10-Q/A: Exicure Secures $2 Million in Convertible Bond Financing Amidst Restructuring

Exicure, Inc. has entered into agreements to secure $2 million in convertible bond financing, while also restating previous financial statements due to expense misclassifications and a change in investment valuation.

Summary

• Exicure, Inc. has secured $2 million in convertible bond financing through two separate agreements with Cyworld Z Co., Ltd.
• The bonds have a 4.5% yield to maturity and mature in May 2026.
• The company has the option to redeem the bonds starting one year after issuance and every three months thereafter.
• The bonds are convertible into common stock of Cyworld Z Co., Ltd. at a price of 85,000 KRW per share.
• The company restated its financial statements for the three and six months ended June 30, 2023, due to a misclassification of approximately $0.9 million in expenses from research and development to general and administrative.
• Additionally, the company reclassified its debt securities from held-to-maturity to available-for-sale, resulting in a $2.0 million impact to the net loss.
• The company has identified a material weakness in its internal control over financial reporting and is working on a remediation plan.
• The company's cash and cash equivalents were $2.335 million as of June 30, 2023.
• The company has an accumulated deficit of $201.7 million since inception and expects to incur significant expenses and negative cash flows for the foreseeable future.
• 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.

Sentiment

Score: 3

Explanation: The document reveals significant financial and operational challenges, including a restatement of financials, a material weakness in internal controls, and a going concern warning. While the convertible bond financing provides some capital, the overall outlook is negative due to the company's financial instability and uncertain future.

Positives

• The convertible bond financing provides the company with $2 million in working capital.
• The company is actively exploring strategic alternatives to maximize stockholder value.

Negatives

• The company has restated its financial statements due to misclassifications and a change in investment valuation.
• The company has identified a material weakness in its internal control over financial reporting.
• The company has a significant accumulated deficit and expects to incur further losses.
• There is substantial doubt about the company's ability to continue as a going concern.

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 and board have limited experience with U.S. public companies.
• Turnover of senior management could impair the company's ability to implement its business plan.
• The company may not be able to regain compliance with Nasdaq listing requirements.
• The company has a history of losses and may never achieve profitability.
• The company's internal computer systems are vulnerable to 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 to obtain substantial additional financing in the near term to fund its operations and exploration of strategic alternatives.

Management Comments

• Management believes that, given the Companys current cash position, operating plans and forecasted negative cash flows from operating activities over the next twelve months, there is substantial doubt about the Companys ability to continue as a going concern within one year after the date these financial statements are issued.
• Management believes that the Companys existing cash and cash equivalents will fund its operating expenses into the fourth quarter of 2023.

Industry Context

The biotechnology industry is characterized by high research and development costs and a long time to market for new products. Exicure's current financial situation reflects the challenges faced by early-stage companies in this sector, particularly those undergoing strategic shifts.

Comparison to Industry Standards

• Many early-stage biotech companies rely on venture capital and strategic partnerships for funding, similar to Exicure's past reliance on collaboration agreements.
• The restatement of financial statements and identification of material weaknesses in internal controls are not uncommon in companies undergoing significant changes or facing financial difficulties, as seen in other similar cases.
• The need for additional financing and the going concern warning are common challenges for companies in the biotech sector that have not yet achieved profitability, as seen in other similar cases.
• The convertible bond financing is a common method for companies to raise capital, but the terms and conditions can vary significantly based on the company's financial health and market conditions.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in a securities class action lawsuit and several shareholder derivative lawsuits.
• The company received a demand to access certain books and records from a director designated by CBI USA.
• The company received a notice letter from Northwestern University alleging a breach of license agreements.

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 uncertain future.
• Employees have experienced significant reductions in force and potential turnover in management.
• Customers and suppliers may be impacted by the company's strategic shift and financial challenges.
• Creditors face increased risk due to the company's going concern warning.

Next Steps

• The company will continue to explore strategic alternatives to maximize stockholder value.
• The company will seek to raise additional capital in the third quarter of 2023.
• The company will work on a remediation plan to address the material weakness in internal control over financial reporting.

Key Dates

Keywords

convertible bonds, financing, restatement, internal control, material weakness, strategic alternatives, going concern, Nasdaq, financial statements, working capital