NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 – NATURE OF BUSINESS
Enumeral Biomedical Corp. (“Enumeral”)
was founded in 2009 in the state of Delaware as Enumeral Technologies, Inc. The name was later changed to Enumeral Biomedical Corp.
On July 31, 2014 (the “Closing Date”),
Enumeral entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Enumeral Biomedical
Holdings, Inc., which was formerly known as Cerulean Group, Inc. (“Enumeral Biomedical” or the “Company”),
and Enumeral Acquisition Corp., a wholly owned subsidiary of Enumeral Biomedical (“Acquisition Sub”), pursuant to which
the Acquisition Sub merged with and into Enumeral (the “Merger”). Enumeral was the surviving corporation in the Merger
and became a wholly owned subsidiary of the Company.
As a result of the Merger, all issued and outstanding
common and preferred shares of Enumeral were exchanged for common shares of Enumeral Biomedical Holdings, Inc. The Merger is considered
to be a recapitalization of the Company which has been retrospectively applied to these financial statements for all periods presented.
Upon the closing of the Merger and under the
terms of a split-off agreement and a general release agreement (the “Split-Off Agreement”), the Company transferred
all of its pre-Merger operating assets and liabilities to its wholly-owned special-purpose subsidiary, Cerulean Operating Corp.
(the “Split-Off Subsidiary”). Thereafter, pursuant to the Split-Off Agreement, the Company transferred all of the outstanding
shares of capital stock of Split-Off Subsidiary to the pre-Merger majority stockholder of the Company, and the former sole officer
and director of the Company (the “Split-Off”), in consideration of and in exchange for (i) the surrender and cancellation
of an aggregate of 23,100,000 shares of the Company’s common stock held by such stockholder (which were cancelled and will
resume the status of authorized but unissued shares of the Company’s common stock) and (ii) certain representations, covenants
and indemnities.
As a result of the Merger and Split-Off, the
Company discontinued its pre-Merger business and acquired the business of Enumeral, and will continue the existing business operations
of Enumeral as a publicly-traded company under the name Enumeral Biomedical Holdings, Inc.
Also on July 31, 2014, the Company closed a
private placement offering (the “PPO”) of 21,549,510 Units (the “Units”) of its securities, at a purchase
price of $1.00 per Unit, each Unit consisting of one share of the Company’s common stock and a warrant to purchase one share
of the Company’s common stock at an exercise price of $2.00 per share and with a term of five years (the “PPO Warrants”).
Additional information concerning the PPO and PPO Warrants is presented below in Note 10.
Also on July 31, 2014, the Company changed
its fiscal year from a fiscal year ending on October 31 of each year to one ending on December 31 of each year, which is the fiscal
year end of Enumeral.
Following the Merger, the Company has continued
Enumeral’s business of discovering and developing novel antibody immunotherapies that help the immune system fight cancer
and other diseases. The Company utilizes a proprietary platform technology that facilitates the rapid high resolution measurement
of immune cell function within small tissue biopsy samples. The Company’s initial focus is on the development of a pipeline
of next generation monoclonal antibody drugs targeting established and novel immune-modulatory receptors.
In its lead antibody program, the Company has
characterized certain anti-PD-1 antibodies, or simply “PD-1 antibodies,” using patient biopsy samples, in an effort
to identify next generation PD-1 antagonists with enhanced selectivity for the immune effector cells that carry out anti-tumor
functions. The Company has identified two antagonist PD-1 antibodies that inhibit PD-1 activity in distinctly different ways. One
of the antibodies blocks binding of the ligand PD-L1 to PD-1, while the other antibody does not. However, both display activity
in various biological assays. In addition to its PD-1 antibody program, the Company is developing antibody drug candidates targeting
TIM-3, LAG-3, OX40, TIGIT and VISTA. The Company is also pursuing several antibody programs for which it has not yet publicly disclosed
the targets.
The Company’s proprietary platform technology,
exclusively licensed from the Massachusetts Institute of Technology (“MIT”), is a microwell array technology that detects
secreted molecules (such as antibodies and cytokines) and cell surface markers, at the level of single, live cells – and
enables recovery of single, live cells of interest. The platform technology is a multipurpose tool that is valuable for activities
ranging from antibody discovery to target discovery to patient stratification in clinical development. The platform yields multidimensional,
functional read-outs from single live cells, such as tumor infiltrating lymphocytes, or TILs, from human tumor biopsy samples,
and it enables the Company’s researchers to examine the responses of different classes of human immune cells to treatment
with immune-modulators in the context of human disease, as opposed to animal models of disease.
The Company continues to be a “smaller
reporting company,” as defined under the Exchange Act, following the Merger. The Company believes that as a result of the
Merger, it has ceased to be a “shell company” (as such term is defined in Rule 12b-2 under the Securities and Exchange
Act of 1934, as amended (the “Exchange Act”)).
2 – GOING CONCERN
The Company’s consolidated financial
statements have been prepared in conformity with generally accepted accounting principles in the United States which contemplate
the Company’s continuation as a going concern. As of December 31, 2015, the Company had working capital of $615,530 including
$2,138,091 of derivative liabilities, and an accumulated deficit of $14,400,643. As of the date of this filing, the Company believes
it only has sufficient liquidity to fund operations through June 2016. The Company is currently exploring a range of potential
transactions, which may include
public or private equity offerings, debt financings, collaborations
and licensing arrangements, and/or other strategic alternatives
, including a merger, sale of assets or other similar transactions
.
If the Company is unable to raise additional capital on terms acceptable to the Company and on a timely basis, the Company may
be required to downsize or wind down its operations through liquidation, bankruptcy, or a sale of its assets. The financial statements
do not include any adjustments related to the recovery and classification of asset carrying amounts or the amount and classification
of liabilities that might result should the Company be unable to continue as a going concern. The Company expects to incur significant
expenses and operating losses for the foreseeable future, and the Company’s net losses may fluctuate significantly from quarter
to quarter and from year to year. These factors raise substantial doubt about the Company’s ability to continue as a going
concern.
The Company’s
business
has not generated (nor does the Company anticipate that in the foreseeable future it will generate) the cash necessary to finance
its operations, and the Company will require additional capital to continue its operations beyond June 2016.
The Company’s
near-term capital needs depend on many factors, including:
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·
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the Company’s ability to carefully manage its costs;
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|
·
|
the amount and timing of revenue received from grants or the Company’s collaboration and license arrangements; and
|
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·
|
the Company’s ability to raise additional capital through public or private equity offerings, debt financings, or strategic collaborations and licensing arrangements, and/or the Company’s success in promptly establishing a strategic alternative that is in its stockholders’ best interests.
|
If the
Company is unable to preserve or raise additional capital through one or more of the means listed above prior to the end of June
2016, the Company could face substantial liquidity problems and might be required to implement cost reduction strategies in addition
to the cash conservation steps that the Company has already taken. These reductions could significantly affect the Company’s
research and development activities, and could result in significant harm to the Company’s business, financial condition
and results of operations. In addition, these reductions could cause the Company to further curtail its operations, or take other
actions that would adversely affect the Company’s stockholders. If the Company is unable to raise additional capital on acceptable
terms and on a timely basis, the Company may be required to downsize or wind down its operations through liquidation, bankruptcy,
or a sale of its assets.
In addition,
to the extent additional capital is raised through the sale of equity or convertible debt securities, such securities may be sold
at a discount from the market price of the Company’s common stock. The issuance of these securities could also result in
significant dilution to some or all of the Company’s stockholders, depending on the terms of the transaction.
For
example, the shares included in the Units and the warrants issued in connection with the PPO contain anti-dilution protection in
the event that within certain specified time periods the Company issues common stock or securities convertible into or exercisable
for shares of the Company’s common stock at a price lower than the Unit purchase price or the warrant exercise price, as
applicable. The anti-dilution protection provisions apply to issuances within two years after the closing of the PPO in the case
of the Units and, with respect to the warrants, prior to the warrant expiration date. In addition, the anti-dilution protection
provisions are subject to exceptions for certain issuances, including but not limited to (a) shares of common stock issued in an
underwritten public offering, (b) issuances of awards under the Company’s 2014 Equity Incentive Plan, and (c) other exempt
issuances
.
3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting
principles as found in the Accounting Standards Codifications (“ASC”) and Accounting Standards Updates (“ASU”)
of the Financial Accounting Standards Board (“FASB”).
Use of Estimates
The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not
limited to, estimates related to accruals, stock-based compensation expense, warrants to purchase securities, and reported amounts
of revenues and expenses during the reported period. The Company bases its estimates on historical experience and other market-specific
or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates
or assumptions.
Principles of Consolidation and Presentation
The consolidated financial statements include
the accounts of the Company and its subsidiaries. In these consolidated financial statements, “subsidiaries” are companies
that are wholly owned, the accounts of which are consolidated with those of the Company. Significant intercompany transactions
and balances are eliminated in consolidation.
Segment information
Operating segments are defined as components
of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and
manages its business in one operating segment, which is the business of discovering and developing novel antibody immunotherapies
that help the immune system fight cancer and other diseases. The Company operates in only one geographic segment.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with maturities of 90 days or less from the purchase date to be cash equivalents. Cash and cash equivalents are held in depository
and money market accounts and are reported at fair value.
Marketable Securities
Marketable securities consist of U.S. treasury
securities with maturities of more than 90 days. The Company has determined the appropriate balance sheet classification of the
securities as current since they are available for use in current operating activities, regardless of actual maturity dates, and
are recorded on the balance sheet at fair value, with the unrealized gains and losses reported in accumulated other comprehensive
income (loss), which is a separate component of stockholders’ equity. When securities are sold, the unrealized gains and
losses are reclassified to net earnings.
Concentration of Credit Risk
The Company has no significant off-balance
sheet concentrations of credit risk such as foreign currency exchange contracts, option contracts or other hedging arrangements.
Financial instruments that subject the Company to credit risk consists primarily of cash and cash equivalents. The Company generally
invests its cash in money market funds, U.S. Treasury securities and U.S. Agency securities that are subject to minimal credit
and market risk. Management has established guidelines relative to credit ratings and maturities intended to safeguard principal
balances and maintain liquidity. At times, the Company’s cash balances may exceed the current insured amounts under the Federal
Deposit Insurance Corporation.
Fair Value of Financial Instruments
Fair values of financial instruments included
in current assets and current liabilities are estimated to approximate their book values, due to the short maturity of such instruments.
All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair
value. The Company’s assets and liabilities that are measured at fair value on a recurring basis are measured in accordance
with FASB’s Accounting Standards Codification (“ASC”) Topic 820,
Fair Value Measurements and Disclosures
,
which establishes a three-level valuation hierarchy for measuring fair value and expands financial statement disclosures about
fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date.
The valuation hierarchy is based upon the transparency
of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
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·
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Level
1
: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets in active markets.
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·
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Level 2
: Inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
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·
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Level 3
: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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The Company’s cash equivalents and marketable
securities carried at fair value are primarily comprised of investments in a U.S. Treasury and federal agency backed money market
funds. The valuation of the Company’s derivative liabilities is discussed below and in Note 11. The following table presents
information about the Company’s financial assets and liabilities measured at a fair value on a recurring basis as of December
31, 2015 and 2014:
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December 31,
2015
|
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Quoted Prices in
Active Markets
(Level 1)
|
|
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Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
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Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash
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|
$
|
815,890
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|
|
$
|
815,890
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Money Market funds, included in cash equivalents
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|
$
|
2,780,372
|
|
|
$
|
2,780,372
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Marketable securities – U.S. Treasuries
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
2,138,091
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,138,091
|
|
|
|
December 31,
2014
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
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|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
211,329
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|
|
$
|
211,329
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Money Market funds, included in cash equivalents
|
|
$
|
10,248,788
|
|
|
$
|
10,248,788
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Marketable securities – U.S. Treasuries
|
|
$
|
3,010,119
|
|
|
$
|
3,010,119
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
16,118,802
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,118,802
|
|
The following table provides a roll forward of the fair value of
the Company’s warrant liabilities, using Level 3 inputs:
Balance at December 31, 2014
|
|
$
|
16,118,802
|
|
Change in fair value
|
|
|
(13,980,711
|
)
|
Balance at December 31, 2015
|
|
$
|
2,138,091
|
|
Accounts Receivable and Allowance for Doubtful
Accounts
Trade receivables are recorded at the invoiced
amount. The Company maintains allowances for doubtful accounts, if needed, for estimated losses resulting from the inability of
customers to make required payments. This allowance is based on specific customer account reviews and historical collections experience.
There was no allowance for doubtful accounts as of December 31, 2015 or December 31, 2014.
Property and Equipment
Property and equipment are recorded at cost.
Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions
to property and equipment. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets
as follows:
Lab equipment
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3-5 years
|
Computer equipment and software
|
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3 years
|
Furniture
|
|
3 years
|
Leasehold improvements
|
|
Shorter of useful life or life of the lease
|
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment
annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows.
If this comparison indicated that there is impairment, the amount of the impairment is calculated as the difference between the
carrying value and fair value. There have been no impairments recognized during the years ended December 31, 2015 and 2014, respectively.
Revenue Recognition
Collaboration and license revenue
Non-refundable license fees are recognized
as revenue when the Company has a contractual right to receive such payment, the contract price is fixed or determinable, the collection
of the resulting receivable is reasonably assured and the Company has no further performance obligations under the license agreement.
Multiple element arrangements, such as license and development arrangements are analyzed to determine whether the deliverables,
which often include license and performance obligations such as research and steering committee services, can be separated or whether
they must be accounted for as a single unit of accounting in accordance with GAAP. The Company recognizes up-front license payments
as revenue upon delivery of the license only if the license has stand-alone value and the fair value of the undelivered performance
obligations, typically including research and/or steering committee services, can be determined. If the fair value of the undelivered
performance obligations can be determined, such obligations would then be accounted for separately as performed. If the license
is considered to either (i) not have stand-alone or (ii) have stand-alone value but the fair value of any of the undelivered performance
obligations cannot be determined, the arrangement would then be accounted for as a single unit of accounting and the license payments
and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations
are performed.
Whenever the Company determines that an arrangement
should be accounted for as a single unit of accounting, it must determine the period over which the performance obligations will
be performed and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line method.
The Company recognizes revenue using the relative performance method provided that the Company can reasonably estimate the level
of effort required to complete its performance obligations under an arrangement and such performance obligations are provided on
a best-efforts basis. Direct labor hours or full-time equivalents are typically used as a measure of performance. Revenue recognized
under the relative performance method would be determined by multiplying the total payments under the contract, excluding royalties
and payments contingent upon achievement of substantive milestones, by the ratio of level of effort incurred to date to estimated
total level of effort required to complete the Company’s performance obligations under the arrangement. Revenue is limited
to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the
relative performance method, as of each reporting period.
If the Company cannot reasonably estimate the
level of effort required to complete its performance obligations under an arrangement, the performance obligations are provided
on best-efforts basis and the Company can reasonably estimate when the performance obligation ceases or the remaining obligations
become inconsequential and perfunctory. At that time, the total payments under the arrangement, excluding royalties and payments
contingent upon achievement of substantive milestones, would be recognized as revenue on a straight-line basis over a period the
Company expects to complete its performance obligations.
Revenue is limited to the lesser of the cumulative
amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the
period ending date.
In December 2014, the Company entered into
a study agreement with Merck Sharp & Dohme Corp., or Merck (the “Merck Agreement”). In February 2016, the Company
and Merck subsequently amended the work plan under the Merck Agreement to also include non-small cell lung cancer tissues. Pursuant
to the Merck Agreement, the Company is conducting a specified research program using its platform technology to identify functional
response of single cell types in colorectal cancer and non-small cell lung cancer in the presence or absence of immunomodulatory
receptor modulators identified by Merck. In this collaboration, Merck is reimbursing the Company for the cost of performing the
work plan set forth in the Merck Agreement, for up to a specified number of full-time employees at a pre-determined annual rate.
In addition, Merck will make certain milestone payments to the Company upon the completion of specified objectives set forth in
the Merck Agreement and related work plan. In September 2015, the Company announced the achievement of the first milestone under
the Merck Agreement.
In January 2016, the Company and The University
of Texas M.D. Anderson Cancer Center (“MDACC”) entered into a Collaborative Research and Development Agreement (the
“MDACC Agreement”). Under the MDACC Agreement, the Company and MDACC plan to collaborate on the discovery and development
of novel monoclonal antibodies against selected targets in immune-oncology, utilizing the Company’s antibody discovery and
immune profiling platform and MDACC’s preclinical and development expertise and infrastructure.
Pursuant to the terms of the MDACC Agreement,
the Company and MDACC will share the costs of research and development activities necessary to take development candidates through
successful completion of a Phase I clinical trial. The MDACC Agreement provides for a structure whereby the Company and MDACC are
each granted the right to receive a percentage of the net income from product sales or any payments associated with licensing or
otherwise partnering a program with a third party.
Grant Revenue
In September 2014, the Company was awarded
a Phase II Small Business Innovation Research contract from the National Cancer Institute (“NCI”) for up to $999,967
over two years. Grant revenue consists of a portion of the funds received to date by the NCI. Revenue is recognized as the related
research services are performed in accordance with the terms of the agreement.
Research and Development Expenses
Research and development expenditures are charged
to the statement of operations as incurred. Research and development expenses are comprised of costs incurred in performing research
and development activities, including salaries and benefits, facilities costs, clinical supply costs, contract services, depreciation
and amortization expense and other related costs. Costs associated with acquired technology, in the form of upfront fees or milestone
payments, are charged to research and development expense as incurred. Legal fees incurred in connection with patent applications,
along with fees associated with the license to the Company’s core technology, are expensed as research and development expense.
Derivative Liabilities
The Company’s derivative liabilities
relate to (a) warrants to purchase an aggregate of 23,549,510 shares of the Company’s common stock that were issued in connection
with the July 2014 PPO (as defined below in Note 10) and (b) warrants to purchase 41,659 shares of Enumeral Series A Preferred
Stock that were issued in December 2011 and June 2012 pursuant to Enumeral’s debt financing arrangement with Square 1 Bank
(as further described in Note 7) that were subsequently converted into warrants to purchase 66,574 shares of the Company’s
common stock in connection with the July 2014 Merger. Additional detail regarding these warrants can be found in Note 11 below.
Due to the price protection provision included
in the warrant agreements, the warrants were deemed to be liabilities and, therefore, the fair value of the warrants is recorded
in the current liabilities section of the balance sheet. As such, the outstanding warrants are revalued each reporting period with
the resulting gains and losses recorded as the change in fair value of derivative liabilities on the consolidated statement of
operations and comprehensive income (loss).
The Company used the Black-Scholes option-pricing
model to estimate the fair values of the issued and outstanding warrants.
Comprehensive Income (Loss)
Other comprehensive income (loss) is comprised
of unrealized holding gains and losses arising during the period on available-for-sale securities that are not other-than-temporarily
impaired. The unrealized gains and losses are reported in accumulated other comprehensive income (loss), until sold or maturity,
at which time they are reclassified to earnings. The Company reclassified $19,097 and $0 out of accumulated other comprehensive
loss to net income during the years ended December 31, 2015 and 2014, respectively.
Stock-Based Compensation
The Company accounts for its stock-based compensation
awards to employees and directors in accordance with FASB ASC Topic 718,
Compensation-Stock Compensation
(“ASC 718”).
ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock, to be
recognized in the consolidated statements of operations and comprehensive income (loss) based on their grant date fair values.
Compensation expense related to awards to employees 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. Share-based payments issued to non-employees are
recorded at their fair values, and are periodically revalued as the equity instruments vest and are recognized as expense over
the related service period in accordance with the provisions of ASC 718 and ASC Topic 505,
Equity,
and are expensed using
an accelerated attribution model.
The Company estimates the fair value of its
stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (a) the
expected stock price volatility, (b) the expected term of the award, (c) the risk-free interest rate, (d) expected dividends, and
(e) the estimated fair value of its common stock on the measurement date. Due to the lack of a public market for the trading of
its common stock and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected
volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies
on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it,
including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient
to meet the expected term of the stock-based awards. The Company computes historical volatility data using the daily closing prices
for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.
The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of
its own stock price becomes available. Due to the lack of Company specific historical option activity, the Company has estimated
the expected term of its employee stock options using the “simplified” method, whereby, the expected term equals the
arithmetic average of the vesting term and the original contractual term of the option. The expected term for non-employee awards
is the remaining contractual term of the option. The risk-free interest rates are based on the U.S. Treasury securities with a
maturity date commensurate with the expected term of the associated award. The Company has never paid dividends, and does not expect
to pay dividends in the foreseeable future.
The Company is also required to estimate forfeitures
at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from its estimates. The Company
uses historical data to estimate forfeitures and records stock-based compensation expense only for those awards that are expected
to vest. To the extent that actual forfeitures differ from the Company’s estimates, the differences are recorded as a cumulative
adjustment in the period the estimates were revised. Stock-based compensation expense recognized in the financial statements is
based on awards that are ultimately expected to vest.
The Company recognizes the compensation expense
of employee share-based awards on a straight-line basis over the employee’s requisite service period of each award, which
is generally the vesting period. The fair value of the restricted stock awards granted to employees is based upon the fair value
of the common stock on the date of grant. Expense is recognized over the vesting period.
The Company has recorded stock-based compensation
expense of $827,184 and $659,435 for the years ended December 31, 2015 and 2014, respectively.
Prior to the Merger, Enumeral engaged a third
party to develop an estimate of the fair value of a share of Enumeral’s common stock on a fully-diluted, minority, non-marketable
basis as of December 31, 2013. Based upon unaudited historical, pro-forma and/or forecast financial and operational information,
which Enumeral management represented as accurately reflecting the company’s operating results and financial position, the
third party utilized both a market approach (using various financial statement metrics of similar enterprises’ equity securities
to estimate the fair value of Enumeral’s equity securities) and an income approach (which bases value on expectations of
future income and cash flows) in their analyses. The fair value of a single share of common stock was determined using the option
pricing method, which treats common and preferred stock as call options on the aggregate enterprise value and using traditional
models, including Black-Scholes or binomial models, to calculate share values.
Following the Merger, the Company’s common
stock became publicly traded, and fair market value is determined based on the closing sales price of the Company’s common
stock on the OTCQB.
During the year ended December 31, 2014, the
Company engaged a third party to develop a binomial lattice model to estimate the fair value of options to purchase a total of
450,000 shares with vesting based on the future performance of a share of the Company’s common stock.
Earnings (Loss) Per Share
Basic earnings (loss) per common share amounts
are based on weighted average number of common shares outstanding. Diluted earnings per share amounts are based on the weighted
average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise
of all potentially dilutive stock options, warrants and convertible debt, subject to anti-dilution limitations. All such potentially
dilutive instruments were anti-dilutive as of December 31, 2014. At December 31, 2015 and 2014, the number of shares underlying
options and warrants that were anti-dilutive were approximately 26.8 million and 27.5 million, respectively.
Income Taxes
Income taxes are recorded in accordance with
FASB ASC Topic 740,
Income Taxes
(“ACS 740”), which provides for deferred taxes using an asset and liability
approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting
and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to
be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax
assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. The
Company has evaluated available evidence and concluded that the Company may not realize the benefit of its deferred tax assets;
therefore a valuation allowance has been established for the full amount of the deferred tax assets. The Company accounts for uncertain
tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax
benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether
the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration
of the available facts and circumstances.
The Company has no uncertain tax liabilities
at December 31, 2015 or December 31, 2014. The guidance requires the Company to determine whether it is more likely than not that
a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the more likely
than not recognition criteria, the guidance requires the tax position be measured at the largest amount of benefit greater than
50% likely of being realized upon ultimate settlement.
New Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards
Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU No. 2014-09 provides
for a single comprehensive model for use in accounting for revenue arising from contracts with customers and supersedes most current
revenue recognition guidance. The accounting standard is effective for interim and annual periods beginning after December 15,
2016 with no early adoption permitted. In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date,
which deferred the effective date of ASU No. 2014-09 to annual periods beginning
after December 15, 2017, along with an option to permit early adoption as of the original effective date. The Company is required
to adopt the amendments in ASU No. 2014-09 using one of two acceptable methods. The Company’s management is currently in
the process of determining which adoption method it will apply and evaluating the impact of the guidance on the Company’s
consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12,
Compensation—Stock Compensation (Topic 718)
. ASU No 2014-12 clarifies how entities should treat performance targets
that can be achieved after the requisite service period of a share-based payment award. The accounting standard is effective for
interim and annual periods beginning after December 15, 2015 and is not expected to have a material impact on the Company’s
consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40)
. ASU No 2014-15 requires all entities to evaluate
for the existence of conditions or events that raise substantial doubt about the entity’s ability to continue as a going
concern within one year after the issuance date of the financial statements. The accounting standard is effective for interim and
annual periods ending after December 15, 2016, and is not expected to have a material impact on the Company’s consolidated
financial statements, but may impact the Company’s footnote disclosures.
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740).
ASU No. 2015-17 requires entities to present deferred tax assets and deferred tax liabilities
as noncurrent in a classified balance sheet. This guidance simplifies the current guidance in ASC Topic 740,
Income Taxes
,
which requires entities to separately present deferred tax assets and liabilities as current and noncurrent in a classified balance
sheet. This guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods,
with early adoption permitted. The Company adopted the guidance early as of January 1, 2015 on a prospective basis; prior periods
were not retrospectively adjusted. Due to a full valuation allowance recorded against its deferred tax assets as of December 31,
2015, the Company’s consolidated balance sheet contains no deferred tax balances.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, and requires a lessee
to recognize assets and liabilities for leases with a maximum possible term of more than 12 months. A lessee would recognize a
liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset
(the underlying asset) for the lease term. Early application is permitted. The Company is currently evaluating the impact
the adoption of the accounting standard will have on its consolidated financial statements.
Other accounting standards that have been issued
by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material
impact on the Company’s financial statements upon adoption.
4 – PROPERTY AND EQUIPMENT
Property and equipment, net consist of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Laboratory equipment
|
|
$
|
2,559,986
|
|
|
$
|
1,611,513
|
|
Computer/office equipment and software
|
|
|
187,337
|
|
|
|
117,429
|
|
Furniture, fixtures and office equipment
|
|
|
73,734
|
|
|
|
23,526
|
|
Leasehold improvements
|
|
|
75,262
|
|
|
|
112,507
|
|
|
|
|
2,896,319
|
|
|
|
1,864,975
|
|
Less – Accumulated depreciation and amortization
|
|
|
(1,384,826
|
)
|
|
|
(857,848
|
)
|
Total property and equipment, net
|
|
$
|
1,511,493
|
|
|
$
|
1,007,127
|
|
The Company recognized depreciation and amortization
expense of $616,523 and $304,456 for the years ended December 31, 2015 and 2014, respectively. During the year ended December 31,
2015, the Company retired leasehold improvements with a gross cost of $112,507 and expensed the remaining net carrying value of
$22,962 associated with the write-down of leasehold improvements due to a relocation of the Company’s corporate office and
research laboratories in March 2015 (see Note 8).
5 – RESTRICTED CASH
The Company held $534,780 and $562,410 in restricted
cash as of December 31, 2015 and December 31, 2014, respectively. The balances are primarily held on deposit with a bank
to collateralize standby letters of credit in the name of the Company’s facility lessors in accordance with the Company’s
facility lease agreements.
6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The Company’s accrued expenses and other current liabilities
consist of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Wages and benefits
|
|
$
|
447,769
|
|
|
$
|
88,700
|
|
Accrued professional fees
|
|
|
213,475
|
|
|
|
125,751
|
|
Accrued other
|
|
|
53,140
|
|
|
|
2,690
|
|
Total accrued expenses and other current liabilities
|
|
$
|
714,384
|
|
|
$
|
217,141
|
|
7 – DEBT
Square 1 Financing and Security Agreement
In December 2011, Enumeral entered into a $1.79
million venture debt financing with Square 1 Bank (as subsequently amended, the “Square 1 Financing”), pursuant to
which Enumeral was required to comply with certain covenants on an annual basis. Enumeral was required to meet a maximum cash burn
or liquidity ratio as indicated in the term loan agreement. In February 2014, Enumeral revised the terms of its Loan and Security
Agreement with Square 1 Bank, whereby Enumeral agreed to complete an equity financing for gross cash proceeds of $2.0 million by
March 31, 2014 and $4.0 million by June 30, 2014. Additionally, beginning on the date that Enumeral completed an equity financing
for gross cash proceeds of $2.0 million, a monthly minimum unrestricted cash balance was required based upon three times the trailing
three month cash burn.
In June 2014, Enumeral further revised the
terms of its Loan and Security Agreement with Square 1 Bank, whereby Enumeral extended its deadline to complete an equity financing
for gross cash proceeds of $4.0 million to August 1, 2014. Additionally, Enumeral amended its minimum cash requirement beginning
June 26, 2014 through August 1, 2014, pursuant to which Enumeral was required to maintain a minimum of $300,000 in unrestricted
cash.
In August 2014, Enumeral fully repaid this
loan.
In connection with the Square 1 Financing,
Enumeral issued warrants to purchase an aggregate of 41,659 shares of Enumeral Series A preferred stock that were subsequently
converted into warrants to purchase 66,574 shares of the Company’s common stock in connection with the July 2014 Merger,
as further described in Note 11 below.
Convertible Promissory Notes
In February 2014, Enumeral raised $750,000
by issuing convertible promissory notes at 12% interest per annum. The maturity date was July 2015. The holders of these notes
had the right to convert the notes into shares of common stock at a premerger conversion price of $0.27 per share. In July 2014,
the principal of $750,000 and accrued interest of $41,500, offset by $103,846 of debt discount, related to these notes were converted
into 3,230,869 shares of common stock (see Note 10). If prior to maturity or conversion, Enumeral consummated a liquidation
event as defined, at the election of the holder, (a) Enumeral would have been required to pay the holders an amount equal to the
sum of three times the total principal amount then outstanding under these notes, plus all accrued and unpaid interest due, (b)
the outstanding principal of the notes would have automatically converted into shares of Enumeral’s Series A-2 Preferred
Stock at the closing of the liquidation event at the Series A-2 Original Issue Price, and (c) the outstanding principal of the
notes would have automatically converted into shares of Enumeral’s common stock at the closing of the liquidation event at
a price per share of $0.27.
Enumeral allocated proceeds to the convertible
notes and the warrants based upon the relative fair value on the issuance date which resulted in a $140,779 debt discount on the
convertible promissory notes and $140,779 allocated to the warrants, recorded in equity. The allocation of proceeds to the warrants
gave rise to a beneficial conversion feature which was recorded at the intrinsic value ($140,779) calculated as the difference
between the adjusted conversion price of approximately $0.22 and the estimated fair value of Enumeral’s common stock of $0.27.
For the year ended December 31, 2014, the Company recorded $177,712 to interest expense as it relates to the beneficial conversion
feature and debt discount associated with warrants.
Equipment Lease Financing
In December 2015, the Company and Fountain
Leasing 2013 LP (“Fountain”) entered into a master lease agreement and related transaction documents, pursuant to which
Fountain provided the Company with $506,944 for the purchase of research and development lab equipment (the “Fountain Lease”).
Fountain’s security under the Fountain Lease is the equipment purchased and a security deposit in the amount of $101,389.
The initial term of the Fountain Lease is 36 months, with payments of $21,545 per month for the first 24 months and then $1,267
for the 12 months thereafter. Pursuant to the terms of the Fountain Lease, the Company has an option at the end of the initial
term to purchase the equipment for the greater of $25,347 or current fair market value, provided that such amount shall not be
in excess of $152,083. In addition, the Company also has the option to extend the Fountain Lease for an additional 12 month period
at a rate of $8,872 per month with the right at the end of such extension term to purchase the equipment for fair value or to return
the equipment to Fountain. The Fountain Lease has a lease rate factor of 4.25% per month for the first 24 months and 0.25% for
the final 12 months of the initial term.
The company has recorded current equipment
lease financing of $240,473 and long-term equipment lease financing of $266,471 at December 31, 2015. The equipment has been included
in property and equipment on the Company’s consolidated balance sheet.
Future principal payments on the $506,944 equipment
lease financing are as follows:
|
|
December 31,
2015
|
|
2016
|
|
|
258,541
|
|
2017
|
|
|
258,542
|
|
2018
|
|
|
15,208
|
|
Total equipment lease financing payments
|
|
|
532,291
|
|
Current equipment lease financing
|
|
|
258,541
|
|
Less: Amount representing interest
|
|
|
(18,068
|
)
|
Current equipment lease financing, net
|
|
|
240,473
|
|
Long-term equipment lease financing
|
|
|
273,750
|
|
Less: Amount representing interest
|
|
|
(7,279
|
)
|
Equipment lease financing, less current portion, net
|
|
$
|
266,471
|
|
8 – COMMITMENTS
Operating Leases
In March 2015, the Company relocated its offices
and research laboratories to 200 CambridgePark Drive in Cambridge, Massachusetts. The Company is leasing 16,825 square feet at
this facility pursuant to Indenture of Lease (the “CambridgePark Lease”) that the Company entered into in November
2014. The term of the CambridgePark Lease is for five years, and the initial base rent is $42.50 per square foot, or approximately
$715,062 on an annual basis. The base rent will increase incrementally over the term of the CambridgePark Lease, reaching approximately
$804,739 on an annual basis in the fifth year of the term. In addition, the Company is obligated to pay a proportionate share of
the operating expenses and applicable taxes associated with the premises, as calculated pursuant to the terms of the CambridgePark
Lease. Pursuant to the terms of the CambridgePark Lease, the Company has delivered a security deposit to the landlord in the amount
of $529,699, which may be reduced to $411,988 following the second anniversary of the commencement date, provided that the Company
meets certain financial conditions set forth in the CambridgePark Lease. The Company has recorded deferred rent in connection with
the CambridgePark Lease as of December 31, 2015 in the amount of $36,847. This amount has been recorded as a long-term liability
on the Company’s consolidated balance sheet.
The Company previously occupied offices and
research laboratories in approximately 4,782 square feet of space at One Kendall Square in Cambridge, Massachusetts, at an annual
rent of $248,664 (the “Kendall Lease”). For the year ended December 31, 2015, the Company recorded an expense of $55,352,
representing all exit costs associated with its move to new offices and research laboratories in March 2015. In June 2015, Enumeral
entered into a lease termination agreement with the landlord for Enumeral’s former facility at One Kendall Square, pursuant
to which the Kendall Lease was terminated as of June 17, 2015. In accordance with the terms of the lease termination agreement,
Enumeral is not obligated to pay rent for the One Kendall Square facility after May 31, 2015. Enumeral had maintained a security
deposit relating to the facility, recorded as restricted cash on the accompanying consolidated balance sheet. This security deposit
was returned to Enumeral pursuant to the lease termination agreement.
In addition, the Company maintains a small
corporate office at 1370 Broadway in New York, New York, at an annual rent of $23,100. The lease for the Company’s New York
office expires on December 31, 2016.
Rent expense was $1,079,753 and $309,475 for
the years ended December 31, 2015 and 2014, respectively.
Future operating lease commitments as of December
31, 2015 are as follows:
Years Ending December 31,
|
|
|
|
2016
|
|
$
|
756,109
|
|
2017
|
|
|
754,966
|
|
2018
|
|
|
777,567
|
|
2019
|
|
|
800,842
|
|
Thereafter
|
|
|
134,123
|
|
|
|
$
|
3,223,607
|
|
Employment Agreements
The Company has employment agreements with
certain members of management which contain minimum annual salaries and severance benefits if their employment is terminated prior
to the term of the agreements.
9 – LICENSE AGREEMENT AND RELATED-PARTY
TRANSACTIONS
License Agreement
In April 2011, Enumeral licensed certain intellectual
property from the Massachusetts Institute of Technology (“MIT”), then a related party (as one of Enumeral’s scientific
co-founders was an employee of MIT), pursuant to an Exclusive License Agreement (the “License Agreement”), in exchange
for the payment of upfront license fees and a commitment to pay annual license fees, patent costs, milestone payments, royalties
on sublicense income and, upon product commercialization, royalties on the sales of products covered by the licenses or income
from corporate partners, and the issuance of 66,303 shares of Enumeral common stock. This intellectual property portfolio includes
patents owned by Harvard University or co-owned by MIT and The Whitehead Institute, or MIT and Massachusetts General Hospital.
All amounts paid related to the license fees
have been expensed as research and development by Enumeral as incurred. The Company incurred $30,000 and $25,000 in the years ended
December 31, 2015 and 2014, respectively.
In addition to potential future royalty and
milestone payments that Enumeral may have to pay MIT per the terms of the License Agreement, Enumeral is obligated to pay an annual
fee of $40,000 in 2016, and $50,000 every year thereafter unless the License Agreement is terminated. During the year ended December
31, 2015, the Company achieved the first milestone in the Merck Agreement and paid MIT the required percentage of the milestone
payment pursuant to the terms of the License Agreement. No royalty payments have been payable as Enumeral has not commercialized
any products as set forth in the License Agreement. The Company reimburses costs to MIT and Harvard University for the continued
prosecution of the licensed patent estate. For the years ended December 31, 2015 and 2014, the Company reimbursed $325,945 and
$505,697 to MIT and $23,637 and $173,525 to Harvard, respectively. As of December 31, 2015 and 2014, the Company had accounts payable
and accrued expenses of $168,726 and $65,529, respectively, associated with the reimbursement of costs to MIT and Harvard.
The License Agreement also contained a provision
whereby after the date upon which $7,500,000 of funding which was met in April of 2013, MIT and other licensing institutions set
forth in the License Agreement have a right to participate in certain future equity issuances by Enumeral. In addition, pursuant
to that provision Enumeral may have to issue additional shares to MIT and other licensing institutions set forth in the License
Agreement if Enumeral issues common stock at a price per share that is less than the fair market value per share of the common
stock issued to MIT and such licensing institutions based upon a weighted average formula set forth in the License Agreement. In
March 2013, Enumeral and MIT entered into a first amendment to the License Agreement to clarify how equity issuances were to be
made thereunder. In July 2014, Enumeral and MIT entered into a second amendment to the License Agreement, pursuant to which MIT’s
participation rights and anti-dilution rights under the license agreement were terminated. Other than the exchange of Enumeral’s
common stock for the Company’s common stock in connection with the Merger, the Company did not issue any shares of common
stock to MIT and such other licensing institutions in connection with the License Agreement in 2014.
In April 2015, Enumeral and MIT entered into
a third amendment to the License Agreement, which revised the timetable for Enumeral to complete certain diligence obligations
relating to the initiation of clinical studies in support of obtaining regulatory approval of a Diagnostic Product (as such term
is defined in the License Agreement), as well as the timetable by which Enumeral is required to make the first commercial sale
of a Diagnostic Product.
Consulting Agreements
On April 19, 2011, Enumeral entered into a
consulting agreement with Barry Buckland, Ph.D., a member of the board of directors. Pursuant to the original agreement, Dr. Buckland
was compensated through the issuance of 159,045 shares of restricted common stock of Enumeral that vested on the following schedule:
25% on the execution of the contract, 25% on April 19, 2012 and the remaining 50% vesting in equal monthly installments through
April 1, 2014. These shares were subsequently converted into 175,286 shares of the Company’s common stock in connection with
the Merger. The term of the consulting agreement was three years. On February 11, 2013, the consulting agreement was amended so
that Dr. Buckland would receive $75,000 per year for a period of one year. On August 14, 2013, the consulting agreement was amended
so that Dr. Buckland would receive $37,500 per year for a period of one year. In September 2014, the Company and Dr. Buckland entered
into a Scientific Advisory Board Agreement (the “SAB Agreement”), which supersedes the previous consulting agreement,
and pursuant to which Dr. Buckland will serve as Chairman of the Company’s Scientific Advisory Board. The SAB Agreement has
a term of two years. Pursuant to the terms of the SAB Agreement, Dr. Buckland will receive compensation on an hourly or per diem
basis, either in cash or, at Dr. Buckland’s election, in options to purchase the Company’s common stock. The SAB Agreement
limits the total amount of compensation payable to Dr. Buckland at $100,000 over any rolling 12-month period. During the years
ended December 31, 2015 and 2014, the Company recognized $32,000 and $32,667 of expense, respectively, related to the consulting
agreement and SAB Agreement.
On September 20, 2013, Enumeral entered into
a consulting agreement with Allan Rothstein and Norman Rothstein (collectively the “Rothstein Consultants”). Pursuant
to the consulting agreement, Allan Rothstein was elected as a member of the Board of Directors of Enumeral. The Rothstein Consultants
were compensated through the issuance of 1,000,000 shares of restricted common stock of Enumeral, with one third vesting upon the
execution of the consulting agreement, one third vesting on December 10, 2013 and one third vesting on March 10, 2014. These shares
were subsequently converted into 1,102,121 shares of the Company’s common stock in connection with the Merger. The consulting
agreement had a term of two years, but was terminated on July 30, 2014. During the years ended December 31, 2015 and 2014,
the Company recognized $0 and $90,000 of restricted stock compensation expense, respectively, related to the shares granted in
this consulting agreement.
10 – EQUITY
Common Stock
On April 8, 2014, Enumeral amended its certificate
of incorporation to increase the number of authorized shares of common stock from 15,000,000 to 24,000,000.
In April 2014, Enumeral issued 948,823 shares
of Series B Convertible Preferred Stock at an issue price of $2.125 per share for proceeds of $1,597,860, net of issuance costs
of $418,390. The Series B Preferred Stock ranks pari passu in all respects to Enumeral’s Series A-2, Series A-1 and Series
A Preferred Stock. In connection with this offering, Enumeral paid the placement agent $81,000 in cash and issued the placement
agent a warrant to purchase 38,259 Series B shares exercisable at $2.125 per share for a term of five years. These costs were included
in the total issuance costs. All shares and warrants were converted as part of the Merger (see Merger discussion below).
In April 2014, Enumeral issued warrants to
two executive officers to purchase 105,881 shares of Convertible Preferred Series B shares in connection with Enumeral’s
Series B financing. These warrants were issued in relation to these executives taking a salary reduction prior to the Series B
round of financing. In connection with the Merger in July 2014, these warrants were converted into warrants to purchase 309,967
shares of the Company’s common stock (see Merger discussion below).
On July 31, 2014, Enumeral entered into the
Merger Agreement, pursuant to which Enumeral became a wholly owned subsidiary of the Company. The Company’s authorized capital
stock currently consists of 300,000,000 shares of common stock, par value $0.001, and 10,000,000 shares of “blank check”
preferred stock, par value $0.001.
Merger
As a result of the Merger, all issued and outstanding
common and preferred shares of Enumeral were exchanged for common shares of the Company as follows: (a) each share of Enumeral’s
common stock issued and outstanding immediately prior to the closing of the Merger was converted into 1.102121 shares of the Company’s
common stock for a total of 4,940,744 shares post-Merger, (b) each share of Enumeral’s Series A Preferred Stock issued and
outstanding immediately prior to the closing of the Merger was converted into 1.598075 shares of the Company’s common stock
for a total of 4,421,744 shares post-Merger, (c) each share of Enumeral’s Series A-1 Preferred Stock issued and outstanding
immediately prior to the closing of the Merger was converted into 1.790947 shares of the Company’s common stock for a total
of 3,666,428 shares post-Merger, (d) each share of Enumeral’s Series A-2 Preferred Stock issued and outstanding immediately
prior to the closing of the Merger was converted into 1.997594 shares of the Company’s common stock for a total of 3,663,177
shares post-Merger, (e) each share of Enumeral’s Series B Preferred Stock issued and outstanding immediately prior to the
closing of the Merger was converted into 2.927509 shares of the Company’s common stock for a total of 2,777,687 shares post-Merger
and (f) a convertible note and accrued interest was converted into 3,230,869 shares of the Company’s common stock post-Merger.
As a result of the Merger and Split-Off, the
Company discontinued its pre-Merger business and acquired the business of Enumeral, and has continued the existing business operations
of Enumeral as a publicly-traded company under the name Enumeral Biomedical Holdings, Inc. In accordance with “reverse merger”
accounting treatment, historical financial statements for Enumeral Biomedical Holdings Inc. as of period ends, and for periods
ended, prior to the Merger will be replaced with the historical financial statements of Enumeral prior to the Merger in all future
filings with the SEC.
Private Placement
On July 31, 2014, the Company closed a private
placement offering (the “PPO”) of 21,549,510 Units of securities, at a purchase price of $1.00 per Unit, each Unit
consisting of one share of the Company’s common stock and a warrant to purchase one share of the Company’s common stock
at an exercise price of $2.00 per share with a term of five years (the “PPO Warrants”). The net proceeds received from
the PPO were $18,255,444. The investors in the PPO (for so long as they hold shares of the Company’s common stock) have anti-dilution
protection on the shares of common stock included in the Units purchased in the PPO and not subsequently transferred or sold (other
than transfers to trusts or affiliates of such investors for the purpose of estate planning) in the event that within two years
after the closing of the PPO the Company issues common stock or securities convertible into or exercisable for shares of the Company’s
common stock at a price lower than the Unit purchase price. The anti-dilution protection provisions are subject to exceptions for
certain issuances, including but not limited to (a) shares of common stock issued in an underwritten public offering, (b) issuances
of awards under the Company’s 2014 Equity Incentive Plan, and (c) other exempt issuances.
In addition, the PPO Warrants not subsequently
transferred or sold (other than transfers to trusts or affiliates of such investors for the purpose of estate planning) have anti-dilution
protection in the event that prior to the warrant expiration date the Company issues common stock or securities convertible into
or exercisable for shares of the Company’s common stock at a price lower than the warrant exercise price, subject to
the exceptions described above.
The Company agreed to pay the placement agents
in the offering, registered broker-dealers, a cash commission of 10% of the gross funds raised from investors in the PPO. In addition,
the placement agents received warrants exercisable for a period of five years to purchase a number of shares of the Company’s
common stock equal to 10% of the number of shares of common stock with a per share exercise price of $1.00 (the “PPO Agent
Warrants”); provided, however, that the placement agents were not entitled to any warrants on the sale of Units in excess
of 20,000,000. Any sub-agent of the placement agents that introduced investors to the PPO was entitled to share in the cash fees
and warrants attributable to those investors as described above. The Company also reimbursed the placement agents $30,000 in the
aggregate for legal expenses incurred by the placement agents’ counsels in connection with the PPO, as described in the private
placement agreements. As a result of the foregoing, the placement agents were paid an aggregate cash commission of $2,154,951 and
were issued PPO Agent Warrants to purchase 2,000,000 shares of the Company’s common stock. The PPO Agent Warrants not subsequently
transferred or sold (other than transfers to trusts or affiliates of such investors for the purpose of estate planning) have anti-dilution
protection until the warrant expiration date, subject to the exceptions described above for the Units. The value ascribed to the
PPO Agent Warrants are carried at fair value and reported as a derivative liability on the accompanying balance sheets.
The Company incurred approximately $500,000
of expenses in connection with the offering outside of the placement agent commissions and issued the subagent to one of the placement
agents 150,000 shares of the Company’s common stock.
In addition, the Merger Agreement provided
certain anti-dilution protection to the holders of the Company’s common stock immediately prior to the Merger (after giving
effect to the Split-Off), in the event that the aggregate number of units sold in the PPO after the final closing thereof were
to exceed 15,000,000. Accordingly, based on the final amount of gross proceeds raised in the PPO, the Company issued 1,690,658
additional shares of the Company’s common stock to holders of the Company’s common stock immediately prior to the Merger.
The Company recorded $1,690,658 in other expense related to this issuance of shares at $1.00 per share.
11 – STOCK OPTIONS, RESTRICTED STOCK
AND WARRANTS
Stock Options
In December 2009, Enumeral adopted the 2009
Stock Incentive Plan (the “2009 Plan”). In April 2014, Enumeral amended the 2009 Plan to increase the number of shares
authorized thereunder to 3,200,437. The 2009 Plan was terminated in July 2014 in connection with the Merger.
On July 31, 2014, the Company’s Board
of Directors adopted, and the Company’s stockholders approved, the 2014 Equity Incentive Plan (the “2014 Plan”),
which reserves a total of 8,100,000 shares of the Company’s common stock for incentive awards. In connection with the Merger,
options to purchase 948,567 shares of Enumeral common stock previously granted under the 2009 Plan were converted into options
to purchase 1,045,419 shares of the Company’s common stock under the 2014 Plan.
Generally, shares that are expired, terminated,
surrendered or cancelled without having been fully exercised will be available for future awards. In addition, shares of common
stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock
available for the grant of awards.
As of December 31, 2015, there are 1,399,097
shares available for issuance under the 2014 Plan to eligible employees, non-employees directors and consultants. This number is
subject to adjustment in the event of a stock split, reverse stock split, stock dividend, or other change in the Company’s
capitalization.
During the years ended December 31, 2015
and 2014, there were 3,444,000 and 1,922,626 stock options granted to employees, directors or consultants under the 2014 Plan,
respectively, with weighted-average grant date fair values, using the Black-Scholes pricing model, of $0.31 and $0.63. The vesting
of employee and director awards is generally time-based and the restrictions typically lapse 25% after 12 months and monthly thereafter
for the next 36 months for employees and annually over three years for directors. In addition, certain option awards for employees
provide for vesting of all or a portion of the shares underlying such option upon the achievement of certain milestones or performance-based
criteria.
On March 24, 2016, the Compensation Committee
of the Company’s Board of Directors granted an aggregate of 1,150,000 options to purchase shares of the Company’s common
stock to employees of the Company.
The Company estimates the fair value of
each stock award on the grant date using the Black-Scholes option-pricing model based on the following assumptions and the assumptions
regarding the fair value of the underlying common stock on each measurement date:
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Expected Volatility
|
|
|
104.1%-136.0%
|
|
|
|
99.0%
|
|
Risk-free interest rate
|
|
|
1.60%-2.22%
|
|
|
|
1.62%-1.72%
|
|
Expected term (in years)
|
|
|
6.00-9.59
|
|
|
|
6.00
|
|
Expected dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
In July 2014, Enumeral modified the option
grants of two former directors of Enumeral. As a result of this modification, 77,148 shares became fully vested and the Company
incurred stock based compensation of $63,262 during the year ended December 31, 2014.
Stock option expense for employees was
$707,325 and $339,415 for the years ended December 31, 2015 and 2014, respectively, while non-employee stock option expense was
$18,474 and $25,951 for the years ended December 31, 2015 and 2014, respectively. The Company has an aggregate of $1,444,849 of
unrecognized stock-based compensation expense as of December 31, 2015 to be amortized over a weighted average period of 2.73 years.
A summary stock option activity for the
year ended December 31, 2015 is as follows:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (years)
|
|
|
Value
|
|
Outstanding at December 31, 2014
|
|
|
2,730,963
|
|
|
$
|
0.78
|
|
|
|
9.0
|
|
|
$
|
763,281
|
|
Granted
|
|
|
3,444,000
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(124,906
|
)
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(123,403
|
)
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
5,926,654
|
|
|
$
|
0.62
|
|
|
|
9.0
|
|
|
$
|
8,848
|
|
Exercisable at December 31, 2015
|
|
|
1,581,064
|
|
|
$
|
0.62
|
|
|
|
8.1
|
|
|
$
|
8,834
|
|
The aggregate intrinsic value was calculated as the difference
between the exercise price of the stock options and the fair value of the underlying common stock as of the balance sheet date.
Restricted Stock
Restricted stock expense was $101,385 and
$156,299 for the years ended December 31, 2015 and 2014, respectively.
A summary of restricted stock activity
for the year ended December 31, 2015 is as follows:
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
Balance of unvested restricted stock at December 31, 2014
|
|
|
345,699
|
|
|
$
|
0.23
|
|
Issuance of restricted stock
|
|
|
219,048
|
|
|
$
|
0.30
|
|
Restrictions lapsed
|
|
|
(282,628
|
)
|
|
$
|
(0.29
|
)
|
Balance of unvested restricted stock at December 31, 2015
|
|
|
282,119
|
|
|
$
|
0.24
|
|
The Company has an aggregate of $51,074
of unrecognized restricted stock compensation expense as of December 31, 2015 to be amortized over a weighted average period of
0.6 years.
Warrants
As of December 31, 2015 and 2014, there
were a total of 24,803,409 warrants outstanding to purchase shares of the Company’s common stock. Of these, 23,549,510 warrants
were issued in connection with the PPO and 66,574 warrants were issued to Square 1 Bank and are accounted for as a derivative liability
warrants. The remaining 1,187,325 warrants do not require derivative liability accounting treatment.
Derivative Liability Warrants
In connection with the PPO, the Company
issued warrants to purchase an aggregate of 23,549,510 shares of the Company’s common stock. Additionally, in connection
with the Square 1 Financing, Enumeral issued warrants to purchase 41,659 shares of Enumeral’s Series A preferred stock that
were subsequently converted into warrants to purchase 66,574 shares of the Company’s common stock in connection with the
July 2014 Merger.
PPO and PPO Agent Warrants
In July 2014, the Company issued warrants
to purchase 23,549,510 shares of the Company’s common stock in connection with the PPO, of which warrants to purchase 21,549,510
shares of the Company’s common stock had an exercise price of $2.00 per share and were issued to the investors in the PPO,
and warrants to purchase 2,000,000 shares of the Company’s common stock had an exercise price of $1.00 per share and were
issued to the placement agents for the PPO (or their affiliates). The estimated fair value of the warrants at the time of issuance
was determined to be $16,261,784 using the Black-Scholes pricing model and the following assumptions: expected term of five years,
105.4% volatility, and a risk-free rate of 1.77%. Due to a price protection provision included in the warrant agreements, the warrants
were deemed to be a liability and, therefore, the fair value of the warrants is recorded in the liability section of the balance
sheet. As such, the outstanding warrants are revalued each reporting period with the resulting gains and losses recorded as the
change in fair value of warrant liability on the consolidated statement of operations. The estimated fair value of the warrants
at December 31, 2015 was determined to be $2,130,822 using the Black-Scholes pricing model and the following assumptions: expected
remaining term of 3.58 years, 109.4% volatility, risk-free rate of 1.44%, and no expected dividends. The estimated fair value of
the warrants at December 31, 2014 was determined to be $16,065,396 using the Black-Scholes pricing model and the following assumptions:
expected remaining term of 4.58 years, 99.8% volatility, risk-free rate of 1.53%, and no expected dividends. All 23,549,510 warrants
were outstanding as of December 31, 2015 and 2014, respectively.
Square 1 Financing
In connection with the December 2011 Square
1 Financing, Enumeral issued to Square 1 Bank warrants to purchase an aggregate of 33,944 shares of Series A convertible preferred
stock at an exercise price of $1.16 per share, exercisable for seven years. In July 2014, as part of the Merger, these warrants
were converted into a warrant to purchase 54,245 shares of the Company’s common stock at an exercise price of $0.73 per share.
The estimated fair value of the warrants as of December 31, 2015 was determined to be $5,777 using the Black-Scholes pricing model
and the following assumptions: expected term of 2.9 years, 104.6% volatility, and a risk-free rate of 1.31%. The estimated fair
value of the warrants as of December 31, 2014 was determined to be $43,237 using the Black-Scholes pricing model and the following
assumptions: expected term of 3.93 years, 99.8% volatility, and a risk-free rate of 1.375%. As part of a June 12, 2012 amendment
to the Loan and Security Agreement between Enumeral and Square 1 Bank, Enumeral issued warrants to Square 1 Bank to purchase an
aggregate of 7,715 shares of Series A convertible preferred stock at an exercise price of $1.16 per share, exercisable for seven
years. In July 2014, as part of the Merger, these warrants were converted into a warrant to purchase 12,329 shares of the Company’s
common stock at an exercise price of $0.73 per share. The estimated fair value of these warrants as of December 31, 2015 was determined
to be $1,492 using the Black-Scholes pricing model and the following assumptions: expected term of 3.5 years, 104.6% volatility,
and a risk-free rate of 1.42%. The warrants are classified as derivative liabilities in the accompanying balance sheets and measured
at fair value on a recurring basis. The estimated fair value of these warrants as of December 31, 2014 was determined to be $10,169
using the Black-Scholes pricing model and the following assumptions: expected term of 4.45 years, 99.8% volatility, and a risk-free
rate of 1.65%. As such, the outstanding warrants are revalued each reporting period with the resulting gains and losses recorded
as the change in fair value of warrant liability on the statement of operations. As of December 31, 2015 and 2014, these warrants
were outstanding and expire on December 5, 2018 and June 12, 2019.
Derivative Liability Re-Measurement
The Company used the Black-Scholes option-pricing
model to estimate the fair values of the issued and outstanding warrants as of December 31, 2015 and 2014. The Company recorded
income of $13,980,711 and $184,448 for the years ended December 31, 2015 and 2014, respectively, due to the change in the fair
value of the warrants. Outstanding warrants are revalued each reporting period with the resulting gains and losses recorded as
the change in fair value of warrant liabilities on the consolidated statements of operations.
Other Warrants
In April 2014, in connection with Enumeral’s
Series B preferred stock offering, Enumeral compensated the placement agent through the issuance of a warrant for 38,259 shares
of Enumeral Series B preferred stock. The estimated fair value of the warrant at the time of issuance was determined to be $49,854
using the Black-Sholes pricing model and the following assumptions: expected term of five years, exercise price of $2.125 per share,
74.6% volatility, and a risk-free rate of 1.72%. The Company recorded this value net against issuance cost in equity. In connection
with the Merger in July 2014, this Series B preferred stock warrant was converted into a warrant to purchase 112,001 shares of
the Company’s common stock. The exercise price of these warrants is $0.73 per share.
In April 2014, Enumeral issued warrants
to two executive officers to purchase a total of 105,881 shares of Enumeral Series B preferred stock in connection with Enumeral’s
Series B financing. These warrants were issued in relation to these executives taking a salary reduction prior to the Series B
financing. The estimated fair value of the warrants at the time of issuance was determined to be $137,770 using the Black-Sholes
pricing model and the following assumptions: expected term of five years, exercise price of $2.125 per share, 74.6% volatility,
and a risk-free rate of 1.63%. These warrants vested over six months. During the year ended December 31, 2014, the Company recorded
$137,770 of stock based compensation expense related to these warrants. In connection with the Merger in July 2014, these Series
B warrants were converted into warrants to purchase 309,967 shares of the Company’s common stock. The exercise price of these
warrants is $0.73 per share.
In April 2014, Enumeral issued warrants
associated with Enumeral’s convertible promissory notes to purchase 694,443 shares of Enumeral common stock. The estimated
fair value of the warrants at the time of issuance was determined to be $140,779 using the Black-Sholes pricing model and the following
assumptions: expected term of ten years, exercise price of $0.27 per share, 67.6% volatility, and a risk-free rate of 2.61%. The
Company recorded this value against equity. As part of the Merger, these warrants were converted into warrants to purchase 765,357
shares of the Company’s common stock. The exercise price of these warrants is $0.245 per share.
12 – INCOME TAX
There is no provision for income taxes
because the Company has historically incurred operating losses and maintains a full valuation allowance against its gross deferred
tax assets. The reported amount of income tax expense differs from the amount that would result from applying domestic federal
statutory tax rates to pretax losses primarily because of changes in the valuation allowance.
Significant components of the Company’s
net deferred tax asset at December 31, 2015 and 2014 are as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
4,932,778
|
|
|
$
|
3,045,692
|
|
Accrued expenses
|
|
|
482,130
|
|
|
|
253,576
|
|
Stock options
|
|
|
402,598
|
|
|
|
251,798
|
|
Tax credit carryforwards
|
|
|
748,255
|
|
|
|
413,691
|
|
Depreciation and amortization
|
|
|
(23,311
|
)
|
|
|
(30,668
|
)
|
Other
|
|
|
-
|
|
|
|
135
|
|
Capitalized R&D
|
|
|
4,070,458
|
|
|
|
2,386,506
|
|
Total gross deferred tax assets
|
|
|
10,612,908
|
|
|
|
6,320,730
|
|
Valuation allowance
|
|
|
(10,612,908
|
)
|
|
|
(6,320,730
|
)
|
Total deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has evaluated the positive
and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating
loss carryforwards and research and development credits. Under the applicable accounting standards, management has considered the
Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits
of federal and state deferred tax assets. Accordingly, a full valuation allowance of $10,612,908 and $6,320,730 has been established
at December 31, 2015 and 2014, respectively. The valuation allowance increased $4,292,178 and $2,835,936 during the years ended
December 31, 2015 and 2014, respectively.
A reconciliation of income tax expense
computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Income tax benefit computed at federal statutory tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
|
(14.8
|
)%
|
|
|
3.8
|
%
|
Non-deductible items
|
|
|
(139.2
|
)%
|
|
|
(7.0
|
)%
|
General business credits and other credits
|
|
|
(10.2
|
)%
|
|
|
2.1
|
%
|
Change in valuation allowance
|
|
|
130.5
|
%
|
|
|
(34.5
|
)%
|
Other
|
|
|
(0.3
|
)%
|
|
|
1.6
|
%
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
As of December 31, 2015, the Company had
federal and state net operating loss carryforwards of $12,796,384 and $11,018,952, respectively, which begin to expire in 2030.
As of December 31, 2015, the Company had federal and state research and development tax credit carryforwards of $466,599 and $358,038,
respectively. These federal and state research and development tax credit carryforwards are available to reduce future income taxes
payable and begin to expire in 2031 and 2026, respectively. As of December 31, 2014, the Company had federal and state net operating
loss carryforwards of $7,914,557 and $6,719,602, respectively, which begin to expire in 2030. As of December 31, 2014, the company
had federal and state research and development tax credit carryforwards of $259,716 and $198,897, respectively. These federal and
state research and development tax credit carryforwards are available to reduce future income taxes payable and begin to expire
in 2031 and 2026, respectively.
The Company adopted the authoritative guidance
on accounting for and disclosure of uncertainty in tax positions on January 1, 2009, which required the Company to determine whether
a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals
of litigation processes based on the technical merits of the position. For tax positions meeting the more likely than not threshold,
the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood
of being realized upon the ultimate settlement with the relevant taxing authority. The Company determined that the adoption of
this authoritative guidance did not have a material effect on the consolidated financial statements.
The Company files tax returns as prescribed
by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination
by federal and state jurisdictions, where applicable. There is currently no pending tax examination. The Company thus is still
open under statute to potential examination from 2012 to the present. Earlier years may be examined to the extent that credit or
loss-carry-forwards are used in it. The Company’s policy is to record interest and penalties related to income taxes as part
of the tax provision.
Utilization of the net operating loss and
research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal
Revenue Code of 1986, as amended, due to ownership change limitations that have occurred previously or that could occur in the
future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that
can be utilized annually to offset future taxable income and tax, respectively.
13 – CONCENTRATIONS
During the year ended December 31, 2015,
the Company recorded revenues to two customers of $1,100,000 (74%) and $389,385 (26%) in excess of 10% of the Company’s total
revenues. During the year ended December 31, 2014, the Company recorded revenues to three customers of $75,714 (46%), $48,312 (30%)
and $40,000 (24%) in excess of 10% of the Company’s total revenues. At December 31, 2015, accounts receivable consisted of
amounts due from two customers which represented 67% and 33% of the outstanding accounts receivable balance. At December 31, 2014,
accounts receivable consisted of amounts due from one customer which represented 100% of the outstanding accounts receivable balance.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
Enumeral Biomedical Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,893,414
|
|
|
$
|
3,596,262
|
|
Accounts receivable
|
|
|
265,537
|
|
|
|
306,012
|
|
Prepaid expenses and other current assets
|
|
|
213,386
|
|
|
|
280,479
|
|
Total current assets
|
|
|
2,372,337
|
|
|
|
4,182,753
|
|
Property and equipment, net
|
|
|
1,031,192
|
|
|
|
1,511,493
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
534,780
|
|
|
|
534,780
|
|
Other assets
|
|
|
111,556
|
|
|
|
114,572
|
|
Total assets
|
|
$
|
4,049,865
|
|
|
$
|
6,343,598
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
436,734
|
|
|
$
|
343,736
|
|
Accrued expenses
|
|
|
485,449
|
|
|
|
714,384
|
|
Deferred revenue
|
|
|
29,009
|
|
|
|
130,539
|
|
Equipment lease financing
|
|
|
248,794
|
|
|
|
240,473
|
|
Promissory notes
|
|
|
2,615,049
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
905,666
|
|
|
|
2,138,091
|
|
Total current liabilities
|
|
|
4,720,701
|
|
|
|
3,567,223
|
|
Deferred rent
|
|
|
57,446
|
|
|
|
36,847
|
|
Long-term equipment lease financing
|
|
|
78,822
|
|
|
|
266,471
|
|
Total liabilities
|
|
|
4,856,969
|
|
|
|
3,870,541
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficiency):
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; 10,000,000 shares authorized: -0- shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.001 par value; 300,000,000 shares authorized: 52,073,481 and 51,932,571 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
|
|
|
52,074
|
|
|
|
51,933
|
|
Additional paid-in-capital
|
|
|
17,713,257
|
|
|
|
16,830,100
|
|
Accumulated deficit
|
|
|
(18,572,435
|
)
|
|
|
(14,408,976
|
)
|
Total stockholders’ equity (deficiency)
|
|
|
(807,104
|
)
|
|
|
2,473,057
|
|
Total liabilities and stockholders’ equity (deficiency)
|
|
$
|
4,049,865
|
|
|
$
|
6,343,598
|
|
The accompanying
notes are an integral part of the unaudited condensed consolidated financial statements.
Enumeral Biomedical Holdings, Inc.
Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss)
(Unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and license revenue
|
|
$
|
226,115
|
|
|
$
|
395,448
|
|
|
$
|
1,878,599
|
|
|
$
|
894,132
|
|
Grant revenue
|
|
|
94,696
|
|
|
|
88,377
|
|
|
|
375,641
|
|
|
|
245,728
|
|
Total revenue
|
|
|
320,811
|
|
|
|
483,825
|
|
|
|
2,254,240
|
|
|
|
1,139,860
|
|
Cost of revenue and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,026,317
|
|
|
|
1,798,241
|
|
|
|
3,737,161
|
|
|
|
4,833,911
|
|
General and administrative
|
|
|
812,974
|
|
|
|
1,354,064
|
|
|
|
3,752,512
|
|
|
|
4,271,024
|
|
Total cost of revenue and expenses
|
|
|
1,839,291
|
|
|
|
3,152,305
|
|
|
|
7,489,673
|
|
|
|
9,104,935
|
|
Loss from operations
|
|
|
(1,518,480
|
)
|
|
|
(2,668,480
|
)
|
|
|
(5,235,433
|
)
|
|
|
(7,965,075
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(152,261
|
)
|
|
|
5,358
|
|
|
|
(160,451
|
)
|
|
|
12,978
|
|
Change in fair value of derivative liabilities
|
|
|
409,891
|
|
|
|
3,281,406
|
|
|
|
1,232,425
|
|
|
|
10,833,156
|
|
Total other income (expense), net
|
|
|
257,630
|
|
|
|
3,286,764
|
|
|
|
1,071,974
|
|
|
|
10,846,134
|
|
Net income (loss) before income taxes
|
|
|
(1,260,850
|
)
|
|
|
618,284
|
|
|
|
(4,163,459
|
)
|
|
|
2,881,059
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
$
|
(1,260,850
|
)
|
|
$
|
618,284
|
|
|
$
|
(4,163,459
|
)
|
|
$
|
2,881,059
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification for loss included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,097
|
|
Net unrealized holding losses on available-for-sale securities arising during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,320
|
)
|
Comprehensive income (loss)
|
|
$
|
(1,260,850
|
)
|
|
$
|
618,284
|
|
|
$
|
(4,163,459
|
)
|
|
$
|
2,890,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares attributable to common stockholders - basic
|
|
|
52,073,481
|
|
|
|
51,699,028
|
|
|
|
52,071,933
|
|
|
|
51,648,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares attributable to common stockholders - diluted
|
|
|
52,073,481
|
|
|
|
52,986,588
|
|
|
|
52,071,933
|
|
|
|
53,727,593
|
|
The accompanying
notes are an integral part of the unaudited condensed consolidated financial statements
Enumeral Biomedical Holdings, Inc.
Condensed Consolidated Statements of
Cash Flows
(Unaudited)
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,163,459
|
)
|
|
$
|
2,881,059
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
480,301
|
|
|
|
425,788
|
|
Exit costs associated with write-off of net carrying value of leasehold improvements
|
|
|
-
|
|
|
|
22,962
|
|
Stock-based compensation
|
|
|
883,298
|
|
|
|
477,666
|
|
Change in fair value of derivative liabilities
|
|
|
(1,232,425
|
)
|
|
|
(10,833,156
|
)
|
Realized loss on marketable securities
|
|
|
-
|
|
|
|
19,097
|
|
Accretion of debt discount
|
|
|
84,642
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
40,475
|
|
|
|
(101,939
|
)
|
Prepaid expenses and other assets
|
|
|
70,109
|
|
|
|
(145,456
|
)
|
Accounts payable
|
|
|
92,998
|
|
|
|
423,364
|
|
Accrued expenses and other liabilities
|
|
|
(228,935
|
)
|
|
|
454,843
|
|
Deferred rent
|
|
|
20,599
|
|
|
|
(6,623
|
)
|
Deferred revenue
|
|
|
(101,530
|
)
|
|
|
(62,036
|
)
|
Net cash used in operating activities
|
|
|
(4,053,927
|
)
|
|
|
(6,444,431
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
(1,133,299
|
)
|
Proceeds from sale of marketable securities
|
|
|
-
|
|
|
|
3,000,799
|
|
Receipt of security deposit
|
|
|
-
|
|
|
|
27,630
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
1,895,130
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of promissory notes, net of issuance costs
|
|
|
2,530,407
|
|
|
|
-
|
|
Proceeds from the exercise of stock options
|
|
|
-
|
|
|
|
29,675
|
|
Payments on equipment lease financing
|
|
|
(179,328
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
2,351,079
|
|
|
|
29,675
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,702,848
|
)
|
|
|
(4,519,626
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
3,596,262
|
|
|
|
10,460,117
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,893,414
|
|
|
$
|
5,940,491
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
78,381
|
|
|
$
|
-
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements
ENUMERAL BIOMEDICAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1 - NATURE OF BUSINESS
Enumeral Biomedical Corp. (“Enumeral”)
was founded in 2009 in the State of Delaware as Enumeral Technologies, Inc. The name was later changed to Enumeral Biomedical Corp.
On July 31, 2014 (the “Closing Date”),
Enumeral entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Enumeral Biomedical
Holdings, Inc., which was formerly known as Cerulean Group, Inc. (“Enumeral Biomedical” or the “Company”),
and Enumeral Acquisition Corp., a wholly owned subsidiary of Enumeral Biomedical (“Acquisition Sub”), pursuant to which
the Acquisition Sub merged with and into Enumeral (the “Merger”). Enumeral was the surviving corporation in the Merger
and became a wholly owned subsidiary of the Company.
As a result of the Merger, all issued and
outstanding common and preferred shares of Enumeral were exchanged for common shares of Enumeral Biomedical Holdings, Inc. The
Merger is considered to be a recapitalization of the Company which has been retrospectively applied to these unaudited condensed
consolidated financial statements for all periods presented.
Upon the closing of the Merger and under
the terms of a split-off agreement and a general release agreement (the “Split-Off Agreement”), the Company transferred
all of its pre-Merger operating assets and liabilities to its wholly-owned special-purpose subsidiary, Cerulean Operating Corp.
(the “Split-Off Subsidiary”). Thereafter, pursuant to the Split-Off Agreement, the Company transferred all of the outstanding
shares of capital stock of the Split-Off Subsidiary to the pre-Merger majority stockholder of the Company, and the former sole
officer and director of the Company (the “Split-Off”), in consideration of and in exchange for (i) the surrender and
cancellation of an aggregate of 23,100,000 shares of the Company’s common stock held by such stockholder (which were cancelled
and resumed the status of authorized but unissued shares of the Company’s common stock) and (ii) certain representations,
covenants and indemnities.
As a result of the Merger and the Split-Off,
the Company discontinued its pre-Merger business, acquired the business of Enumeral, and changed its name to Enumeral Biomedical
Holdings, Inc.
Also on July 31, 2014, the Company closed
a private placement offering (the “PPO”) of 21,549,510 Units (the “Units”) of its securities, at a purchase
price of $1.00 per Unit, each Unit consisting of one share of the Company’s common stock and a warrant to purchase one share
of the Company’s common stock at an exercise price of $2.00 per share with a term of five years (the “PPO Warrants”).
Additional information concerning the PPO and PPO Warrants is presented below in Note 10.
Following the Merger, the Company has continued
Enumeral’s business of discovering and developing novel antibody immunotherapies that help the immune system fight cancer
and other diseases. The Company utilizes a proprietary platform technology that facilitates the rapid high resolution measurement
of immune cell function within small tissue biopsy samples. The Company’s initial focus is on the development of a pipeline
of next generation monoclonal antibody drugs targeting established and novel immunomodulatory receptors.
In its lead antibody program, the Company
has characterized certain anti-PD-1 antibodies, or simply “PD-1 antibodies,” using patient biopsy samples, in an effort
to identify next generation PD-1 antagonists with enhanced selectivity for the immune effector cells that carry out anti-tumor
functions. The Company has identified two antagonist PD-1 antibodies that inhibit PD-1 activity in distinctly different ways. One
of the antibodies blocks binding of the ligand PD-L1 to PD-1, while the other antibody does not. However, both display activity
in various biological assays. In addition to its PD-1 antibody program, the Company is pursuing a pipeline focused on next-generation
checkpoint modulators, with initial targets including TIM-3, LAG-3, CD39, TIGIT, and VISTA.
The Company’s proprietary platform
technology, exclusively licensed from the Massachusetts Institute of Technology (“MIT”), is a microwell array technology
that detects secreted molecules (such as antibodies and cytokines) and cell surface markers, at the level of single live cells
and enables recovery of single live cells of interest. The platform technology is a multipurpose tool that is valuable for activities
ranging from antibody discovery to target discovery and patient stratification in clinical development. The platform yields multidimensional,
functional read-outs from single live cells, such as tumor infiltrating lymphocytes, or TILs, from human tumor biopsy samples,
and it enables the Company’s researchers to examine the responses of different classes of human immune cells to treatment
with immunomodulators in the context of human disease, as opposed to animal models of disease.
The Company continues to be a “smaller reporting company,”
as defined under the Exchange Act, following the Merger. The Company believes that as a result of the Merger, it has ceased to
be a “shell company” (as such term is defined in Rule 12b-2 under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”)).
2 - GOING CONCERN AND LIQUIDITY
The Company’s unaudited condensed
consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United
States of America (“GAAP”) which contemplate the Company’s continuation as a going concern. As of September 30,
2016, the Company had a working capital deficit of $2,348,364 including $905,666 of derivative liabilities and an accumulated deficit
of $18,572,435. As of December 31, 2015, the Company had working capital of $615,530 including $2,138,091 of derivative liabilities
and an accumulated deficit of $14,408,976.
On July 29, 2016 the Company entered into
a Subscription Agreement (the “Subscription Agreement”) with certain accredited investors, pursuant to which these
investors purchased the Company’s 12% Senior Secured Promissory Notes (the “Notes”) in the aggregate principal
amount of $3,038,256 (before deducting placement agent fees and expenses of $385,337), which includes $38,256 pursuant to an over-allotment
option (the “Note Offering”). The Company also incurred additional legal fees of $122,512 associated with the Notes.
The Company is using the net proceeds from this Note Offering for working capital and general corporate purposes. Additional information
concerning the Note Offering is presented below in Note 7, “Debt”.
As of the date of this filing, the Company
believes it has sufficient liquidity to fund operations into December 2016. The Company has commenced an issuer tender offer, as
further described below, and is continuing to explore a range of potential transactions, which may include public or private equity
offerings, debt financings, collaborations and licensing arrangements, and/or other strategic alternatives, including a merger,
sale of assets or other similar transactions. If the Company is unable to raise additional capital on terms acceptable to the Company
and on a timely basis, the Company may be required to downsize or wind down its operations through liquidation, bankruptcy, or
a sale of its assets. The unaudited condensed consolidated financial statements do not include any adjustments related to the recovery
and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company
be unable to continue as a going concern. The Company expects to incur significant expenses and operating losses for the foreseeable
future, and the Company’s net losses may fluctuate significantly from quarter to quarter and from year to year. These factors
raise substantial doubt about the Company’s ability to continue as a going concern.
On October 28, 2016, the Company commenced
an issuer tender offer with respect to certain warrants to purchase common stock of the Company in order to provide the holders
thereof with the opportunity to amend and exercise their warrants upon the terms and subject to the conditions set forth in the
Company’s tender offer statement on Schedule TO and the related exhibits included therein (the “Offering Materials”).
See Note 13 “Subsequent Events” for further details.
The Company’s business has not generated
(nor does the Company anticipate that in the foreseeable future it will generate) the cash necessary to finance its operations,
and the Company will require additional capital to continue its operations beyond December 2016.
The Company’s near-term capital needs
depend on many factors, including:
|
·
|
the Company’s ability to carefully manage its costs;
|
|
·
|
the amount and timing of revenue received from grants or the Company’s collaboration and license arrangements; and
|
|
·
|
the Company’s ability to raise additional capital through public or private equity offerings, debt financings, or strategic collaborations and licensing arrangements, and/or the Company’s success in promptly establishing a strategic alternative that is in its stockholders’ best interests.
|
If the Company is unable to raise additional
capital through one or more of the means listed above prior to the end of December 2016, the Company could face substantial liquidity
problems and might be required to implement further cost reduction strategies in addition to the cash conservation steps that the
Company has already taken. These reductions could significantly affect the Company’s research and development activities,
and could result in significant harm to the Company’s business, financial condition and results of operations. In addition,
these reductions could cause the Company to further curtail its operations, or take other actions that would adversely affect the
Company’s stockholders. If the Company is unable to raise additional capital on acceptable terms and on a timely basis, the
Company may be required to downsize or wind down its operations through liquidation, bankruptcy, or a sale of its assets.
In addition, to the extent additional capital
is raised through the sale of equity or convertible debt securities, such securities may be sold at a discount from the market
price of the Company’s common stock. The issuance of these securities could also result in significant dilution to some or
all of the Company’s stockholders, depending on the terms of the transaction. For example, the PPO Warrants contain anti-dilution
protection in the event that the Company issues common stock or securities convertible into or exercisable for shares of the Company’s
common stock at a price lower than the warrant exercise price prior to the warrant expiration date. The anti-dilution protection
provisions are subject to exceptions for certain issuances, including but not limited to (a) shares of common stock issued in an
underwritten public offering, (b) issuances of awards under the Company’s 2014 Equity Incentive Plan, and (c) other exempt
issuances. In the event that the Company is able to successfully complete the tender offer to amend and exercise the PPO Warrants
that the Company launched in October 2016 (described in greater detail in Note 13 below), the PPO Warrants would be amended to
remove this anti-dilution provision with the consent of holders of a majority of the underlying PPO Warrants.
3 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements were prepared using GAAP for interim financial information and the instructions to Form 10-Q and Regulation
S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required
by GAAP for annual financial statements and should be read in conjunction with the 2015 Financial Statements as filed on the Company's
Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities Exchange Commission (the “SEC”)
on March 30, 2016.
The preparation of the unaudited condensed
consolidated financial statements in conformity with these accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of
the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reported period. Ultimate
results could differ from the estimates of management.
In the opinion of management, the unaudited
condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company's financial
position as of September 30, 2016 and the results of its operations and cash flows for the nine months ended September 30, 2016
and 2015. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September
30, 2016 may not be indicative of results for the full year.
Principles of Consolidation
The unaudited condensed consolidated financial
statements include the accounts of the Company and its subsidiaries, Enumeral Biomedical Corp. and Enumeral Securities Corporation.
In these unaudited condensed consolidated financial statements, “subsidiaries” are companies that are wholly owned,
the accounts of which are consolidated with those of the Company. Intercompany transactions and balances are eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with maturities of 90 days or less from the purchase date to be cash equivalents. Cash and cash equivalents are held
in depository and money market accounts and are reported at fair value.
Concentration of Credit Risk
The Company has no significant off-balance
sheet concentrations of credit risk such as foreign currency exchange contracts, option contracts or other hedging arrangements.
Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents. The Company generally
invests its cash in money market funds, U.S. Treasury securities and U.S. Agency securities that are subject to minimal credit
and market risk. Management has established guidelines relative to credit ratings and maturities intended to safeguard principal
balances and maintain liquidity. At times, the Company’s cash balances may exceed the current insured amounts under the Federal
Deposit Insurance Corporation.
Fair Value of Financial Instruments
Fair values of financial instruments included
in current assets and current liabilities are estimated to approximate their book values, due to the short maturity of such instruments.
All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair
value. The Company’s assets and liabilities that are measured at fair value on a recurring basis are measured in accordance
with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
Topic 820,
Fair Value Measurements and Disclosures
, which establishes a three-level valuation hierarchy for measuring fair
value and expands financial statement disclosures about fair value measurements.
The valuation hierarchy is based upon the
transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
|
·
|
Level 1
: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets in active markets.
|
|
·
|
Level 2
: Inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3
: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The Company’s cash equivalents, carried
at fair value, are comprised of investments in federal agency backed money market funds. The valuation of the Company’s derivative
liabilities is discussed below and in Note 11. The following table presents information about the Company’s financial assets
and liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015:
|
|
September
30,
2016
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
|
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
611,201
|
|
|
$
|
611,201
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Money Market funds, included in cash equivalents
|
|
$
|
1,282,213
|
|
|
$
|
1,282,213
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
905,666
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
905,666
|
|
|
|
December
31,
2015
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
|
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
815,890
|
|
|
$
|
815,890
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Money Market funds, included in cash equivalents
|
|
$
|
2,780,372
|
|
|
$
|
2,780,372
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
2,138,091
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,138,091
|
|
The following table provides a roll forward
of the fair value of the Company’s derivative liabilities, using Level 3 inputs:
Balance as of December 31, 2015
|
|
$
|
2,138,091
|
|
Change in fair value
|
|
|
(1,232,425
|
)
|
Balance as of September 30, 2016
|
|
$
|
905,666
|
|
Accounts Receivable and Allowance for
Doubtful Accounts
Trade receivables are recorded at the invoiced
amount. The Company maintains allowances for doubtful accounts, if needed, for estimated losses resulting from the inability of
customers to make required payments. This allowance is based on specific customer account reviews and historical collections experience.
There was no allowance for doubtful accounts as of September 30, 2016 or December 31, 2015.
Property and Equipment
Property and equipment are recorded at
cost. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as
additions to property and equipment. Depreciation is provided using the straight-line method over the estimated useful lives of
the assets as follows:
Lab equipment
|
|
3-5 years
|
Computer equipment and software
|
|
3 years
|
Furniture
|
|
3 years
|
Leasehold improvements
|
|
Shorter of useful life or life of the lease
|
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment
annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows.
If this comparison indicated that there is impairment, the amount of the impairment is calculated as the difference between the
carrying value and fair value. There have been no impairments recognized during the three and nine months ended September 30, 2016
and 2015, respectively.
Revenue Recognition
Collaboration and license revenue
Non-refundable license fees are recognized
as revenue when the Company has a contractual right to receive such payment, the contract price is fixed or determinable, the collection
of the resulting receivable is reasonably assured and the Company has no further performance obligations under the license agreement.
Multiple element arrangements, such as license and development arrangements are analyzed to determine whether the deliverables,
which often include license and performance obligations such as research and steering committee services, can be separated or whether
they must be accounted for as a single unit of accounting in accordance with GAAP.
The Company recognizes up-front license
payments as revenue upon delivery of the license only if the license has stand-alone value and the fair value of the undelivered
performance obligations, typically including research and/or steering committee services, can be determined. If the fair value
of the undelivered performance obligations can be determined, such obligations would then be accounted for separately as performed.
If the license is considered to either (i) not have stand-alone value or (ii) have stand-alone value but the fair value of any
of the undelivered performance obligations cannot be determined, the arrangement would then be accounted for as a single unit of
accounting and the license payments and payments for performance obligations are recognized as revenue over the estimated period
of when the performance obligations are performed.
Whenever the Company determines that an
arrangement should be accounted for as a single unit of accounting, it must determine the period over which the performance obligations
will be performed and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line
method. The Company recognizes revenue using the relative performance method provided that it can reasonably estimate the level
of effort required to complete its performance obligations under an arrangement and such performance obligations are provided on
a best-efforts basis. Direct labor hours or full-time equivalents are typically used as a measure of performance. Revenue recognized
under the relative performance method would be determined by multiplying the total payments under the contract, excluding royalties
and payments contingent upon achievement of substantive milestones, by the ratio of level of effort incurred to date to estimated
total level of effort required to complete the Company’s performance obligations under the arrangement. Revenue is limited
to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the
relative performance method, as of each reporting period.
If the Company cannot reasonably estimate
the level of effort required to complete its performance obligations under an arrangement, the performance obligations are provided
on best-efforts basis and the Company can reasonably estimate when the performance obligation ceases or the remaining obligations
become inconsequential and perfunctory. At that time, the total payments under the arrangement, excluding royalties and payments
contingent upon achievement of substantive milestones, would be recognized as revenue on a straight-line basis over a period the
Company expects to complete its performance obligations. Revenue is limited to the lesser of the cumulative amount of payments
received or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the period ending date.
In December 2014, the Company entered into
a study agreement with Merck Sharp & Dohme Corp., or Merck (the “Merck Agreement”). In February 2016, the Company
and Merck subsequently amended the work plan under the Merck Agreement to also include non-small cell lung cancer tissues. Pursuant
to the Merck Agreement, the Company is conducting a specified research program using its platform technology to identify functional
response of single cell types in colorectal cancer and non-small cell lung cancer in the presence or absence of immunomodulatory
receptor modulators identified by Merck. In this collaboration, Merck is reimbursing the Company for the cost of performing the
work plan set forth in the Merck Agreement, for up to a specified number of full-time employees at a pre-determined annual rate.
In addition, Merck will make certain milestone payments to the Company upon the completion of specified objectives set forth in
the Merck Agreement and related work plan. In September 2015, the Company announced the achievement of the first milestone under
the Merck Agreement.
In January 2016, the Company and The University
of Texas M.D. Anderson Cancer Center (“MDACC”) entered into a Collaborative Research and Development Agreement (the
“MDACC Agreement”). Under the MDACC Agreement, the Company and MDACC plan to collaborate on the discovery and development
of novel monoclonal antibodies against selected targets in immune-oncology, utilizing the Company’s antibody discovery and
immune profiling platform and MDACC’s preclinical and development expertise and infrastructure.
Pursuant to the terms of the MDACC Agreement,
the Company and MDACC will share the costs of research and development activities necessary to take development candidates through
successful completion of a Phase I clinical trial. The MDACC Agreement provides for a structure whereby the Company and MDACC are
each granted the right to receive a percentage of the net income from product sales or any payments associated with licensing or
otherwise partnering a program with a third party.
In April 2016, the Company entered into
a License and Transfer Agreement (the “Original License Agreement”) with Pieris Pharmaceuticals, Inc. and Pieris Pharmaceuticals
GmbH (collectively, “Pieris”). Pursuant to the terms and conditions of the Original License Agreement, Pieris is licensing
from the Company specified intellectual property related to the Company’s anti-PD-1 antibody program ENUM 388D4 for the potential
development and commercialization by Pieris of novel multispecific therapeutic proteins comprising fusion proteins based on Pieris’
Anticalins
®
class of therapeutic proteins and the Company’s antibodies in the field of oncology.
Under the Original License Agreement, Pieris
paid the Company a $250,000 initial license fee. In June 2016, the Company entered into a Definitive License and Transfer Agreement
(the “Definitive Agreement”) with Pieris, and as contemplated in the Original License Agreement, Pieris paid the Company
a $750,000 license maintenance fee to continue the licensing arrangements under the Original License Agreement. In accordance with
its terms, the Definitive Agreement superseded the Original License Agreement.
Under the Definitive Agreement, the Company
has granted Pieris an option until May 31, 2017 to license specified patent rights and know-how of the Company covering two additional
undisclosed antibody programs on the same terms and conditions as for the Company’s 388D4 anti-PD-1 antibody (each, a “Subsequent
Option”). Pieris may exercise the Subsequent Options separately and on different dates during the option period. Pieris will
pay the Company additional license fees in the event that Pieris exercises one or both Subsequent Options.
The Company recognized $226,115 and $395,448
of collaboration and license revenue for the three months ended September 30, 2016 and 2015, respectively. The Company recognized
$1,878,599 and $894,132 of collaboration and license revenue for the nine months ended September 30, 2016 and 2015, respectively.
Grant Revenue
In September 2014, the Company was awarded
a Phase II Small Business Innovation Research contract from the National Cancer Institute (“NCI”), a unit of the National
Institutes of Health, for up to $999,967 over two years. In September 2016, the Company signed an amendment with the NCI to extend
the contract an additional six months. Grant revenue consists of a portion of the funds received to date by the NCI. Revenue is
recognized as the related research services are performed in accordance with the terms of the agreement. The Company recognized
$94,696 and $88,377 of revenue associated with the NCI Phase II grant for the three months ended September 30, 2016 and 2015, respectively.
The Company recognized $375,641 and $245,728 of revenue associated with the NCI Phase II grant for the nine months ended September
30, 2016 and 2015, respectively. The difference between the total consideration received to date and the revenue recognized is
recorded as deferred revenue. Deferred revenue totaled $29,009 as of September 30, 2016 and $130,539 as of December 31, 2015.
Research and Development Expenses
Research and development expenditures are
charged to the unaudited condensed consolidated statement of operations and comprehensive income (loss) as incurred. Research and
development expenses are comprised of costs incurred in performing research and development activities, including salaries and
benefits, facilities costs, clinical supply costs, contract services, depreciation and amortization expense and other related costs.
Costs associated with acquired technology, in the form of upfront fees or milestone payments, are charged to research and development
expense as incurred. Legal fees incurred in connection with patent applications, along with fees associated with the license to
the Company’s core technology, are expensed as research and development expense.
Derivative Liabilities
The Company’s derivative liabilities
relate to (a) warrants to purchase an aggregate of 23,549,509 shares of the Company’s common stock that were issued in connection
with the PPO and (b) warrants to purchase 41,659 shares of Enumeral Series A Preferred Stock that were issued in December 2011
and June 2012 pursuant to Enumeral’s debt financing arrangement with Square 1 Bank that were subsequently converted into
warrants to purchase 66,574 shares of the Company’s common stock in connection with the Merger in July 2014. Additional detail
regarding these warrants can be found in Note 11.
Due to the price protection provision included
in the warrant agreements, the warrants were deemed to be liabilities and, therefore, the fair value of the warrants is recorded
in the current liabilities section of the unaudited condensed consolidated balance sheet. As such, the outstanding warrants are
revalued each reporting period with the resulting gains and losses recorded as the change in fair value of derivative liabilities
on the unaudited condensed consolidated statements of operations and comprehensive income (loss).
The Company used the Black-Scholes option-pricing
model to estimate the fair values of the issued and outstanding warrants. As of January 1, 2016, the Company began using a blended
average of the Company’s historical volatility and the historical volatility of a group of similarly situated companies (as
described in greater detail below) to calculate the expected volatility when valuing its derivative liabilities.
Comprehensive Income (Loss)
Other comprehensive income (loss) was comprised
of unrealized holding gains and losses arising during the period on available-for-sale securities that are not other-than-temporarily
impaired. The unrealized gains and losses are reported in accumulated other comprehensive income (loss), until sold or mature,
at which time they are reclassified to earnings. The Company recognized no reclassifications out of accumulated other comprehensive
loss or unrealized holding losses on available-for-sale securities for the three and nine months ended September 30, 2016. The
Company recognized no reclassifications out of accumulated other comprehensive loss or unrealized holding losses on available-for-sale
securities for the three months ended September 30, 2015. The Company reclassified $19,097 out of accumulated other comprehensive
loss to net income and recognized $9,320 of unrealized holding losses on available-for-sale securities for the nine months ended
September 30, 2015.
Stock-Based Compensation
The Company accounts for its stock-based
compensation awards to employees and directors in accordance with FASB ASC Topic 718,
Compensation
-
Stock Compensation
(“ASC 718”). ASC 718 requires all stock-based payments to employees, including grants of employee stock options
and restricted stock, to be recognized in the unaudited condensed consolidated statements of operations and comprehensive income
(loss) based on their grant date fair values. Compensation expense related to awards to employees 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.
Share-based payments issued to non-employees are recorded at their fair values, and are periodically revalued as the equity instruments
vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505,
Equity,
and are expensed using an accelerated attribution model.
The Company estimates the fair value of
its stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (a)
the expected stock price volatility, (b) the expected term of the award, (c) the risk-free interest rate, (d) expected dividends,
and (e) the estimated fair value of its common stock on the measurement date. As of January 1, 2016, the Company began using a
blended average of the Company’s historical volatility and the historical volatility of a group of similarly situated companies
to calculate the expected volatility when valuing its stock options. For purposes of calculating this blended volatility, the Company
selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry,
and with historical share price information sufficient to meet the expected term of the stock-based awards. The Company computes
historical volatility data using the daily closing prices for the Company’s and the selected companies’ shares during
the equivalent period of the calculated expected term of the stock-based awards. Prior to January 1, 2016, due to the lack of a
public market for the trading of its common stock and a lack of company specific historical and implied volatility data, the Company
has based its estimate of expected volatility only on the historical volatility of a group of similarly situated companies that
were publicly traded. Due to the lack of Company specific historical option activity, the Company has estimated the expected term
of its employee stock options using the “simplified” method, whereby, the expected term equals the arithmetic average
of the vesting term and the original contractual term of the option. The expected term for non-employee awards is the remaining
contractual term of the option. The risk-free interest rates are based on the U.S. Treasury securities with a maturity date commensurate
with the expected term of the associated award. The Company has never paid dividends and does not expect to pay dividends in the
foreseeable future.
The fair value of the restricted stock
awards granted to employees is based upon the fair value of the Company’s common stock on the date of grant. Expense is recognized
over the vesting period.
The Company has recorded stock-based compensation
expense of $280,976 and $184,775 for the three months ended September 30, 2016 and 2015, respectively. The Company has recorded
stock-based compensation expense of $883,298 and $477,666 for the nine months ended September 30, 2016 and 2015, respectively.
The Company has an aggregate of $272,771 of unrecognized stock-based compensation expense as of September 30, 2016 to be amortized
over a weighted average period of 1.9 years.
Effective January 1, 2016, the Company
has elected to account for forfeitures as they occur, as permitted by Accounting Standards Update (“ASU”) ASU No. 2016-09,
Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
. See the Accounting
Standards Adopted in the Period section below for further details.
Prior to the adoption of ASU No. 2016-09,
the Company estimated the number of stock-based awards that were expected to vest, and only recognized compensation expense for
such awards. The estimation of stock-based awards that will ultimately vest required judgment, and to the extent actual results
or updated estimates differed from current estimates, such amounts were recorded as a cumulative adjustment in the period estimates
were revised. The Company considered many factors when estimating expected forfeitures, including type of awards granted, employee
class, and historical experience.
Earnings (Loss) Per Share
Basic earnings
(loss) per common share amounts are based on the weighted average number of common shares outstanding. Diluted earnings (loss)
per common share amounts are based on the weighted average number of common shares outstanding, plus the incremental shares that
would have been outstanding upon the assumed exercise of all potentially dilutive stock options, warrants and convertible debt,
subject to anti-dilution limitations. As of September 30, 2016 and 2015, the number of shares underlying options and warrants that
were anti-dilutive were approximately 33.6 million and 25.9 million, respectively.
Income Taxes
Income taxes are recorded in accordance
with FASB ASC Topic 740,
Income Taxes
(“ACS 740”), which provides for deferred taxes using an asset and liability
approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting
and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to
be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax
assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. The
Company has evaluated available evidence and concluded that the Company may not realize the benefit of its deferred tax assets;
therefore a valuation allowance has been established for the full amount of the deferred tax assets. The Company accounts for uncertain
tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax
benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether
the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration
of the available facts and circumstances.
The Company has no uncertain tax liabilities
as of September 30, 2016 or December 31, 2015. The guidance requires the Company to determine whether it is more likely than not
that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the more likely
than not recognition criteria, the guidance requires the tax position be measured at the largest amount of benefit greater than
50% likely of being realized upon ultimate settlement.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU No. 2014-09 provides for a single comprehensive model for use in accounting
for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard
is effective for interim and annual periods beginning after December 15, 2016 with no early adoption permitted. In August 2015,
the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,
which
deferred the effective date of ASU No. 2014-09 to annual periods beginning after December 15, 2017, along with an option to permit
early adoption as of the original effective date. The Company is required to adopt the amendments in ASU No. 2014-09 using one
of two acceptable methods. The Company’s management is currently in the process of determining which adoption method it will
apply and evaluating the impact of the guidance on the Company’s unaudited condensed consolidated financial statements. In
April 2016, the FASB issued ASU No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing.
The ASU clarifies the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the
licensing implementation guidance. The ASU does not change the core principle of the guidance in Topic 606. The effective date
and transition requirements for the ASU are the same as the effective date and transition requirements in Topic 606. Public entities
should apply the ASU for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein
(i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting
periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently
evaluating the impact of this new standard on its unaudited condensed consolidated financial statements.
In August 2014, the FASB issued ASU No.
2014-15,
Presentation of Financial Statements
–
Going Concern (Subtopic 205-40)
. ASU No 2014-15 requires
all entities to evaluate for the existence of conditions or events that raise substantial doubt about the entity’s ability
to continue as a going concern within one year after the issuance date of the financial statements. The accounting standard is
effective for interim and annual periods ending after December 15, 2016, and is not expected to have a material impact on the Company’s
unaudited condensed consolidated financial statements, but may impact the Company’s footnote disclosures.
In February
2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. ASU No. 2016-02 is effective for annual periods beginning after
December 15, 2018, and requires a lessee to recognize assets and liabilities for leases with a maximum possible term of more than
12 months. A lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing
its right to use the leased asset (the underlying asset) for the lease term. Early application is permitted. The Company is currently
evaluating the impact the adoption of the accounting standard will have on its unaudited condensed consolidated financial statements.
Accounting Standards Adopted in the Period
In March 2016, the FASB issued ASU No.
2016-09, which simplified several aspects of employee share-based payment accounting. In particular, the ASU permits entities to
make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to
recognize forfeitures as they occur. Effective January 1, 2016, the Company elected to recognize forfeitures as they occur. The
impact of that change in accounting policy has been recorded as an $8,333 cumulative effect adjustment to accumulated deficit,
as of December 31, 2015. The Company expects that it will recognize slightly higher share-based payment expense for the remainder
of 2016, relative to prior periods, as the effects of forfeitures will not be recognized until they occur, rather than being estimated
at the time of grant and subsequently adjusted as and when necessary. The effects of adopting the remaining provisions in ASU No.
2016-09 affecting the income tax consequences of share-based payments, classification of awards as either equity or liabilities
when an entity partially settles the award in cash in excess of the employer’s minimum statutory withholding requirements
and classification in the statement of cash flows did not have any impact on the Company’s financial position, results of
operations or cash flows.
In April 2015, the FASB issued ASU No.
2015-03,
Interest – Imputation of Interest (Subtopic 305-40): Simplifying the Presentation of Debt Issuance Costs
.
The new guidance requires the debt issuance costs related to a recognized debt liability be presented in the balance sheet as a
direct deduction from the carrying amount of that debt liability. This guidance will be effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. Accordingly, the standard is effective for the Company on
January 1, 2016. The Company’s unaudited condensed consolidated balance sheet as of September 30, 2016 includes $423,207
of debt issuance costs recorded as a reduction to the promissory notes.
Other accounting standards that have been
issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have
a material impact on the Company’s unaudited condensed consolidated financial statements upon adoption.
4 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Laboratory equipment
|
|
$
|
2,559,986
|
|
|
$
|
2,559,986
|
|
Computer/office equipment and software
|
|
|
187,337
|
|
|
|
187,337
|
|
Furniture, fixtures and office equipment
|
|
|
73,734
|
|
|
|
73,734
|
|
Leasehold improvements
|
|
|
75,262
|
|
|
|
75,262
|
|
|
|
|
2,896,319
|
|
|
|
2,896,319
|
|
Less - Accumulated depreciation and amortization
|
|
|
(1,865,127
|
)
|
|
|
(1,384,826
|
)
|
|
|
$
|
1,031,192
|
|
|
$
|
1,511,493
|
|
Depreciation and amortization expense for
the three and nine months ended September 30, 2016 was $126,301 and $480,301, respectively. Depreciation and amortization expense
for the three and nine months ended September 30, 2015 was $149,901 and $425,788, respectively. During the nine months ended September
30, 2015, the Company expensed $22,962 associated with the write-down of leasehold improvements due to a relocation of the Company’s
corporate office and research laboratories in March 2015 (see Note 8).
5 - RESTRICTED CASH
The Company held $534,780 in restricted
cash as of September 30, 2016 and December 31, 2015, respectively. The balances are primarily held on deposit with a bank to collateralize
a standby letter of credit in the name of the Company’s facility lessor in accordance with the Company’s facility lease
agreement.
6 - ACCRUED EXPENSES
The Company’s accrued expenses consist
of the following as of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued wages and benefits
|
|
$
|
287,662
|
|
|
$
|
447,769
|
|
Accrued professional fees
|
|
|
154,887
|
|
|
|
213,475
|
|
Accrued other
|
|
|
42,900
|
|
|
|
53,140
|
|
Total accrued expenses
|
|
$
|
485,449
|
|
|
$
|
714,384
|
|
7 - DEBT
Equipment Lease Financing
In December 2015, the Company and Fountain
Leasing 2013 LP (“Fountain”) entered into a master lease agreement and related transaction documents, pursuant to which
Fountain provided the Company with $506,944 for the purchase of research and development lab equipment (the “Fountain Lease”).
Fountain’s security under the Fountain Lease is the equipment purchased and a security deposit in the amount of $101,389.
The initial term of the Fountain Lease is 36 months, with payments of $21,545 per month for the first 24 months and then $1,267
for the 12 months thereafter. Pursuant to the terms of the Fountain Lease, the Company has an option at the end of the initial
term to purchase the equipment for the greater of $25,347 or current fair market value, provided that such amount shall not be
in excess of $152,083. In addition, the Company also has the option to extend the Fountain Lease for an additional 12 month period
at a rate of $8,872 per month with the right at the end of such extension term to purchase the equipment for fair value or to return
the equipment to Fountain. The Fountain Lease has a lease rate factor of 4.25% per month for the first 24 months and 0.25% for
the final 12 months of the initial term.
The Company has recorded current equipment
lease financing of $248,794 and long-term equipment lease financing of $78,822 as of September 30, 2016. The Company has recorded
current equipment lease financing of $240,473 and long-term equipment lease financing of $266,471 as of December 31, 2015. The
equipment has been included in property and equipment on the Company’s unaudited condensed consolidated balance sheets.
Future payments on the equipment lease
financing are as follows:
For the twelve months ended September 30,
|
|
Amount
|
|
2017
|
|
$
|
258,541
|
|
2018
|
|
|
76,042
|
|
2019
|
|
|
3,802
|
|
Total equipment lease financing payments
|
|
$
|
338,385
|
|
As of September 30, 2016
|
|
Amount
|
|
Current equipment lease financing payments
|
|
$
|
258,541
|
|
Less: Amount representing interest
|
|
|
(9,747
|
)
|
Current equipment lease financing, net
|
|
$
|
248,794
|
|
Long-term equipment lease financing payments
|
|
$
|
79,844
|
|
Less: Amount representing interest
|
|
|
(1,022
|
)
|
Long-term equipment lease financing, net
|
|
$
|
78,822
|
|
Promissory Notes
On July 29, 2016 (the “Closing Date”),
the Company entered into a Subscription Agreement (the “Subscription Agreement”) with certain accredited investors
(the “Buyers”), pursuant to which the Buyers purchased the Company’s 12% Senior Secured Promissory Notes (the
“Notes”) in the aggregate principal amount of $3,038,256 (before deducting placement agent fees and expenses of $385,337),
which includes $38,256 pursuant to an over-allotment option (the “Note Offering”). The Company incurred additional
legal fees of $122,512 associated with the Notes. The Company is using the net proceeds from this Note Offering for working capital
and general corporate purposes.
The Notes have an aggregate principal balance
of $3,038,256, and a stated maturity date of 12 months from the date of issuance. The principal on the Notes bears interest at
a rate of 12% per annum, payable monthly commencing on September 1, 2016. Interest is payable in shares (the “Repayment Shares”)
of the Company’s common stock; provided, however, that interest will not be calculated or accrued in a manner that triggers
anti-dilution adjustment on the PPO Warrants. In the event that on an interest payment date, the PPO Warrants’ anti-dilution
provision would be triggered by the payment of interest in shares of the Company’s common stock, interest payments on the
Notes may be paid in cash. The Notes will rank senior to all existing indebtedness of the Company, except as otherwise set forth
in the Notes.
The maturity date of the outstanding principal
amount of the Notes, together with accrued and unpaid interest due thereon, will accelerate to the date (on or after September
1, 2016) on which the Company completes and closes certain financing transactions that achieve minimum thresholds, as specified
in the Notes. In such specified transactions, the Notes will convert at a valuation per share equal to 50% of the price per share
of securities sold in that financing transaction. In addition, in the event of a sale of the Company during the term of the Notes,
noteholders will be entitled to receive 1.5x of the principal amount of the Notes plus accrued interest, paid in either cash or
securities of acquiring entity at the acquiring entity’s discretion.
The Company’s obligations under the
Notes are secured, pursuant to the terms of an Intellectual Property Security Agreement (the “Security Agreement”),
dated as of the Closing Date, among the Company, Enumeral, the Buyers and the collateral agent for the Buyers named therein, by
a first priority security interest in all now owned or hereafter acquired intellectual property of the Company and Enumeral, except
to the extent such intellectual property cannot be assigned or the creation of a security interest would be prohibited by applicable
law or contract.
As part of the issuance of the Notes, the
Company incurred $507,849 of transaction costs, which are recorded as a reduction of the promissory notes on the unaudited condensed
consolidated balance sheet as of September 30, 2016. These transaction costs are being accreted to interest expense over the term
of the Notes. Interest expense associated with these transaction costs of $84,642 was accreted during the three months ended September
30, 2016. As of September 30, 2016 the remaining transaction costs of $423,207 were recorded as a reduction to the promissory notes
on the unaudited condensed consolidated balance sheet.
8 – COMMITMENTS
Operating Leases
In March 2015, the Company relocated its
offices and research laboratories to 200 CambridgePark Drive in Cambridge, Massachusetts. The Company is leasing 16,825 square
feet at this facility (the “Premises”) pursuant to Indenture of Lease (the “Lease”) that the Company entered
into in November 2014. The term of the Lease is for five years, and the initial base rent is $42.50 per square foot, or approximately
$715,062 on an annual basis. The base rent will increase incrementally over the term of the Lease, reaching approximately $804,739
on an annual basis in the fifth year of the term. In addition, the Company is obligated to pay a proportionate share of the operating
expenses and applicable taxes associated with the premises, as calculated pursuant to the terms of the Lease. The Company is also
obligated to deliver a security deposit to the landlord in the amount of $529,699, either in the form of cash or an irrevocable
letter of credit, which may be reduced to $411,988 following the second anniversary of the commencement date under the Lease, provided
that the Company meets certain financial conditions set forth in the Lease. The Company has recorded deferred rent in connection
with the Lease in the amount of $57,446 and $36,847 as of September 30, 2016 and December 31, 2015, respectively.
The Company previously occupied offices
and research laboratories in approximately 4,782 square feet of space at One Kendall Square in Cambridge, Massachusetts, at an
annual rent of $248,664 (the “Kendall Lease”). For the three months ended March 31, 2015, the Company recorded an accrual
of $55,352 for exit costs associated with its move to new offices and research laboratories in March 2015. The amount accrued at
March 31, 2015 includes rent paid for April and May of 2015 related to the Kendall Lease. In June 2015, Enumeral entered into a
lease termination agreement with the landlord for Enumeral’s former facility at One Kendall Square, pursuant to which the
Kendall Lease was terminated as of June 17, 2015. In accordance with the terms of the lease termination agreement, Enumeral is
not obligated to pay rent for the One Kendall Square facility after May 31, 2015. Enumeral had maintained a security deposit relating
to the facility, recorded as restricted cash on the unaudited condensed consolidated balance sheet as of March 31, 2015. This security
deposit was returned to Enumeral pursuant to the lease termination agreement.
In addition, the Company maintains a small
corporate office at 1370 Broadway in New York, New York, at a current annual rate of $23,100. The lease for the Company’s
New York office expires on December 31, 2016, and the Company does not contemplate renewing such lease.
Rent expense
was $282,423 and $278,652 for the three months ended September 30, 2016 and 2015, respectively. Rent expense was $929,243 and $730,140
for the nine months ended September 30, 2016 and 2015, respectively.
Future operating lease commitments as of September 30, 2016
are as follows:
For the twelve months ended September 30,
|
|
Amount
|
|
2017
|
|
$
|
755,231
|
|
2018
|
|
|
771,889
|
|
2019
|
|
|
794,995
|
|
2020
|
|
|
335,308
|
|
Total
|
|
$
|
2,657,423
|
|
Employment Agreements
The Company has employment letter agreements
with members of management which contain minimum annual salaries and severance benefits if terminated prior to the term of the
agreements. In conjunction with the closing of the Note Offering, Arthur H. Tinkelenberg, Ph.D. was terminated by the Company from
his position as President and Chief Executive Officer, effective July 28, 2016. During the nine months ended September 30, 2016,
the Company recorded charges related to severance and benefits owed to Dr. Tinkelenberg as a result of his termination. Dr. Tinkelenberg
resigned as a director of the Company on September 19, 2016.
On September 21, 2016, John J. Rydzewski
resigned as Executive Chairman of the Company, and also resigned from the Board of Directors. In connection with Mr. Rydzewski’s
resignation, the Company entered into a separation letter agreement with Mr. Rydzewski, dated September 21, 2016. As part of Mr.
Rydzewski’s separation letter agreement, 703,326 options became fully vested and the Company incurred a one-time stock-based
compensation charge of $83,361 during the three months ended September 30, 2016. In addition, the terms of Mr. Rydzewski’s
separation letter agreement provide that the Company will continue to pay 100% of the cost of Mr. Rydzewski’s continuation
of health and dental benefits through COBRA, until the earlier of 18 months from Mr. Rydzewski’s separation date from the
Company or such time as Mr. Rydzewski becomes eligible for similar benefits from another employer.
The Company appointed Wael Fayad to serve
as President and Chief Executive Officer of the Company, effective as of September 21, 2016, and, in connection therewith, appointed
Mr. Fayad as a director of the Company and Chairman of the Board of Directors. In connection with Mr. Fayad’s appointment,
the Board of Directors designated Mr. Fayad as the Company’s “Principal Executive Officer” for U.S. Securities
and Exchange Commission reporting purposes, effective as of September 21, 2016.
In addition, the Company entered into an
offer letter with Mr. Fayad, dated September 21, 2016 (the “Letter Agreement”), which sets forth the terms pursuant
to which Mr. Fayad shall serve as the Company’s Chairman of the Board, President and Chief Executive Officer. The Letter
Agreement provides that Mr. Fayad will receive a base salary at the rate of $325,000 per annum. Mr. Fayad will also be eligible
to earn a target bonus of up to 50% of the base salary, payable in cash, based upon achievement of corporate objectives, individual
objectives, and the Company’s finances, all as determined and at the discretion of the independent members of the Board or
the Board’s Compensation Committee. Mr. Fayad was granted 2,600,000 options to purchase shares of the Company’s common
stock in connection with the offer letter. The Company granted Mr. Fayad 850,000 options under the Company’s 2014 Equity
Incentive Plan (the “2014 Plan”) and 1,750,000 options outside of the 2014 Plan. Of these, 100,000 options vested immediately
upon grant, and the remaining 2,500,000 options vest upon achievement of certain performance-based milestones.
9 - LICENSE AGREEMENT AND RELATED-PARTY TRANSACTIONS
License Agreement
In April 2011, Enumeral licensed certain
intellectual property from MIT, then a related party (as one of Enumeral’s scientific co-founders was an employee of MIT),
pursuant to an Exclusive License Agreement (the “License Agreement”), in exchange for the payment of upfront license
fees and a commitment to pay annual license fees, patent costs, milestone payments, royalties on sublicense income and, upon product
commercialization, royalties on the sales of products covered by the licenses or income from corporate partners, and the issuance
of 66,303 shares of Enumeral common stock. This intellectual property portfolio includes patents owned by Harvard University or
co-owned by MIT and The Whitehead Institute, or MIT and Massachusetts General Hospital.
All amounts incurred related to the license
fees have been expensed as research and development expenses by Enumeral as incurred. The Company incurred $10,000 and $7,500 in
the three months ended September 30, 2016 and 2015, respectively. The Company incurred $30,000 and $22,500 in the nine months ended
September 30, 2016 and 2015, respectively.
In addition to potential future royalty
and milestone payments that Enumeral may have to pay MIT per the terms of the License Agreement, Enumeral paid an annual fee of
$40,000 in 2016, and is obligated to pay $50,000 every year thereafter unless the License Agreement is terminated. During the nine
months ended September 30, 2016, the Company recorded expense of $100,000 for the required percentage of the Pieris license payments
owed to MIT pursuant to the terms of the License Agreement. No royalty payments have been payable as Enumeral has not commercialized
any products as set forth in the License Agreement. Enumeral reimburses the costs to MIT and Harvard University for the continued
prosecution of the licensed patent estate. For the three months ended September 30, 2016 and 2015, Enumeral paid $23,052 and $15,646
for MIT and $2,351 and $3,730 for Harvard, respectively. For the nine months ended September 30, 2016 and 2015, Enumeral paid $162,692
and $256,189 for MIT and $17,692 and $22,367 for Harvard, respectively. The Company had accounts payable and accrued expenses of
$38,346 and $168,726 associated with the reimbursement of costs and fees owed to MIT and Harvard as of September 30, 2016 and December
31, 2015, respectively.
The License Agreement also contained a
provision whereby after the date upon which $7,500,000 of funding which was met in April of 2013, MIT and other licensing institutions
set forth in the License Agreement have a right to participate in certain future equity issuances by Enumeral. In addition, pursuant
to that provision Enumeral may have to issue additional shares to MIT and other licensing institutions set forth in the License
Agreement if Enumeral issues common stock at a price per share that is less than the fair market value per share of the common
stock issued to MIT and such licensing institutions based upon a weighted average formula set forth in the License Agreement. In
March 2013, Enumeral and MIT entered into a first amendment to the License Agreement to clarify how equity issuances were to be
made thereunder. In July 2014, Enumeral and MIT entered into a second amendment to the License Agreement, pursuant to which MIT’s
participation rights and anti-dilution rights under the License Agreement were terminated. Other than the exchange of Enumeral’s
common stock for the Company’s common stock in connection with the Merger, the Company did not issue any shares of common
stock to MIT and such other licensing institutions in connection with the License Agreement in 2014.
In April 2015, Enumeral and MIT entered
into a third amendment to the License Agreement, which revised the timetable for Enumeral to complete certain diligence obligations
relating to the initiation of clinical studies in support of obtaining regulatory approval of a Diagnostic Product (as such term
is defined in the License Agreement), as well as the timetable by which Enumeral is required to make the first commercial sale
of a Diagnostic Product.
In April 2016, Enumeral and MIT entered
into a fourth amendment to the License Agreement, which revised the timetable for Enumeral to complete certain diligence obligations
relating to the establishment of sublicenses and/or corporate partner agreements for the development of Licensed Products and/or
Diagnostic Products, as well as the timetable by which an Investigational New Drug Application shall be filed on a Therapeutic
Product (as such terms are defined in the License Agreement).
Consulting Agreements
In September 2014, the Company and Dr.
Barry Buckland entered into a Scientific Advisory Board Agreement (the “SAB Agreement”), which replaced Dr. Buckland’s
previous consulting agreement and pursuant to which Dr. Buckland serves as chairman of the Company’s Scientific Advisory
Board. The SAB Agreement had a term of two years. Pursuant to the terms of the SAB Agreement, Dr. Buckland will receive compensation
on an hourly or per diem basis, either in cash or, at Dr. Buckland’s election, in options to purchase the Company’s
common stock. The SAB Agreement limits the total amount of compensation payable to Dr. Buckland at $100,000 over any rolling 12-month
period. In September 2016, the Company and Dr. Buckland entered into an amendment to the SAB Agreement to extend the term of the
agreement an additional year. During the three months ended September 30, 2016 and 2015, the Company recognized $4,000 and $4,000
of expense related to the SAB Agreement, respectively. During the nine months ended September 30, 2016 and 2015, the Company recognized
$8,000 and $27,000 of expense related to the SAB Agreement, respectively.
10 - EQUITY
Common Stock
On April 8, 2014, Enumeral amended its
certificate of incorporation to increase the number of authorized shares of common stock from 15,000,000 to 24,000,000.
In April 2014, Enumeral issued 948,823
shares of Series B Convertible Preferred Stock at an issue price of $2.125 per share for proceeds of $1,597,860, net of issuance
costs of $418,390. The Series B Preferred Stock ranks pari passu in all respects to Enumeral’s Series A-2, Series A-1 and
Series A Preferred Stock. In connection with this offering, Enumeral paid the placement agent $81,000 in cash and issued the placement
agent a warrant to purchase 38,259 Series B shares exercisable at $2.125 per share for a term of five years. These costs were included
in the total issuance costs. All shares and warrants were converted as part of the Merger (see Merger discussion below).
In April 2014, Enumeral issued warrants
to two executive officers to purchase 105,881 shares of Convertible Preferred Series B shares in connection with Enumeral’s
Series B financing. These warrants were issued in relation to these executives taking a salary reduction prior to the Series B
round of financing. In connection with the Merger in July 2014, these warrants were converted into warrants to purchase 309,966
shares of the Company’s common stock (see Merger discussion below).
Merger
On July 31, 2014, Enumeral entered into
the Merger Agreement, pursuant to which Enumeral became a wholly owned subsidiary of the Company. The Company’s authorized
capital stock currently consists of 300,000,000 shares of common stock, par value $0.001, and 10,000,000 shares of “blank
check” preferred stock, par value $0.001.
As a result of the Merger, all issued and
outstanding common and preferred shares of Enumeral were exchanged for common shares of the Company as follows: (a) each share
of Enumeral’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into 1.102121
shares of the Company’s common stock for a total of 4,940,744 shares post-Merger, (b) each share of Enumeral’s Series
A Preferred Stock issued and outstanding immediately prior to the closing of the Merger was converted into 1.598075 shares of the
Company’s common stock for a total of 4,421,744 shares post-Merger, (c) each share of Enumeral’s Series A-1 Preferred
Stock issued and outstanding immediately prior to the closing of the Merger was converted into 1.790947 shares of the Company’s
common stock for a total of 3,666,428 shares post-Merger, (d) each share of Enumeral’s Series A-2 Preferred Stock issued
and outstanding immediately prior to the closing of the Merger was converted into 1.997594 shares of the Company’s common
stock for a total of 3,663,177 shares post-Merger, (e) each share of Enumeral’s Series B Preferred Stock issued and outstanding
immediately prior to the closing of the Merger was converted into 2.927509 shares of the Company’s common stock for a total
of 2,777,687 shares post-Merger and (f) a convertible note and accrued interest was converted into 3,230,869 shares of the Company’s
common stock post-Merger. All warrants are converted using the same exchange ratio as the common and preferred shares.
As a result of the Merger and the Split-Off,
the Company discontinued its pre-Merger business and acquired the business of Enumeral, and has continued the existing business
operations of Enumeral as a publicly-traded company under the name Enumeral Biomedical Holdings, Inc. In accordance with “reverse
merger” accounting treatment, historical financial statements for Enumeral Biomedical Holdings, Inc. as of period ends, and
for periods ended, prior to the Merger have been replaced with the historical financial statements of Enumeral prior to the Merger
in all filings with the SEC.
Private Placement
On July 31, 2014, the Company closed the
PPO of 21,549,510 Units of securities, at a purchase price of $1.00 per Unit, each Unit consisting of one share of the Company’s
common stock and a warrant to purchase one share of the Company’s common stock at an exercise price of $2.00 per share with
a term of five years (the “PPO Warrants”). The net proceeds received from the PPO were $18,255,444. The investors in
the PPO (for so long as they hold shares of the Company’s common stock) have anti-dilution protection on the shares of common
stock included in the Units purchased in the PPO and not subsequently transferred or sold (other than transfers to trusts or affiliates
of such investors for the purpose of estate planning) in the event that within two years after the closing of the PPO the Company
issues common stock or securities convertible into or exercisable for shares of the Company’s common stock at a price lower
than the Unit purchase price. The anti-dilution protection provisions are subject to exceptions for certain issuances, including
but not limited to (a) shares of common stock issued in an underwritten public offering, (b) issuances of awards under the Company’s
2014 Equity Incentive Plan, and (c) other exempt issuances. In the event that the Company is able to successfully complete the
tender offer to amend and exercise PPO Warrants that the Company launched in October 2016 (described in greater detail in Note
13 below), the PPO Warrants would be amended to remove this anti-dilution provision with the consent of holders of a majority of
the underlying PPO Warrants.
In addition, the PPO Warrants not subsequently
transferred or sold (other than transfers to trusts or affiliates of such investors for the purpose of estate planning) have anti-dilution
protection in the event that prior to the warrant expiration date the Company issues common stock or securities convertible into
or exercisable for shares of the Company’s common stock at a price lower than the warrant exercise price, subject to the
exceptions described above.
The Company agreed to pay the placement
agents in the offering, registered broker-dealers, a cash commission of 10% of the gross funds raised from investors in the PPO.
In addition, the placement agents received warrants exercisable for a period of five years to purchase a number of shares of the
Company’s common stock equal to 10% of the number of shares of common stock with a per share exercise price of $1.00 (the
“PPO Agent Warrants”); provided, however, that the placement agents were not entitled to any warrants on the sale of
Units in excess of 20,000,000. Any sub-agent of the placement agents that introduced investors to the PPO was entitled to share
in the cash fees and warrants attributable to those investors as described above. The Company also reimbursed the placement agents
$30,000 in the aggregate for legal expenses incurred by the placement agents’ counsels in connection with the PPO, as described
in the private placement agreements. As a result of the foregoing, the placement agents were paid an aggregate cash commission
of $2,154,951 and were issued PPO Agent Warrants to purchase 2,000,000 shares of the Company’s common stock. The PPO Agent
Warrants not subsequently transferred or sold (other than transfers to trusts or affiliates of such investors for the purpose of
estate planning) have anti-dilution protection until the warrant expiration date, subject to the exceptions described above for
the Units. The value ascribed to the PPO Agent Warrants are carried at fair value and reported as a derivative liability on the
accompanying unaudited condensed consolidated balance sheets.
The Company incurred approximately $500,000
of expenses in connection with the offering outside of the placement agent commissions and issued the subagent to one of the placement
agents 150,000 shares of the Company’s common stock.
In addition, the Merger Agreement provided
certain anti-dilution protection to the holders of the Company’s common stock immediately prior to the Merger (after giving
effect to the Split-Off), in the event that the aggregate number of units sold in the PPO after the final closing thereof were
to exceed 15,000,000. Accordingly, based on the final amount of gross proceeds raised in the PPO, the Company issued 1,690,658
additional shares of the Company’s common stock to holders of the Company’s common stock immediately prior to the Merger.
The Company recorded $1,690,658 in other expense related to this issuance of shares at $1.00 per share.
11 - STOCK OPTIONS, RESTRICTED STOCK
AND WARRANTS
Stock Options
On July 31, 2014, the Company’s Board
of Directors adopted, and the Company’s stockholders approved, the 2014 Equity Incentive Plan (the “2014 Plan”),
which reserves a total of 8,100,000 shares of the Company’s common stock for incentive awards. In connection with the Merger,
options to purchase 948,567 shares of Enumeral common stock previously granted under the 2009 Plan were converted into options
to purchase 1,045,419 shares of the Company’s common stock under the 2014 Plan.
Generally, shares that are expired, terminated,
surrendered or cancelled without having been fully exercised will be available for future awards. In addition, shares of common
stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock
available for the grant of awards.
The Company recognizes all share-based
awards under the straight-line attribution method, assuming that all granted awards will vest. Effective January 1, 2016, forfeitures
will be recognized in the periods when they occur. Refer to Note 3, Summary of Significant Accounting Policies, for further information.
In prior periods, ASC 718 required forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. The Company evaluated its forfeiture assumptions quarterly and the expected
forfeiture rate was adjusted when necessary. The actual expense recognized over the vesting period is based on only those shares
that vest.
In periods prior to January 1, 2016, estimates
of pre-vesting option forfeitures were based on the Company’s experience. The Company used a forfeiture rate of 0% - 5% depending
on when and to whom the options were granted. The Company adjusted its estimate of forfeitures over the requisite service period
based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures
were recognized through a cumulative adjustment in the period of change and may have impacted the amount of compensation expense
to be recognized in future periods. The Company considered many factors when estimating expected forfeitures, including types of
awards, employee class, and historical experience.
The Company estimates the fair value of
each stock award on the grant date using the Black-Scholes option-pricing model based on the following assumptions and the assumptions
regarding the fair value of the underlying common stock on each measurement date. The weighted-average fair value of options granted
during the nine month period ended September 30, 2016 was $0.16.
|
|
Nine Months Ended
September 30, 2016
|
|
Expected volatility
|
|
|
116.0% - 117.0%
|
|
Risk-free interest rate
|
|
|
1.20% - 1.72%
|
|
Expected term (in years)
|
|
|
5.00
|
|
Expected dividend yield
|
|
|
0%
|
|
As of September 30, 2016, there were 187,481
shares available for issuance under the 2014 Plan to eligible employees, non-employee directors and consultants. This number is
subject to adjustment in the event of a stock split, reverse stock split, stock dividend, or other change in the Company’s
capitalization.
A summary of stock option activity for the nine months ended
September 30, 2016 is as follows:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (years)
|
|
Outstanding as of December 31, 2015
|
|
|
5,926,654
|
|
|
$
|
0.62
|
|
|
|
9.0
|
|
Granted
|
|
|
4,068,182
|
|
|
$
|
0.20
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Canceled
|
|
|
(1,247,476)
|
|
|
$
|
0.72
|
|
|
|
|
|
Outstanding as of September 30, 2016
|
|
|
8,747,360
|
|
|
$
|
0.41
|
|
|
|
8.9
|
|
Exercisable as of September 30, 2016
|
|
|
4,910,317
|
|
|
$
|
0.46
|
|
|
|
8.5
|
|
Stock option compensation expense was $260,343
and $167,575 for the three months ended September 30, 2016 and 2015, respectively. Stock option compensation expense was $803,747
and $418,641 for the nine months ended September 30, 2016 and 2015, respectively. The Company has an aggregate of $272,771 of unrecognized
stock option compensation expense as of September 30, 2016 to be amortized over a weighted-average period of 1.9 years.
In September 2016, Dr. Tinkelenberg resigned
as a director of the Company. As a result of his resignation, the Company incurred a one-time stock-based compensation charge of
$15,580 during the three months ended September 30, 2016 for the remaining shares the Company expects to vest.
In September 2016, Mr. Rydzewski resigned
as Executive Chairman and director of the Company. In connection with his resignation, all of Mr. Rydzewski’s unvested options
became fully vested. As a result, 703,326 options became fully vested and the Company incurred a one-time stock-based compensation
charge of $83,361 during the three months ended September 30, 2016.
In September 2016, the Company entered
into an offer letter with Mr. Fayad, (the “Letter Agreement”) which sets forth the terms pursuant to which Mr. Fayad
shall serve as the Company’s Chairman of the Board, President and Chief Executive Officer. Per the Letter Agreement Mr. Fayad
was granted 2,600,000 options to purchase shares of the Company’s common stock. The Company granted Mr. Fayad 850,000 options
under the 2014 Plan and 1,750,000 options outside of the 2014 Plan. These options vest and become exercisable as follows: (i) 100,000
options vested immediately upon grant and (ii) 2,500,000 options vest upon the achievement of certain performance-based milestones.
The aggregate intrinsic value of options
exercisable as of September 30, 2016 was $4,712. The aggregate intrinsic value was calculated as the difference between the exercise
price of the stock options and the fair value of the underlying common stock as of the unaudited condensed consolidated balance
sheet date.
Restricted Stock
A summary of restricted stock activity
for the nine months ended September 30, 2016 is as follows:
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
Balance of unvested restricted stock as of December 31, 2015
|
|
|
282,119
|
|
|
$
|
0.24
|
|
Issuance of restricted stock
|
|
|
140,910
|
|
|
$
|
0.22
|
|
Vested
|
|
|
(380,362
|
)
|
|
$
|
0.23
|
|
Balance of unvested restricted stock as of September 30, 2016
|
|
|
42,667
|
|
|
$
|
0.22
|
|
Restricted stock compensation expense was
$20,633 and $17,200 for the three months ended September 30, 2016 and 2015, respectively. Restricted stock compensation expense
was $79,551 and $59,025 for the nine months ended September 30, 2016 and 2015, respectively.
The Company had no unrecognized restricted
stock compensation expense as of September 30, 2016.
Warrants
As of September 30, 2016, there were a
total of 24,803,409 warrants outstanding to purchase shares of the Company's common stock. Of these, 23,549,510 warrants were issued
in connection with the PPO and 66,574 warrants were issued to Square 1 Bank (in connection with a previous financing transaction
as further described below) and are accounted for as derivative liabilities. The remaining 1,187,325 warrants do not require derivative
liability accounting treatment.
Derivative Liability Warrants
In connection with the PPO, the Company
issued warrants to purchase an aggregate of 23,549,510 shares of the Company’s common stock. Additionally, in connection
with Enumeral’s December 2011 financing transaction with Square 1 Bank, Enumeral issued warrants to purchase 41,659 shares
of Enumeral’s Series A preferred stock that were subsequently converted into warrants to purchase 66,574 shares of the Company’s
common stock in connection with the July 2014 Merger.
A) PPO and PPO Agent Warrants
In July 2014, the Company issued warrants
to purchase 23,549,510 shares of the Company’s common stock in connection with the PPO, of which warrants to purchase 21,549,510
shares of the Company’s common stock had an exercise price of $2.00 per share and were issued to the investors in the PPO,
and warrants to purchase 2,000,000 shares of the Company’s common stock had an exercise price of $1.00 per share and were
issued to the placement agents for the PPO (or their affiliates). The estimated fair value of the warrants at the time of issuance
was determined to be $16,261,784 using the Black-Scholes pricing model and the following assumptions: expected term of 5.0 years,
105.4% volatility, a risk-free rate of 1.77%, and no expected dividends. The estimated fair value of the warrants at September
30, 2016 was determined to be $901,368 using the Black-Scholes pricing model and the following assumptions: expected remaining
term of 2.83 years, 106.4% volatility, risk-free rate of 0.86%, and no expected dividends. The estimated fair value of the warrants
at December 31, 2015 was determined to be $2,130,822 using the Black-Scholes pricing model and the following assumptions: expected
remaining term of 3.58 years, 109.4% volatility, risk-free rate of 1.44%, and no expected dividends. Due to a price protection
provision included in the warrant agreements, the warrants were deemed to be a liability and, therefore, the fair value of the
warrants is recorded in the liability section of the unaudited condensed consolidated balance sheets. As such, the outstanding
warrants are revalued each reporting period with the resulting gains and losses recorded as the change in fair value of derivative
liabilities on the unaudited condensed consolidated statements of operations and comprehensive income (loss). All 23,549,510 warrants
were outstanding as of September 30, 2016 and December 31, 2015, respectively. If the Company successfully eliminates the anti-dilution
protection for these warrants as part of the October 28, 2016 tender offer, the Company will no longer account for these warrants
as derivative liabilities. See Note 13 “Subsequent Events” for further details.
B) Square 1 Financing
In connection with the December 2011 Square
1 financing transaction, Enumeral issued to Square 1 Bank warrants to purchase an aggregate of 33,944 shares of Series A convertible
preferred stock at an exercise price of $1.16 per share, exercisable for seven years. In July 2014, as part of the Merger, these
warrants were converted into warrants to purchase 54,245 shares of the Company’s common stock at an exercise price of $0.73
per share. The estimated fair value of the warrants as of September 30, 2016 was determined to be $3,358 using the Black-Scholes
pricing model and the following assumptions: expected term of 2.18 years, 106.4% volatility, a risk-free rate of 0.79%, and no
expected dividends. The estimated fair value of the warrants as of December 31, 2015 was determined to be $5,777 using the Black-Scholes
pricing model and the following assumptions: expected term of 2.9 years, 104.6% volatility, a risk-free rate of 1.31%, and no expected
dividends. As part of a June 12, 2012 amendment to the Loan and Security Agreement between Enumeral and Square 1 Bank, Enumeral
issued warrants to Square 1 Bank to purchase an aggregate of 7,715 shares of Series A convertible preferred stock at an exercise
price of $1.16 per share, exercisable for seven years. In July 2014, as part of the Merger, these warrants were converted into
warrants to purchase 12,329 shares of the Company’s common stock at an exercise price of $0.73 per share. The estimated fair
value of these warrants as of September 30, 2016 was determined to be $940 using the Black-Scholes pricing model and the following
assumptions: expected term of 2.7 years, 106.4% volatility, a risk-free rate of 0.85%, and no expected dividends. The estimated
fair value of these warrants as of December 31, 2015 was determined to be $1,492 using the Black-Scholes pricing model and the
following assumptions: expected term of 3.5 years, 104.6% volatility, a risk-free rate of 1.42%, and no expected dividends. The
warrants are classified as derivative liabilities in the accompanying unaudited condensed consolidated balance sheets and measured
at fair value on a recurring basis. As such, the outstanding warrants are revalued each reporting period with the resulting gains
and losses recorded as the change in fair value of derivative liabilities on the unaudited condensed consolidated statements of
operations and comprehensive income (loss). As of September 30, 2016 and December 31, 2015 these warrants were outstanding and
expire on December 5, 2018 and June 12, 2019, respectively.
12 - CONCENTRATIONS
During the three months ended September
30, 2016, the Company recorded revenue from two entities in excess of 10% of the Company’s total revenue in the amounts of
$226,115 and $94,696, which represents 70% and 30% of the Company’s total revenue for that period. During the three months
ended September 30, 2015, the Company recorded revenue from two entities in excess of 10% of the Company’s total revenue
in the amounts of $395,448 and $88,377, which represents 82% and 18% of the Company’s total revenue for that period.
During the nine months ended September
30, 2016, the Company recorded revenue from three entities in excess of 10% of the Company’s total revenue in the amounts
of $1,000,000, $878,599 and $375,641 which represents 44%, 39% and 17% of the Company’s total revenue for that period. During
the nine months ended September 30, 2015, the Company recorded revenue from two entities in excess of 10% of the Company’s
total revenue in the amounts of $894,132 and $245,728, which represents 78% and 22% of the Company’s total revenue for that
period.
As of September 30, 2016, accounts receivable
consisted of amounts due from two entities which represented 85% and 15% of the Company’s total outstanding accounts receivable
balance, respectively. As of December 31, 2015, accounts receivable consisted of amounts due from two entities which represented
67% and 33% of the Company’s total outstanding accounts receivable balance, respectively.
13 - SUBSEQUENT EVENTS
On December 12, 2016, the Company consummated
its offer to amend and exercise (the “Warrant Tender Offer”) the outstanding PPO Warrants to purchase an aggregate
of 21,549,510 shares of Common Stock. The Company had commenced the Warrant Tender Offer on October 28, 2016.
The Warrant Tender Offer expired at 5:00
p.m. Eastern time on December 9, 2016. Pursuant to the Warrant Tender Offer, an aggregate of 6,863,000 PPO Warrants were tendered
by their holders and were amended and exercised in connection therewith for gross proceeds to the Company of $3,431,500. Such tendered
PPO Warrants represented approximately 31.8% of the Company’s outstanding PPO Warrants as of December 9, 2016.
The PPO Warrants of holders who elected
to participate in the Warrant Tender Offer were amended to (i) receive four shares of common stock for each warrant exercised rather
than one, (ii) reduce the exercise price to $0.50 per warrant in cash (or $0.125 per share); (iii) shorten the exercise period
so that it expired concurrently with the expiration of the Warrant Tender Offer at 5:00 p.m. (Eastern Time) on December 9, 2016,
and (iv) delete any price-based anti-dilution provisions.
Effective as of December 12, 2016, the
Company and holders of a majority of the PPO Warrants approved an amendment to remove the price-based anti-dilution provisions
in the PPO Warrants. As a result, the priced-based anti-dilution provisions contained in the PPO Warrants have been removed and
are of no further force or effect as of December 12, 2016. Accordingly, those PPO Warrants that were not tendered in the Warrant
Tender Offer remain outstanding with an exercise price of $2.00 per share, and have been amended such that they no longer include
price-based anti-dilution provisions. As such, any remaining derivative liability at December 12, 2016 was extinguished.
Also in connection with the consummation
of the Warrant Tender Offer, on December 12, 2016 the Company and holders of a majority of the outstanding PPO Agent Warrants approved
an amendment to remove the price-based anti-dilution provisions in the PPO Agent Warrants and to reduce the exercise price of the
PPO Agent Warrants from $1.00 per share to $0.125 per share. None of the PPO Agent Warrants were exercised in connection with the
Warrant Tender Offer. As such, any remaining derivative liability at December 12, 2016 was extinguished.
Also on December 12, 2016, the Company
and Square 1 Bank, which was subsequently acquired by PacWest Bancorp, entered into an amendment (the “Square 1 Amendment”)
to certain Amended and Restated Warrants to Purchase Stock which entitled Square 1 to purchase an aggregate of 66,574 shares of
Common Stock (the “Square 1 Warrants”). In accordance with the terms of the Square 1 Amendment, the Square 1 Warrants
were amended to (i) change the expiration date to December 12, 2016, (ii) reduce the exercise price to $0.125 per share and (iii)
remove any anti-dilution provisions. Immediately following the Square 1 Amendment, an assignee of Square 1 delivered a cashless
exercise notice with respect to the Square 1 Warrants pursuant to which the Company issued an aggregate of 11,096 shares of Common
Stock. There are no more shares available for issuance under the Square 1 Warrants.
The Company will use the net proceeds from
the Warrant Tender Offer to fund its ongoing operations and for general working capital purposes. After giving effect to the net
proceeds from the Warrant Tender Offer, the Company believes that it only has sufficient liquidity to fund operations into May
2017. The Company continues to explore a range of potential transactions, which may include public or private equity offerings,
debt financings, collaborations and licensing arrangements, and/or other strategic alternatives, including a merger, sale of assets
or other similar transactions.
ENUMERAL BIOMEDICAL HOLDINGS, INC.
133,699,598 Shares of Common Stock
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PROSPECTUS
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_________, 2017