PART
I
Forward-Looking
Statements
This
report, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
contains forward-looking statements regarding future events and our future results that are based on our current expectations,
estimates, forecasts, and projections about our business, our results of operations, the industry in which we operate and the
beliefs and assumptions of our management. Words such as “may”, “will”, “should”, “could”,
“anticipate”, “believe”, “expect”, “intend”, “plan”, “potential”,
“continue” and similar expressions are intended to identify these forward looking statements. Examples of such forward-looking
statements include:
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statements regarding anticipated outcomes of our research
into mitochondrial-derived peptides (MDPs), and pre-clinical and clinical trials for our mitochondria based therapeutics (MBTs);
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expectations regarding the future market for any drug
we may develop;
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statements regarding the anticipated therapeutic properties
of our MBT drug development candidates;
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expectations regarding our ability to effectively protect
our intellectual property; and
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expectations regarding our ability to attract and retain
qualified employees and key personnel.
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These
statements reflect our current beliefs and are based on information currently available to us. Forward-looking statements involve
significant risks and uncertainties, including without limitation, those listed in the “Risk Factors” section. A number
of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including,
but not limited to, changes in general economic and market conditions and the risk factors disclosed under “Risk Factors”.
Although the forward-looking statements contained in this report are based upon what we believe to be reasonable assumptions,
we cannot assure you that actual results will be consistent with these forward-looking statements. Investors should not place
undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and we assume no
obligation to update or revise them to reflect new events or circumstances, except as required by applicable law.
Item
1. Business
OVERVIEW
CohBar,
Inc. (“CohBar,” “we,” “us,” “our,” “its” or the “Company”)
is an innovative biotechnology company and a leader in the research and development of mitochondria based therapeutics (MBTs),
an emerging class of drugs with the potential to treat a wide range of diseases associated with aging and metabolic dysfunction,
including obesity, fatty liver disease (NAFLD) and non-alcoholic steatohepatitis (NASH), type 2 diabetes mellitus (T2D), cancer,
atherosclerosis, cardiovascular disease and neurodegenerative diseases such as Alzheimer’s.
MBTs
originate from almost two decades of research by our founders, resulting in their discovery of a novel group of peptides called
mitochondrial-derived peptides (MDPs) encoded within the genome of mitochondria, the powerhouses of the cell. These naturally
occurring MDPs and certain related analogs have demonstrated a range of biological activity and therapeutic potential in pre-clinical
models across multiple diseases associated with aging.
We believe CohBar is a
first mover in exploring the mitochondrial genome for therapeutically relevant peptides, and have developed a proprietary MBT technology
platform which uses proprietary cell based assays and animal models of disease to rapidly identify mitochondrial peptides with
promising biological activity. Once identified, we deploy proprietary optimization techniques to improve the drug-like properties
of our MBT candidates, enabling us to match the most biologically promising peptides to disease indications that have substantial
unmet medical needs.
In September 2016, we advanced
two novel, optimized analogs of our MOTS-c MDP, CB4209 and CB4211, into IND-enabling studies as our lead MBT drug candidates with
potential for treatment of fatty liver disease (NAFLD), Nonalcoholic steatohepatitis (NASH), obesity, and type 2 diabetes (T2D).
To date, our founders and scientific team have discovered a large number of MDPs that have demonstrated a range of biological activities
and therapeutic potential. Our ongoing research and development of our pipeline MDPs is focused on identifying and advancing novel
improved analogs of those MDPs that have the greatest therapeutic and commercial potential for development into drugs.
Our scientific team includes
the expertise of our founders, Dr. Pinchas Cohen, Dean of the Davis School of Gerontology at the University of Southern California,
and Dr. Nir Barzilai, Professor of Genetics and Director of the Institute for Aging Research at the Albert Einstein College
of Medicine, and is augmented by our co-founders, Dr. David Sinclair, Professor of Genetics at Harvard Medical School, and
Dr. John Amatruda, former Senior Vice President and Franchise Head for Diabetes and Obesity at Merck Research Laboratories.
Our research and development efforts are conducted under the leadership of our Chief Scientific Officer, Dr. Kenneth Cundy, former
Chief Scientific Officer at Xenoport, Inc. and Senior Director of Biopharmaceutics at Gilead Sciences, Inc. Dr. Cundy is the co-inventor
of several approved drugs including tenofovir, an antiretroviral drug that is marketed globally in various combinations with other
drugs for the treatment of HIV infection (Atripla®, Viread®, Complera®, Stribild®, Truvada®), gabapentin enacarbil
(Horizant®) for the treatment of RLS and post-herpetic neuralgia, and Nanocrystal® technology, employed in several other
approved drugs.
We are the exclusive
licensee from the Regents of the University of California and the Albert Einstein College of Medicine of four issued U.S.
patents, four U.S. patent applications and several related international patent applications in various international
jurisdictions. Our licensed patents and patent applications include claims that are directed to compositions comprising MDPs
and their analogs and/or methods of their use in the treatment of indicated diseases. We have also filed more than 65
provisional patent applications with claims directed to both compositions comprising and methods of using novel proprietary
MDPs and their analogs. See “Business – Patents and Intellectual Property”.
We believe that the proprietary
capabilities of our technology platform combined with our scientific expertise and intellectual property portfolio provides a competitive
advantage in our mission to treat age-related diseases and extend healthy life spans through the advancement of MBTs as a new class
of transformative drugs.
We
were formed as a limited liability company in the state of Delaware in 2007, and we incorporated in Delaware in 2009. We completed
our initial public offering of common stock in January 2015 and our common stock is listed for trading on the TSXV (COB.U) and
the OTCQX (CWBR).
Our
laboratory and corporate headquarters are located in Menlo Park, California.
BUSINESS
STRATEGY
Our
strategic objective is to secure, maintain and exploit a leading scientific, commercial and intellectual property position in
the arena of mitochondria based therapeutics, with best-in-class treatments for diseases associated with aging and metabolic dysfunction.
The key elements of our strategy include:
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advancing our lead program to IND submission and through clinical trials;
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utilizing
our proprietary platform technology to continue identifying, assessing and optimizing
new analogs of biologically active MDPs and advancing those MBT candidates with the greatest
therapeutic and commercial potential;
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developing
strategic partnerships with leading pharmaceutical companies and other organizations
to support our research programs and future development and commercialization efforts;
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raising
adequate capital to support our operations, research and clinical development programs;
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minimizing
operating costs and related funding requirements for our research and development activities
through careful program management and cost-efficient relationships with academic partners,
consultants and contract research organizations (CROs);
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optimizing
the development of our intellectual property portfolio to capture all novel therapeutically
relevant peptides encoded within the mitochondrial genome; and
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increasing
awareness
and recognition of our team, assets, capabilities and opportunities within the investment and scientific
communities.
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OUR
PIPELINE
Our
pipeline includes a number of MDPs and MBT candidates in different stages of pre-clinical study. Our research efforts are focused
on identifying, assessing and optimizing new analogs of biologically active MDPs and advancing those MDPs considered to have greatest
therapeutic and commercial potential as MBT candidates.
Lead
MBT Drug Candidates (CB4209/CB4211)
Our lead development candidates,
CB4209/CB4211, are being evaluated as MBTs for the potential treatment of NASH, obesity and T2D. In September 2016, we announced
the advancement of these candidates into IND-enabling activities.
CB4209 and CB4211 are novel, optimized analogs of MOTS-c, a naturally occurring mitochondrial peptide discovered
by our founders and their academic collaborators in 2012. Their research in cells and animal models indicated that MOTS-c plays
a significant role in the regulation of metabolism. Certain of the original MOTS-c studies were published in an article entitled
“The Mitochondrial-Derived Peptide, MOTS-c, Promotes Metabolic Homeostasis and Reduces Obesity and Insulin Resistance,”
which appeared in the March 3, 2015 edition of the journal
Cell Metabolism
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In
pre-clinical models, CB4209 and CB4211 have demonstrated significant therapeutic potential for the treatment of obesity, including
significantly greater weight loss together with more selective reduction of fat mass versus lean mass in head-to-head comparison
to a market-leading obesity drug. In these models, treatment with CB4209 and CB4211 also showed improvements in triglyceride levels,
as well as favorable effects on liver enzyme markers associated with fatty liver disease (NAFLD) and NASH. The therapeutic effects
of CB4209 and CB4211 have been further evaluated in the well-established preclinical STAM™ mouse model of NASH. In this
model, treatment with CB4209 or CB4211 resulted in a significant reduction of the non-alcoholic fatty liver disease activity score,
or NAS, a composite measure of steatosis (fat accumulation), inflammation and hepatocyte ballooning (cellular injury). Additional
efficacy studies are ongoing or planned. CB4209 and CB4211 represent first-in-class drugs for the treatment of NASH and obesity,
targeting energy regulation and lipid metabolism.
Investigational
Programs
Our
R&D pipeline also includes the MDPs described below. Our pre-clinical activities with respect to these peptides are focused
on identifying and optimizing those MDPs and their analogs that demonstrate the greatest commercial and therapeutic potential
as MBTs.
Humanin
Analogs
: Humanin, the first MDP to be discovered, has demonstrated protective effects in various animal models of age-related
diseases, including Alzheimer’s disease, atherosclerosis, myocardial and cerebral ischemia and T2D. Humanin levels in humans
have been shown to decline with age, and elevated levels of humanin together with lower incidence of age-related diseases have
been observed in centenarians as well as their offspring.
In vitro
studies with humanin and humanin analogs have demonstrated
protective effects against neuronal toxicity suggesting that a humanin analog may have potential for development as an MBT treatment
for neurodegenerative diseases such as Alzheimer’s disease.
SHLP Analogs
: Our founders and their academic collaborators discovered several other
peptides encoded within the mitochondrial genome with a similar origin to humanin; we refer to these as small humanin-like peptides,
or SHLPs. In cancer treatment models conducted by our founders and their collaborators, both in cell culture and in mice, SHLP-6
demonstrated suppression of cancer progression via mechanisms involving both suppression of tumor angiogenesis (blood vessel development)
and induction of apoptosis (cancer cell death). There is preclinical evidence to suggest that SHLP-2 has protective effects against
neuronal toxicity. Certain of the SHLP studies were published in a research paper entitled “Naturally occurring mitochondrial-derived
peptides are age-dependent regulators of apoptosis, insulin sensitivity, and inflammatory markers,” which appeared in the
April 2016 edition of the journal
Aging
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Additional MDPs
: We have discovered over 65 new, previously untested peptides encoded
within the mitochondrial genome. These MDPs and their analogs have demonstrated various degrees of biological activity in a wide
range of cell based and/or animal models relevant to diseases, such as NASH, obesity, T2D, cancer, cardiovascular and Alzheimer’s.
All
of our pipeline MDPs and MBT candidates are in the pre-clinical stage of development, and there is no guarantee that the activity
demonstrated in pre-clinical models will be shown in human testing.
Disease
Focus
Our
research and development focuses on diseases associated with aging and metabolic dysfunction. Our research to date suggests multiple
possible therapeutic indications for each of our pipeline MDPs. While we believe our current and any future MBT drug candidates
we identify would be advanced against one of the following diseases as a primary indication, it is possible that we may determine
to advance a drug candidate for treatment of a different disease as a primary indication. We may determine to advance any future
drug candidate against an alternative primary disease indication if, for example, additional data suggests greater therapeutic
potential for the drug candidate against the alternative indication, or we determine that the development, approval or commercialization
pathway may be more favorable for a drug candidate targeted against the alternative indication.
NAFLD
and NASH
– Non-alcoholic fatty liver disease (NAFLD) is the build-up of extra fat in liver cells that is not due to
alcohol consumption and tends to develop in people who are overweight or obese or have diabetes, high cholesterol or high levels
of triglycerides. Non-alcoholic steatohepatitis (NASH) is a more severe form of NAFLD characterized by swelling of the liver that
eventually may lead to scarring (cirrhosis) and over time to liver cancer or liver failure. NAFLD affects as much as 34% of the
U.S. population while as many as 12% of U.S. adults may have NASH. Currently, there are no FDA approved treatments for NAFLD/NASH.
Obesity
–– Obesity is now recognized as the most prevalent metabolic disease world-wide, reaching epidemic proportions
in both developed and developing countries and affecting all age groups. More than one-third of the U.S. adult population, and
over 40% of U.S. age groups between 45 and 75, have obesity. The prevalence of class III, or morbid, obesity (body mass index
≥40) has increased dramatically in several countries and currently affects 6% of adults in the U.S., with an estimated increase
of 130% over the next two decades. Obesity is a major risk factor for age-related diseases such as heart disease, stroke, T2D
and certain types of cancer.
Type
2 diabetes mellitus
– T2D is a chronic disease characterized by a relative deficiency in insulin production and secretion
by the pancreas and an inability of the body to respond to insulin normally, i.e. insulin resistance. Hyperglycemia, or raised
blood sugar, is a common effect of uncontrolled diabetes and over time leads to serious damage to many of the body’s systems,
especially the nerves, kidneys, eyes and blood vessels.
Cancer
– Cancer is a generic term for a large group of diseases that can affect any part of the body. One defining feature
of cancer is the rapid creation of abnormal cells that grow beyond their usual boundaries, and which can then invade adjoining
parts of the body and spread to other organs. This process is referred to as metastasis. Metastases are a major cause of death
from cancer. Cancer is a leading cause of death worldwide. Cancer drugs such as chemotherapy, hormone therapy and other treatments
are used to destroy cancer cells. The goal of cancer drugs is to cure the disease or, when a cure is not possible, to prolong
life or improve quality of life for patients with incurable cancer.
Alzheimer’s
disease
– In the brain, neurons connect and communicate at synapses, where tiny bursts of chemicals called neurotransmitters
carry information from one cell to another. Alzheimer’s, a neurodegenerative disease, disrupts this process and eventually
destroys synapses and kills neurons, damaging the brain’s communication network. There is no cure, and medications on the
market today treat only the symptoms of Alzheimer’s disease and do not have the ability to stop its onset or its progression.
There is an urgent and unmet need for both a disease-modifying drug for Alzheimer’s disease as well as for better symptomatic
treatments.
Atherosclerosis
–
Atherosclerosis is a cardiovascular disease commonly referred to as a “hardening” or furring of the arteries.
It is caused by the formation of multiple atheromatous plaques within the arteries. This process is the major underlying risk
for developing myocardial infarction (heart attack) as those plaques will either narrow the vessel or rupture, preventing blood
flow in the coronary artery to parts of the heart muscle. Heart disease is the leading cause of death for both men and women.
Cholesterol lowering drugs are considered the main preventive approach to treat atherosclerosis, however these drugs are estimated
to prevent only one-third of incidences of myocardial infarction, and there is significant unmet need for additional therapeutic
options.
COMPETITION
The
biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary products. While we believe that our scientific knowledge, technology, and development experience provide
us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty
pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions.
Many of our competitors may have significantly greater financial resources and capabilities for research and development, manufacturing,
pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do.
There
are numerous therapies currently marketed to treat obesity, T2D, cancer and Alzheimer’s disease. There are no currently
approved therapies for the treatment of NAFLD and NASH, but numerous therapies are in development. These therapies are varied
in their design, therapeutic application and mechanism of action and may provide significant competition for any of our product
candidates for which we obtain market approval. New products or therapies may also become available that provide efficacy, safety,
convenience and other benefits that are not provided by currently marketed products and therapies. As a result, they may provide
significant competition for any of our product candidates for which we obtain market approval.
If
a CohBar MBT is developed and approved for treatment of patients with obesity it may compete with products currently approved
for obesity, such as Saxenda, Belviq, Contrave and Qsymia, and investigational therapies that are currently being studied for
the treatment of obesity, such as CB1-receptor-antagonists, 5-HT receptor agonists, SGLT-2 antagonist, GLP-1 agonists and Adenylate
Cyclase 3 activators.
If
a CohBar MBT is developed and approved for treatment of patients with NASH, it may compete with several investigational therapies
that are currently being studied for the treatment of NAFLD/NASH including, for example, FXR activators, PXR activators, ACC1/2
inhibitors, PPAR-α, -γ and -δ activators, SREBP2/MIR-33a inhibitors, DGAT1 or 2 inhibitors, CCR2/5 antagonists,
CXCR3 antagonists.
If
a CohBar MBT is developed and approved for treatment of patients with T2D, it would compete with several classes of drugs for
T2D that are approved to improve glucose control, including sulfonylureas, glinides, PPAR gamma agonists, biguanides, alpha glucosidase
inhibitors, DPP IV inhibitors, GLP1 agonists, SGLT2 inhibitors, bromocriptine and insulin. Insulin sensitizing agents approved
to treat T2D are the PPAR gamma agonists pioglitazone and rosiglitazone. These agents are not generic, are oral once-daily pills
and are effective in lowering glucose and A1C. Metformin is also sometimes called an insulin sensitizer. It is available as a
generic and comes in a once-daily formulation. Drugs approved for obesity may also be used to treat T2D. In addition there are
several investigational drugs being studied to treat T2D and if these investigational therapies were approved they would also
compete with an MBT developed and approved for T2D.
If
a CohBar MBT is developed and approved for the treatment for patients with cancer, it would compete with all approved therapies
for the cancer it is approved to treat. Since the specific cancer that these investigational therapies might be approved to treat
is unknown, they would theoretically compete with any pharmaceutical agent that is approved to treat cancer. In addition, there
are several investigational drugs being studied to treat cancer, and if these investigational therapies were approved, they would
also compete with an MBT developed and approved for the treatment of cancer.
If
a CohBar MBT is developed and approved for the treatment for patients with Alzheimer’s disease or other neurodegenerative
diseases, it would compete with all approved therapies to treat Alzheimer’s disease including donepezil (Aricept), galantamine
(Razadyne), memantine (Namenda), rivastigmine (Exelon) and tacrine (Cognex). In addition, there are several investigational drugs
being studied to treat Alzheimer’s and other neurodegenerative diseases that, if approved, would also compete with an MBT
developed and approved for the treatment of Alzheimer’s and other neurodegenerative diseases.
FINANCING
Our
business strategy and plans for research and development of our MDPs and MBT candidates includes periodic infusion of new capital
to our Company. We may seek to obtain funding for our business through partnership agreements with pharmaceutical and biotechnology
companies or through the issuance and sale of our equity securities in capital raising transactions.
EMPLOYEES
As
of March 28, 2017 we had 11 employees, all of whom were full-time. In addition to our employees, each of our founders serves as
a consultant to the Company and consults directly with our employees and scientific staff to advance our research programs. Each
of Drs. Cohen, Barzilai, Amatruda and Sinclair provide consulting services in the areas of peptide research, genetics, aging and
age related diseases, drug discovery, development and commercialization and other areas relevant to our business pursuant to consulting
agreements that provide for annual service terms. The service terms under the agreements expired in 2015. We continue to compensate
our founders for their ongoing services under the terms of the original agreements. Additionally, from time to time we engage
other subject-matter experts on a consulting basis in specific areas of our research and development efforts. None of our employees
are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages and
we consider our relations with our employees to be good.
RESEARCH
AND DEVELOPMENT
Research and development
activities are central to our business model. Our research programs include activities related to discovery of novel MDPs, investigational
research to evaluate the potential therapeutic effects of certain discovered MDPs in preclinical models and engineering novel,
improved analogs of certain discovered MDPs with characteristics suitable for further development as potential MBT drug candidates.
Depending on factors of capability, cost, efficiency and intellectual property rights we conduct our research programs independently
at our laboratory facility, pursuant to contractual arrangements with CROs or under collaborative arrangements with academic institutions.
Research and development expenses for the years ended December 31, 2016 and 2015 were $3,606,515 and $1,966,221, respectively.
INTELLECTUAL
PROPERTY
Patents
Our
commercial success depends in part on our ability to obtain and maintain proprietary protection for our novel biological discoveries
and therapeutic methods, to operate without infringing on the proprietary rights of others and to prevent others from infringing
our proprietary rights. We seek to protect our proprietary position by, among other methods, licensing and/or filing patent applications
related to our proprietary technology, inventions and improvements that are important to the development and implementation of
our business.
Our
intellectual property and patent strategy is focused on our MDPs, their analogs and our MBT candidates. Our strategy is generally
to seek patent protection in the United States and, where applicable, in those international jurisdictions we identify as holding
significant potential market opportunity for any drug we may develop and in which patent protection is available. We also rely
on trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain
our proprietary position. With respect to new biologically active MDPs that we identify within the mitochondrial genome we typically
file provisional patent applications and seek composition-of-matter and method-of-treatment patents for our MDPs, their analogs,
and prospective MBTs based on pre-clinical evaluation of therapeutic potential. We intend to file non-provisional patent applications
for those MDPs and analogs within our pipeline based on further assessment of their therapeutic and commercial potential, as well
as strategic and competitive considerations. We believe that the opportunity to engineer analogs or create combination therapies
will afford us the opportunity to strengthen IP protection for our drug development candidates as they advance through our development
pipeline and to broaden our IP protection internationally.
We
are the exclusive licensee of four issued patents that will expire starting in 2028. Additionally, we have filed more than 65
provisional patent applications with claims directed to both composition-of-matter and methods-of-use of novel proprietary MDPs
and their analogs.
A summary of our licensed,
non-provisional patents and patent applications as it relates to specific MDPs and their analogs appears below:
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Therapeutic Activities / Method of Use Claims
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Composition
Claims
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Type 1
Diabetes
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Type 2
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Obesity
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Fatty
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Cancer
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Alzheimer’s
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Atherosclerosis
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MOTS-c
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SHLP-6
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SHLP-2
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Humanin
Analogs
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Humanin
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Humanin
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Individual
patents terms extend for varying periods of time depending on the date of filing of the patent application or the date of
patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued from
applications filed in the United States are effective for twenty years from the earliest non-provisional filing date. In
addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result
of the FDA regulatory review period, however, the restoration period cannot be longer than five years and the total patent
term, including the restoration period, must not exceed fourteen years following FDA approval. The duration of foreign
patents varies in accordance with provisions of applicable local law, but typically is also twenty years from the earliest
international filing date.
National
and international patent laws concerning peptide therapeutics remain highly unsettled. Policies regarding the patent eligibility
or breadth of claims allowed in such patents are currently in flux in the United States and other countries. Changes in either
the patent laws or in interpretations of patent laws in the United States and other countries can diminish our ability to protect
our inventions and enforce our intellectual property rights. Accordingly, we cannot predict the breadth or enforceability of claims
that may be granted in our patents or in third-party patents. The biotechnology and pharmaceutical industries are characterized
by extensive litigation regarding patents and other intellectual property rights. Our ability to maintain and solidify our proprietary
position for our drugs and technology will depend on our success in obtaining effective claims and enforcing those claims once
granted. We do not know whether any of the patent applications that we may file or license from third parties will result in the
issuance of any patents. The issued patents that we license, or may license or own in the future, may be challenged, invalidated
or circumvented, and the rights granted under any issued patents may not provide us with sufficient protection or competitive
advantages against competitors with similar technology. Furthermore, our competitors may be able to independently develop and
commercialize similar drugs or duplicate our technology, business model or strategy without infringing our patents. Because of
the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before
any of our drugs can be commercialized, any related patent may expire or remain in force for only a short period following commercialization,
thereby reducing any advantage of any such patent.
The
patent positions for our research peptides are described below:
MOTS-c
Patent Coverage
We
are the exclusive licensee from the Regents of the University of California (the “Regents”) to intellectual property
rights related to MOTS-c, including two patent applications filed in the United States (U.S. Application No. 14/213,617 and U.S.
Divisional Application No. 15/146249 ) and corresponding foreign applications filed in multiple countries and regions. These applications
include composition of matter claims directed to MOTS-c and certain analogs of MOTS-c, as well as methods of use claims for MOTS-c
or certain analogs of MOTS-c as a treatment for type 1 diabetes, type 2 diabetes, fatty liver, obesity and cancer.
MOTS-c
Analog Patent Coverage
CohBar
has also filed a new provisional patent application that covers novel optimized analogs of MOTS-c with improved properties, including
claims directed to composition-of-matter and methods-of-use.
SHLP-2
and SHLP-6 Patent Coverage
We
are the exclusive licensee from the Regents to intellectual property for SHLP-2 and SHLP-6 and their analogs. This intellectual
property includes the following issued and pending patents:
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U.S. Patent No. 8,637,470, issued on January 28, 2014, with composition of matter claims directed
to SHLP-2 and analogs.
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A
divisional patent application in the United States for SHLP-6 (U.S. Application No. 14/134,430),
with claims directed at the SHLP-6 composition of matter, and methods of use in treating
cancer.
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We
are pursuing intellectual property protection related to certain analogs of these peptides.
Humanin
and Humanin Analogs Patent Coverage
We
are the exclusive licensee from the Regents and the Albert Einstein College of Medicine of Yeshiva University to the following
U.S. patent applications and issued U.S. patents and covering humanin and humanin analogs for treatment of disease.
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U.S.
Patent No. 8,309,525, issued on November 13, 2012, with claims covering pharmaceutical compositions of humanin analogs.
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U.S.
Patent No. 7,998,928, issued on August 16, 2011, with claims directed to methods of using
a humanin analog to treat type 1 diabetes.
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U.S.
Patent No. 8,653,027 issued on February 18, 2014 as a continuation of U.S. Patent 7,998,928,
with claims directed to methods of using an additional humanin analog to treat type 1
diabetes.
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U.S.
Patent Application No. 13/526,309 (pending), with claims directed to methods of using
humanin or a humanin analog to treat atherosclerosis.
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Newly-Identified
MDPs and Analog Coverage
CohBar
has also filed more than 65 new provisional patent applications that cover newly-identified MDPs and their novel, improved analogs,
including claims directed to composition-of-matter and methods-of-use. Provisional patent applications are not publicly available
and information regarding the specific MDPs and analogs identified in the provisional applications, and related claims, are held
confidential. We intend to file non-provisional patent applications for those MDPs and analogs within our pipeline based on further
assessment of their therapeutic and commercial potential, as well as strategic and competitive considerations.
Trade
Secrets
In
addition to patents, we rely upon unpatented trade secrets, know-how and continuing technological innovation to develop and maintain
our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our commercial
partners, collaborators, employees and consultants and invention assignment agreements with our employees. These agreements are
designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership
of technologies that are developed through a relationship with a third party. These agreements may be breached, and we may not
have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered
by competitors. To the extent that our commercial partners, collaborators, employees and consultants use intellectual property
owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Trademarks
Our
application for registration of the trademark COHBAR
TM
in the United States was published on January 20, 2015. The
USPTO issued a Notice of Allowance of our trademark application on March 20, 2015. We filed an extension of time for filing a
statement of use on February 27, 2017.
In-licenses
MOTS-c
Exclusive License
On
August 6, 2013, we entered into an exclusive license agreement with the Regents to obtain worldwide, exclusive rights under patent
filings and other intellectual property rights in inventions developed by Dr. Cohen and academic collaborators at the University
of California, Los Angeles. The intellectual property includes the pending U.S. and international patent filings described above
under “
MOTS-c Patent Coverage
”.
We
agreed to pay the Regents specified development milestone payments aggregating up to $765,000 for the first product sold under
the license. Milestone payments for additional products developed and sold under the license are reduced by 50%. We are also required
to pay annual maintenance fees to the licensors. Aggregate maintenance fees for the first three years following execution of the
agreement are $7,500. Thereafter, we are required to pay maintenance fees of $5,000 annually until the first sale of a licensed
product. In addition, we are required to pay the Regents royalties equal to 2% of our worldwide net sales of drugs, therapies
or other products developed from claims covered by the licensed patent, subject to a minimum royalty payment of $75,000 annually,
beginning after the first commercial sale of a licensed product. We are required to pay the Regents royalties ranging from 8%
of worldwide sublicense sales of covered products (if the sublicense is entered after commencement of phase II clinical trials)
to 12% of worldwide sublicense sales (if the sublicense is entered prior to commencement of phase I clinical trials). The agreement
also requires us to meet certain diligence and development milestones, including filing of an Investigational New Drug (IND) Application
for a product covered by the agreement on or before the seventh anniversary of the agreement date.
Under
the agreement, the license rights granted to us are subject to any rights the U.S. Government may have in such licensed rights
due to its sponsorship of research that led to the creation of the licensed rights. The agreement also provides that if the Regents
become aware of a third-party’s interest in exploiting the licensed technologies in a field that we are not actively pursuing,
then we may be obligated either to issue a sublicense for use in the unexploited field to the third-party on substantially similar
terms or to actively pursue the unexploited field subject to appropriate diligence milestones. The agreement terminates upon the
expiration of the last valid claim of the licensed patent rights. We may terminate the agreement at any time by giving the Regents
advance written notice. The agreement may also be terminated by the Regents in the event of our continuing material breach after
notice of such breach and the opportunity to cure.
Humanin
and SHLPs Exclusive License
On
November 30, 2011, we entered into an exclusive license agreement with the Regents and the Albert Einstein College of Medicine
at Yeshiva University to obtain worldwide, exclusive rights under patent filings and other intellectual property rights in inventions
developed by Drs. Cohen and Barzilai and their academic collaborators. The intellectual property subject to the agreement includes
four issued and two pending U.S. patents including composition claims directed to humanin analogs, SHLP-2 and SHLP-6 and methods
of use claims directed to humanin, humanin analogs and SHLP-6. See “Humanin and Humanin Analogs Patent Coverage” and
“SHLP-2 and SHLP-6 Patent Coverage”.
We
agreed to pay the licensors specified development milestone payments aggregating up to $765,000 for the first product sold under
the license. Milestone payments for additional products developed and sold under the license are reduced by 50%. We are also required
to pay annual maintenance fees to the licensors. Aggregate maintenance fees for the first five years following execution of the
agreement are $80,000. Thereafter, we are required to pay maintenance fees of $50,000 annually until the first sale of a licensed
product. In addition, we are required to pay the licensors royalties equal to 2% of our worldwide net sales of drugs, therapies
or other products developed from claims covered by the licensed patents, subject to a minimum royalty payment of $75,000 annually,
beginning after the first commercial sale of a licensed product. We are required to pay royalties ranging from 8% of worldwide
sublicense sales of covered products (if the sublicense is entered after commencement of phase II clinical trials) to 12% of worldwide
sublicense sales (if the sublicense is entered prior to commencement of phase I clinical trials). The agreement also requires
us to meet certain diligence and development milestones, including filing of an IND for a product covered by the agreement on
or before the seventh anniversary of the agreement date.
Under
the agreement, the license rights granted to us are subject to any rights the U.S. Government may have in such licensed rights
due to its sponsorship of research that led to the creation of the licensed rights. The agreement terminates upon the expiration
of the last valid claim of the licensed patent rights. We may terminate the agreement at any time by giving the Regents advance
written notice. The agreement may also be terminated by the Regents in the event of our continuing material breach after notice
of such breach and the opportunity to cure.
ENVIRONMENTAL
AND OTHER REGULATORY MATTERS
Government
Regulation
The
pre-clinical studies and clinical testing, manufacture, labeling, storage, record keeping, advertising, promotion, export, marketing
and sales, among other things, of our therapeutic candidates and future products, are subject to extensive regulation by governmental
authorities in the United States and other countries. In the United States, pharmaceutical products are regulated by the Food
and Drug Administration (the “FDA”) under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and other
laws. Biologics are subject to regulation by the FDA under the FDCA, the Public Health Service Act, and related regulations, and
other federal, state and local statutes and regulations. Biological products include, among other things, viruses, therapeutic
serums, vaccines and most protein products. Product development and approval within these regulatory frameworks takes a number
of years, and involves the expenditure of substantial resources.
Regulatory
approval will be required in all major markets in which we, or our licensees, seek to test our products in development. At a minimum,
such approval requires evaluation of data relating to quality, safety and efficacy of a product for its proposed use. The specific
types of data required and the regulations relating to these data differ depending on the territory, the drug involved, the proposed
indication and the stage of development.
In
general, new chemical entities are tested in animal models to determine whether the product is reasonably safe for initial human
testing. Additional preclinical testing continues during the clinical development stage. Clinical trials for new products are
typically conducted in three sequential phases that may overlap. Phase 1 trials typically involve the initial introduction of
the pharmaceutical into healthy human volunteers and focus on testing for safety, dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. In the case of serious or life-threatening diseases, such as cancer, initial Phase 1 trials
are often conducted in patients directly, with preliminary exploration of potential efficacy. Phase 2 trials involve clinical
trials to evaluate the effectiveness of the drug for a particular indication or indications in patients with the disease or condition
under study and to determine the common short-term side effects and risks associated with the drug. Phase 2 trials are typically
closely monitored and conducted in a relatively small number of patients, usually involving no more than several hundred subjects.
Phase 3 trials are generally expanded, well-controlled clinical trials. They are performed after preliminary evidence suggesting
effectiveness of the drug has been obtained, and are intended to gather the additional information about effectiveness and safety
that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling.
In
the United States, specific pre-clinical data, chemical data and a proposed clinical study protocol, as described above, must
be submitted to the FDA as part of an Investigational New Drug application, or IND, which, unless the FDA objects, will become
effective 30 days following receipt by the FDA. Phase 1 trials may commence only after the IND application becomes effective.
Following completion of Phase 1 trials, further submissions to regulatory authorities are necessary in relation to Phase 2 and
3 trials to update the existing IND. Authorities may require additional preclinical or clinical data before allowing the trials
to commence and could demand discontinuation of studies at any time if there are significant safety issues. In addition to regulatory
review, a clinical trial involving human subjects has to be approved by an independent body. The exact composition and responsibilities
of this body differ from country to country. In the United States, for example, each clinical trial is conducted under the auspices
of an Institutional Review Board for any institution at which the clinical trial is conducted. This board considers among other
factors, the design of the clinical trial, ethical factors, the safety of the human subjects and the possible liability risk for
the institution.
Information
generated in this process is susceptible to varying interpretations that could delay, limit, or prevent regulatory approval at
any stage of the approval process. Failure to demonstrate adequately the quality, safety and efficacy of a therapeutic drug under
development would delay or prevent regulatory approval of the product.
In
order to gain marketing approval, we must submit a new drug application, or NDA, for review by the FDA. The NDA must include a
substantial amount of data and other information concerning safety and effectiveness the drug compound from laboratory, animal
and clinical testing, as well as data and information manufacturing, product stability, and proposed product labeling.
There
can be no assurance that if clinical trials are completed that we or any future collaborative partners will submit an NDA or similar
applications outside of the United States for required authorizations to manufacture or market potential products, or that any
such applications will be reviewed or approved in a timely manner. Approval of an NDA, if granted at all, can take several months
to several years, and the approval process can be affected by a number of factors. Additional studies or clinical trials may be
requested during the review and may delay marketing approval and involve unbudgeted costs. Regulatory authorities may conduct
inspections of relevant facilities and review manufacturing procedures, operating systems and personnel qualifications. In addition
to obtaining approval for each product, in many cases each drug manufacturing facility must be approved. Further, inspections
may occur over the life of the product. An inspection of the clinical investigation sites by a competent authority may be required
as part of the regulatory approval procedure. As a condition of marketing approval, the regulatory agency may require post-marketing
surveillance to monitor adverse effects, or other additional studies as deemed appropriate. After approval for the initial indication,
further clinical studies are usually necessary to gain approval for additional indications. The terms of any approval, including
labeling content, may be more restrictive than expected and could affect product marketability.
Holders
of an approved NDA are required to report certain adverse reactions and production problems, if any, to the FDA, and to comply
with certain requirements concerning advertising and promotional labeling for their products. Moreover, quality control and manufacturing
procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess
cGMP compliance. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality
control to maintain compliance with cGMP and other aspects of regulatory compliance. We expect to continue to rely upon third-party
manufacturers to produce commercial supplies of any products which are approved for marketing. We cannot be sure that those manufacturers
will remain in compliance with applicable regulations, or that future FDA inspections will not identify compliance issues at the
facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.
Any
of our future products approved by the FDA will likely be purchased principally by healthcare providers that typically bill various
third-party payers, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care plans,
for the healthcare products and services provided to their patients. The ability of customers to obtain appropriate reimbursement
for the products and services they provide is crucial to the success of new drug and biologic products. The availability of reimbursement
affects which products customers purchase and the prices they are willing to pay. Reimbursement varies from country to country
and can significantly impact the acceptance of new products. Even if we were to develop a promising new product, we may find limited
demand for the product unless reimbursement approval is obtained from private and governmental third-party payers.
If
the FDA approves any of our future products and reimbursement for those products is approved by any federal or state healthcare
programs, then we will be subject to federal and state laws, such as the Federal False Claims Act, state false claims acts, the
illegal remuneration provisions of the Social Security Act, and federal and state anti-kickback laws that govern financial and
other arrangements among drug manufacturers and developers and the physicians and other practitioners or facilities that purchase
or prescribe products. Among other things, these laws prohibit kickbacks, bribes and rebates, as well as other direct and indirect
payments that are intended to induce the use or prescription of medical products or services payable by any federal or state healthcare
program, and prohibit presenting a false or misleading claim for payment under a federal or state program. Possible sanctions
for violation of any of these restrictions or prohibitions include loss of eligibility to participate in federal and state reimbursement
programs and civil and criminal penalties. If we fail to comply, even inadvertently, with any of these requirements, we could
be required to alter our operations, enter into corporate integrity, deferred prosecution or similar agreements with state or
federal government agencies, and could become subject to significant civil and criminal penalties.
AVAILABLE
INFORMATION
Our
common stock is listed on the TSX Venture Exchange and trades under the symbol “COB.U.” It also trades in the OTCQX
marketplace under the symbol “CWBR.” Our principal executive offices are located at 1455 Adams Drive, Suite 2050,
Menlo Park, California 94025, and our telephone number is (650) 446-7888. The internet address of our corporate website is http://www.cohbar.com.
We
file annual reports, quarterly reports, current reports, proxy statements and other information with the Securities and Exchange
Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended. You can inspect and obtain a copy of
our reports, proxy statements and other information filed with the SEC at the offices of the SEC’s Public Reference Room
at 100 F Street N.E., Washington, D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. EST. Please call
the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC maintains an internet website at http://www.sec.gov
where you can access copies of most of our SEC filings.
We
make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports,
available free of charge on our corporate website. In addition, our Code of Ethics and Business Conduct and the charters of our
Audit Committee, Compensation Committee and Governance and Nominating Committee are available on our corporate website. The contents
of our corporate website are not incorporated into, or otherwise to be regarded as part of, this Annual Report on Form 10-K.
Item
1A. Risk Factors
CohBar
operates in an environment that involves a number of risks and uncertainties. The risks and uncertainties described in this Annual
Report on Form 10-K are not the only risks and uncertainties that we face. Additional risks and uncertainties that presently are
not considered material or are not known to us, and therefore are not mentioned herein, may impair our business operations. If
any of the risks described in this Annual Report on Form 10-K actually occur, our business, operating results and financial position
could be adversely affected.
We
have had a history of losses and no revenue.
Since
our conversion to a Delaware corporation in September 2009 through December 31, 2016, we have accumulated losses of $14,409,536.
As of December 31, 2016, we had working capital of $8,430,652 and stockholders’ equity of $8,697,974. We can offer no assurance
that we will ever operate profitably or that we will generate positive cash flow in the future. To date, we have not generated
any revenues from our operations and do not expect to generate any revenue from the sale of products in the near future. As a
result, our management expects the business to continue to experience negative cash flow for the foreseeable future and cannot
predict when, if ever, our business might become profitable. With the cash and investments on hand as of December 31, 2016 combined
with the exercises of warrants subsequent to December 31, 2016, the Company believes that it has sufficient capital to meet its
operating expenses and obligations for the next twelve months from the date of this filing. Until we can generate significant
revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We will need to raise additional
funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable
terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures
or unanticipated requirements. This may seriously harm our business, financial condition and results of operations. In the event
we are not able to continue operations our stockholders will likely suffer a complete loss of their investments in our securities.
We
are an early research stage biotechnology company and may never be able to successfully develop marketable products or generate
any revenue. We have a very limited relevant operating history upon which an evaluation of our performance and prospects can be
made. There is no assurance that our future operations will result in profits. If we cannot generate sufficient revenues, we may
suspend or cease operations.
We
are an early-stage company. Our operations to date have been limited to organizing and staffing our company, business planning,
raising capital, in-licensing intellectual property, identifying MDPs for further research and performing research on identified
MDPs. We have not generated any revenues to date. All of our MBTs are in the concept or research stage. Moreover, we cannot be
certain that our research and development efforts will be successful or, if successful, that our MBTs will ever be approved by
the FDA. Typically, it takes 10-12 years to develop one new medicine from the time it is discovered to when it is available for
treating patients and longer timeframes are not uncommon. Even if approved, our products may not generate commercial revenues.
We have no relevant operating history upon which an evaluation of our performance and prospects can be made. We are subject to
all of the business risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements,
failure of potential drug candidates either in research, pre-clinical testing or in clinical trials, failure to establish business
relationships and competitive disadvantages against other companies. If we fail to become profitable, we may suspend or cease
operations.
We
will need additional funding and may be unable to raise additional capital when needed, which would force us to delay, reduce
or eliminate our research and development activities.
Our
operations to date have consumed substantial amounts of cash, and we expect our capital and operating expenditures to increase
in the next few years. We may not be able to generate significant revenues for several years, if at all. Until we can generate
significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We cannot be certain
that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required
to delay, reduce the scope of, or eliminate one or more of our research and development activities.
We
may not be successful in our efforts to identify or discover potential drug development candidates.
A
key element of our strategy is to identify and test MDPs that play a role in cellular processes underlying our targeted disease
indications. A significant portion of the research that we are conducting involves emerging scientific knowledge and drug discovery
methods. Our drug discovery efforts may not be successful in identifying MBTs that are useful in treating disease. Our research
programs may initially show promise in identifying potential drug development candidates, yet fail to yield candidates for pre-clinical
and clinical development for a number of reasons, including:
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the
research methodology used may not be successful in identifying appropriate potential
drug development candidates; or
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potential
drug development candidates may, on further study, be shown not to be effective in humans,
or to have unacceptable toxicities, harmful side effects, or other characteristics that
indicate that they are unlikely to be medicines that will receive marketing approval
and achieve market acceptance.
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Research
programs to identify new product candidates require substantial technical, financial and human resources. We may choose to focus
our efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. If we are unable to identify
suitable MBTs for pre-clinical and clinical development, we will not be able to obtain product revenues in future periods, which
likely would result in significant harm to our financial position and adversely impact our stock price.
Our
research and development plans will require substantial additional future funding which could impact our operational and financial
condition. Without the required additional funds, we will likely cease operations.
It
will take several years before we are able to develop potentially marketable products, if at all. Our research and development
plans will require substantial additional capital to:
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conduct
research, pre-clinical testing and human studies;
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manufacture
any future drug development candidate or product at pilot and commercial scale; and
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establish
and develop quality control, regulatory, and administrative capabilities to support these
programs.
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Our
future operating and capital needs will depend on many factors, including:
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the
pace of scientific progress in our research programs and the magnitude of these programs;
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the
scope and results of pre-clinical testing and human studies;
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the
time and costs involved in obtaining regulatory approvals;
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the
time and costs involved in preparing, filing, prosecuting, securing, maintaining and
enforcing intellectual property rights;
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competing
technological and market developments;
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our
ability to establish additional collaborations;
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changes
in any future collaborations;
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the
cost of manufacturing our drug products; and
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the
effectiveness of efforts to commercialize and market our products.
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We
base our outlook regarding the need for funds on many uncertain variables. Such uncertainties include the success of our research
and development initiatives, regulatory approvals, the timing of events outside our direct control such as negotiations with potential
strategic partners and other factors. Any of these uncertain events can significantly change our cash requirements as they determine
such one-time events as the receipt or payment of major milestones and other payments.
Additional
funds will be required to support our operations and if we are unable to obtain them on favorable terms, we may be required to
cease or reduce further research and development of our drug product programs, sell or abandon some or all of our intellectual
property, merge with another entity or cease operations.
We
have a material weakness in our internal control over financial reporting. In addition, because of our status as an emerging growth
company, our independent registered public accountants are not required to provide an attestation report as to our internal control
over financial reporting for several years.
We
are required to annually assess the effectiveness of our internal control over financial reporting pursuant to Section 404 of
Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”) and to report any material weaknesses in such internal
control. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis. As of December 31, 2016, we conducted an evaluation of the effectiveness
of the design and operation of our internal control over financial reporting and based on this evaluation we concluded, as of
December 31, 2016, that our internal controls over financial reporting were not effective due to a material weakness. The material
weakness relates to our having one employee assigned to positions that involve processing financial information, resulting in
a lack of segregation of duties so that all journal entries and account reconciliations are reviewed by someone other than the
preparer, heightening the risk of error or fraud. Because of our limited resources we may be unable remediate the identified material
weakness in a timely manner, or additional control deficiencies may be identified. If we are unable to remediate the material
weakness, or otherwise maintain effective internal control over financial reporting, we may not be able to report our financial
results accurately, prevent fraud or file our periodic reports in a timely manner.
Our independent
registered public accounting firm will not be required to attest formally to the effectiveness of our internal control over financial
reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company”
as defined in the Jumpstart our Business Startups Act of 2012 (“JOBS Act”). We will be an emerging growth company
until December 31, 2020, although circumstances could cause us to lose that status earlier, including if the market value of our
common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be
an emerging growth company as of the following December 31. Accordingly, you will not likely be able to depend on any attestation
concerning our internal control over financial reporting from our independent registered public accountants for several years.
If
we fail to demonstrate efficacy in our research and clinical trials, our future business prospects, financial condition and operating
results will be materially adversely affected.
The
success of our research and development efforts will be greatly dependent upon our ability to demonstrate efficacy of MBTs in
non-clinical studies, as well as in clinical trials. Non-clinical studies involve testing potential MBTs in appropriate non-human
disease models to demonstrate efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve
clinical testing in humans. If certain non-clinical data reveals potential safety issues or the results are inconsistent with
an expectation of the potential drug’s efficacy in humans, the program may be discontinued or the regulatory agencies may
require additional testing before allowing human clinical trials. This additional testing will increase program expenses and extend
timelines. We may decide to suspend further testing on our potential drugs if, in the judgment of our management and advisors,
the non-clinical test results do not support further development.
Moreover,
success in research, pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful,
and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and non-clinical
testing. The clinical trial process may fail to demonstrate that our potential drug candidates are safe for humans and effective
for indicated uses. This failure would cause us to abandon a drug candidate and may delay development of other potential drug
candidates. Any delay in, or termination of, our non-clinical testing or clinical trials will delay the filing of an investigational
new drug application and new drug application with the Food and Drug Administration or the equivalent applications with pharmaceutical
regulatory authorities outside the United States and, ultimately, our ability to commercialize our potential drugs and generate
product revenues. In addition, we expect that our early clinical trials will involve small patient populations. Because of the
small sample size, the results of these early clinical trials may not be indicative of future results.
Following
successful non-clinical testing, potential drugs will need to be tested in a clinical development program to provide data on safety
and efficacy prior to becoming eligible for product approval and licensure by regulatory agencies.
If
any of our future potential drugs in clinical development become the subject of problems, our ability to sustain our development
programs will become critically compromised. For example, efficacy or safety concerns may arise, whether or not justified, that
could lead to the suspension or termination of our clinical programs. Examples of problems that could arise include, among others:
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efficacy
or safety concerns with the potential drug candidates, even if not justified;
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failure
of agencies to approve a drug candidate and/or requiring additional clinical or non-clinical
studies before prior to determining approvability;
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manufacturing
difficulties or concerns;
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regulatory
proceedings subjecting the potential drug candidates to potential recall;
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publicity
affecting doctor prescription or patient use of the potential drugs;
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pressure
from competitive products; or
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introduction
of more effective treatments.
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Each
clinical phase is designed to test attributes of the drug and problems that might result in the termination of the entire clinical
plan. These problems can be revealed at any time throughout the overall clinical program. The failure to demonstrate efficacy
in our clinical trials would have a material adverse effect on our future business prospects, financial condition and operating
results.
Even
if we are able to develop our potential drugs, we may not be able to obtain regulatory approval, or if approved, we may not be
able to generate significant revenues or successfully commercialize our products, which will adversely affect our financial results
and financial condition and we will have to delay or terminate some or all of our research and development plans which may force
us to cease operations.
All
of our potential drug candidates will require extensive additional research and development, including pre-clinical testing and
clinical trials, as well as regulatory approvals, before we can market them. We cannot predict if or when any potential drug candidate
we intend to develop will be approved for marketing. There are many reasons that we may fail in our efforts to develop our potential
drug candidates. These include:
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the
possibility that pre-clinical testing or clinical trials may show that our potential
drugs are ineffective and/or cause harmful side effects or toxicities;
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our
potential drugs may prove to be too expensive to manufacture or administer to patients;
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our
potential drugs may fail to receive necessary regulatory approvals from the United States
Food and Drug Administration or foreign regulatory authorities in a timely manner, or
at all;
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even
if our potential drugs are approved, we may not be able to produce them in commercial
quantities or at reasonable costs;
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even
if our potential drugs are approved, they may not achieve commercial acceptance;
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regulatory
or governmental authorities may apply restrictions to any of our potential drugs, which
could adversely affect their commercial success; and
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the
proprietary rights of other parties may prevent us or our potential collaborative partners
from marketing our potential drugs.
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If
we fail to develop our potential drug candidates, our financial results and financial condition will be adversely affected, we
will have to delay or terminate some or all of our research and development plans and may be forced to cease operations.
If
we do not maintain the support of qualified scientific collaborators, our revenue, growth and profitability will likely be limited,
which would have a material adverse effect on our business.
We
will need to maintain our existing relationships with leading scientists and/or establish new relationships with scientific collaborators.
We believe that such relationships are pivotal to establishing products using our technologies as a standard of care for various
indications. There is no assurance that our founders, scientific advisors or research partners will continue to work with us or
that we will be able to attract additional research partners. If we are not able to establish scientific relationships to assist
in our research and development, we may not be able to successfully develop our potential drug candidates. If this happens, our
business will be adversely affected.
We
will seek to establish development and commercialization collaborations, and, if we are not able to establish them on commercially
reasonable terms, we may have to alter our development and commercialization plans.
Our
potential drug development programs and the potential commercialization of our drug candidates will require substantial additional
cash to fund expenses. We may decide to collaborate with pharmaceutical or biotechnology companies in connection with the development
or commercialization of our potential drug candidates.
We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive collaboration agreement will
depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions
of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include
the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the
United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering
such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership
of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry
and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar
indications that may be available to collaborate on, and whether such alternative collaboration project could be more attractive
than the one with us for our product candidate.
Collaborations
are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business
combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We
may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales
or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.
If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may
not be able to further develop our product candidates or bring them to market and generate product revenue.
We
expect to rely on third parties to conduct our clinical trials and some aspects of our research and pre-clinical testing. These
third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research
or pre-clinical testing.
We
currently rely on third parties to conduct some aspects of our research and expect to continue to rely on third parties to conduct
additional aspects of our research and pre-clinical testing, as well as any future clinical trials. Any of these third parties
may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product
research and development activities.
Our
reliance on these third parties for research and development activities will reduce our control over these activities but will
not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials
is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to
comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording and reporting the results of
clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality
of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed
clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result
in fines, adverse publicity and civil and criminal sanctions.
Furthermore,
these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties
do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals
for our drug candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines.
We
also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure
on the part of our distributors could delay clinical development or marketing approval of our drug candidates or commercialization
of our products, producing additional losses and depriving us of potential product revenue.
We
contract with third parties for the manufacture of our peptide materials for research and expect to continue to do so for any
future product candidate advanced to pre-clinical testing, clinical trials and commercialization. This reliance on third parties
increases the risk that we will not have sufficient quantities of our research peptide materials, product candidates or medicines,
or that such supply will not be available to us at an acceptable cost, which could delay, prevent or impair our research, development
or commercialization efforts.
We
do not have manufacturing facilities adequate to produce our research peptide materials or supplies of any future product candidate.
We currently rely, and expect to continue to rely, on third-party manufacturers for the manufacture of our peptide materials,
any future product candidates for pre-clinical and clinical testing, and for commercial supply of any of these product candidates
for which we or future collaborators obtain marketing approval. We do not have long term supply agreements with any third-party
manufacturers, and we purchase our research peptides on a purchase order basis.
We
may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able
to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
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reliance
on the third party for regulatory compliance and quality assurance;
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the
possible breach of the manufacturing agreement by the third party;
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the
possible termination or nonrenewal of the agreement by the third party at a time that
is costly or inconvenient for us; and
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reliance
on the third party for regulatory compliance, quality assurance, and safety and pharmacovigilance
reporting.
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Third-party
manufacturers may not be able to comply with current good manufacturing practices, or cGMP, regulations or similar regulatory
requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable
regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or
withdrawal of approvals, license revocation, seizures or recalls of product candidates or medicines, operating restrictions and
criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business and
results of operations.
Any
drug candidate that we may develop may compete with other drug candidates and products for access to manufacturing facilities.
There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for
us.
Our
current and anticipated future dependence upon others for the manufacture of our investigational materials or future product candidates
or medicines may adversely affect our future profit margins and our ability to commercialize any medicines that receive marketing
approval on a timely and competitive basis.
We
may not be able to develop drug candidates, market or generate sales of our products to the extent anticipated. Our business may
fail and investors could lose all of their investment in our Company.
Assuming
that we are successful in developing our potential drug candidates and receiving regulatory clearances to market our potential
products, our ability to successfully penetrate the market and generate sales of those products may be limited by a number of
factors, including the following:
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if
our competitors receive regulatory approvals for and begin marketing similar products
in the United States, the European Union, Japan and other territories before we do, greater
awareness of their products as compared to ours will cause our competitive position to
suffer;
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information
from our competitors or the academic community indicating that current products or new
products are more effective or offer compelling other benefits than our future products
could impede our market penetration or decrease our future market share; and
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the
pricing and reimbursement environment for our future products, as well as pricing and
reimbursement decisions by our competitors and by payers, may have an effect on our revenues.
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If
any of these happened, our business could be adversely affected.
Any
product candidate we are able to develop and commercialize would compete in the marketplace with existing therapies and new therapies
that may become available in the future. These competitive therapies may be more effective, less costly, more easily administered,
or offer other advantages over any product we seek to market.
There
are numerous therapies currently marketed to treat diabetes, cancer, Alzheimer’s disease and other diseases for which our
potential product candidates may be indicated. For example, if we develop an approved treatment for type 2 diabetes, it would
compete with several classes of drugs for type 2 diabetes that are approved to improve glucose control. These include the insulin
sensitizers pioglitazone (Actos) and rosiglitazone (Avandia), which are administered as oral once daily pills, and metformin,
which is sometimes called an insulin sensitizer and is available as a generic once daily formulation. If we develop an approved
treatment for Alzheimer’s disease it would compete with approved therapies such as donepezil (Aricept), galantamine (Razadyne),
memantine (Namenda), rivastigmine (Exelon) and tacrine (Cognex). These therapies are varied in their design, therapeutic application
and mechanism of action and may provide significant competition for any of our product candidates for which we obtain market approval.
New products may also become available that provide efficacy, safety, convenience and other benefits that are not provided by
currently marketed therapies. As a result, they may provide significant competition for any of our product candidates for which
we obtain market approval. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize
products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than
any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly
than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are
able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payers
seeking to encourage the use of existing products which are generic or are otherwise less expensive to provide.
Our
future success depends on key members of our scientific team and our ability to attract, retain and motivate qualified personnel.
We
are highly dependent on our founders, Dr. Pinchas Cohen and Dr. Nir Barzilai, and the other principal members of our management
and scientific teams. Drs. Cohen and Barzilai are members of our board of directors and provide certain scientific and research
advisory services to us pursuant to consulting arrangements with each of them. Other members of our key management and scientific
teams are employed “at will,” meaning we or they may terminate the employment relationship at any time. Our consultants
and advisors, including our founders, may be employed by employers other than us and may have commitments under consulting or
advisory contracts with other entities that may limit their availability to us. In addition, we rely on other consultants and
advisors from time to time, including drug discovery and development advisors, to assist us in formulating our research and development
strategy. Agreements with these advisors typically may be terminated by either party, for any reason, on relatively short notice.
We do not maintain “key person” insurance for any of the key members of our team. The loss of the services of any
of these persons could impede the achievement of our research, development and commercialization objectives.
Recruiting
and retaining qualified scientific, clinical, and managerial personnel will also be critical to our success. We may not be able
to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology
companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities
and research institutions.
We
expect to expand our research, development and regulatory capabilities, and as a result, we may encounter difficulties in managing
our growth, which could disrupt our operations.
We
expect to experience significant growth in the scope of our operations, particularly in the areas of research, drug development
and regulatory affairs. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational
and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited
financial resources and our limited operating history, we may not be able to effectively manage the expected expansion of our
operations. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
The
use of any of our products in clinical trials may expose us to liability claims, which may cost us significant amounts of money
to defend against or pay out, causing our business to suffer.
The
nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of our products.
We do not currently have any drug candidates in clinical trials, however, if any of our drug candidates enter into clinical trials
or become marketed products, they could potentially harm people or allegedly harm people, possibly subjecting us to costly and
damaging product liability claims. Some of the patients who participate in clinical trials are already ill when they enter a trial
or may intentionally or unintentionally fail to meet the exclusion criteria. The waivers we obtain may not be enforceable and
may not protect us from liability or the costs of product liability litigation. Although we intend to obtain product liability
insurance which we believe is adequate, we are subject to the risk that our insurance will not be sufficient to cover claims.
The insurance costs along with the defense or payment of liabilities above the amount of coverage could cost us significant amounts
of money and management distraction from other elements of the business, causing our business to suffer.
The
patent positions of biopharmaceutical products are complex and uncertain and we may not be able to protect our patented or other
intellectual property. If we cannot protect this property, we may be prevented from using it or our competitors may use it and
our business could suffer significant harm. Also, the time and money we spend on acquiring and enforcing patents and other intellectual
property will reduce the time and money we have available for our research and development, possibly resulting in a slow down
or cessation of our research and development.
We
are the exclusive licensee of patents and patent applications related to our MDPs and expect to own or license patents related
to our potential drug candidates. However, neither patents nor patent applications ensure the protection of our intellectual property
for a number of reasons, including the following:
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The
United States Supreme Court rendered a decision in Molecular Pathology vs. Myriad Genetics, Inc., 133 S.Ct. 2107 (2013) (“Myriad”),
in which the court held that naturally occurring DNA segments are products of nature and not patentable as compositions of matter.
On March 4, 2014, the U.S. Patent and Trademark Office (“USPTO”) issued guidelines for examination of such claims
that, among other things, extended the Myriad decision to any natural product. Since MDPs are natural products isolated from cells,
the USPTO guidelines may affect allowability of some of our patent claims (pertaining to natural MDP sequences) that are filed
in the USPTO but are not yet issued. Further, while the USPTO guidelines are not binding on the courts, it is likely that as the
law of subject matter eligibility continues to develop Myriad will be extended to natural products other than DNA. Thus, our issued
U.S. patent claims directed to MDPs as compositions of matter may be vulnerable to challenge by competitors who seek to have our
claims rendered invalid. While Myriad and the USPTO guidelines described above will affect our patents only in the United States,
there is no certainty that similar laws or regulations will not be adopted in other jurisdictions.
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Competitors
may interfere with our patenting process in a variety of ways. Competitors may claim
that they invented the claimed invention prior to us. Competitors may also claim that
we are infringing their patents and restrict our freedom to operate. Competitors may
also contest our patents and patent applications, if issued, by showing in various patent
offices that, among other reasons, the patented subject matter was not original, was
not novel or was obvious. In litigation, a competitor could claim that our patents and
patent applications are not valid or enforceable for a number of reasons. If a court
agrees, we would lose some or all of our patent protection.
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As
a company, we have no meaningful experience with competitors interfering with our patents
or patent applications. In order to enforce our intellectual property, we may need to
file a lawsuit against a competitor. Enforcing our intellectual property in a lawsuit
can take significant time and money. We may not have the resources to enforce our intellectual
property if a third party infringes an issued patent claim. Infringement lawsuits may
require significant time and money resources. If we do not have such resources, the licensor
is not obligated to help us enforce our patent rights. If the licensor does take action
by filing a lawsuit claiming infringement, we will not be able to participate in the
suit and therefore will not have control over the proceedings or the outcome of the suit.
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Because
of the time, money and effort involved in obtaining and enforcing patents, our management
may spend less time and resources on developing potential drug candidates than they otherwise
would, which could increase our operating expenses and delay product programs.
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Our
licensed patent applications directed to the composition and methods of using MOTS-c,
and SHLP-6, which we consider as a research peptide for the potential treatment of cancer,
have not yet been issued. There can be no assurance that these or our other licensed
patent applications will result in the issuance of patents, and we cannot predict the
breadth of claims that may be allowed in our currently pending patent applications or
in patent applications we may file or license from others in the future.
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Issuance
of a patent may not provide much practical protection. If we receive a patent of narrow
scope, then it may be easy for competitors to design products that do not infringe our
patent(s).
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We
have limited ability to expand coverage of our licensed patent related to SHLP-2 and
our licensed patent application related to SHLP-6 outside of the United States. The lack
of patent protection in international jurisdictions may inhibit our ability to advance
MBT drug candidates in these markets.
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If
a court decides that the method of manufacture or use of any of our drug candidates infringes
on a third-party patent, we may have to pay substantial damages for infringement.
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A
court may prohibit us from making, selling or licensing a potential drug candidate unless
the patent holder grants a license. A patent holder is not required to grant a license.
If a license is available, we may have to pay substantial royalties or grant cross licenses
to our patents, and the license terms may be unacceptable.
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Redesigning
our potential drug candidates so that they do not infringe on other patents may not be
possible or could require substantial funds and time.
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It
is also unclear whether our trade secrets are adequately protected. While we use reasonable efforts to protect our trade secrets,
our employees or consultants may unintentionally or willfully disclose our information to competitors. Enforcing a claim that
someone illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. In
addition, courts outside the United States are sometimes less willing to protect trade secrets. Our competitors may independently
develop equivalent knowledge, methods and know-how. We may also support and collaborate in research conducted by government organizations,
hospitals, universities or other educational institutions. These research partners may be unable or unwilling to grant us exclusive
rights to technology or products derived from these collaborations prior to entering into the relationship.
If
we do not obtain required intellectual property rights, we could encounter delays in our drug development efforts while we attempt
to design around other patents or even be prohibited from developing, manufacturing or selling potential drug candidates requiring
these rights or licenses. There is also a risk that disputes may arise as to the rights to technology or potential drug candidates
developed in collaboration with other parties.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or
if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish
about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation regarding
our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline.
If any analysts who may cover us were to cease coverage or our company or fail to regularly publish reports on us, we could lose
visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Shares
of our common stock eligible for future sale in the public marketplace may adversely affect the market price of our common stock.
The
price of our common stock could decline if there are substantial sales of our common stock in the public stock market. There were
34,807,881 shares of our common stock outstanding as of December 31, 2016. Of these, 12,915,343 shares were subject to lock-up
agreements which expired on January 6, 2017. These shares are currently eligible for resale under a registration statement we
filed with the Securities and Exchange Commission and continue to maintain as effective. Sales of a substantial number of these
shares, or the perception in the market that the holders of a large number of shares are able to or intend to sell shares, could
reduce the market price of our common stock.
The
market price of our common stock may be highly volatile.
The
market for our common stock will likely be characterized by significant price volatility when compared to more established issuers
and we expect that it will continue to be so for the foreseeable future. The market price of our common stock is likely to be
volatile for a number of reasons. First, our common stock is likely to be sporadically and/or thinly traded. As a consequence
of this lack of liquidity, the trading of relatively small quantities of common stock by our stockholders may disproportionately
influence the price of the common stock in either direction. The price of the common stock could, for example, decline precipitously
if even a relatively small number of shares are sold on the market without commensurate demand, as compared to a market for shares
of an established issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative
investment due to our lack of profits to date and substantial uncertainty regarding our ability to develop and commercialize a
drug product from our new or existing technologies. As a consequence of this enhanced risk, more risk-adverse investors may, under
the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell
their shares on the market more quickly and at greater discounts than would be the case with the shares of an established issuer.
We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time
or as to what effect the sale of common stock or the availability of common stock for sale at any time will have on the prevailing
market price.
Our
ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under
Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation
undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership
over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change
tax attributes to offset its post-change income may be limited. We may in the future as a result of subsequent shifts in our stock
ownership experience an “ownership change.” Thus, our ability to utilize carryforwards of our net operating losses
and other tax attributes to reduce future tax liabilities may be substantially restricted. At this time, we have not completed
a full study to assess whether an ownership change under Section 382 of the Code occurred due to the costs and complexities associated
with such a study. Further, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes.
Therefore, we may not be able to take full advantage of these carryforwards for federal or state tax purposes.
Our
management owns a significant percentage of our outstanding common stock. If the ownership of our common stock continues to be
highly concentrated in management, it may prevent other stockholders from influencing significant corporate decisions.
As
of March 28, 2017, our executive officers and directors own, as a group, approximately 35.7% of the outstanding shares of our
common stock. Additionally, our executive officers and directors own, as a group, options and warrants exercisable for approximately
12.7% of our outstanding common stock, assuming exercise of such options and warrants. As a result, our management could exert
significant influence over matters requiring stockholder approval, including the election of our board of directors, the approval
of mergers and other extraordinary transactions, as well as the terms of any of these transactions. This concentration of ownership
could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting
to obtain control of us, which could in turn have an adverse effect on the fair market value of our company and our common stock.
These actions may be taken even if they are opposed by our other stockholders.
Because
the principal trading markets for our shares are the TSX Venture Exchange and the OTCQX marketplace, the corporate governance
rules of the major U.S. stock exchanges do not apply to us. As a result, our governance practices may differ from those of a company
listed on such U.S. exchanges.
Our
governance practices need not comply with certain New York Stock Exchange and NASDAQ corporate governance standards, including:
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the
requirements that a majority of our board of directors consists of independent directors;
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the
requirement that we have an audit committee that is composed entirely of independent
directors with a written charter addressing the committee’s purpose and responsibilities;
and
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the
requirement that we have a compensation committee that is composed entirely of independent
directors with a written charter addressing the committee’s purpose and responsibilities.
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There
can be no assurance that we will voluntarily comply with any of the foregoing requirements. Accordingly, you may not have the
same protections afforded to stockholders of companies that are subject to such corporate governance requirements.
The
requirements of being a public company may strain our resources, divert management’s attention and require us to disclose
information that is helpful to competitors, make us more attractive to potential litigants and make it more difficult to attract
and retain qualified personnel.
As
a public company, we are subject to the reporting requirements of the Securities Act, the Securities Exchange Act of 1934, as
amended (Exchange Act), the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),
and applicable Canadian securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with
these rules and regulations creates significant legal and financial compliance costs and makes some activities difficult, time-consuming
or costly. The Exchange Act and applicable Canadian provincial securities legislation require, among other things, that we file
annual, quarterly, and current reports with respect to our business and operating results.
Additionally,
the Sarbanes-Oxley Act and the related rules and regulations of the SEC, as well as the rules and regulations of applicable Canadian
securities regulators and the rules of the TSX-V, require us to implement particular corporate governance practices and adhere
to a variety of reporting requirements and complex accounting rules. Among other things, we are subject to rules regarding the
independence of the members of our board of directors and committees of the board and their experience in finance and accounting
matters and certain of our executive officers are required to provide certifications in connection with our quarterly and annual
reports filed with the SEC and applicable Canadian securities regulators. The perceived personal risk associated with these rules
may deter qualified individuals from accepting these positions. Accordingly, we may be unable to attract and retain qualified
officers and directors. If we are unable to attract and retain qualified officers and directors, our business and our ability
to maintain the listing of our shares of common stock on the TSX-V or another stock exchange could be adversely affected.
We
are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging
growth companies will make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth
company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved. We could be an emerging growth company through December 31,
2020, although circumstances could cause us to lose that status earlier, including if we have more than $1.0 billion in annual
revenue, the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 (the last day of our
second fiscal quarter) before that time, or we issue more than $1.0 billion of non-convertible debt over a three-year period,
in which case we would no longer be an emerging growth company as of the following December 31 (the last day of our fiscal year).
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors
find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock
price may be more volatile.
Under
the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting
standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not
emerging growth companies. Recent accounting standards that have been issued or proposed 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 our financial statements
upon adoption.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
In
February 2015, the Company entered into a lease agreement for an expanded laboratory facility. The laboratory space is leased
on a month-to month basis and is part of a shared facility in Menlo Park, California. The Company also terminated a previous month-to-month
lease for the laboratory space in Pasadena, California effective March 31, 2015.
Rent
expense amounted to $171,294 and $107,385 for the years ended December 31, 2016 and 2015, respectively.
Item
3. Legal Proceedings
From
time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party
to any material legal proceedings, and to our knowledge none is threatened. There can be no assurance that future legal proceedings
arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results
of operations or cash flows.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market
for our Common Stock
Our
common stock has traded on the TSX Venture Exchange (the “TSX-V”) under the symbol “COB.U” since January
8, 2015. Prior to that date, there was no public trading market for our common stock. Our initial public offering was priced at
USD $1.00 per share on January 6, 2015. The following table sets forth for the periods indicated, the high and low sales prices
from the TSX-V.
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Quarters Ended 2016
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March 31
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June 30
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September 30
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December 31
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Market price per share of common stock
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High sales price
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$
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1.68
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$
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3.30
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$
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2.50
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$
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2.42
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Low sales price
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$
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1.05
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$
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1.60
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$
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2.40
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$
|
2.00
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Quarters Ended 2015
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March 31
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June 30
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September 30
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December 31
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Market price per share of common stock
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|
|
|
|
High sales price
|
|
$
|
1.65
|
|
|
$
|
1.37
|
|
|
$
|
1.25
|
|
|
$
|
1.44
|
|
Low sales price
|
|
$
|
1.25
|
|
|
$
|
0.85
|
|
|
$
|
1.15
|
|
|
$
|
1.10
|
|
On
March 28, 2017, the closing price for our common stock as reported on the TSX-V was USD $1.80
per share.
Our
common stock has been quoted for trading on the OTC Markets Group OTCQX marketplace (the “OTCQX”) under the symbol
“CWBR” since May 20, 2015. The following table sets forth, for the periods indicated, the high and low bid prices
for our common stock as determined from quotations on the OTCQX. The quotations reflect inter-dealer prices, without retail markup,
markdown, or commissions, and may not represent actual transactions.
|
|
Quarters Ended 2016
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Bid price per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
High bid price
|
|
$
|
1.60
|
|
|
$
|
2.88
|
|
|
$
|
2.35
|
|
|
$
|
2.30
|
|
Low bid price
|
|
$
|
1.03
|
|
|
$
|
1.53
|
|
|
$
|
2.06
|
|
|
$
|
1.90
|
|
|
|
Quarters Ended 2015
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Bid price per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
High bid price
|
|
$
|
-
|
|
|
$
|
1.01
|
|
|
$
|
1.14
|
|
|
$
|
1.25
|
|
Low bid price
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.89
|
|
|
$
|
1.09
|
|
On
March 28, 2017, the closing bid price for our common stock as reported on the OTCQX was USD $1.59
per
share.
Holders
of Common Stock
As of March 28, 2017, there
were 35,857,701 shares of our common stock outstanding held by 43 holders of record and approximately 750 beneficial shareholders.
Dividends
We
have not declared or paid a cash dividend on our capital stock and do not intend to pay cash dividends for the foreseeable future.
All dividends are subject to the approval of our board of directors. Any future determinations to pay dividends on our capital
stock would depend on our results of operations, our financial condition and liquidity requirements, restrictions that may be
imposed by applicable laws or our contracts, and any other factors that our board of directors in its sole discretion may consider
relevant in declaring a dividend.
Use
of Proceeds
On
December 19, 2014, the SEC declared effective our registration statement on Form S-1 (File No. 333-200033) in connection
with our initial public offering. The registration statement related to 11,250,000 units, each comprised of one share of our
common stock, par value $0.001 per share, and one half of one common stock purchase warrant. On January 6, 2015, we sold
11,250,000 units at the price of $1.00 per unit, for an aggregate sale price of $11,250,000. The offering occurred solely in
Canada using Haywood Securities, Inc. as agent. We also issued unit purchase options to the agent for the offering
exercisable for an aggregate of 786,696 units at a price of $1.00 per unit at any time prior to July 6, 2016. From the date
of our initial public offering through the expiration of the warrants underlying our units on January 6, 2017, we received an
aggregate of $5,055,604 and issued 2,921,126 shares of our common stock. The funds received and shares issued related to the
exercise of common stock purchase warrants and unit purchase options issued in connection with our initial
public offering.
We
incurred expenses of $996,516 in connection with our initial public offering. None of the agent commissions, compensation options
or other offering expenses were paid, directly or indirectly, to any of our directors or officers or their associates or to persons
owning 10% or more of our common stock or to any affiliate of ours. We received net proceeds of $15,309,108 from the offering
and subsequent exercises of warrants and unit purchase options. We have used approximately $9,238,373 of proceeds from the offering
for working capital and other general corporate purposes, including research and development expenditures, general and administrative
expenditures and capital expenditures. We anticipate using the balance of the proceeds for working capital and other general corporate
purposes, including research and development expenditures, general and administrative expenditures and capital expenditures during
2017.
Share
Repurchases
During
the year ended December 31, 2016, there were no purchases of shares of common stock made by, or on behalf of, the Company as defined
by Rule 10b-18 of the Securities Exchange Act of 1934.
Equity
Compensation Plans
See
Item 12 for Equity Compensation Plan information.
Item
6. Selected Financial Data
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We
are an innovative biotechnology company and a leader in the research and development of mitochondria based therapeutics (MBTs),
an emerging class of drugs with the potential to treat a wide range of diseases associated with aging and metabolic dysfunction,
including obesity, fatty liver disease (NAFLD) and non-alcoholic steatohepatitis (NASH), type 2 diabetes mellitus (T2D), cancer,
atherosclerosis, cardiovascular disease, and neurodegenerative diseases such as Alzheimer’s.
MBTs originate from almost
two decades of research by our founders, resulting in their discovery of a novel group of peptides called mitochondrial-derived
peptides (MDPs) encoded within the genome of mitochondria, the powerhouses of the cell. These naturally occurring MDPs and related
analogs have demonstrated a range of biological activity and therapeutic potential in pre-clinical models across multiple diseases
associated with aging.
We are focused on building
our organization, enhancing our scientific and management teams and their capabilities, planning and strategy, raising capital
and the research and development of our MDPs. Our research efforts have focused on discovering and evaluating our MDPs for potential
development as MBT drug candidates. We seek to identify and advance research on MDPs with superior potential for yielding a MBT
drug candidate, and ultimately a drug, for which we have a strong intellectual property position.
In September 2016, we
advanced two novel, optimized analogs of our MOTS-c MDP, CB4209 and CB4211, into IND-enabling studies as our lead MBT drug candidates
with potential for treatment of fatty liver disease (NAFLD), Nonalcoholic steatohepatitis (NASH), obesity, and type 2 diabetes
(T2D). To date, our founders and scientific team have discovered a large number of MDPs that have demonstrated a range of biological
activities and therapeutic potential. Our ongoing research and development of our pipeline MDPs is focused on identifying and
advancing novel improved analogs of those MDPs that have the greatest therapeutic and commercial potential for development into
drugs.
We have financed our operations
primarily through proceeds from our IPO and concurrent private offering, private placements of our preferred stock and, to a lesser
extent, from grants from research foundations. Since our inception through December 31, 2016, our operations have been funded with
an aggregate of approximately $23.4 million, of which approximately $0.2 million was from a grant-funding organization and approximately
$23.2 million was from the issuance of equity instruments.
Since inception, we have
incurred significant operating losses. Our net losses were $6,074,999 and $3,878,210 for the years ended December 31, 2016 and
2015, respectively. As of December 31, 2016, we had an accumulated deficit of $14,409,536. We expect to continue to incur significant
expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and
from year to year. We anticipate incurring increasing expenses from IND-enabling activities for our lead programs, pre-clinical
development of our research peptides, continued development of our MBTs and from the expansion and protection of our intellectual
property portfolio.
Financial
Operations Review
Revenue
To
date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products
in the near future. In the future, we will seek to generate revenue from product sales, either directly or under any future licensing,
development or similar relationship with a strategic partner.
Research
and Development Expenses
Research
and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts,
and the development of our product candidates, which include:
|
●
|
employee-related
expenses including salaries, benefits, and stock-based compensation expense;
|
|
●
|
expenses
incurred under agreements with third parties, including contract research organizations,
or CROs, that conduct research and development and pre-clinical activities on our behalf
and the cost of consultants;
|
|
●
|
the
cost of laboratory equipment, supplies and manufacturing MBT test materials; and
|
|
●
|
depreciation
and other personnel-related costs associated with research and product development.
|
We
expense all research and development expenses as incurred. We expect our research and development expenses to increase in the
year ending December 31, 2017, as we continue our efforts to advance our lead MBT candidate program and to discover, evaluate
and optimize other MDPs as potential MBT drug candidates.
Our
Research Programs
Our
research programs include IND-enabling activities for our lead MBT candidate program, as well as operation of our platform technology
related to discovery of new MDPs, investigational research to evaluate the therapeutic potential of certain discovered MDPs and
engineering analogs of certain discovered MDPs to improve their characteristics as potential MBT drug development candidates.
Depending on factors of capability, cost, efficiency and intellectual property rights we conduct our research programs independently
at our laboratory facility, pursuant to contractual arrangements with CROs or under collaborative arrangements with academic institutions.
The
success of our research programs and the timing of those programs and the possible development of a research peptide into a drug
candidate is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing or estimated costs
of the efforts that will be necessary to complete research and development of a commercial drug. We are also unable to predict
when, if ever, we will receive material net cash inflows from our operations. This is due to the numerous risks and uncertainties
associated with developing medicines, including the uncertainty of:
|
●
|
establishing
an appropriate safety profile with toxicology studies;
|
|
●
|
successfully
designing, enrolling and completing clinical trials;
|
|
●
|
receiving
marketing approvals from applicable regulatory authorities;
|
|
●
|
establishing
commercial manufacturing capabilities or making arrangements with third-party manufacturers;
|
|
●
|
obtaining
and enforcing patent and trade secret protection for our product candidates;
|
|
●
|
launching
commercial sales of the products, if and when approved, whether alone or in collaboration
with others; and
|
|
●
|
maintaining
an acceptable safety profile of the products following approval.
|
A
change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly
change the costs and timing associated with the development of that product candidate.
Research
and development activities are central to our business model. Our MBT drug target candidates are in early stages of investigational
research. Candidates in later stages of clinical development generally have higher development costs than those in earlier stages
of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and
development costs to increase significantly for the foreseeable future as our product candidate development programs progress.
However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization.
There are numerous factors associated with the successful commercialization of any of our product candidates, including future
trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage
of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development
programs and plans.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel
in executive, finance and administrative functions. Other significant costs include legal fees relating to patent and corporate
matters and fees for accounting and consulting services. We anticipate that our general and administrative expenses will increase
in the future to support continued research and development activities and the potential commercialization of our product candidates.
These increases will likely include increased costs related to the hiring of additional personnel, and fees to outside consultants,
lawyers and accountants, among other expenses.
Results
of Operations
Comparison
of Fiscal Years Ended December 31, 2016 and 2015
Operating
Expenses
Research and development
expenses were $3,606,515 in the year ended December 31,
2016 compared to $1,966,221 in the prior year, a $1,640,294 increase, or 83%. The increase in research and development expenses
in the year ended December 31, 2016, was primarily due to an $830,862 increase in wages, benefits and stock-based compensation
primarily associated with the expansion of our scientific staff and a $693,973 increase in laboratory supply and preclinical study
costs related to our efforts to develop optimized MBT candidates. We expect our research and development expenses to increase
in the year ending December 31, 2017, as we continue to advance our lead MBT candidate program and evaluate and optimize other
MDPs as potential MBT drug candidates.
General and administrative
expenses were $2,470,062 in the year ended December 31,
2016 compared to $1,908,080 in the prior year, a $561,982 increase, or 29%. The increase in general and administrative expenses
in the year ended December 31, 2016, was primarily due to a $417,338 increase in wages, benefits and stock-based compensation
associated with the expansion of our staff with the addition of our CEO and Director of Investor Relations and a $145,445 increase
in stock-based compensation with the grants made to those new employees, offset by other miscellaneous decreases. We expect our
general and administrative expenses to remain relatively constant in the year ending December 31, 2017.
Liquidity
and Capital Resources
As
of December 31, 2016 and 2015, we had $3,257,458 and $4,803,687, respectively, in cash. We maintain our cash in a checking and
a savings account on deposit with a banking institution in the United States. In February 2015 our Board of Directors adopted
an investment policy pursuant to which we maintain a portfolio of short-term highly liquid securities. As of December 31, 2016,
we had $5,428,962 invested in U.S. Treasury Bills and Certificates of Deposit.
We
believe the cash on hand and short-term investments as of December 31, 2016 combined with the exercises of warrants subsequent
to December 31, 2016, are sufficient to meet our operating expenses and obligations for the next twelve months from the date of
this filing. However, if unanticipated difficulties arise we may be required to raise additional capital to support our operations
or curtail our research and development activities until such time as additional capital becomes available.
Cash
Flows from Operating Activities
Net
cash used in operating activities for the years ended December 31, 2016 and 2015 was $5,202,973 and $3,631,163, respectively.
Cash used in operations for the year ended December 31, 2016 was primarily due to our reported net loss of $6,074,999 which
was offset by non-cash items of stock based-compensation, depreciation and amortization of the debt discount
totaling $793,603. Cash used in operations for the year ended December 31, 2015 was primarily due to our reported net loss
of $3,878,210 which was offset by non-cash items totaling $427,773.
Cash
Flows from Investing Activities
Net
cash used in investing activities for the years ended December 31, 2016 and 2015 was $46,395 and $5,732,863, respectively. Investing
activities for the fiscal year ended December 31, 2016 related to $88,915 in purchases of property and equipment during the year,
offset by the net amount of purchases and redemptions of short-term highly liquid securities of $58,838. Investing activities
for the fiscal year ended December 31, 2015 related to the $5,478,800 net amount of purchases and redemptions of short-term highly
liquid securities and $225,671 in purchases of property and equipment during the year as we built out and equipped our lab.
Cash
Flows from Financing Activities
Net
cash provided by financing activities for the years ended December 31, 2016 and 2015 was $3,703,139 and $12,973,221, respectively.
Cash provided by financing activities for the year ended December 31, 2016 was primarily due to the proceeds received from the
exercise of common stock purchase warrants and agent’s unit purchase options of $3,700,539. Cash provided by financing activities
for the year ended December 31, 2015 was primarily due to the completion of our IPO. We sold 11,250,000 units in the IPO at a
price of $1.00 per unit, providing net proceeds of $10,253,484, net of agents’ commissions and expenses. Concurrently with
the IPO, we also completed a previously-subscribed private placement of an additional 2,700,000 units for gross proceeds of $2,700,000.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.
Inflation
Inflation
did not have a material effect on our business, financial condition or results of operations in 2016 or 2015.
Contractual
Obligations
Licensing
Agreements
The
Company is a party to an Exclusive License Agreement (the “2011 Exclusive Agreement”) with the Regents of the University
of California (the “Regents”) whereby the Regents granted to the Company an exclusive license for the use of certain
patents. The Company paid the Regents an initial license issue fee of $35,000, which was charged to General and Administrative
expense, as incurred. The Company agreed to pay the licensors specified development milestone payments aggregating up to $765,000
for the first product sold under the license. Milestone payments for additional products developed and sold under the license
are reduced by 50%. The Company is also required to pay annual maintenance fees to the licensors. Aggregate maintenance fees for
the first five years following execution of the agreement are $80,000. Thereafter, the Company is required to pay maintenance
fees of $50,000 annually until the first sale of a licensed product. In addition, for the duration of the 2011 Exclusive Agreement,
the Company is required to pay the licensors royalties equal to 2% of its worldwide net sales of drugs, therapies or other products
developed from claims covered by the licensed patents, subject to a minimum royalty payment of $75,000 annually, beginning after
the first commercial sale of a licensed product. The Company is required to pay royalties ranging from 8% of worldwide sublicense
sales of covered products (if the sublicense is entered after commencement of phase II clinical trials) to 12% of worldwide sublicense
sales (if the sublicense is entered prior to commencement of phase I clinical trials). The agreement also requires the Company
to meet certain diligence and development milestones, including filing of an Investigational New Drug (“IND”) Application
for a product covered by the agreement on or before the seventh anniversary of the agreement date. Through December 31, 2016,
no royalties have been incurred under the 2011 Exclusive Agreement.
The
Company is a party to an Exclusive License Agreement (the “2013 Exclusive Agreement”) with the Regents whereby the
Regents granted to the Company an exclusive license for the use of certain other patents. The Company paid Regents an initial
license issue fee of $10,000 for these other patents, which was charged to General and Administrative expense, as incurred. The
Company agreed to pay the Regents specified development milestone payments aggregating up to $765,000 for the first product sold
under the 2013 Exclusive Agreement. Milestone payments for additional products developed and sold under the 2013 Exclusive Agreement
are reduced by 50%. In addition, for the duration of the 2013 Exclusive Agreement, the Company is required to pay the Regents
royalties equal to 2% of the Company’s worldwide net sales of drugs, therapies or other products developed from claims covered
by the licensed patent, subject to a minimum royalty payment of $75,000 annually, beginning after the first commercial sale of
a licensed product. The Company is required to pay the Regents royalties ranging from 8% of worldwide sublicense sales of covered
products (if the sublicense is entered after commencement of phase II clinical trials to 12% of worldwide sublicense sales (if
the sublicense is entered prior to commencement of phase I clinical trials). The agreement also requires the Company to meet certain
diligence and development milestones, including filing of an IND Application for a product covered by the agreement on or before
the seventh anniversary of the agreement date. Through December 31, 2016, no royalties have been incurred under the 2013 Exclusive
License Agreement.
Operating
Lease
In
February 2015, we entered into a lease agreement for a new and expanded laboratory facility. The laboratory space is leased on
a month-to month basis and is part of a shared facility in Menlo Park, California. We also terminated our previous month-to-month
lease for the laboratory space in Pasadena, California effective March 31, 2015.
Rent
expense amounted to $171,294 and $107,385 for the years ended December 31, 2016 and 2015, respectively.
Research
Loan
In
2013, we were awarded a research loan from the Alzheimer’s Drug Discovery Foundation (“ADDF”). The award was
funded in two installments of $102,630 totaling $205,260. We issued promissory notes evidencing each installment of the loan.
The notes accrue interest at a rate per annum equal to the prime rate published two days prior to the date of the notes and resets
each anniversary of the note. Through December 31, 2016, the interest rate on each note ranged from 3.25% to 3.75% per annum.
The first installment on the notes matured on January 21, 2017 and was paid in March 2017. The second installment will become
due on September 12, 2017. In connection with the award we also issued to the Alzheimer’s Drug Discovery Foundation a warrant
to purchase 15,596 shares of the Company’s common stock at an exercise price of $0.99 per share. The terms of the award
generally require us to apply the loan proceeds towards research on potential treatments for Alzheimer’s disease.
Recent
Accounting Pronouncements
See
Note 3 to the Financial Statements for the year ended December 31, 2016, for a summary of the relevant recent accounting pronouncements.
Other
recent accounting standards that have been issued or proposed 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.
Critical
Accounting Estimates
Our
management’s discussion and analysis of our financial condition and results of operations are based on our financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). U.S. GAAP
requires us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates
of the financial statements, the disclosure of contingencies as of the dates of the financial statements, and the reported amounts
of revenue and expenses during the periods presented. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities. If actual results or events differ materially from those contemplated by us in making these
estimates, our reported financial condition and results of operations for future periods could be materially affected. See “Risk
Factors” for certain matters that may affect our future financial condition or results of operations. An accounting policy
is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain
at the time the estimate is made, if different estimates reasonably could have been used, or if the changes in estimate that are
reasonably likely to occur could materially impact the financial statements. Our management has discussed the development, selection
and disclosure of these estimates with the audit committee of our board of directors.
The
following critical accounting estimates reflect significant judgments and estimates used in the preparation of our financial statements:
|
●
|
Fair
value of financial instruments
|
|
●
|
Valuation
of deferred tax assets
|
Fair
Value of Financial Instruments
We
measure the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. We utilize three levels of inputs that may be used to measure
fair value:
|
●
|
Level
1 – quoted prices in active markets for identical assets or liabilities
|
|
●
|
Level
2 – quoted prices for similar assets and liabilities in active markets or inputs
that are observable
|
|
●
|
Level
3 – inputs that are unobservable (for example, cash flow modeling inputs based
on assumptions)
|
The
carrying amounts of cash, accounts payable, accrued liabilities and debt approximate fair value due to the short-term nature of
these instruments.
Share-based
Payments
We
account for share-based payments using the fair value method. For employees and directors, the fair value of the award is measured
on the grant date. For non-employees, fair value is generally measured based on the fair value of the services provided or the
fair value of the common stock on the measurement date, whichever is more readily determinable and re-measured on interim financial
reporting dates until the service is complete. We have historically granted stock options at exercise prices no less than the
fair market value as determined by the board of directors, with input from management.
The
weighted-average fair value of options and warrants has been estimated on the date of grant using the Black-Scholes pricing model.
In computing the impact, the fair value of each instrument is estimated on the date of grant utilizing certain assumptions including
a risk free interest rate, volatility and expected remaining lives of the awards. Since we have a limited history of being publicly
traded, the fair value of stock-based payment awards issued was estimated using a volatility derived from an index of comparable
entities. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates,
but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change
and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition,
we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating
our forfeiture rate, we analyzed our historical forfeiture rate, the remaining lives of unvested options, and the number of vested
options as a percentage of total options outstanding. If our actual forfeiture rate is materially different from our estimate,
or if we reevaluate the forfeiture rate in the future, the stock-based compensation expense could be significantly different from
what we have recorded in the current period. See Note 3 “Summary of Significant Account Policies – Share-Based Payment”
to our Financial Statements for the years ended December 31, 2016 and 2015 regarding the specific assumptions used with respect
to stock-based compensation for the periods presented.
Since
January 1, 2015, we granted stock options with exercise prices as follows:
Grant
Date
|
|
Number of Shares
Underlying
Options
|
|
|
Exercise Price Per
Share
|
|
|
Common Stock Fair
Value Per Share on
Date of Grant
|
|
July 21, 2015
|
|
|
205,000
|
|
|
$
|
1.00
|
|
|
$
|
0.69
|
|
July 21, 2015
|
|
|
113,124
|
|
|
$
|
1.00
|
|
|
$
|
0.81
|
|
November 10, 2015
|
|
|
70,000
|
|
|
$
|
1.17
|
|
|
$
|
0.81
|
|
January 6, 2016
|
|
|
10,000
|
|
|
$
|
1.10
|
|
|
$
|
0.76
|
|
February 2, 2016
|
|
|
190,000
|
|
|
$
|
1.22
|
|
|
$
|
0.84
|
|
February 28, 2016
|
|
|
40,000
|
|
|
$
|
1.50
|
|
|
$
|
1.03
|
|
March 7, 2016
|
|
|
1,456,000
|
|
|
$
|
1.55
|
|
|
$
|
1.07
|
|
The
exercise prices are equal to the higher of (i) the closing price of the our common stock as reported on the OTCQX marketplace
or (ii) the closing price of our common stock as reported by the TSX Venture Exchange as determined by the board of directors,
with input from management on the date of grant.
Valuation
of deferred tax assets
We
recognize deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded
in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference
between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”)
at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
We
have evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s
financial statements as of December 31, 2016 and 2015. The Company does not expect any significant changes in the unrecognized
tax benefits within twelve months of the reporting date.
Item
7A. Quantitative and Qualitative Disclosures about Market Risk
Not
applicable.
Item
8. Financial Statements
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
39
|
|
|
Balance
Sheets as of December 31, 2016 and 2015
|
40
|
|
|
Statements
of Operations for the Years Ended December 31, 2016 and 2015
|
41
|
|
|
Statements
of Changes in Stockholders’ Equity for the Years Ended December 31, 2016 and 2015
|
42
|
|
|
Statements
of Cash Flows for the Years Ended December 31, 2016 and 2015
|
43
|
|
|
Notes
to Financial Statements
|
44
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Audit Committee of the Board of Directors and Stockholders of
CohBar,
Inc.
We
have audited the accompanying balance sheets of CohBar, Inc. (the “Company”) as of December 31, 2016 and 2015, and
the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CohBar,
Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance
with accounting principles generally accepted in the United States of America.
/s/
Marcum LLP
|
|
Marcum
LLP
|
|
New
York, NY
|
|
|
|
March
31, 2017
|
|
CohBar,
Inc.
Balance
Sheets
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
3,257,458
|
|
|
$
|
4,803,687
|
|
Investments
|
|
|
5,428,962
|
|
|
|
5,487,800
|
|
Subscription receivable
|
|
|
522,326
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
110,822
|
|
|
|
88,223
|
|
Total current assets
|
|
|
9,319,568
|
|
|
|
10,379,710
|
|
Property and equipment, net
|
|
|
230,512
|
|
|
|
199,575
|
|
Other assets
|
|
|
36,810
|
|
|
|
20,492
|
|
Total assets
|
|
$
|
9,586,890
|
|
|
$
|
10,599,777
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
103,294
|
|
|
$
|
209,730
|
|
Accrued liabilities
|
|
|
132,780
|
|
|
|
155,713
|
|
Accrued payroll and other compensation
|
|
|
447,641
|
|
|
|
217,250
|
|
Note payable, net of debt discount of $59 and $0 as of December 31, 2016 and 2015, respectively
|
|
|
205,201
|
|
|
|
-
|
|
Total current liabilities
|
|
|
888,916
|
|
|
|
582,693
|
|
Note payable, net of debt discount of $0 and $255 as of December 31, 2016 and 2015, respectively
|
|
|
-
|
|
|
|
205,005
|
|
Total liabilities
|
|
|
888,916
|
|
|
|
787,698
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, Authorized 5,000,000 shares;
No shares issued and outstanding as of December 31, 2016
and December 31, 2015, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, Authorized 75,000,000 shares;
Issued and outstanding 34,807,881 shares as of December 31,
2016 and 32,320,891 as of December 31, 2015
|
|
|
34,808
|
|
|
|
32,321
|
|
Additional paid-in capital
|
|
|
23,072,702
|
|
|
|
18,114,295
|
|
Accumulated deficit
|
|
|
(14,409,536
|
)
|
|
|
(8,334,537
|
)
|
Total stockholders’ equity
|
|
|
8,697,974
|
|
|
|
9,812,079
|
|
Total liabilities and stockholders’ equity
|
|
$
|
9,586,890
|
|
|
$
|
10,599,777
|
|
The
accompanying notes are an integral part of these financial statements
CohBar,
Inc.
Statements
of Operations
|
|
For The Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,606,515
|
|
|
|
1,966,221
|
|
General and administrative
|
|
|
2,470,062
|
|
|
|
1,908,080
|
|
Total operating expenses
|
|
|
6,076,577
|
|
|
|
3,874,301
|
|
Operating loss
|
|
|
(6,076,577
|
)
|
|
|
(3,874,301
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,368
|
|
|
|
4,762
|
|
Interest expense
|
|
|
(7,594
|
)
|
|
|
(7,022
|
)
|
Other expense
|
|
|
-
|
|
|
|
(1,453
|
)
|
Amortization of debt discount
|
|
|
(196
|
)
|
|
|
(196
|
)
|
Total other income (expense)
|
|
|
1,578
|
|
|
|
(3,909
|
)
|
Net loss
|
|
$
|
(6,074,999
|
)
|
|
$
|
(3,878,210
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.18
|
)
|
|
$
|
(0.12
|
)
|
Weighted average common shares outstanding - basic and diluted
|
|
|
33,130,424
|
|
|
|
32,044,274
|
|
The
accompanying notes are an integral part of these financial statements
CohBar,
Inc.
Statements
of Changes in Stockholders' Equity
For the Years Ended December 31, 2016 and 2015
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Series B Preferred
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
APIC
|
|
|
Deficit
|
|
|
Equity
|
|
Balance, December 31, 2014
|
|
|
5,400,000
|
|
|
$
|
5,400
|
|
|
|
12,915,343
|
|
|
$
|
12,915
|
|
|
$
|
5,507,616
|
|
|
$
|
(4,456,327
|
)
|
|
$
|
1,069,604
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
396,850
|
|
|
|
-
|
|
|
|
396,850
|
|
Conversion of Series B Preferred Stock to common stock
|
|
|
(5,400,000
|
)
|
|
|
(5,400
|
)
|
|
|
5,400,000
|
|
|
|
5,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from the initial public offering, net
|
|
|
-
|
|
|
|
-
|
|
|
|
11,250,000
|
|
|
|
11,250
|
|
|
|
10,242,234
|
|
|
|
-
|
|
|
|
10,253,484
|
|
Proceeds from the concurrent offering
|
|
|
-
|
|
|
|
-
|
|
|
|
2,700,000
|
|
|
|
2,700
|
|
|
|
2,697,300
|
|
|
|
-
|
|
|
|
2,700,000
|
|
Exercise of compensation options
|
|
|
-
|
|
|
|
-
|
|
|
|
55,548
|
|
|
|
56
|
|
|
|
55,492
|
|
|
|
-
|
|
|
|
55,548
|
|
Deferred offering costs - initial public offering
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(785,197
|
)
|
|
|
-
|
|
|
|
(785,197
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,878,210
|
)
|
|
|
(3,878,210
|
)
|
Balance, December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
32,320,891
|
|
|
$
|
32,321
|
|
|
$
|
18,114,295
|
|
|
$
|
(8,334,537
|
)
|
|
$
|
9,812,079
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
735,429
|
|
|
|
-
|
|
|
|
735,429
|
|
Exercise of employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
10
|
|
|
|
2,590
|
|
|
|
-
|
|
|
|
2,600
|
|
Exercise of compensation options
|
|
|
-
|
|
|
|
-
|
|
|
|
731,100
|
|
|
|
731
|
|
|
|
730,354
|
|
|
|
-
|
|
|
|
731,085
|
|
Exercise of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1,745,890
|
|
|
|
1,746
|
|
|
|
3,490,034
|
|
|
|
-
|
|
|
|
3,491,780
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,074,999
|
)
|
|
|
(6,074,999
|
)
|
Balance, December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
34,807,881
|
|
|
$
|
34,808
|
|
|
$
|
23,072,702
|
|
|
$
|
(14,409,536
|
)
|
|
$
|
8,697,974
|
|
The
accompanying notes are an integral part of these financial statements
CohBar,
Inc.
Statements
of Cash Flows
|
|
For The Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,074,999
|
)
|
|
$
|
(3,878,210
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
57,978
|
|
|
|
30,727
|
|
Stock-based compensation
|
|
|
735,429
|
|
|
|
396,850
|
|
Amortization of debt discount
|
|
|
196
|
|
|
|
196
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
-
|
|
|
|
4,055
|
|
Prepaid expenses and other current assets
|
|
|
(22,599
|
)
|
|
|
(68,706
|
)
|
Accounts payable
|
|
|
(106,436
|
)
|
|
|
(80,343
|
)
|
Accrued liabilities
|
|
|
(22,933
|
)
|
|
|
(149,688
|
)
|
Accrued payroll and other compensation
|
|
|
230,391
|
|
|
|
113,956
|
|
Net cash used in operating activities
|
|
|
(5,202,973
|
)
|
|
|
(3,631,163
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(88,915
|
)
|
|
|
(225,671
|
)
|
Payment for security deposit
|
|
|
(16,318
|
)
|
|
|
(19,392
|
)
|
Purchases of investments
|
|
|
(14,093,162
|
)
|
|
|
(12,731,800
|
)
|
Proceeds from redemptions of investments
|
|
|
14,152,000
|
|
|
|
7,244,000
|
|
Net cash used in investing activities
|
|
|
(46,395
|
)
|
|
|
(5,732,863
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Deferred offering costs
|
|
|
-
|
|
|
|
(35,811
|
)
|
Proceeds from exercise of warrants
|
|
|
2,969,454
|
|
|
|
-
|
|
Proceeds from stock option exercises
|
|
|
2,600
|
|
|
|
-
|
|
Proceeds from exercise of compensation options
|
|
|
731,085
|
|
|
|
55,548
|
|
Proceeds from initial public offering, net
|
|
|
-
|
|
|
|
10,253,484
|
|
Proceeds from the conversion of private placement puts
|
|
|
-
|
|
|
|
2,700,000
|
|
Net cash provided by financing activities
|
|
|
3,703,139
|
|
|
|
12,973,221
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
(1,546,229
|
)
|
|
|
3,609,195
|
|
Cash at beginning of year
|
|
|
4,803,687
|
|
|
|
1,194,492
|
|
Cash at end of year
|
|
$
|
3,257,458
|
|
|
$
|
4,803,687
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Reclassification of deferred offering costs to equity
|
|
$
|
-
|
|
|
$
|
785,197
|
|
Conversion of Series B Preferred Stock to Common Stock
|
|
$
|
-
|
|
|
$
|
5,400
|
|
Subscription receivable from exercise of warrants
|
|
$
|
522,326
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial statements
CohBar,
Inc.
Notes
to Financial Statements
Note
1 - Business Organization and Nature of Operations
CohBar,
Inc. (“CohBar” or the “Company”) is an innovative biotechnology company and a leader in the research and
development of mitochondria based therapeutics (MBTs), an emerging class of drugs with the potential to treat a wide range of
diseases associated with aging and metabolic dysfunction, including obesity, fatty liver disease (NAFLD) and non-alcoholic steatohepatitis
(NASH), type 2 diabetes mellitus (T2D), cancer, atherosclerosis, cardiovascular disease, and neurodegenerative diseases such as
Alzheimer’s.
The
Company’s primary activities include research and development of its MBT pipeline, securing intellectual property protection,
managing collaborations with contract research organizations (“CROs”) and academic institutions, expanding its scientific
leadership and raising capital. To date, the Company has not generated any revenues from operations and does not expect to generate
any revenues in the near future and has funded its business with the proceeds of an initial public offering (“IPO”),
private placements of equity and debt securities and the exercise of outstanding warrants.
Note
2 - Management’s Liquidity Plans
As
of December 31, 2016, the Company had working capital and stockholders’ equity of $8,430,652 and $8,697,974, respectively.
During the year ended December 31, 2016, the Company incurred a net loss of $6,074,999. The Company has not generated any revenues,
has incurred net losses since inception and does not expect to generate revenues in the near term.
Based
on current budget assumptions and with the cash and investments on hand as of December 31, 2016 combined with the exercises of
warrants subsequent to December 31, 2016, the Company believes that it has sufficient capital to meet its operating expenses and
obligations for the next twelve months from the date of this filing.
However,
if other unanticipated difficulties arise the Company may be required to raise additional capital to support its operations, curtail
its research and development activities until such time as additional capital becomes available and delay its target for its upcoming
FDA filings and clinical activities. These activities will allow the Company to slow its rate of spending and extend its use of
cash until additional capital is raised. There can be no assurance that such a plan will be successful. There is no assurance
that additional financing will be available when needed or that the Company will be able to obtain such financing on reasonable
terms.
Note
3 - Summary of Significant Accounting Policies
Basis
of Presentation
All
amounts are presented in U.S. Dollars.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported amounts of revenue
and expenses during the periods. Actual results could differ from these estimates. The Company’s significant estimates and
assumptions include the fair value of financial instruments, stock-based compensation and the valuation allowance relating to
the Company’s deferred tax assets.
CohBar,
Inc.
Notes
to Financial Statements
Note
3 - Summary of Significant Accounting Policies (continued)
Concentrations
of Credit Risk
The
Company maintains deposits in a financial institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”).
At various times, the Company has deposits in this financial institution in excess of the amount insured by the FDIC. The Company
has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Investments
Investments
consist of U.S. Treasury Bills of $3,686,196, which are classified as held-to-maturity, and Certificates of Deposit of $1,742,766.
The Company determines the appropriate balance sheet classification of its investments at the time of purchase and evaluates the
classification at each balance sheet date. All of the Company’s U.S. Treasury Bills and Certificates of Deposit mature within
the next twelve months. Unrealized gains and losses are de minimus. As of December 31, 2016, the carrying value of the Company’s
U.S. Treasury Bills approximates their fair value due to their short-term maturities.
Deferred
Offering Costs
The
Company classifies amounts related to a potential future offering not closed as of the balance sheet date as Deferred Offering
Costs. During the year ended December 31, 2015, the Company incurred $35,811 of offering related costs. The related offering closed
in January 2015 these costs were recorded as a reduction in additional paid-in capital in the accompanying balance sheets.
Cash
Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
As of December 31, 2016 and 2015, the Company did not have any cash equivalents.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation of computer and lab equipment is computed by use of the straight-line method based
on the estimated useful lives of the assets, which range from three to five years. Expenditures for maintenance and repairs that
do not improve or extend the expected lives of the assets are expensed to operations, while expenditures for major upgrades to
existing items are capitalized. Upon retirement or other disposition of these assets, the costs and accumulated depreciation are
removed from the accounts and resulting gains or losses are reflected in the results of operations.
Fair
Value of Financial Instruments
The
Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. The Company utilizes three levels of inputs that
may be used to measure fair value:
Level
1 - quoted prices in active markets for identical assets or liabilities
Level
2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
CohBar,
Inc.
Notes
to Financial Statements
Note
3 - Summary of Significant Accounting Policies (continued)
The
carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments. The amount
of debt included in the accompanying balance sheets approximates its fair value because the interest rate of the notes approximates
the current market interest rate.
Common
Stock Purchase Warrants
The
Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides the Company
with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that
such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that
(i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event
is outside the Company’s control), or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other
free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities
is required. The Company’s free standing derivatives consist of warrants to purchase common stock that were issued in connection
with its notes payable and IPO. The Company evaluated these warrants to assess their proper classification using the applicable
criteria enumerated under U.S. GAAP and determined that the common stock purchase warrants meet the criteria for equity classification
in the accompanying balance sheets as of December 31, 2016 and 2015.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included
or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
Management
has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial
statements as of December 31, 2016 and 2015. The Company does not expect any significant changes in the unrecognized tax benefits
within twelve months of the reporting date.
The
Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax
expense. No interest or penalties have been recognized during the years ended December 31, 2016 and 2015.
Research
and Development Expenses
The
Company expenses all research and development expenses as incurred. These costs include payroll, employee benefits, supplies,
contracted for lab services, depreciation and other personnel-related costs associated with product development.
CohBar,
Inc.
Notes
to Financial Statements
Note
3 - Summary of Significant Accounting Policies (continued)
Share-Based
Payment
The
Company accounts for share-based payments using the fair value method. For employees and directors, the fair value of the award
is measured, as discussed below, on the grant date. For non-employees, fair value is generally valued based on the fair value
of the services provided or the fair value of the equity instruments on the measurement date, whichever is more readily determinable
and re-measured on each financial reporting date until the service is complete. The Company has granted stock options at exercise
prices equal to the higher of (i) the closing price of the Company’s common stock as reported on the OTCQX marketplace or
(ii) the closing price of the Company’s common stock as reported by the TSX Venture Exchange as determined by the board
of directors, with input from management on the date of grant. Upon exercise of an option or warrant, the Company issues new shares
of common stock out of its authorized shares.
The
weighted-average fair value of options and warrants has been estimated on the date of grant using the Black-Scholes pricing model.
The fair value of each instrument is estimated on the date of grant utilizing certain assumptions for a risk free interest rate,
volatility and expected remaining lives of the awards. Since the Company has a limited history of being publicly traded, the fair
value of stock-based payment awards issued was estimated using a volatility derived from an index of comparable entities. The
assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but
these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and
the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in
the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those
shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate,
the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the
Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture
rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in
the current period.
The
weighted-average Black-Scholes assumptions are as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Expected life
|
|
6 years
|
|
|
2 years
|
|
Risk free interest rate
|
|
1.31
|
%
|
|
0.71
|
%
|
Expected volatility
|
|
79
|
%
|
|
80
|
%
|
Expected dividend yield
|
|
0
|
%
|
|
0
|
%
|
Forfeiture rate
|
|
0
|
%
|
|
0
|
%
|
As
of December 31, 2016, total unrecognized stock option compensation expense is $1,921,906, which will be recognized as those options
vest over a period of approximately four years. The amount of future stock option compensation expense could be affected by any
future option grants or by any option holders leaving the Company before their grants are fully vested.
CohBar,
Inc.
Notes
to Financial Statements
Note
3 - Summary of Significant Accounting Policies (continued)
Net
Loss Per Share of Common Stock
Basic
net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted net earnings per share reflects the potential dilution that could occur if securities
or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are
excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive and consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Warrants
|
|
|
6,681,051
|
|
|
|
7,936,391
|
|
Options
|
|
|
4,652,497
|
|
|
|
3,724,083
|
|
Totals
|
|
|
11,333,548
|
|
|
|
11,660,474
|
|
Recent
Accounting Pronouncements
In
August 2014, the FASB (“Financial Accounting Stands Board”) issued Accounting Standard Update (“ASU”)
No. 2014-15, Presentation of Financial Statements-Going Concern, which requires management to evaluate whether there is substantial
doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial
doubt exists, additional disclosure and impact are required. This new standard is effective for the Company for the annual period
ending after December 15, 2016 and for annual periods and interim periods thereafter. The Company adopted the pronouncement as
of December 31, 2016 (see Note 2).
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which is effective for the fiscal
years beginning after December 15, 2018. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease
for both financing and operating leases, along with additional qualitative and quantitative disclosures. Early adoption is permitted.
The Company is in the process of evaluating the effect that ASU 2016-02 will have on its financial statements.
In
March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. This ASU simplifies several aspects of the accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash
flows. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments. This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity
in practice exists. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s financial position
and results of operations.
CohBar,
Inc.
Notes
to Financial Statements
Note
4 – Property and Equipment
Property
and equipment consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Lab equipment
|
|
$
|
304,499
|
|
|
$
|
222,724
|
|
Computer and equipment
|
|
|
21,378
|
|
|
|
14,238
|
|
Total property and equipment
|
|
|
325,877
|
|
|
|
236,962
|
|
Less: accumulated depreciation
|
|
|
(95,365
|
)
|
|
|
(37,387
|
)
|
Total property and equipment, net
|
|
$
|
230,512
|
|
|
$
|
199,575
|
|
Depreciation
expense related to property and equipment for the years ended December 31, 2016 and 2015 was $57,978 and $30,727, respectively.
Note
5 – Accrued Liabilities
Accrued
liabilities consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Lab services & supplies
|
|
$
|
87,100
|
|
|
$
|
72,044
|
|
Professional fees
|
|
|
17,760
|
|
|
|
48,265
|
|
Consultant fees
|
|
|
2,500
|
|
|
|
15,495
|
|
Interest
|
|
|
25,420
|
|
|
|
17,826
|
|
Other
|
|
|
-
|
|
|
|
2,083
|
|
Total accrued liabilities
|
|
$
|
132,780
|
|
|
$
|
155,713
|
|
Note
6 - Note Payable
In 2013, the Company
was awarded a grant from the Alzheimer’s Drug Discovery Foundation (“ADDF”) totaling $205,260. The Company
executed Promissory Notes (the “Notes”) which governed the terms of the repayment of the grant. The Notes have a
term of four years the first installment on the notes matured on January 21, 2017 and was paid in March 2017. The second
installment will become due on September 12, 2017. In the event of a change of control, the total principal amount that is
outstanding under the Notes, plus all accrued and unpaid interest become immediately due and payable. The Notes include
interest rates that are equal to the prime rate that is published two days prior to the issuance date of the Notes and resets
on each anniversary of the Notes. Through December 31, 2016, the interest rate on each note ranged from 3.25% to 3.75% per
annum. In connection with the grant award, the Company also issued to the Alzheimer’s Drug Discovery Foundation a
warrant to purchase 15,596 shares of the Company’s common stock at an exercise price of $0.99. The Company determined
the fair value of the warrants issued using the Black-Scholes pricing model with the assumptions discussed in Note 3 and
allocated the proceeds based on the relative fair value of the debt instrument and the related warrants. The aggregate
deferred debt discount related to the Note was $785. The Company amortized $196 of the debt discount during each of the years
ended December 31, 2016 and 2015, respectively, using the effective interest method. The warrant expires on the 10 year
anniversary of the grant date.
CohBar,
Inc.
Notes
to Financial Statements
Note
7 - Commitments and Contingencies
Litigations,
Claims and Assessments
The
Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters
are subject to many uncertainties, and outcomes are not predictable with assurance. There are no such loss contingencies that
are included in the financial statements as of December 31, 2016.
Licensing
Agreements
The
Company is a party to an Exclusive License Agreement (the “2011 Exclusive Agreement”) with The Regents of the University
of California (“The Regents”) which remains in effect for the life of the last-to-expire patent or last to be abandoned
patent application, whichever is later. The Company agreed to pay the licensors specified development milestone payments aggregating
up to $765,000 for the first product sold under the license. Milestone payments for additional products developed and sold under
the license are reduced by 50%. The Company is also required to pay annual maintenance fees to the licensors. Aggregate maintenance
fees for the first five years following execution of the agreement are $80,000. Thereafter, the Company is required to pay maintenance
fees of $50,000 annually until the first sale of a licensed product. In addition, for the duration of the 2011 Exclusive Agreement,
the Company is required to pay the licensors royalties equal to 2% of its worldwide net sales of drugs, therapies or other products
developed from claims covered by the licensed patents, subject to a minimum royalty payment of $75,000 annually, beginning after
the first commercial sale of a licensed product. The Company is required to pay royalties ranging from 8% of worldwide sublicense
sales of covered products (if the sublicense is entered after commencement of phase II clinical trials to 12% of worldwide sublicense
sales (if the sublicense is entered prior to commencement of phase I clinical trials). The agreement also requires the Company
to meet certain diligence and development milestones, including filing of an Investigational New Drug (“IND”) Application
for a product covered by the agreement on or before the seventh anniversary of the agreement date. Through December 31, 2016,
no royalties have been incurred under the agreement. All maintenance fees due and payable as of that date have been paid.
The
Company is also a party to an Exclusive License Agreement (the “2013 Exclusive Agreement”) with The Regents
whereby The Regents granted to the Company an exclusive license for the use of certain other patents. The 2013 Exclusive
Agreement remains in effect for the life of the last-to-expire patent or last to be abandoned patent application, whichever
is later. The Company paid Regents an initial license issue fee of $10,000 for these other patents, which was charged to
General and Administrative expense, as incurred. The Company is also required to pay annual maintenance fees to the
licensors. Aggregate maintenance fees for the first three years following execution of the agreement are $7,500. Thereafter,
the Company is required to pay maintenance fees of $5,000 annually until the first sale of a licensed product. The Company
agreed to pay The Regents specified development milestone payments aggregating up to $765,000 for the first product sold
under the 2013 Exclusive Agreement. Milestone payments for additional products developed and sold under the 2013 Exclusive
Agreement are reduced by 50%. In addition, for the duration of the 2013 Exclusive Agreement, the Company is required to pay
The Regents royalties equal to 2% of the Company’s worldwide net sales of drugs, therapies or other products developed
from claims covered by the licensed patent, subject to a minimum royalty payment of $75,000 annually, beginning after the
first commercial sale of a licensed product. The Company is required to pay The Regents royalties ranging from 8% of
worldwide sublicense sales of covered products (if the sublicense is entered after commencement of phase II clinical
trials to 12% of worldwide sublicense sales (if the sublicense is entered prior to commencement of phase I clinical trials).
The agreement also requires the Company to meet certain diligence and development milestones, including filing of an IND
Application for a product covered by the agreement on or before the seventh anniversary of the agreement date. Through
December 31, 2016, no royalties have been incurred under the agreement. All maintenance fees due and payable as of that date
have been paid.
CohBar,
Inc.
Notes
to Financial Statements
Note
7 - Commitments and Contingencies (continued)
Operating
Lease
In
February 2015, the Company entered into a lease agreement for an expanded laboratory facility. The laboratory space is leased
on a month-to month basis and is part of a shared facility in Menlo Park, California. In 2016, the Company increased its shared
space in this facility. The Company also terminated a previous month-to-month lease for the laboratory space in Pasadena, California
effective March 31, 2015.
Rent
expense amounted to $171,294 and $107,385 for the years ended December 31, 2016 and 2015, respectively.
Note
8 - Income Taxes
The
tax effects of temporary differences that give rise to deferred tax assets are as follows:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
51,174
|
|
|
$
|
31,156
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Stock
compensation
|
|
|
163,221
|
|
|
|
132,645
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
|
5,058,119
|
|
|
|
2,989,634
|
|
|
|
|
|
|
|
|
|
|
Research
and development credit carry forward
|
|
|
267,325
|
|
|
|
100,480
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
5,539,839
|
|
|
|
3,253,915
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(5,539,839
|
)
|
|
|
(3,253,915
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
CohBar,
Inc.
Notes
to Financial Statements
Note
8 - Income Taxes (continued)
A
reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
U.S. statutory federal rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes, net of federal tax
|
|
|
(5.1
|
)%
|
|
|
(5.4
|
)%
|
Permanent differences
|
|
|
4.2
|
%
|
|
|
2.6
|
%
|
Prior year ture-ups
|
|
|
-
|
%
|
|
|
-
|
%
|
R&D tax credit
|
|
|
(2.7
|
)%
|
|
|
(2.1
|
)%
|
Change in valuation allowance
|
|
|
37.6
|
%
|
|
|
38.9
|
%
|
Income tax provision (benefit)
|
|
|
-
|
%
|
|
|
-
|
%
|
The
income tax provision consists of the following:
|
|
For the Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Federal
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(1,815,660
|
)
|
|
|
(1,190,022
|
)
|
State and local
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(470,263
|
)
|
|
|
(316,709
|
)
|
Change in valuation allowance
|
|
|
2,285,923
|
|
|
|
1,506,731
|
|
Income tax provision (benefit)
|
|
|
-
|
|
|
$
|
-
|
|
The
Company assesses the likelihood that deferred tax assets will be realized. To the extent that realization is not more-likely-than-not,
a valuation allowance is established. Based upon the Company’s losses since inception, management believes that it is more-likely-than-not
that future benefits of deferred tax assets will not be realized. Therefore, the Company established a full valuation allowance
as of December 31, 2016 and 2015. As of December 31, 2016 and 2015, the change in valuation allowance was $2,285,923 and 1,506,731,
respectively.
The
Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, principally California and
New Jersey. The Company is subject to examination by the various taxing authorities. The Company’s federal and state income
tax returns for tax years beginning in 2011 remain subject to examination.
At
December 31, 2016 and 2015, the Company had $12,865,384 and $7,672,674, respectively, of federal and state net operating loss
carryovers that may be available to offset future taxable income. The net operating loss carry forwards, if not utilized, will
begin to expire from 2029 to 2036 for federal and state purposes. In accordance with Section 382 of the Internal Revenue Code,
the usage of the Company’s net operating loss carryforward could be limited in the event of a change in ownership. At this
time, the Company has not completed a full study to assess whether an ownership change under Section 382 of the Code occurred
due to the costs and complexities associated with such a study.
CohBar,
Inc.
Notes
to Financial Statements
Note
9 - Stockholders’ Equity
Authorized
Capital
In
January 2015, the Company completed its initial public offering (“IPO”) on the TSX Venture Exchange. The Company sold
11,250,000 units at a price of $1.00 per unit, providing gross proceeds of $11,250,000. Concurrently with the IPO, the Company
completed a previously-subscribed private placement of an additional 2,700,000 units for gross proceeds of $2,700,000, resulting
in total gross proceeds of $13,950,000. After deducting $996,516 in offering expenses, the Company received net proceeds of $12,953,484.
The Company also incurred internal offering costs of $785,197 which is classified as a reduction to additional paid-in capital
in the accompanying balance sheets. All units consist of one share of the Company’s common stock and one-half of one common
stock purchase warrant. In the aggregate, a total of 13,950,000 shares of common stock and 6,975,000 warrants to purchase common
stock were issued in connection with the IPO and concurrent private placement. Each whole warrant was exercisable to acquire one
share of the Company’s common stock at a price of $2.00 per share at any time up to January 6, 2017.
In
January 2015, the Company amended its Certificate of Incorporation to increase the total number of authorized shares of common
stock. Following the amendment, the Company has authorized the issuance and sale of up to 80,000,000 shares of stock, consisting
of 75,000,000 shares of common stock having a par value of $0.001 and 5,000,000 shares of Preferred Stock having a par value of
$0.001 per share. As of December 31, 2016 and 2015, there were no shares of Preferred Stock outstanding and there were no declared
but unpaid dividends or undeclared dividend arrearages on any shares of the Company’s capital stock.
Preferred
Stock
During
the year ended December 31, 2014, the Company sold 5,400,000 shares of convertible Series B Preferred Stock. Each share of Series
B Preferred Stock was convertible, at the option of the holder, into Common Stock. Each stockholder of Series B Preferred Stock
was entitled to vote in the election of the Company’s Board of Directors. The purchasers of Series B Preferred Stock entered
into put agreements requiring the purchasers, at the Company’s option, to purchase from the Company securities of the same
type as those sold to investors in any future public offering of the Company’s securities, at the same price as the securities
sold in the initial public offering, for an aggregate purchase price of up to $2,700,000.
Upon
the completion of the IPO on January 6, 2015, each outstanding share of Series B Preferred Stock was automatically converted into
one share of common stock. The Company converted 5,400,000 shares of then outstanding Series B Preferred Stock into 5,400,000
shares of its common stock.
The
Company also exercised its rights under the aforementioned put agreements requiring the purchasers of Series B Preferred Stock
to purchase 2,700,000 shares of common stock at the proposed public offering price of $1.00 per share for total cash proceeds
of $2,700,000.
Stock
Options
The
Company has an incentive stock plan, the 2011 Equity Incentive Plan (the “2011 Plan”). In January 2015, the Company
amended and restated the 2011 Plan. The Amendment and Restatement increased the aggregate number of shares of its common stock
that may be issued pursuant to stock awards under the plan. In accordance with the rules of the TSX Venture Exchange regarding
equity incentive plans, the number of shares that can be reserved for issuance under the 2011 Plan is equal to 20% of the Company’s common stock outstanding at the completion of the offering. The total number of
shares reserved for issuance after the completion of the IPO is 6,453,069.
CohBar,
Inc.
Notes
to Financial Statements
Note
9 - Stockholders’ Equity (continued)
The
Company has granted stock options to employees, non-employee directors and consultants from the 2011 Plan through the year ended
December 31, 2016. Options granted under the Plan may be Incentive Stock Options or Non-statutory Stock Options, as determined
by the Administrator at the time of grant. At December 31, 2016, 1,665,572 shares of the Company’s common stock were available
for future issuance under the 2011 Plan.
In
January 2016, the Company issued a warrant to purchase 125,000 shares of the Company’s common stock to an investor relations
firm as partial compensation for consulting services it will provide to the Company over a two year period. Pursuant to applicable
policies of the TSX-V, the shares issuable under the warrant will be counted against the limit of shares authorized for issuance
under the 2011 Plan, notwithstanding that the warrant was not issued under the 2011 Plan.
During
the year ended December 31, 2016, the Company granted stock options to employees to purchase 1,696,000 shares of the Company’s
common stock. The stock options have exercise prices that range from $1.10 to $1.55 per share, are subject to vesting over four
years, have terms of ten years and have an aggregate grant date fair value of approximately $1,418,000.
During
the year ended December 31, 2016, 10,000 stock options were exercised for cash proceeds of $2,600.
During
the year ended December 31, 2015, the Company granted stock options to employees and consultants to purchase 388,124 shares of
the Company’s common stock. The stock options have exercise prices of $1.00 and $1.17, are subject to vesting over four
years, have terms of ten years and have an aggregate grant date fair value of approximately $301,557.
During
the years ended December 31, 2016 and 2015, the Company cancelled 26,486 and 5,000 employees and agents options. The cancelled
options were added back to the available pool for future issuance.
127,532
stock options granted during the year ended December 31, 2014, contained performance conditions which included (i) the optionee’s
continuous service and (ii) completion of the Company’s initial public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended. Since the stock options contained performance conditions that were not met as of
December 31, 2014, their fair value was recorded in the year ended December 31, 2015.
The
compensation expense associated with stock-based awards granted to individuals is recorded by the Company in the same expense
classifications as cash compensation paid. During the year ended December 31, 2016, the Company recorded a total of $735,429 of
stock based compensation recognizing $361,137 as a general and administrative expense and $374,292 as a research and development
expense in the accompanying statements of operations. During the year ended December 31, 2015, the Company recorded a total of
$396,850 of stock based compensation recognizing $215,692 as a general and administrative expense and $181,158 as a research and
development expense in the accompanying statements of operations.
CohBar,
Inc.
Notes
to Financial Statements
Note
9 - Stockholders’ Equity (continued)
The
following table represents stock option activity for the years ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Stock
Options
|
|
|
Exercise
Price
|
|
|
Fair Value
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Vested
|
|
|
Life (Years)
|
|
|
Intrinsic Value
|
|
Balance
– December 31, 2014
|
|
|
2,609,811
|
|
|
|
459,437
|
|
|
$
|
0.38
|
|
|
$
|
0.17
|
|
|
$
|
0.17
|
|
|
|
9.57
|
|
|
$
|
-
|
|
Granted
|
|
|
1,174,820
|
|
|
|
786,696
|
|
|
|
1.01
|
|
|
|
1.00
|
|
|
|
0.38
|
|
|
|
3.48
|
|
|
|
-
|
|
Exercised
|
|
|
(55,548
|
)
|
|
|
(55,548
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance –
December 31, 2015
|
|
|
3,724,083
|
|
|
|
1,963,948
|
|
|
$
|
0.67
|
|
|
$
|
0.34
|
|
|
$
|
0.34
|
|
|
|
7.09
|
|
|
$
|
-
|
|
Granted
|
|
|
1,696,000
|
|
|
|
-
|
|
|
|
1.50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.25
|
|
|
|
-
|
|
Exercised
|
|
|
(741,100
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(26,486
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance –
December 31, 2016
|
|
|
4,652,497
|
|
|
|
1,908,883
|
|
|
$
|
0.92
|
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
|
8.24
|
|
|
$
|
5,561,368
|
|
The
granted balance for 2015 in the table above includes 786,696 options granted to the agents that took part in the IPO (see “Agent’s
Compensation Options” below). All other options were granted to employees and consultants under the 2011 Plan.
The
following table summarizes information on stock options outstanding and exercisable as of December 31, 2016:
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Exercise
|
|
|
Number
|
|
|
Average
Remaining
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Price
|
|
|
Outstanding
|
|
|
Contractual
Term
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
72,876
|
|
|
5.25
years
|
|
$
|
0.05
|
|
|
|
72,876
|
|
|
$
|
0.05
|
|
$
|
0.26
|
|
|
|
1,024,810
|
|
|
7.28
years
|
|
$
|
0.26
|
|
|
|
919,296
|
|
|
$
|
0.26
|
|
$
|
0.73
|
|
|
|
1,475,687
|
|
|
7.87
years
|
|
$
|
0.73
|
|
|
|
768,587
|
|
|
$
|
0.73
|
|
$
|
1.00
|
|
|
|
313,124
|
|
|
8.56
years
|
|
$
|
1.00
|
|
|
|
126,457
|
|
|
$
|
1.00
|
|
$
|
1.10
|
|
|
|
10,000
|
|
|
9.02
years
|
|
$
|
1.10
|
|
|
|
-
|
|
|
$
|
1.10
|
|
$
|
1.17
|
|
|
|
70,000
|
|
|
8.87
years
|
|
$
|
1.17
|
|
|
|
21,667
|
|
|
$
|
1.17
|
|
$
|
1.22
|
|
|
|
190,000
|
|
|
9.10
years
|
|
$
|
1.22
|
|
|
|
-
|
|
|
$
|
1.22
|
|
$
|
1.50
|
|
|
|
40,000
|
|
|
9.17
years
|
|
$
|
1.50
|
|
|
|
-
|
|
|
$
|
1.50
|
|
$
|
1.55
|
|
|
|
1,456,000
|
|
|
9.19
years
|
|
$
|
1.55
|
|
|
|
-
|
|
|
$
|
1.55
|
|
Totals
|
|
|
|
4,652,497
|
|
|
|
|
|
|
|
|
|
1,908,883
|
|
|
|
|
|
Agent’s
Compensation Options
In
connection with the closing of its IPO in January 2015 the Company issued 786,696 compensation options (“Compensation Options”)
to the agents that took part in the offering. Each Compensation Option is exercisable for a unit consisting of one share of common
stock and one-half of one common stock purchase warrant at an exercise price of $1.00 per unit. The Compensation Options expired
on July 6, 2016. Each whole warrant issuable upon exercise of Compensation Options is exercisable to acquire one share of common
stock at an exercise price of $2.00 per share at any time up to January 6, 2017. Because the Compensation Options are considered
a cost of the IPO, the resulting value is recognized as both an increase and decrease to the equity section of the accompanying
balance sheets. The Compensation Options are not part of the Company’s 2011 Plan.
During
the year ended December 31, 2016, a total of 731,100 Compensation Options were exercised for cash proceeds of $731,100.
CohBar,
Inc.
Notes
to Financial Statements
Note
9 - Stockholders’ Equity (continued)
During
the year ended December 31, 2015, a total of 55,548 Compensation Options were exercised for cash proceeds of $55,548.
Warrants
In
January 2016, the Company issued a warrant to purchase 125,000 shares of the Company’s common stock to an investor relations
firm as partial compensation for consulting services to be provided over a two-year period. The warrant is exercisable at $1.15
per share, has a term of three years and is subject to vesting over the two-year service period.
During
the year ended December 31, 2016, the Company issued warrants to purchase an aggregate of 365,550 shares of common stock as a
result of the exercise of 731,100 Compensation Options.
During
the year ended December 31, 2015, the Company issued warrants to purchase an aggregate of 7,002,774 shares of common stock in
conjunction with the issuance of units sold in the IPO and concurrent private placement, and upon the exercise of 55,548 Compensation
Options. The warrants were exercisable through January 6, 2017 at a price of $2.00 per share.
During
the year ended December 31, 2016, a total of 1,745,890 warrants were exercised for cash proceeds of $2,969,454 (see Note 10 -
Subscription Receivable).
The
following table represents warrant activity for the years ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Fair Value
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Vested
|
|
|
Life (Years)
|
|
|
Intrinsic Value
|
|
Balance
– December 31, 2014
|
|
|
933,617
|
|
|
|
933,617
|
|
|
$
|
0.28
|
|
|
$
|
0.28
|
|
|
$
|
0.21
|
|
|
|
8.64
|
|
|
$
|
-
|
|
Granted
|
|
|
7,002,774
|
|
|
|
7,002,774
|
|
|
|
2.00
|
|
|
|
2.00
|
|
|
|
0.43
|
|
|
|
1.52
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance –
December 31, 2015
|
|
|
7,936,391
|
|
|
|
7,936,391
|
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
|
$
|
0.41
|
|
|
|
1.80
|
|
|
$
|
-
|
|
Granted
|
|
|
490,550
|
|
|
|
428,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(1,745,890
|
)
|
|
|
(1,745,890
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance –
December 31, 2016
|
|
|
6,681,051
|
|
|
|
6,618,551
|
|
|
$
|
1.74
|
|
|
$
|
1.74
|
|
|
$
|
0.41
|
|
|
|
0.98
|
|
|
$
|
2,516,058
|
|
Note
10 – Subscription Receivable
During
December 2016, a total of 261,163 warrants were exercised for cash proceeds of $522,326. Due to the timing of the exercises, the
shares underlying the warrants were issued in December 2016 and the proceeds were received in January 2017. The outstanding proceeds
were recorded as a Subscription Receivable in the accompanying balance sheets as of December 31, 2016.
Note
11 - Related Party Transactions
Two
of the Company’s Directors provide consulting, scientific and research and advisory services to the Company pursuant to
agreements that provide for annual compensation of $42,000 each. Each agreement provides for an annual service term and can be
extended by mutual consent of both parties. The service terms under the agreements expired in 2015. The Company continues to compensate
Dr. Cohen and Dr. Barzilai for their ongoing services under the terms of the original agreements. During each of the years ended
December 31, 2016 and 2015, $42,000 was paid to each director by the Company for consulting fees. As of December 31, 2016 and
2015, no amounts were owed to either Director.
CohBar,
Inc.
Notes
to Financial Statements
Note
12 - Subsequent Events
Management
has evaluated subsequent events to determine if events or transactions occurring through the date on which the financial statements
were issued require adjustment or disclosure in the Company’s financial statements.
In
January 2017, a total of 926,588 warrants were exercised for cash proceeds of $1,853,176. An additional $522,326 was received
in January 2017 which was the proceeds from warrants exercised in December 2016.
In
January 2017, 4,695,846 warrants expired.
In
January 2017, the Company granted stock options to purchase 731,000 shares of the Company’s common stock to its employees.
The stock options are performance based and will be valued at the time milestones are reached.
In
January 2017, the Company granted stock options to purchase 200,000 shares of the Company’s common stock to two of its Directors.
The Company also granted stock options to purchase 100,000 shares of the Company’s common stock to one of its employees.
The 300,000 stock options have an exercise price of $2.40 and are exercisable during a ten year term, subject to vesting based
on continuous service over periods between zero and four years from the date of grant.
In
January and February 2017, consultants to the Company exercised a total of 106,982 warrants for cash proceeds of $29,491.
In
February 2017, 16,250 stock options were exercised for cash proceeds of $19,825.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
An
evaluation was conducted under the supervision and with the participation of our management, including Simon Allen, our Chief
Executive Officer, and Jeffrey Biunno, our Chief Financial Officer (collectively, the “Certifying Officers”), of the
effectiveness of our disclosure controls and procedures as of December 31, 2016, as defined in Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our management concluded that,
during the period covered by this annual report, our disclosure controls and procedures were not effective due to a material weakness.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in
Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act. This rule defines internal control over financial reporting as a process
designed by, or under the supervision of, Certifying Officers, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control
over financial reporting includes those policies and procedures that:
|
●
|
pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets;
|
|
●
|
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and
|
|
●
|
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.
|
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's
Assessment
Our
management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control
over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013), issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded as of December 31, 2016,
that our internal control over financial reporting was not effective due to a material weakness. A material weakness is a control
deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
timely basis. The material weakness relates to our having one employee assigned to positions that involve processing financial
information, resulting in a lack of segregation of duties so that all journal entries and account reconciliations are reviewed
by someone other than the preparer, heightening the risk of error or fraud. If we are unable to remediate the material weakness,
or other control deficiencies are identified, we may not be able to report our financial results accurately, prevent fraud or
file our periodic reports as a public company in a timely manner.
Due
to our small size and early stage of our business, segregation of duties may not always be possible and may not be
economically feasible. We have limited capital resources and have given priority in the use of those resources to our
research and development efforts. As a result, we have not been able to take steps to improve our internal controls over
financial reporting during the year ended December 31, 2016. However, we continue to evaluate the effectiveness of our
internal controls and procedures on an on-going basis. As our operations grow and become more complex, we intend to hire
additional personnel in financial reporting and other areas. However, there can be no assurance of when, if ever, we will be
able to remediate the identified material weaknesses.
Auditor
Attestation
This
Annual Report on Form 10-K does not include an attestation of our registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to applicable rules of the Securities and Exchange Commission.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Item
9B. Other Information
None.