10-Q/A: Exicure Files Amended Quarterly Report After Accounting Error, Faces Going Concern Doubts

Exicure, Inc. has filed an amended quarterly report to correct a classification error in research and development expenses and acknowledges substantial doubt about its ability to continue as a going concern.

Summary

• Exicure, Inc. filed an amendment to its quarterly report for the period ended March 31, 2023, to correct a misclassification of approximately $0.6 million in expenses from research and development to general and administrative.
• The company's management has determined that a material weakness existed in the company's internal control over financial reporting.
• The company has restated its financial statements for the three months ended March 31, 2023.
• Exicure is exploring strategic alternatives to maximize stockholder value, including potential transactions in industries unrelated to its historical operations.
• The company's cash and cash equivalents were $9.96 million as of March 31, 2023.
• Management believes that the company's existing cash will fund operations into the fourth quarter of 2023, but substantial additional financing will be needed within the next few months.
• There is substantial doubt about the company's ability to continue as a going concern within one year after the date these financial statements are issued.
• The company reported a net loss of $4.4 million for the three months ended March 31, 2023, compared to a net loss of $8.3 million for the same period in 2022.
• Collaboration revenue decreased to $0 for the three months ended March 31, 2023, from $2.6 million in the same period of 2022 due to the termination of collaboration agreements.
• Research and development expenses decreased to $1.4 million for the three months ended March 31, 2023, from $7.1 million in the same period of 2022 due to the suspension of research activities and a reduction in workforce.

Sentiment

Score: 2

Explanation: The document indicates significant financial distress, a material weakness in internal controls, and substantial doubt about the company's ability to continue as a going concern. The company is also undergoing a major strategic shift, which adds to the uncertainty. These factors contribute to a very negative sentiment.

Positives

• The net loss decreased to $4.4 million for the three months ended March 31, 2023, compared to $8.3 million for the same period in 2022.
• Research and development expenses decreased significantly due to the suspension of research activities and a reduction in workforce.
• The company is actively exploring strategic alternatives to maximize stockholder value.

Negatives

• The company restated its financial statements due to a material weakness in internal control over financial reporting.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company needs substantial additional financing within the next few months to fund its operations.
• Collaboration revenue decreased to $0 due to the termination of collaboration agreements.
• The company has a history of losses and expects to continue to incur significant losses for the foreseeable future.

Risks

• The company's exploration of strategic alternatives may not be successful.
• The company needs to obtain substantial funding in the near term to continue operations.
• The company's controlling stockholder, executive officers, and board members have limited experience controlling or governing a public company in the United States.
• Turnover of senior management could impair the company's ability to implement its business plan.
• The company's common stock may be delisted from Nasdaq.
• The company's internal computer systems may fail or suffer security breaches.
• The company's operations are concentrated in one location.
• The company's investment of cash is subject to risks.
• The company may be subject to claims challenging the inventorship or ownership of its patents.
• The company's ability to use net operating loss carryforwards may be limited.

Future Outlook

The company expects to incur significant expenses and negative cash flows for the foreseeable future and needs substantial additional financing within the next few months to fund its operations and exploration of strategic alternatives.

Management Comments

• Management believes that the company's existing cash and cash equivalents will fund its operating expenses into the fourth quarter of 2023.
• Management has determined that a material weakness existed in the company's internal control over financial reporting.
• Management has reconsidered its assessment and now concludes that we did not maintain effective disclosure controls and procedures for the quarter ended March 31, 2023.

Industry Context

The company's shift away from its historical biotechnology focus and exploration of strategic alternatives in unrelated industries reflects a significant change in direction, potentially due to financial constraints and the lack of success in its previous business model. This is not typical for a biotech company and indicates a significant change in strategy.

Comparison to Industry Standards

• The company's decision to halt research and development and explore strategic alternatives outside of its core industry is unusual for a biotech company, which typically focuses on developing and commercializing its own products.
• The company's significant reduction in force and suspension of preclinical activities are not typical for a biotech company that is still in the early stages of development.
• The company's reliance on external financing and the lack of revenue generation are common for early-stage biotech companies, but the level of uncertainty about its future direction is higher than usual.
• The company's identification of a material weakness in internal control over financial reporting is a serious issue that needs to be addressed to restore investor confidence.
• The company's need for substantial additional financing in the near term is a significant risk that could impact its ability to continue operations.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in a securities class action lawsuit and several shareholder derivative lawsuits.
• A director of the company designated by CBI USA served a demand on the company to access certain books and records.

Related Party Transactions

• The company paid Alta Companies LTD $218 for a consulting fee related to the September 2022 PIPE closing. Paul Kang, a director of the company, is the President of Alta.

Stakeholder Impact

• Shareholders face significant risks due to the company's financial instability and the potential for delisting.
• Employees have been impacted by the reduction in force and may face further job insecurity.
• Customers and partners may be hesitant to engage with the company due to its uncertain future.
• Creditors face the risk of non-payment due to the company's financial difficulties.

Next Steps

• The company will continue to explore strategic alternatives to maximize stockholder value.
• The company will seek to raise capital in the third quarter of 2023 to fund its operations through 2024.
• The company will work to remediate the material weakness in its internal control over financial reporting.
• The company will search for a qualified candidate to add as an independent director to its audit committee.

Key Dates

Keywords

restatement, going concern, strategic alternatives, internal control, financial reporting, research and development, capital raise, Nasdaq, biotechnology, restructuring