Quarterly report pursuant to Section 13 or 15(d)

Acquisition of Pelican Therapeutics

v3.7.0.1
Acquisition of Pelican Therapeutics
6 Months Ended
Jun. 30, 2017
Business Combinations [Abstract]  
Acquisition of Pelican Therapeutics

2. Acquisition of Pelican Therapeutics


On April 28, 2017, the Company consummated the acquisition of 80% of the outstanding equity of Pelican, a related party, and Pelican became a majority owned subsidiary of the Company. Operations of Pelican are included in the consolidated statements of operations and comprehensive loss from the acquisition date.  Pelican is a biotechnology company focused on the development and commercialization of monoclonal antibody and fusion protein-based therapies that are designed to activate the immune system. In exchange for 80% of the outstanding capital stock of Pelican on a fully diluted basis, the Company paid to the Pelican Stockholders that executed the Stock Purchase Agreement (the “Participating Pelican Stockholders”) an aggregate of $500,000 (the “Cash Consideration”), and issued to the Participating Pelican Stockholders 1,331,056 shares of the Company’s restricted common stock representing 4.99% of the outstanding shares of our common stock on the date of the initial execution of the Purchase Agreement (the “Stock Consideration”). The Cash Consideration will be reduced by the amount by which certain of Pelican’s accrued liabilities are not satisfied for less than $250,000.  The Cash Consideration and Stock Consideration are being held in escrow for a period of up to six months to secure certain indemnification and other obligations of Pelican and the Participating Pelican Stockholders in connection with the acquisition. Under the agreement, the Company is also obligated to make future payments based on the achievement of certain milestones. The fair value of these future milestone payments are reflected in the contingent consideration account under long term liabilities on the balance sheet.


We have recorded the assets purchased and liabilities assumed at their estimated fair value in accordance with FASB ASC Topic 805: Business Combinations. The purchase price exceeded the fair value of the net assets acquired resulting in goodwill of $2,189,338. The identifiable indefinite-lived intangible asset consists of in-process R&D of $5,866,000. Operations of the acquired entity are included in the consolidated statements of operations from the acquisition date. Fees and expenses associated with the acquisition were approximately $559,000 for the six months ended June 30, 2017 and are reported in our G&A expense.

 

The purchase price has been allocated to the assets and liabilities as follows: 


Aggregate consideration:

 

 

 

Cash consideration

 

$

500,000

 

Stock consideration

 

$

1,052,000

 

Contingent consideration

 

$

2,385,000

 

Total Consideration

 

$

3,937,000

 

 

 

 

 

 

 

 

 

 

 

Purchase price allocation:

 

 

 

 

Cash acquired

 

$

31,199

 

In-process R&D

 

$

5,866,000

 

Goodwill

 

$

2,189,338

 

Deferred tax liability

 

$

(2,111,760

)

Net liabilities assumed

 

$

(1,102,777

)

Fair value of non-controlling interest

 

$

(935,000

)

Total purchase price

 

$

3,937,000

 


The purchase price allocation presented herein is preliminary. The final purchase price allocation will be determined after completion of an analysis to determine the fair value of all assets acquired and liabilities assumed, but in no event later than one year following completion of the Pelican acquisition. Accordingly, the deferred tax liability is an estimate and final deferred tax liability adjustments could differ materially from the preliminary amounts presented herein. Any increase or decrease in the in-process R&D asset, as compared to the information shown herein, could also change the portion of purchase price allocated to goodwill, and could impact the operating results of the Company following the acquisition due to differences in purchase price allocation and amortization related to some of these assets and liabilities.


Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill resulting from this acquisition arises largely from synergies expected from combining the operations. The goodwill is not deductible for income tax purposes.


In-process R&D assets are treated as indefinite-lived until the completion or abandonment of the associated R&D program, at which time the appropriate useful lives will be determined.   


The Company calculated the fair value of the non-controlling interest acquired in the acquisition as 20% of the equity interest of Pelican, adjusted for a minority interest discount.


Pelican has contributed net revenue and net loss of $411,250 and $72,252, respectively, included in the Company's consolidated statement of operations for the six months ended June 30, 2017, excluding acquisition and integration related expenses included in non-recurring and acquisition-related costs.

 

The following unaudited pro forma information presents the combined results of operations for the three and six months ended June 30, 2017 and 2016, as if we had completed the Pelican acquisition at the beginning of fiscal 2016. The pro forma financial information is provided for comparative purposes only and is not necessarily indicative of what actual results would have been had the acquisition occurred on the date indicated, nor does it give effect to synergies, cost savings, fair market value adjustments, immaterial amortization expense and other changes expected to result from the acquisition. Accordingly, the pro forma financial results do not purport to be indicative of consolidated results of operations as of the date hereof, for any period ended on the date hereof, or for any other future date or period.


In thousands:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2017

 

2016

 

 

2017

 

 

2016

 

Revenue

 

$

411

 

$

 

 

$

435

 

 

$

 

Net loss

 

 

(3,311

)

 

(3,223

)

 

 

(6,941

)

 

 

(8,051

)

Net loss: Non-controlling interest

 

 

(91

)

 

(145

)

 

 

(219

)

 

 

(339

)

Net loss attributable to Heat Biologics, Inc.

 

$

(3,220

)

$

(3,078

)

 

$

(6,722

)

 

$

(7,712

)

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Net loss per share attributable to Heat Biologics, Inc.—basic and diluted

 

$

(0.09

)

$

(0.17

)

 

$

(0.21

)

 

$

(0.77

)