. Such control by existing stockholders could have the effect of delaying, deferring or preventing a change in control of our Company.
- Share Price & Shareholder Rights - Risk 8We may issue additional equity shares to fund the Company's operational requirements which would dilute your share ownership.
The Company's continued viability depends on its ability to raise capital. Changes in economic, regulatory or competitive conditions may lead to cost increases. Management may also determine that it is in the best interest of the Company to develop new services or products. In any such case additional financing is required for the Company to meet its operational requirements. There can be no assurances that the Company will be able to obtain such financing on terms acceptable to the Company and at times required by the Company, if at all. In such event, the Company may be required to materially alter its business plan or curtail all or a part of its operational plans.
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