Quarterly report pursuant to Section 13 or 15(d)

Commitments

v3.7.0.1
Commitments
9 Months Ended
Jun. 30, 2017
Commitments [Abstract]  
Commitments and Contingencies Disclosure [Text Block]
7.
Commitments
 
Operating leases
 
The Company leases buildings and facilities used in its operations under three sublease agreements with the Oxnard Harbor District. In June 2015, the Company exercised its option to extend these sublease agreements for an additional five-year term beginning in October and November 2015. The Company negotiated an option to extend the leases for two additional five-year terms.
 
The Company leases facilities used for executive offices and laboratories and pays a portion of the common area maintenance. In July 2016, the Company extended this lease for a two-year term, with options to renew for three successive two-year terms.
 
The Company leases undeveloped land in Baja California, Mexico to assess the potential development of an additional aquaculture locale and expansion of production. The lease term is three years from June 2015 with options to extend the lease for 30 years. The Company may terminate early with 30 days’ notice. The first two years of rent under the lease totaling $74,606 were prepaid in June 2015, and are not included in the future minimum lease payments below. The Company has a related agreement with the lessor to collaborate on the design, expansion and development of marine aquaculture resources and KLH production facilities on the leased property. Under that agreement, the Company was responsible for certain leasehold improvements including construction of structures and a power-generating facility, which are owned by the Company. The Company will reimburse the lessor for local operational support. The collaboration agreement expires in June 2018, unless terminated earlier.
 
Aggregate future minimum lease payments at June 30, 2017 are as follows:
 
For The Year Ending September 30,
 
 
 
2017
 
$
82,000
 
2018
 
 
160,000
 
2019
 
 
106,000
 
2020
 
 
106,000
 
2021
 
 
6,000
 
 
 
 
 
 
 
 
$
460,000
 
 
Rent expense on these lease agreements amounted to approximately $178,000, and $176,000 for the nine months ended June 30, 2017 and 2016, respectively.
 
Purchase obligations
 
The Company has commitments totaling approximately $327,000 at June 30, 2017 for signed agreements with contract research organizations, consultants and equipment suppliers. The Company also has agreements to pay time and materials to contractors, which are estimated at approximately $27,000 at June 30, 2017. All purchase obligations are expected to be fulfilled within the next 12 months.
 
Supply agreements
 
The Company has commitments under supply agreements with customers for fixed prices per gram of KLH in connection with clinical trials on a non-exclusive basis except within that customer’s field of use. The expiration dates of these supply agreements range from October 2019 to February 2022, and are generally renewable upon written request of the customer.
 
Joint venture agreement
 
In May 2016, the Company entered into a joint venture agreement with another party for the formation of a joint venture company to manufacture and sell conjugated therapeutic vaccines. The joint venture is organized as a French simplified corporation.
 
The Company holds a 30% equity interest in the joint venture in exchange for an initial capital contribution of €120,000. One-half of the initial contribution, approximately $67,000, was paid during the year ended September 30, 2016 with the balance due upon the occurrence of certain defined future events. The Company will also provide the joint venture additional financing as may be required, on a pro rata basis in line with its equity interest. If the joint venture does not achieve certain milestones by December 2017, the joint venture will be dissolved, unless (i) the parties mutually agree to continue the joint venture arrangement, or (ii) either party decides to purchase the equity interests of the other party. Each of the parties is entitled, upon the occurrence of certain defined events, to acquire the interest of the other party.
 
In connection with the formation of the joint venture and the execution of its strategy, the parties intend over time to enter into an exclusive supply agreement within a limited field of use for Stellar to supply KLH to the joint venture, a supply agreement designating the joint venture as the exclusive manufacturer and supplier of the other party’s vaccines, and services agreements for the provision of various knowledge and expertise by each of the parties.
 
The joint venture has an initial ten-year term, renewable for successive five-year terms. If either party provides notice at least six months prior to the expiration date of an applicable term that it does not wish to continue the joint venture transaction, the other party will have a right to acquire all of such terminating party’s equity interests in the joint venture.
 
The joint venture agreement contains customary restrictions on transfer of the equity interests, tag-along and drag-along rights, non-competition, non-solicitation, confidentiality and termination provisions.
 
Licensing agreement and technology transfer agreement
 
In July 2013, pursuant to a written agreement (the “License Agreement”) with a University (the “Licensor”) the Company acquired the exclusive, worldwide license to certain patented technology for the development of human immunotherapies against Clostridium difficile infection (“C. diff”). The License Agreement required an initial, non-refundable license fee of $25,000, which was paid in fiscal August 2013, and payment of an aggregate of $200,000 in delayed license fees, which were paid in fiscal August 2014. Beginning September 2014, the terms also required a license fee of $20,000 to be paid annually, creditable against royalties due, if any. Royalties were payable for a percentage of related net sales, if any. License fees were also payable for a percentage of related non-royalty sublicensing revenue, if any. No royalties have been incurred to date. The Company also reimbursed patent filing, prosecution, and maintenance costs of approximately $12,000 and $11,000 in the nine months ended June 30, 2017 and 2016, respectively. License fees and patent cost reimbursements have been accounted for as research and development expense in the accompanying condensed interim consolidated statements of operations.
 
The License Agreement provided for the Company to pay milestone payments to the Licensor upon achievement of various financing, development and sales targets. A financing milestone was met during the year ended August 31, 2014, and the Company made a milestone payment of $100,000. No other milestones were met during any other reporting period.
 
In March 2017, (i) the Company entered into an agreement to terminate the License Agreement, (ii) the Company concurrently entered into a technology transfer and purchase agreement (the “Transfer Agreement”) with a vaccine biotechnology company (the “Transferee”), and (iii) the Licensor and Transferee entered into a direct licensing arrangement relating to the patented C. diff technology. Under the Transfer Agreement, the Company transferred to the Transferee its proprietary rights and know-how of immunogens and vaccine technology for C. diff, in exchange for an upfront payment and a percentage of future fees, milestone payments, sublicensing income and royalties, if any, paid by the Transferee or its assigns to the Licensor.
 
As a result of the termination of the License Agreement, there are no early termination penalties and no further annual licensing fees, contingent milestone payments, royalties or other financial obligations payable by the Company to the Licensor. 
 
Retirement savings plan 401(k) contributions
 
The Company sponsors a 401(k) retirement savings plan that requires an annual non-elective safe harbor employer contribution of 3% of eligible employee wages. All employees over 21 years of age are eligible beginning the first payroll after 3 consecutive months of employment. Employees are 100% vested in employer contributions and in any voluntary employee contributions. Contributions to the 401(k) plan were approximately $46,000 for each of the nine months ended June 30, 2017 and 2016.
 
Related party commitments
 
Patent royalty agreement
 
On August 14, 2002, through its California subsidiary, the Company entered into an agreement with a director and officer of the Company, whereby he would receive royalty payments in exchange for assignment of his patent rights to the Company. The royalty is 5% of gross receipts from products using this invention in excess of $500,000 annually. The Company’s current operations utilize this invention. There was no royalty expense incurred during the nine months ended June 30, 2017 and approximately $28,000 in royalty expense during the nine months ended June 30, 2016.
 
Collaboration agreement
 
In December 2013, the Company entered into a collaboration agreement with a privately-held Taiwanese biopharmaceuticals manufacturer which expired in accordance with its terms in December 2015. Under the terms of the agreement, the Company was responsible for the production and delivery of GMP grade KLH for evaluation as a carrier molecule in the collaboration partner’s potential manufacture of OBI-822 (Adagloxad Simolenin) active immunotherapy. The Company was also responsible for method development, product formulation, and process qualification for certain KLH reference standards. The collaboration partner was responsible for development objectives and product specifications. The agreement provided for the collaboration partner to pay fees for certain expenses and costs associated with the collaboration. Subject to certain conditions and timing, the collaboration also provided for the parties to negotiate a commercial supply agreement for Stellar KLH™, which was executed in February 2017.
 
A member of the Company’s Board of Directors currently serves as the manufacturer’s general manager and chair of its board of directors.