Annual report pursuant to Section 13 and 15(d)

Equity Investment

Equity Investment
12 Months Ended
Dec. 31, 2022
Equity Method Investments and Joint Ventures [Abstract]  
Equity Investment

Note H – Equity Investment

During the period December 2018 through December 2022, the Company made an aggregate investment of $7,000,000 in ILiAD, a privately held clinical stage biotechnology company dedicated to the prevention and treatment of human disease caused by Bordetella pertussis. ILiAD is focused on validating its proprietary intranasal vaccine, BPZE1, for the prevention of Pertussis (whooping cough). At December 31, 2022, the Company owned approximately 6.8% of the outstanding units of ILiAD on a non-fully diluted basis and 6.3% of the outstanding units on a fully diluted basis (after giving effect to the exercise of all outstanding options and warrants). In connection with its investment, the Company’s Chairman and Chief Executive Officer obtained a seat on ILiAD’s Board of Managers and receives the same compensation for service on the Board of Managers as other non-management Board members.

On August 24, 2022, ILiAD completed a private financing of $42,836,000 of its Class D units, of which a multi-national pharmaceutical company invested $30,000,000 (the “Financing”). As part of the Financing, the Company invested $1,000,000. This private financing represented an observable price transaction in accordance with ASC 323 and resulted in dilution in the Company’s ownership in the ILiAD. In accordance with ASC 323-10-40-1, the Company accounted for the dilution as if it had sold a portion of its investment and therefore recorded an unrealized gain of $3,883,000 and a corresponding increase in the carrying value of its investment in ILiAD. The Company determined the new carrying value of its equity investment using an observable transaction price since the Company determined the securities owned by the Company were not materially different than the securities sold by ILiAD in the Financing. The unrealized gain is reflected in the Company’s consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2022.

In addition, as part of the Financing, the Company converted its convertible note in the principal amount of $1,000,000 plus accrued interest of $86,000, in accordance with its terms, into equity of ILiAD and has accounted for this investment under the equity method of accounting. The Company recognized a gain on conversion of $271,000 which was recognized in its consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2022.

For the years ended December 31, 2022 and 2021, the Company recorded an allocated net loss from its equity method investment in ILiAD of $1,639,000 and $999,000, respectively.

The difference between the Company’s share of equity in ILiAD’s net assets and the purchase price of the investment is due to an excess amount paid over the book value of the investment of $4,130,000, which is accounted for as equity method goodwill.

The Company performed an assessment to determine significance of its equity investee using the investment, asset and income tests. The Company concluded the income test threshold was met for the year ended December 31, 2022. The following table provides certain summarized financial information for the Company’s equity method investee for the periods presented and has been compiled from the equity investee’s financial statement, reported on one quarter lag.

Schedule of equity method investments                
    Twelve Months Ended September 30,  




Loss from continuing operations   $ 15,246,000     $ 11,133,000  
Comprehensive loss   $ 17,913,000     $ 10,384,000