Note
2 - Management’s Liquidity Plans
As
of September 30, 2017, the Company had working capital and stockholders’ equity of $9,557,860 and $9,806,287, respectively.
During the nine months ended September 30, 2017, the Company incurred a net loss of $6,999,756. 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 the cash and investments on hand as of September 30, 2017 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 unanticipated
difficulties or circumstances arise the Company may require additional capital sooner to support its operations. If the Company
is unable to raise additional capital whenever necessary it may be forced to decelerate or curtail its research and development
activities and delay planned FDA filings and clinical activities until such time as additional capital becomes available. Such
limitation of the Company’s activities would 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.
COHBAR,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
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 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 the dates of the financial statements
and the reported amounts of revenue and expenses during the periods presented. 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.
Investments
As
of September 30, 2017, investments consisted of U.S. Treasury Bills of $4,042,990, which are classified as held-to-maturity, and
Certificates of Deposit of $3,984,324. 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 mature within the next twelve months. Unrealized gains and losses are
de minimis
. As of September 30, 2017, the carrying
value of the Company’s U.S. Treasury Bills approximates their fair value.
Deferred
Offering Costs
The
Company capitalizes amounts related to an equity offering in progress as of the balance sheet date as Deferred Offering Costs.
During the nine months ended September 30, 2017, the Company incurred $132,338 of offering related costs. The related offering
closed in July 2017 and these costs were recorded as a reduction in additional paid-in capital in the accompanying condensed balance
sheets.
Capitalization
of Patent Costs
The
Company capitalizes the costs of its patents which consists of legal and filing fees related to the prosecution of patent filings.
The patents will be amortized using the straight-line method over the estimated remaining lives of the patents which is 20 years
from the initial filing of the patent. Amortization for the nine months ended September 30, 2017 was
de minimis
to the
condensed financial statements.
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 dates 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 on the date of grant.
COHBAR,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
3 - Summary of Significant Accounting Policies (continued)
The
weighted-average fair value of options and warrants has been estimated on the date of grant using the Black-Scholes option-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 Three Months Ended September 30,
|
|
For Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Expected life
|
|
5 years
|
|
4 years
|
|
6 years
|
|
5 years
|
Risk free interest rate
|
|
1.92%
|
|
1.03%
|
|
1.99%
|
|
1.10%
|
Expected volatility
|
|
81%
|
|
79%
|
|
80%
|
|
79%
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
Forfeiture rate
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
As of
September 30, 2017, total unrecognized stock based compensation expense was $2,087,473 which will be recognized as that equity
vests over a period of approximately five years. The amount of future stock option compensation expense could be affected by any
future equity grants or by any option holders leaving the Company before their grants are fully vested.
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 September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
5,598,497
|
|
|
|
4,652,497
|
|
Warrants
|
|
|
4,569,688
|
|
|
|
8,056,418
|
|
Totals
|
|
|
10,168,185
|
|
|
|
12,708,915
|
|
COHBAR,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
4 - Accrued Liabilities
Accrued
liabilities consist of:
|
|
As of
|
|
|
As of
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Lab services & supplies
|
|
$
|
32,608
|
|
|
$
|
87,100
|
|
Professional fees
|
|
|
140,165
|
|
|
|
17,760
|
|
Consultant fees
|
|
|
2,500
|
|
|
|
2,500
|
|
Interest
|
|
|
-
|
|
|
|
25,420
|
|
Total accrued liabilities
|
|
$
|
175,273
|
|
|
$
|
132,780
|
|
Note
5 - Commitments and Contingencies
Litigations,
Claims and Assessments
The
Company may from time to time be a party to litigation and subject to claims incident to the ordinary course of business. As the
Company grows and gains prominence in the marketplace it may become a party to an increasing number of litigation matters and
claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially
affect the Company’s future results of operations, cash flows or financial position. The Company is not currently a party
to any legal proceedings.
Operating
Lease
The
Company is a party to a lease agreement for a shared laboratory facility leased on a month-to-month basis in Menlo Park, California.
Rent
expense was $57,428 and $41,343 for the three months ended September 30, 2017 and 2016, respectively. Rent expense was $169,237
and $116,378 for the nine months ended September 30, 2017 and 2016, respectively.
Note
6 - Stockholders’ Equity
Private
Offering
During
the quarter ended September 30, 2017, the Company completed a private offering for total net proceeds of approximately $5.02 million
(“Private Offering”), of which 289,334 units were sold to officers and directors. The Company issued an aggregate
of 3,438,053 units at a price of $1.50 per unit. Each unit consists of one share of the Company’s common stock and one common
stock purchase warrant (see “Warrants”).
Stock
Options
The
Company has an incentive stock plan, the Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”), and has
granted stock options to employees, non-employee directors and consultants from the 2011 Plan. Options granted under the 2011
Plan may be Incentive Stock Options or Non-statutory Stock Options, as determined by the Administrator at the time of grant. The
rules of the TSX-Venture Exchange (or “TSX-V”) provide that the maximum number of shares which can be reserved under
a stock option plan is equal to 20% of the number of shares of the issuer which are outstanding on the date the plan is approved
by stockholders. On June 15, 2017, the Company’s stockholders approved an amendment to the 2011 Plan to increase the number
of shares authorized for issuance under the 2011 Plan to a total of 7,171,540, which is equal to 20% of the number of shares of
the Company’s common stock outstanding on the date of the amendment
.
COHBAR,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
6 - Stockholders’ Equity (continued)
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 would provide the Company over a two-year period. In August 2017, the
Company issued warrants to purchase 180,000 shares of the Company’s common stock to two consultants as compensation for
consulting services they will provide the Company over a five-year period. Pursuant to applicable policies of the TSX-V, the shares
issuable under the warrants
will be counted against the limit of shares authorized for issuance
under the 2011 Plan, notwithstanding that the warrants were not issued under the 2011 Plan. After giving effect to this limitation
there were 1,241,793 shares remaining available for issuance under the 2011 Plan at September 30, 2017.
During
the nine months ended September 30, 2017, the Company granted stock options to employees to purchase 1,031,000 shares of the Company’s
common stock at an exercise price of $2.40 per share. The options have terms of ten years. Of the 1,031,000 stock options granted,
300,000 are subject to vesting based on continuous service over periods between zero and four years from the date of grant. The
balance of the grant, or 731,000 shares, has performance-based vesting conditions and will be valued at the time the milestones
are reached. The stock options have an aggregate grant date fair value of $528,580. Subsequent to the issuance, the Company cancelled
105,000 stock options during the nine months ended September 30, 2017.
During
the nine months ended September 30, 2017, the Company granted stock options to two consultants to purchase a total of 85,000 shares
of the Company’s common stock. The stock options have an exercise price of $2.02 per share and are exercisable during a
ten-year term, are subject to vesting over periods of three and four years and have an aggregate grant date fair value of $269,416.
In
February 2017, 16,250 stock options were exercised for cash proceeds of $19,825 and the Company cancelled 48,750 stock options.
The
Company recorded stock based compensation as follows:
|
|
For the Three Months Ended September 30,
|
|
|
For Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
441,629
|
|
|
$
|
89,526
|
|
|
$
|
584,589
|
|
|
$
|
264,270
|
|
General and administrative
|
|
|
126,242
|
|
|
|
101,290
|
|
|
|
596,246
|
|
|
|
259,848
|
|
Total
|
|
$
|
567,871
|
|
|
$
|
190,816
|
|
|
$
|
1,180,835
|
|
|
$
|
524,118
|
|
The
following table represents stock option activity for the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
|
Stock
Options
|
|
|
Exercise
Price
|
|
|
Fair Value
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Vested
|
|
|
Life (Years)
|
|
|
Value
|
|
Balance
– December 31, 2016
|
|
|
4,652,497
|
|
|
|
1,908,883
|
|
|
$
|
0.92
|
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
|
8.24
|
|
|
$
|
-
|
|
Granted
|
|
|
1,116,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(16,250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(153,750
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
– September 30, 2017
|
|
|
5,598,497
|
|
|
|
3,006,807
|
|
|
$
|
1.02
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
|
|
6.92
|
|
|
$
|
12,910,289
|
|
COHBAR,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
6 - Stockholders’ Equity (continued)
The
following table summarizes information on stock options outstanding and exercisable as of September 30, 2017:
|
|
|
|
|
|
Weighted
Average
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Exercise
|
|
|
Number
|
|
|
Remaining
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Price
|
|
|
Outstanding
|
|
|
Contractual
Term
|
|
Exercise
Price
|
|
|
Exercisable
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
72,876
|
|
|
4.51 years
|
|
$
|
0.05
|
|
|
|
72,876
|
|
|
$
|
0.05
|
|
$
|
0.26
|
|
|
|
1,024,810
|
|
|
6.53 years
|
|
$
|
0.26
|
|
|
|
1,008,112
|
|
|
$
|
0.26
|
|
$
|
0.73
|
|
|
|
1,475,687
|
|
|
7.12 years
|
|
$
|
0.73
|
|
|
|
1,045,278
|
|
|
$
|
0.73
|
|
$
|
1.00
|
|
|
|
313,124
|
|
|
7.81 years
|
|
$
|
1.00
|
|
|
|
186,457
|
|
|
$
|
1.00
|
|
$
|
1.10
|
|
|
|
10,000
|
|
|
8.35 years
|
|
$
|
1.10
|
|
|
|
4,584
|
|
|
$
|
1.10
|
|
$
|
1.17
|
|
|
|
70,000
|
|
|
8.12 years
|
|
$
|
1.17
|
|
|
|
36,250
|
|
|
$
|
1.17
|
|
$
|
1.22
|
|
|
|
125,000
|
|
|
8.35 years
|
|
$
|
1.22
|
|
|
|
52,083
|
|
|
$
|
1.22
|
|
$
|
1.50
|
|
|
|
40,000
|
|
|
8.42 years
|
|
$
|
1.50
|
|
|
|
15,833
|
|
|
$
|
1.50
|
|
$
|
1.55
|
|
|
|
1,456,000
|
|
|
8.44 years
|
|
$
|
1.55
|
|
|
|
424,500
|
|
|
$
|
1.55
|
|
$
|
2.02
|
|
|
|
85,000
|
|
|
9.86 years
|
|
$
|
2.02
|
|
|
|
27,500
|
|
|
$
|
2.02
|
|
$
|
2.40
|
|
|
|
926,000
|
|
|
9.34 years
|
|
$
|
2.40
|
|
|
|
133,334
|
|
|
$
|
2.40
|
|
Totals
|
|
|
|
5,598,497
|
|
|
|
|
|
|
|
|
|
3,006,807
|
|
|
|
|
|
Warrants
In
January 2017, a total of 926,588 common stock purchase warrants were exercised for aggregate cash proceeds of $1,853,176. Additional
proceeds in the amount of $522,326 were received in January 2017 from warrants exercised in December 2016. During the nine months
ended September 30, 2017, 4,695,846 unexercised warrants expired.
In
January and February 2017, consultants to the Company exercised a total of 106,982 warrants for aggregate cash proceeds of $29,491.
During
the nine months ended September 30, 2017, the Company issued 3,438,053 warrants as part of the Private Offering. Each warrant
can be exercised at any time prior to June 30, 2020 for the purchase of one share of the Company’s common stock at an exercise
price of $2.25.
During
the nine months ended September 30, 2017, the Company issued warrants to two consultants. The warrants are exercisable any time
prior to August 7, 2022 for the purchase of an aggregate of up to 180,000 shares of common stock at an exercise price of $1.99
per share.
COHBAR,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
6 - Stockholders’ Equity (continued)
The
following table represents warrant activity for the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Fair Value
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Vested
|
|
|
Life (Years)
|
|
|
Value
|
|
Balance – December 31, 2016
|
|
|
6,681,051
|
|
|
|
6,618,551
|
|
|
$
|
1.74
|
|
|
$
|
1.74
|
|
|
$
|
0.41
|
|
|
|
0.98
|
|
|
$
|
-
|
|
Issued
|
|
|
3,618,053
|
|
|
|
3,618,053
|
|
|
$
|
2.24
|
|
|
$
|
2.24
|
|
|
$
|
1.04
|
|
|
|
2.86
|
|
|
|
-
|
|
Exercised
|
|
|
(1,033,570
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
(4,695,846
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance – September 30, 2017
|
|
|
4,569,688
|
|
|
|
4,554,063
|
|
|
$
|
1.85
|
|
|
$
|
1.86
|
|
|
$
|
0.92
|
|
|
|
3.46
|
|
|
$
|
8,212,130
|
|
Note
7 - Related Party Transactions
Two
of the Company’s directors, Pinchas Cohen and Nir Barzilai, provide consulting services to the Company pursuant to agreements
that provide for annual compensation to each director of $42,000. 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. Payments of $10,500 were made
to each Director during each of the three months ended September 30, 2017 and 2016. During each of the nine months ended September
30, 2017 and 2016, payments to each Director totaled $31,500. As of September 30, 2017, and December 31, 2016, no amounts were
owed to either Director.
Note
8 - Subsequent Events
Management
has evaluated subsequent events to determine if events or transactions occurring through the date on which the condensed financial
statements were issued require adjustment or disclosure in the Company’s condensed financial statements.
In
October 2017, 80,083 stock options were exercised for cash proceeds of $100,392, and 20,000 warrants were exercised for cash proceeds
of $45,000.
In
October 2017, the Company entered into a one-year lease agreement for office space in New Jersey at a cost of $13,080 per annum.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis is based upon our financial statements as of the dates and for the periods presented in this
section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in
Part I, Item 1 of this Form 10-Q and our financial statements and notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2016 (the “2016 Form 10-K”). All references to the third quarter and first nine months
of 2017 and 2016 are to the three and nine month periods ended September 30, 2017 and 2016, respectively. Unless the context otherwise
requires, “CohBar,” “we,” “us” and “our” refer to CohBar, Inc.
Special
Note Regarding 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. These include statements regarding the therapeutic potential of mitochondria based therapeutics,
plans and expectations regarding our
CB4209 and CB4211
and initiation of clinical
trials, our capital resources and ability to fund our operations, our results of operations, the industry in which we operate
and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,”
“goal,” “project,” “would,” “could,” “intend,” “plan,”
“believe,” “seek” and “estimate,” variations of these words, and similar expressions are intended
to identify those forward-looking statements. These forward-looking statements are only predictions and are subject to risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed
in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to,
uncertainties inherent in research and development, including the ability to meet anticipated commencement and completion dates
for IND-enabling and initial clinical studies, as well as the possibility of unfavorable study results, including unfavorable
new data and additional analyses of existing data; and those risks discussed in the section entitled “Risk Factors”
found in Item 1A of Part I of the 2016 Form 10-K, as supplemented or modified in our quarterly reports on Form 10-Q. We undertake
no obligation to revise or update publicly any forward-looking statements for any reason, whether as a result of new information,
future events or otherwise, except as may be required by law.
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 disease.
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
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 cell based assays and animal models of disease to rapidly identify mitochondrial
peptides with promising biological activity. Once identified, we deploy 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 NASH and obesity. Our founders and scientific team have also 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 with proceeds from sales of our equity securities, including our initial public offering
(“IPO”), private placements, and the exercise of outstanding warrants and stock options. Since our inception through
September 30, 2017, our operations have been funded with an aggregate of approximately $30.7 million from the issuance of equity
instruments.
Since
inception, we have incurred significant operating losses. Our net losses were $6,999,756 and $4,397,851 for the nine months ended
September 30, 2017 and 2016, respectively. As of September 30, 2017, we had an accumulated deficit of $21,409,292. 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, continued development of our pipeline MDPs, and from the expansion and protection of our intellectual property
portfolio. 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 expenses to increase as we continue
to advance our lead drug candidates into clinical studies and continue discovery, research and development efforts for our pipeline
MDPs.
Based
on current budget assumptions and the cash and investments on hand as of September 30, 2017, we believe that we have sufficient
capital to meet our operating expenses and obligations for the next twelve months from the date of this filing. However, if unanticipated
difficulties or circumstances arise we may require additional capital sooner to support our operations. If we are unable to raise
additional capital whenever necessary we may be forced to decelerate or curtail our research and development activities and delay
planned FDA filings and clinical activities until such time as additional capital becomes available. Such limitation of our activities
would allow us to slow our rate of spending and extend our use of cash until additional capital is raised however, 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 we will be able to obtain such financing on reasonable terms.
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 consist primarily of costs incurred for our research activities, including our drug discovery efforts,
and the development of our product candidates. These 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 will continue to increase
in future periods, 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.
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
The
following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results
is not necessarily indicative of financial results to be achieved in future periods.
|
|
For The Three Months Ended September 30,
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,316,454
|
|
|
$
|
1,056,429
|
|
|
$
|
1,260,025
|
|
|
|
119
|
%
|
General and administrative
|
|
|
549,505
|
|
|
|
598,507
|
|
|
|
(49,002
|
)
|
|
|
(8
|
%)
|
Total operating expenses
|
|
$
|
2,865,959
|
|
|
$
|
1,654,936
|
|
|
$
|
1,211,023
|
|
|
|
73
|
%
|
Comparison
of Three Months Ended September 30, 2017 and 2016
Research
and development
expenses were $2,316,454 in the three months ended September 30, 2017 compared to $1,056,429 in the prior
year period, a $1,260,025 increase. The increase in research and development expenses was due primarily to a net increase of approximately
$880,000 in costs related to our IND-enabling activities associated with advancing our lead drug candidates into clinical studies,
purchases of laboratory supplies and expenses related to our efforts to develop optimized MBT candidates, and a $352,000 increase
in stock-based compensation relating to the cost of new grants and the revaluation of options granted to consultants that are
revalued at each balance sheet date.
General
and administrative
expenses were $549,505 in the three months ended September 30, 2017 compared to $598,507 in the prior year
period, a $49,002 decrease. The decrease in general and administrative expenses was primarily due to a decrease in professional
fees in the current quarter as we capitalized legal costs associated with our patents and the incurrence of a recruiting fee in
the prior year quarter. This decrease was offset by an increase in stock-based compensation costs related to new grants.
|
|
For The Nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
4,883,868
|
|
|
$
|
2,646,125
|
|
|
$
|
2,237,743
|
|
|
|
85
|
%
|
General and administrative
|
|
|
2,124,601
|
|
|
|
1,753,008
|
|
|
|
371,593
|
|
|
|
21
|
%
|
Total operating expenses
|
|
$
|
7,008,469
|
|
|
$
|
4,399,133
|
|
|
$
|
2,609,336
|
|
|
|
59
|
%
|
Comparison
of Nine Months Ended September 30, 2017 and 2016
Research
and development
expenses were $4,883,868 in the nine months ended September 30, 2017 compared to $2,646,125 in the prior year
period, a $2,237,743 increase. The increase in research and development expenses was due primarily to a net increase of approximately
$1,885,000 in expenses related to our IND-enabling activities associated with advancing our lead drug candidates into clinical
studies, purchases of laboratory supplies and expenses related to our efforts to develop optimized MBT candidates along with a
$320,000 increase in stock based compensation relating to the costs of new grants and the revaluation of options granted to consultants
that are revalued at each balance sheet.
General and administrative
expenses were $2,124,601 in the nine months ended September 30, 2017 compared to $1,753,008 in the prior year period, a $371,593
increase. The increase in general and administrative expenses was primarily due to an increase of approximately $336,000 in stock-based
compensation. This increase was due to option grants made in the current year period and recognition of an entire period of stock
compensation costs in the current year as compared to a partial period of recognition in the prior year due to the timing of the
grants. We expect general and administrative expenses for the year ending December 31, 2017 to be higher in comparison to prior
years as we continue to incur the costs associated with running a public company and expanding our intellectual property protection.
Liquidity
and Capital Resources
As
of September 30, 2017 we had a cash balance of $2,314,928 and short-term investments of $8,027,314. We maintain our cash in a
checking and savings account on deposit with a banking institution in the United States. Our investments are maintained in a portfolio
of short-term highly liquid securities investing in U.S. Treasury Bills and Certificate of Deposits.
Cash
Flows from Operating Activities
Net
cash used in operating activities for the nine months ended September 30, 2017 and 2016 was $5,557,871 and $3,603,364, respectively.
The cash used in operations for the nine months ended September 30, 2017 was primarily due to our reported net loss of $6,999,756,
partially offset by $1,180,835 in stock based compensation expense and an increase of $472,046 in accounts payable due to the
timing of invoices received during the quarter. The cash used in operations for the nine months ended September 30, 2016 was primarily
due to our reported net loss of $4,397,851, partially offset by $524,118 in stock based compensation expense and an increase of
$214,334 in accounts payable due to the timing of invoices received during the quarter.
Cash
Flows from Investing Activities
Net
cash used in investing activities in the nine months ended September 30, 2017 was $2,628,959. The cash used in investing activities
was due to the timing of the purchases of our investments in certificates of deposit and treasury bills as compared to the timing
of the maturities of those investments. Net cash provided by investing activities in the nine months ended September 30, 2016
was $3,337,183 which was primarily due to net proceeds from redemptions of investments totaling $3,410,795, offset by $67,011
in purchases of property and equipment for our lab.
Cash
Flows from Financing Activities
Net
cash provided by financing activities in the nine months ended September 30, 2017 and 2016 was $7,244,300 and $1,474,731, respectively.
Cash provided by financing activities of $7,244,300 in the nine months ended September 30, 2017 was primarily due to $5,024,742
in net proceeds received in the private offering we completed during the three months ended September 30, 2017 and the exercise
of warrants and employee stock options, which was offset by the repayment of a debt obligation to the Alzheimer’s Drug Discovery
Foundation of $205,260. Cash provided by financing activities of $1,474,731 in the nine months ended September 30, 2016 was primarily
due to the exercise of Compensation Options resulting in proceeds of $741,046 and the exercise of common stock purchase warrants
resulting in proceeds of $731,085.
Contractual
Obligations
We
are a party to a lease agreement for a laboratory facility. The laboratory space is leased on a month-to-month basis and is part
of a shared facility in Menlo Park, California.
Rent
expense was $57,428 and $41,343 for the three months ended September 30, 2017 and 2016, respectively. Rent expense was $169,237
and $116,378 for the nine months ended September 30, 2017 and 2016, respectively.