Notes to the Unaudited Condensed Consolidated Financial Statements
1. Nature of Business and Liquidity
The terms "MBI" or "the Company", "we", "our", and "us" are used herein to refer to Moleculin Biotech, Inc. MBI is a clinical-stage pharmaceutical company, organized as a Delaware corporation in July 2015, with its focus on the treatment of highly resistant cancers via the development of its oncology drug candidates, all of which are based on license agreements with The University of Texas System on behalf of the MD Anderson Cancer Center, which we refer to as MD Anderson. MBI formed Moleculin Australia Pty. Ltd., (MAPL), a wholly owned subsidiary in June 2018, to begin preclinical development in Australia for WP1732, an analog of WP1066. This enables the Company to enjoy the benefits of certain research and development tax credits in Australia. In February 2019, the Company entered into an agreement with Animal Life Sciences, LLC (ALI), where the Company has granted a sublicense to ALI to research, develop, make, have made, use, offer to sell, sell, export or import and commercialize certain licensed products for non-human use and share development data. ALI issued to the Company a 10% interest in ALI. ALI converted into a corporation and became Animal Life Sciences, Inc.
Core Technologies - MBI has three core technologies with six drug candidates, all of which are based on discoveries made at MD Anderson. These core technologies are 1) Annamycin, 2) its STAT3 Immune/Transcription Modulators, or simply "Immune/Transcription Modulators" WP1066 portfolio and 3) its Metabolism/Glycosylation Inhibitor portfolio, WP1122. The Company’s clinical stage drugs are Annamycin, an anthracycline which is in two Phase 1/2 studies for the treatment of relapsed or refractory acute myeloid leukemia, (AML), WP1066, an Immune/Transcription Modulator, which is in a Phase 1 clinical trial in the United States of America (US) for the treatment in glioblastoma, and WP1220, a member of the WP1066 portfolio of drugs, which has completed a Phase 1 proof-of-concept clinical trial for the topical treatment of cutaneous T-cell lymphoma (CTCL), a form of skin cancer. A fifth Phase 1 trial for the treatment of pediatric brain tumors at Emory University has been approved by the US Food and Drug Administration (FDA) and began recruiting patients in 2020.
The Company believes Annamycin is a "Next Generation Anthracycline" since it is designed to avoid the multidrug resistance mechanisms that typically defeat currently approved anthracyclines, as well as to be non-cardiotoxic, which is the dose limiting toxicity of all currently approved anthracyclines. Annamycin is currently in two Phase 1/2 clinical trials, and preliminary clinical data suggests that it may have the potential to become the first therapy suitable for the majority of relapsed or refractory AML patients regardless of gene mutations. During 2019, these trials have so far demonstrated the safety, including no cardiotoxicity, and has begun to show some initial efficacy. Additionally, preclinical research in animal models at MD Anderson demonstrated that Annamycin is able to significantly improve survival in an aggressive form of triple negative breast cancer metastasized to the lungs. Coupled with research demonstrating that Annamycin is capable of accumulating in the lungs at high levels, this suggests that Annamycin may be well suited to become a treatment for lung-localized tumors.
WP1066 is one of several Immune/Transcription Modulators that appear capable of stimulating immune response to tumors by inhibiting the errant activity of Regulatory T-Cells (TRegs) while also inhibiting key oncogenic transcription factors, including p-STAT3, c-Myc and HIF-1α. These transcription factors are widely sought targets that may also play a role in the lack of efficacy of immune checkpoint inhibitors in certain resistant tumors. The “proof-of-concept” Phase 1 trial in Poland for WP1220 demonstrated safety and efficacy and preparations to file a Phase 2 IND or its equivalent have begun.
The Company is also developing new prodrugs to exploit the potential uses of inhibitors of glycolysis and glycosylation. Its lead Metabolism/Glycosylation Inhibitor compound, WP1122, provides an opportunity to cut off the fuel supply of tumors and viruses by taking advantage of their overdependence on glucose as compared with healthy cells. New research also points to the potential for the glucose decoy (2-DG) within WP1122 to be capable of enhancing the usefulness of checkpoint inhibitors and inhibiting glycosylation and glycolysis in virally infected cells. In March 2020, we entered into an agreement with an outside research center who will conduct research on WP1122 for antiviral properties against a range of viruses, including Coronavirus. Additional research with other contractors has started.
Drug Candidates - Within the Company's core technologies, it currently has six drug candidates representing three substantially different approaches to treating cancer. Annamycin is a chemotherapy designed to inhibit the replication of DNA of rapidly dividing cells and is the Company's most mature drug candidate. The Company has trials open in the US and Poland. The US Phase 1 portion of the Phase 1/2 trial reached key safety end points in early 2020 and the Company plans to discuss next steps with the FDA. The Phase 1/2 trial in Poland continues its dose escalation and is in its fifth cohort. So far both trials have proven Annamycin, to date, is safe and is non-cardiotoxic. The trials have demonstrated initial efficacy as well.
In addition to Annamycin, the Company has other drug development projects, two of which are also in clinical trials:
•WP1066 has an approved physician-sponsored clinical trial open for enrollment and dosing patients for the treatment of brain tumors and a second physician-sponsored Phase 1 trial for the potential treatment of pediatric brain tumors has begun recruitment.
•WP1220 is an analog of WP1066 for which Polish authorities approved the Company's Clinical Trial Application (CTA) in 2019 for a Phase 1 "proof-of-concept" clinical trial to study the topical treatment of CTCL. This trial was completed and the Company believes it demonstrated sufficient efficacy to justify a Phase 2 trial, which the Company expects to prepare for in the near future.
•WP1066 along with another analog, WP1732, are being evaluated for the potential treatment of AML, pancreatic and other cancers. MBI has begun pre-clinical work that it expects to generate sufficient data for an IND for an intravenous formulation of one of its STAT3 inhibitors, which filing is expected to be submitted in 2021.
•WP1122 and WP1234 are being evaluated for their potential to treat brain tumors and pancreatic cancer via their ability to inhibit glycolysis. The Company has begun preclinical work supporting WP1122 as a treatment for cancers and some viruses, including the Coronavirus which the Company believes may support an IND or its equivalent.
Clinical Trials - The Company has concluded the initial Phase 1 portion of its Phase 1/2 trial in the US due to the FDA’s requirement to set the initial dose level relatively low in comparison with previous Annamycin clinical trials. Additionally, the Company believes that patient recruitment for its clinical trial in Poland will continue to be more successful than in the US due to a comparatively lower number of competitive clinical trials and the protocol there being approved to start at a significantly higher dose than in the US with fewer enrollment screening limitations. This trial is in its fifth cohort in the dose ranging Phase 1 portion of the trial. In September 2018, the physician sponsored WP1066 Phase I clinical trial for the treatment of glioblastoma and melanoma metastasized to the brain, which opened for recruitment in July 2018, began treating patients. In April 2020, a second Phase 1 trial for another physician-sponsored clinical trial for the potential treatment of pediatric brain tumors began recruitment of patients. In August 2019, the Company completed its proof-of-concept Phase 1 clinical trial in Poland to study WP1220, a part of the WP1066 portfolio, for the treatment of CTCL. This trial demonstrated the safety of WP1220 and also demonstrated, the Company believes, initial efficacy sufficient for a Phase 2 trial, which the Company expects to prepare for in the near future.
Licenses - The Company has been granted royalty-bearing, worldwide, exclusive licenses for the patent and technology rights related to all of MBI's drug technologies, as these intellectual property rights are owned in part or entirely by MD Anderson. The Annamycin drug substance is no longer covered by any existing patent protection, however, the Company filed new patent applications in July 2019 for formulation, synthetic process and reconstitution related to MBI's Annamycin drug product candidate, although there is no assurance that the Company will be successful in obtaining such patent protection. Such technology is also licensed from MD Anderson. Independently from potential patent protection, MBI has received Orphan Drug designation (ODD) from the FDA for Annamycin for the treatment of AML and for WP1066 for the treatment of glioblastoma. ODD may provide tax and other benefits during product development, and if either product is approved, may lead to a grant of seven-year market exclusivity. Under that exclusivity, which runs from the date of the approval of the New Drug Application (NDA) in the US, the FDA generally (there are important exceptions) could not approve another product containing the same drug for the designated indication. The Company also intends to apply for similar status in the European Union (EU) where market exclusivity could extend to 10 years from the date of Marketing Authorization Application (MAA) approval. Separately, the FDA may also grant market exclusivity of 5 years for newly approved new chemical entities (which the Company believes Annamycin would be one), which would preclude approval of any other annamycin product, but there can be no assurance that such exclusivity will be granted. In April 2019, FDA approved the Company's request for Fast Track Designation for Annamycin for the treatment of relapsed or refractory AML. Fast Track Designation, the purpose of which is to expedite drug development and approval, is granted to drugs intended to treat serious conditions and where data demonstrate the potential to address an unmet medical need.
COVID 19 - In March 2020, the World Health Organization declared the outbreak of a novel Coronavirus (COVID-19) as a pandemic, which continues to spread throughout the US. The spread of COVID-19 has caused significant volatility in US and international markets, including Poland, where the Company conducts some of its clinical trials and Italy, where its drug supply is produced. There has been limited interruption of the Company’s drug supply, and some Polish clinics where the Company is conducting trials have limited access on monitoring activities, which for now has not materially slowed the progress of our trials. This could change at any time. Furthermore, there is significant uncertainty around the breadth and
duration of business disruptions related to COVID-19, as well as its impact on the US and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.
Nasdaq - On April 23, 2020, the Company received a letter from NASDAQ notifying the Company that it had regained compliance with NASDAQ Listing Rule 5550(a)(2) as a result of the closing bid price of the Company's common stock being at $1.00 per share or greater for the 10 consecutive business days from April 8, 2020 through April 22, 2020. Accordingly, the Company is in compliance with the Bid Price Rule and NASDAQ considers the matter closed.
2. Basis of presentation, principles of consolidation and significant accounting policies
Basis of Presentation – Unaudited Interim Condensed Consolidated Financial Information - The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the US (U.S. GAAP) for financial information, and in accordance with the rules and regulations of the US Securities and Exchange Commission (SEC) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These interim condensed unaudited consolidated financial statements should be read in conjunction with the audited financial statements of the Company as of December 31, 2019 and December 31, 2018 and notes thereto contained in the Form 10-K filed with the SEC on March 19, 2020.
Principles of consolidation - The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The company views its operations and manages its business in one operating segment. All long-lived assets of the Company reside in the US.
Use of Estimates - The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of financial statements. Estimates are used in the following areas, among others: fair value estimates on intangible assets, warrants, and stock-based compensation expense, as well as accrued expenses and taxes.
Going Concern - These condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As of March 31, 2020, the Company has incurred an accumulated deficit of $40.8 million since inception and had not yet generated any revenue from operations. Additionally, management anticipates that its cash on hand as of March 31, 2020, is sufficient to fund its planned operations into but not beyond the near term. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. Management cannot be certain that such events or a combination thereof can be achieved.
On May 1, 2020, the SEC pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended, ordered the temporary suspension of trading in the securities of the Company because of questions regarding the accuracy and adequacy of information in the marketplace about the Company and its securities. Pursuant to the suspension order, the suspension
commenced on May 4, 2020 and terminates on May 15, 2020. As of the date of this report, the Company has submitted a petition to terminate the suspension, but there is no assurance that the Company will be successful. The Company believes it will be able to demonstrate the accuracy and adequacy of its public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about the Company and its securities is accurate and adequate.
Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less at the date of acquisition to be cash equivalents. Periodically in the ordinary course of business, the Company may carry cash balances at financial institutions in excess of the Federally insured limits of $250,000.
Prepaid Expenses and Other Current Assets - Prepaid expenses and other current assets consist of the following (in thousands):
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|
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|
March 31, 2020
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|
December 31, 2019
|
Vendor prepayments and deposits
|
$
|
1,372
|
|
|
$
|
1,857
|
|
Prepaid insurance
|
150
|
|
|
352
|
|
Non-trade receivables
|
1
|
|
|
1
|
|
Related party receivables
|
—
|
|
|
10
|
|
Other current assets
|
615
|
|
|
529
|
|
Total prepaid expenses and other current assets
|
$
|
2,138
|
|
|
$
|
2,749
|
|
Vendor prepayments at March 31, 2020 and December 31, 2019, respectively, includes approximately $1.1 million and $1.5 million, for the expansion of Annamycin production commitments on a commercial scale currently expected to be delivered in 2020 for use in clinical trials.
Intangible Assets - Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Acquired intangible assets identified as in-process research and development (IPR&D) assets, are considered indefinite lived until the completion or abandonment of the associated research and development efforts. If the associated research and development effort is abandoned, the related IPR&D assets will be written-off and the Company will record a noncash impairment loss on its statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. The Company evaluates the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No impairments of intangible assets have been identified during any of the periods presented. Intangible assets are tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach.
Property and Equipment, net - Leasehold improvements, furniture, equipment and software are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term. Accumulated depreciation on property and equipment was $0.3 million at March 31, 2020, and December 31, 2019, respectively.
Operating Lease Right-of-Use Asset - The Company determines if an arrangement is a lease at contract inception or during modifications or renewal of an existing lease. Operating lease assets represent the Company's right to use an underlying asset for the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. The lease payments used to determine the Company's operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable and are recognized in the Company's operating lease assets in the Company's condensed consolidated balance sheet. The Company has elected the practical expedient and does not separate lease components from nonlease components for its leases. The Company's operating leases are reflected in operating lease right-of-use asset (ROU), accrued expenses and other current liabilities, and operating lease liability - long-term in the Company's condensed consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Refer to Note 7 - Commitments and Contingencies - Lease Obligations Payable for additional information related to the Company’s operating leases.
Cost Method Investment - The Company's cost method investment consists of an investment in a corporation in which it does not have the ability to exercise significant influence over its operating and financial activities. Management evaluates this investment for possible impairment quarterly.
Fair Value of Financial Instruments - The Company's financial instruments consist primarily of non-trade receivables, account payables, accrued expenses and its warrant liability. The carrying amount of non-trade receivables, accounts payables, and accrued expenses approximates their fair value because of the short-term maturity of such.
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy in accordance with U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).
Assets and liabilities recorded in the balance sheets at fair value are categorized based on a hierarchy of inputs as follows:
Level 1 – Unadjusted quoted prices in active markets of identical assets or liabilities.
Level 2 – Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 – Unobservable inputs for the asset or liability.
The Company’s financial assets and liabilities recorded at fair value on a recurring basis include the fair value of warrant liability discussed in Note 4.
The following table provides assets and liabilities reported at fair value and measured on a recurring basis at March 31, 2020 and December 31, 2019 (in thousands):
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Description
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|
Liabilities
Measured at Fair
Value
|
|
Quoted Prices
in Active
Markets for
Identical
Assets (Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant Other
Unobservable Inputs
(Level 3)
|
Fair value of warrant liability as of March 31, 2020:
|
|
$
|
6,697
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,697
|
|
Fair value of warrant liability as of December 31, 2019:
|
|
$
|
5,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,818
|
|
The table below (in thousands) of Level 3 liabilities begins with the valuation as of the beginning of the first quarter and then is adjusted for the issuances and exercises that occurred during the first quarter of 2020 and adjusts for balances for changes in fair value that occurred during the current quarter. The ending balance of the Level 3 financial instrument presented above represents our best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.
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Three Months Ended March 31, 2020
|
Warrant Liability Current
|
|
Warrant Liability Long-Term
|
|
Warrant Liability Total
|
Balance, December 31, 2019
|
$
|
—
|
|
|
$
|
5,818
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|
|
$
|
5,818
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|
Issuances of warrants
|
—
|
|
|
4,724
|
|
|
4,724
|
|
Change in fair value - net
|
—
|
|
|
(3,845)
|
|
|
(3,845)
|
|
Balance, March 31, 2020
|
$
|
—
|
|
|
$
|
6,697
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|
|
$
|
6,697
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|
Loss Per Common Share - Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. For purposes of this calculation, options to purchase common stock, restricted stock units subject to vesting and warrants to purchase common stock are considered to be common stock equivalents. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be antidilutive. For the three months ended March 31, 2020 and 2019, approximately 18.4 million and approximately 6.7 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their antidilutive effect.
Stock-based Compensation - Stock-based compensation expense includes the estimated fair value of equity awards vested or expected to vest during the reporting period. The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, restricted stock units, and modifications to existing stock options, to be recognized in the consolidated statements of operations based on their fair values. The grant date fair value of stock options is determined using the Black-Scholes option pricing model and the grant date fair value of restricted stock awards is determined using the closing price of the Company’s common stock on the date of grant. The awards are subject to service vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term, net of forfeitures which are recognized as they occur. Compensation expense related to awards to non-employees with service-based vesting conditions is recognized based on the then-current fair value at each financial reporting date prior to the measurement date over the associated service period of the award, which is generally the vesting term. Effective January 1, 2020, the Company began using the volatility of its own stock since it now has sufficient historic data in its stock price.
Subsequent Events - The Company’s management reviewed all material events through the date these unaudited condensed consolidated financial statements were issued for subsequent events disclosure consideration, see other notes and specifically Note 8 - Subsequent Events.
Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-13, Fair Value Measurement (Topic 820) (ASU 2018-13). ASU 2018-13 modifies the disclosure requirements on fair value measurements in ASC Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company's adoption of this pronouncement effective January 1, 2020 did not have a material impact on the Company's condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (ASU 2019-12). ASU 2019-12 modifies the requirements for the timing of adoption of enacted change in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of annual effective tax rate in the first interim period that includes the enactment date of the new legislation, beginning after December 15, 2020. Early adoption is permitted upon issuance of this ASU. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.
3. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following components (in thousands):
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|
|
March 31, 2020
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|
December 31, 2019
|
Accrued payroll and bonuses
|
|
$
|
623
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|
|
$
|
436
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|
Accrued legal and professional fees
|
|
302
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|
|
272
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|
Accrued clinical testing
|
|
262
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|
|
93
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|
Related party payable
|
|
225
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|
|
99
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|
Accrued drug manufacturing costs
|
|
219
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|
|
|
49
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|
Accrued license fees and sponsored research agreements
|
|
212
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|
|
201
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|
Operating lease liability - current
|
|
107
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|
|
103
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|
Accrued other
|
|
79
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|
|
164
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|
Total accrued expenses and other current liabilities
|
|
$
|
2,029
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|
|
$
|
1,417
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4. Warrants
At March 31, 2020, and December 31, 2019, respectively, the Company has the following warrants outstanding,
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Number of Shares Under Outstanding Warrants at
March 31, 2020
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|
Number of Shares Under Outstanding Warrants at December 31, 2019
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|
Weighted Average Exercise Price at March 31, 2020
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|
Remaining Contractual Life at March 31, 2020 (No. Years)
|
Liability Classified Warrants (1)
|
|
|
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|
Issued February 2017
|
404,002
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|
404,002
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|
$
|
1.50
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|
|
1.9
|
Issued February 2018
|
2,273,700
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|
2,273,700
|
|
$
|
2.80
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|
|
3.4
|
Issued June 2018 (2)
|
742,991
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|
742,991
|
|
$
|
2.03
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|
|
3.7
|
Issued March 2019
|
1,585,500
|
|
1,585,500
|
|
$
|
1.10
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|
|
4.0
|
Issued April 2019
|
5,250,000
|
|
5,250,000
|
|
$
|
1.75
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|
|
4.1
|
Issued February 2020
|
6,150,000
|
|
—
|
|
|
$
|
1.05
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|
|
5.3
|
|
16,406,193
|
|
10,256,193
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|
$
|
1.58
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|
|
|
Equity Classified Warrants
|
|
|
|
|
|
|
|
Issued May 2016 - Bonwick
|
107,802
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|
107,802
|
|
$
|
7.50
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|
|
1.1
|
Issued July 2017 - Consulting (3)
|
150,000
|
|
150,000
|
|
$
|
2.61
|
|
|
2.3
|
Issued April 2018 - Consulting
|
100,000
|
|
100,000
|
|
$
|
3.00
|
|
|
1.0
|
Issued August 2019 - Consulting
|
150,000
|
|
150,000
|
|
$
|
1.64
|
|
|
2.4
|
|
507,802
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|
507,802
|
|
$
|
3.44
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|
|
|
Balance outstanding
|
16,913,995
|
|
10,763,995
|
|
$
|
1.63
|
|
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(1) If the Company subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of its common stock into a smaller number of shares, the warrant exercise price is proportionately reduced and the number of shares under outstanding warrants is proportionately increased. Additionally, if the Company combines (by combination, reverse stock split or otherwise) its outstanding shares of common stock into a smaller number of shares, the warrant exercise price is proportionately increased and the number of shares under outstanding warrants is proportionately decreased. Also, the Company may voluntarily reduce the warrant exercise price for its warrants issued in March 2019 and February 2017 and may voluntarily extend the contractual term of its warrants issued in February 2017.
(2) Includes warrants to purchase 710,212 shares at an exercise price of $2.02, expiring December 22, 2023, and warrants to purchase 32,779 shares at an exercise price of $2.32, expiring June 21, 2023.
(3) Includes warrants to purchase 100,000 shares at an exercise price of $2.41 and warrants to purchase 50,000 shares at an exercise price of $3.00.
Liability Classified Warrants
The Company uses the Black-Scholes option pricing model (BSM) to determine the fair value of its warrants at the date of issue and outstanding at each reporting date.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon US Treasury bonds linearly interpolated to obtain a maturity period commensurate with the term of the warrants.
Estimated volatility is a measure of the amount by which the Company's stock price is expected to fluctuate each year during the expected life of the warrants. Beginning in 2020, only the volatility of the Company's own stock is used in the BSM as it now has sufficient historic data in its stock price. In 2019, the Company used the volatility of its own stock blended with the volatility of peer entities due to the lack of sufficient historical data of our stock price.
The assumptions used in determining the fair value of the Company’s outstanding liability classified warrants are as follows:
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March 31, 2020
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December 31, 2019
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Risk-free interest rate
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0.2
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%
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to
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1.5
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%
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1.6
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%
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to
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1.7
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%
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Volatility
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111.4
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%
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to
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120.6
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%
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|
97.5
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%
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to
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107.5
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%
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Expected life (years)
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1.9
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to
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5.5
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2.1
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to
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4.3
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Dividend yield
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—%
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—%
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|
A summary of the Company's liability classified warrant activity during the three months ended March 31, 2020 and related information follows:
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Number of Shares Under Warrant
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Range of Warrant Exercise Price per Share
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Weighted Average Exercise Price
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Weighted Average Remaining Contractual Life (Years)
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Balance at January 1, 2020
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10,256,193
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$
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1.10
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$
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2.80
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$
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1.89
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4.0
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Granted
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6,150,000
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$
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1.05
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$
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1.05
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$
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1.05
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5.3
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Exercised
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—
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$
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—
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$
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—
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$
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—
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—
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Expired
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—
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$
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—
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$
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—
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$
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—
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—
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Balance at March 31, 2020
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16,406,193
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$
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1.05
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$
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2.80
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$
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1.58
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4.4
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Vested and Exercisable at March 31, 2020
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10,256,193
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$
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1.10
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$
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2.80
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$
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1.89
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3.8
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In connection with the Company's stock offering that closed on February 10, 2020, the Company issued warrants to purchase 5,625,000 shares of its common stock, that are exercisable six months from the date of issuance, at a price of $1.05 per share, subject to adjustment in certain circumstances, and expire five years from the date they are first exercisable, and issued Oppenheimer & Co. Inc. a warrant (Underwriter Warrant) to purchase up to 525,000 shares of its common stock with an exercise price of $1.05 per share, subject to adjustment in certain circumstances, which expires on February 6, 2025.
For a summary of the changes in fair value associated with our warrant liability for the three months ended March 31, 2020, see Note 2. Basis of presentation, principles of consolidation and significant accounting policies - Fair Value of Financial Instruments.
Equity Classified Warrants
The Company recorded stock compensation expense for the non-employee consulting agreement of zero and $2,000 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, there was no unrecognized stock compensation expense related to the Company's equity-classified warrants.
5. Equity
February 2020 Stock Offering
In February 2020, the Company entered into subscription agreements with certain institutional investors for the sale by the Company of 7,500,000 shares of our common stock and warrants to purchase 5,625,000 shares of common stock at a combined public offering price of $0.80 per share and related warrant. The Company received total proceeds of $6.0 million, net of $0.7 million in transaction expenses. See Note 4. Warrants for equity classified warrants granted during the three months ended March 31, 2020.
Stock-based Compensation and Outstanding Awards
Under the terms of the Company’s 2015 Stock Plan, as amended, and approved by its stockholders on June 6, 2018, 4.5 million shares of the Company’s common stock were available for grant to employees, non-employee directors and consultants. The 2015 Stock Plan provides for the grant of stock options, stock awards, stock unit awards, or stock appreciation rights. As of March 31, 2020, there were 297,093 shares remaining to be issued under the 2015 Stock Plan.
Stock-based compensation for the three months ended March 31, 2020 and 2019, are as follows (in thousands):
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Three Months Ended March 31,
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2020
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2019
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General and administrative
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$
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334
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$
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302
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Research and development
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63
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|
|
46
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Total
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$
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397
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$
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348
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The Company did not grant any stock-based awards during the three months ending March 31, 2020.
6. Income Taxes
Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company does not expect to pay any significant federal, state, or foreign income taxes in 2020 as a result of the losses recorded during the three months ended March 31, 2020 and the additional losses expected for the remainder of 2020 and cumulative net operating loss carryforwards. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As a result, as of March 31, 2020, the Company maintained a full valuation allowance for all deferred tax assets.
The Company recorded no income tax provision for the three months ended March 31, 2020 and 2019, respectively. The effective tax rate for the three months ended March 31, 2020 and 2019 is 0%. The income tax rates vary from the federal and state statutory rates primarily due to the change in fair value of the stock warrants and valuation allowances on the Company’s deferred tax assets. The Company estimates its annual effective tax rate at the end of each quarterly period. Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation allowance could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carry back periods, alternative minimum tax credit refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact on our condensed consolidated financial statements for the three months ended March 31, 2020. We continue to monitor any effects that may result from the CARES Act.
7. Commitments and Contingencies
In addition to the commitments and contingencies described elsewhere in these notes, see below for a discussion of our commitments and contingencies as of March 31, 2020.
Lease Obligations Payable
During the three months ended March 31, 2020, the Company did not enter into any lease arrangements requiring any additional right-of-use assets or liabilities to be recorded.
During the three months ended March 31, 2020, the Company recognized $29,000 of lease costs, $4,000 of expenses related to short-term leases and $7,000 of lease costs for variable lease payments. During the three months ended March 31, 2019, the Company recognized $8,000 of lease costs, $14,000 of expenses related to short-term leases and $5,000 of lease costs for variable lease payments. The Company recorded approximately $10,000 in sublease income from a related party for the three months ended March 31, 2020. Sublease income is recorded as other income, net on the Company's condensed consolidated statement of operations and comprehensive loss.
At March 31, 2020, the cash paid for the Company's operating leases and right-of-use assets was as follows (in thousands):
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Three Months Ended March 31,
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2020
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2019
|
Cash paid for amounts included in the measurement of lease liabilities:
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|
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Operating cash flows from operating leases
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$
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33
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$
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8
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|
Right-of-use assets obtained in exchange for lease liabilities:
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|
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Operating leases
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$
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—
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|
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$
|
110
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|
At March 31, 2020, future minimum liabilities under ASC 842 for the Company's operating leases were as follows (in thousands):
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Maturity of lease liabilities
|
|
As of March 31, 2020
|
2020 (remaining nine months)
|
|
$
|
101
|
|
2021
|
|
138
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|
2022
|
|
105
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|
2023
|
|
56
|
|
2024
|
|
10
|
|
2025 and thereafter
|
|
—
|
|
Total lease payments
|
|
410
|
|
Less: imputed interest
|
|
(55)
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|
Present value of operating lease liabilities
|
|
$
|
355
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Licenses
MD Anderson - Total expenses related to the Company's license agreements with MD Anderson were $61,000 and $60,000 for the three months ended March 31, 2020 and 2019, respectively.
HPI - On March 16, 2020, the Company entered into two agreements with a related party, Houston Pharmaceuticals, Inc.(HPI). The first agreement, which has a term of two years, continues a prior consulting arrangement with HPI on the Company's licensed molecules and requires payments for $43,500 per quarter to HPI. The second agreement, which can be cancelled with sixty days' notice by either party, allows the Company's employees access to laboratory equipment owned by HPI for a payment of $15,000 per quarter to HPI. Total expenses related to the Company's agreements with HPI were $207,500 and $75,000 for the three months ended March 31, 2020 and 2019, respectively.
Sponsored Research Agreements with MD Anderson - MBI entered into a Sponsored Laboratory Study Agreement with MD Anderson expiring in October 2021. The expenses recognized under this MD Anderson agreement with regards to the Sponsored Laboratory Study Agreement were $179,000 and $95,000 for the three months ended March 31, 2020 and 2019, respectively.
8. Subsequent Events
In addition to the subsequent events discussed elsewhere in these notes, see below for a discussion of our subsequent events occurring after March 31, 2020.
ATM Issuances Under the Oppenheimer Agreement - As previously reported, in July 2019, the Company entered into an At Market Issuance Sales Agreement (Agreement) with Oppenheimer & Co. Inc. (Oppenheimer). Pursuant to the terms of the Agreement, the Company may offer and sell, from time to time, Company common stock through Oppenheimer, acting as agent, through an "at the market offering" as defined in Rule 415(a)(4) (ATM Offering) promulgated under the Securities Act. On July 24, 2019, pursuant to the ATM Offering, the Company filed a prospectus supplement pursuant to which the Company may offer and sell, from time to time, Company common stock having an aggregate offering price of up to $15.0 million through Oppenheimer (ATM Prospectus Supplement). From April 8, 2020 to April 16, 2020, the Company issued 7,170,964 shares of common stock at an average price of $1.44 per share through the ATM Prospectus Supplement, resulting in net proceeds to the Company of $10.0 million. The Company paid a commission to Oppenheimer equal to 3.0% of the gross proceeds from the sale of its common stock under the ATM Prospectus Supplement. After the completion of the foregoing issuances, the Company will have 60,403,164 shares of common stock outstanding.
Warrant Exercises - Subsequent to March 31, 2020 and through the date of filing of these financial statements 4,500 shares were issued due to the exercise of various liability warrants related to past public offerings. Gross proceeds received due to these exercises approximated $5,000.
Equity Warrants and Stock Options - Subsequent to March 31, 2020 and through the date of filing of these financial statements, 100,000 equity warrants were issued to a consultant with an exercise price of $1.08, with vesting contingent on certain conditions. In addition, 25,000 options were issued to a consultant with an exercise price of $1.26, a 5 year term and vesting over a one-year period in four equal quarterly installments under the 2015 Stock Plan. Lastly, 20,000 options were issued to a science advisory board member with a term of 10 years vesting in four equal quarterly installments and an exercise price of $1.47.