Item
1: Financial Statements
Sonnet
BioTherapeutics Holdings, Inc.
Consolidated
Balance Sheets
(unaudited)
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,348,096
|
|
|
$
|
7,349,903
|
|
Prepaid expenses and other current assets
|
|
|
350,870
|
|
|
|
287,738
|
|
Total current assets
|
|
|
2,698,966
|
|
|
|
7,637,641
|
|
Property and equipment, net
|
|
|
64,808
|
|
|
|
67,889
|
|
Operating lease right-of-use asset
|
|
|
186,200
|
|
|
|
205,919
|
|
Other assets
|
|
|
82,959
|
|
|
|
82,959
|
|
Total assets
|
|
$
|
3,032,933
|
|
|
$
|
7,994,408
|
|
Liabilities and stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Related-party notes
|
|
$
|
1,060
|
|
|
$
|
21,184
|
|
Accounts payable
|
|
|
2,259,481
|
|
|
|
2,057,559
|
|
Accrued expenses
|
|
|
2,446,514
|
|
|
|
2,063,678
|
|
Operating lease liability
|
|
|
85,051
|
|
|
|
82,060
|
|
Deferred income
|
|
|
500,000
|
|
|
|
500,000
|
|
Total current liabilities
|
|
|
5,292,106
|
|
|
|
4,724,481
|
|
Note payable
|
|
|
125,193
|
|
|
|
124,878
|
|
Operating lease liability
|
|
|
102,900
|
|
|
|
125,132
|
|
Total liabilities
|
|
|
5,520,199
|
|
|
|
4,974,491
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock; $0.0001 par value: 5,000,000 shares authorized. No shares issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock; $0.0001 par value: 125,000,000 shares authorized; 17,175,729 and 14,724,105 issued and outstanding at December 31, 2020 and September 30, 2020, respectively
|
|
|
1,717
|
|
|
|
1,472
|
|
Additional paid-in capital
|
|
|
40,093,514
|
|
|
|
39,723,702
|
|
Accumulated deficit
|
|
|
(42,582,497
|
)
|
|
|
(36,705,257
|
)
|
Total stockholders’ (deficit) equity
|
|
|
(2,487,266
|
)
|
|
|
3,019,917
|
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
3,032,933
|
|
|
$
|
7,994,408
|
|
See
accompanying notes to unaudited interim consolidated financial statements
Sonnet
BioTherapeutics Holdings, Inc.
Consolidated
Statements of Operations
(unaudited)
|
|
Three Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
3,866,007
|
|
|
$
|
1,408,148
|
|
General and administrative
|
|
|
1,997,986
|
|
|
|
1,060,906
|
|
Loss from operations
|
|
|
(5,863,993
|
)
|
|
|
(2,469,054
|
)
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
|
(13,247
|
)
|
|
|
—
|
|
Net loss
|
|
$
|
(5,877,240
|
)
|
|
$
|
(2,469,054
|
)
|
Share information:
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.34
|
)
|
|
$
|
(0.44
|
)
|
Weighted average shares outstanding, basic and diluted
|
|
|
17,218,485
|
|
|
|
5,591,894
|
|
See
accompanying notes to unaudited interim consolidated financial statements
Sonnet
BioTherapeutics Holdings, Inc.
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit)
(unaudited)
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Total
|
|
Balance at October 1, 2020
|
|
|
14,724,105
|
|
|
$
|
1,472
|
|
|
$
|
39,723,702
|
|
|
$
|
(36,705,257
|
)
|
|
$
|
3,019,917
|
|
Warrant exercises
|
|
|
23,863
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Net share settlement of warrants
|
|
|
2,427,761
|
|
|
|
243
|
|
|
|
(243
|
)
|
|
|
—
|
|
|
|
—
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
370,055
|
|
|
|
—
|
|
|
|
370,055
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,877,240
|
)
|
|
|
(5,877,240
|
)
|
Balance at December 31, 2020
|
|
|
17,175,729
|
|
|
$
|
1,717
|
|
|
$
|
40,093,514
|
|
|
$
|
(42,582,497
|
)
|
|
$
|
(2,487,266
|
)
|
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Total
|
|
Balance at October 1, 2019
|
|
|
5,547,643
|
|
|
$
|
555
|
|
|
$
|
9,594,100
|
|
|
$
|
(12,440,142
|
)
|
|
$
|
(2,845,487
|
)
|
Sale of common stock, net of issuance costs
|
|
|
128,313
|
|
|
|
13
|
|
|
|
2,715,017
|
|
|
|
—
|
|
|
|
2,715,030
|
|
Issuance of common stock to settle related-party notes
|
|
|
8,526
|
|
|
|
1
|
|
|
|
199,999
|
|
|
|
—
|
|
|
|
200,000
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,469,054
|
)
|
|
|
(2,469,054
|
)
|
Balance at December 31, 2019
|
|
|
5,684,482
|
|
|
$
|
569
|
|
|
$
|
12,509,116
|
|
|
$
|
(14,909,196
|
)
|
|
$
|
(2,399,511
|
)
|
See
accompanying notes to unaudited interim consolidated financial statements
Sonnet
BioTherapeutics Holdings, Inc.
Consolidated
Statements Cash Flows
(unaudited)
|
|
Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,877,240
|
)
|
|
$
|
(2,469,054
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,081
|
|
|
|
—
|
|
Amortization of operating lease right-of-use asset
|
|
|
19,719
|
|
|
|
—
|
|
Share-based compensation
|
|
|
370,055
|
|
|
|
—
|
|
Non-cash interest
|
|
|
316
|
|
|
|
—
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(63,132
|
)
|
|
|
(15,383
|
)
|
Accounts payable
|
|
|
201,922
|
|
|
|
1,337,625
|
|
Accrued expenses
|
|
|
382,836
|
|
|
|
(661,169
|
)
|
Operating lease liability
|
|
|
(19,242
|
)
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(4,981,685
|
)
|
|
|
(1,807,981
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
—
|
|
|
|
(21,748
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(21,748
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock, net of issuance costs
|
|
|
—
|
|
|
|
2,700,030
|
|
Proceeds from the exercise of warrants
|
|
|
2
|
|
|
|
—
|
|
Proceeds received from related-party notes
|
|
|
—
|
|
|
|
30,000
|
|
Repayments of related-party notes
|
|
|
(20,124
|
)
|
|
|
(46,461
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(20,122
|
)
|
|
|
2,683,569
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(5,001,807
|
)
|
|
|
853,840
|
|
Cash, beginning of period
|
|
|
7,349,903
|
|
|
|
35,653
|
|
Cash, end of period
|
|
$
|
2,348,096
|
|
|
$
|
889,493
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Non-cash purchase of property and equipment
|
|
$
|
—
|
|
|
$
|
26,666
|
|
Issuance of common stock to settle related-party notes
|
|
$
|
—
|
|
|
$
|
200,000
|
|
See
accompanying notes to unaudited interim consolidated financial statements
1.
Organization and description of business
Description
of business
Sonnet
BioTherapeutics, Inc. (“Sonnet”) was incorporated as a New Jersey corporation on April 6, 2015. Sonnet is a clinical
stage, oncology-focused biotechnology company with a proprietary platform for innovating biologic medicines of single- or bi-specific
action. Known as FHAB™ (Fully Human Albumin Binding), the technology utilizes a fully human single chain antibody fragment
(scFv) that binds to and “hitch-hikes” on human serum albumin (HSA) for transport to target tissues. Sonnet’s
pipeline of therapeutic compounds for oncology indications of high unmet medical need includes lead candidate, SON-080, a fully
human version of low dose Interleukin-6 (IL-6) that has successfully completed Phase I clinical trials and will advance to a pilot
efficacy study in patients with chemotherapy-induced peripheral neuropathy (CIPN) during 2021.
On
April 1, 2020, Sonnet completed its merger (the “Merger”) with publicly-held Chanticleer Holdings, Inc. (“Chanticleer”)
in accordance with the terms of the Plan of Merger dated October 10, 2019, as amended by Amendment No. 1 on February 7, 2020 (the
“Merger Agreement”). Immediately prior to the Merger, Chanticleer spun-off its restaurant operations to a spin-off
entity and no assets or liabilities of the restaurant business remained after the spin-off. After the Merger, Chanticleer changed
its name to Sonnet BioTherapeutics Holdings, Inc. (“Sonnet Holdings” or the “Company”) and is focused
on advancing Sonnet’s pipeline of oncology candidates and the strategic expansion of Sonnet’s technology platform
into other human disease.
Global
pandemic - COVID-19
On
March 10, 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic. There is significant
uncertainty as to the likely effects of this disease which may, among other things, materially impact the Company’s planned
clinical trials. This pandemic or outbreak could result in difficulty securing clinical trial site locations, clinical research
organizations (“CROs”), and/or trial monitors and other critical vendors and consultants supporting the trial. In
addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact the Company’s ability
to enroll patients. These situations, or others associated with COVID-19, could cause delays in the Company’s clinical trial
plans and could increase expected costs, all of which could have a material adverse effect on the Company’s business and
its financial condition. At the current time, the Company is unable to quantify the potential effects of this pandemic on its
future operations.
Liquidity
The
Company has incurred recurring losses and negative cash flows from operations activities since inception and it expects to generate
losses from operations for the foreseeable future primarily due to research and development costs for its potential product candidates.
The Company believes its cash of $2.3 million at December 31, 2020 and net proceeds of $1.1 million from the sale of common
stock discussed below will fund the Company’s projected operations into March 2021. Substantial additional financing will
be needed by the Company to fund its operations. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company entered into an At-the-Market
Sales Agreement with BTIG, LLC (“BTIG”) on February 5, 2021 (the “Sales Agreement”). Pursuant to the Sales
Agreement, the Company may offer and sell, from time to time, through BTIG, as sales agent and/or principal, shares of its common
stock, having an aggregate offering price of up to $15,875,000, subject to certain limitations on the amount of common stock that
may be offered and sold by the Company set forth in the Sales Agreement. The Company is not obligated to make any sales of shares
under the Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions
and the Company’s capital raising needs. Through February 12, 2021 the Company sold an aggregate of 380,199 shares under
the Sales Agreement for gross proceeds of an aggregate of $1,168,880 net of fees of $35,066 for net proceeds of $1,133,814.
The
Company plans to secure additional capital in the future through equity or debt financings, partnerships, collaborations, or other
sources to carry out the Company’s planned development activities. If additional capital is not available when required,
the Company may need to delay or curtail its operations until such funding is received. Various internal and external factors
will affect whether and when the Company’s product candidates become approved for marketing and successful commercialization.
The regulatory approval and market acceptance of the Company’s products candidates, length of time and cost of developing
and commercializing these product candidates and/or failure of them at any stage of the approval process will materially affect
the Company’s financial condition and future operations.
Operations
since inception have consisted primarily of organizing the Company, securing financing, developing its technologies through performing
research and development and conducting preclinical studies. The Company faces risks associated with companies whose products
are in development. These risks include the need for additional financing to complete its research and development, achieving
its research and development objectives, defending its intellectual property rights, recruiting and retaining skilled personnel,
and dependence on key members of management.
2. Summary of Significant Accounting Policies
a. Basis of presentation
The
accompanying unaudited interim consolidated financial statements have been prepared in conformity with U.S. generally accepted
accounting principles (“U.S. GAAP”) for interim financial information as found in the Accounting Standard Codification
(“ASC”) and Accounting Standards Updates (ASUs”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited interim consolidated financial statements include all normal and recurring
adjustments (which consist primarily of accruals, estimates and assumptions that impact the unaudited interim financial statements)
considered necessary to present fairly the Company’s financial position as of December 31, 2020 and its results of operations
and cash flows for the three months ended December 31, 2020 and 2019. The unaudited interim consolidated financial statements
presented herein do not contain the required disclosures under U.S. GAAP for annual financial statements and should be read in
conjunction with the annual audited financial statements and related notes of Sonnet Holdings as of and for the year ended September
30, 2020 included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
b. Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts
and transactions have been eliminated in consolidation.
c. Use of estimates
The
preparation of consolidated 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 assets and liabilities as of the date
of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could
differ from those estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in
the consolidated financial statements in the period they are determined to be necessary.
d. Property and equipment
Property
and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance that do not extend the estimated useful life or improve an asset are expensed as incurred.
Upon retirement or sale, the cost and related accumulated depreciation and amortization of assets disposed of are removed from
the accounts, and any resulting gain or loss is included in the statement of operations. As of December 31, 2020, the property
and equipment balance was comprised of leasehold improvements and computer equipment associated with the Princeton office lease
discussed in Note 5.
e. Net loss per share
Basic
net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during
each period (and potential shares of common stock that are exercisable for little or no consideration). Included in basic weighted-average
number of shares of common stock outstanding during the three months ended December 31, 2020 are the Series B warrants with an
exercise price of $0.001 per share.
Diluted
loss per share includes the effect, if any, from the potential exercise or conversion of securities such as common stock warrants
and stock options which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the
weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss
exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.
The
following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common
stock outstanding as they would be anti-dilutive:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants
|
|
|
105,812
|
|
|
|
64,156
|
|
Legacy Chanticleer warrants
|
|
|
17,760
|
|
|
|
—
|
|
Series C warrants
|
|
|
11,329,463
|
|
|
|
—
|
|
Unvested restricted stock
|
|
|
653,845
|
|
|
|
—
|
|
|
|
|
12,106,880
|
|
|
|
64,156
|
|
f. Recent accounting pronouncements
Recently
Announced
In
December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU
2019-12”), which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application
of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein,
and early adoption is permitted. The Company is currently evaluating the new standard to determine the potential impact on its
financial condition, results of operations, cash flows, and financial statement disclosures.
Recently
Adopted
In
August 2018, the FASB issued ASU 2018-13, Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurements,
which changes the fair value measurement disclosure requirements of ASC 820. The goal of the ASU is to improve the effectiveness
of ASC 820’s disclosure requirements. The adoption of ASU 2018-13 on October 1, 2019, did not have a material impact on
the consolidated financial statements.
3. Accrued Expenses
Accrued
expenses consisted of the following:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
Compensation and benefits
|
|
$
|
1,250,343
|
|
|
$
|
1,065,398
|
|
Research and development
|
|
|
889,854
|
|
|
|
519,159
|
|
Professional fees
|
|
|
303,426
|
|
|
|
479,121
|
|
Other
|
|
|
2,891
|
|
|
|
—
|
|
|
|
$
|
2,446,514
|
|
|
$
|
2,063,678
|
|
4. Debt
Related-party
notes
During
the three months ended December 31, 2019, the Company issued unsecured notes payable to various related parties resulting in cash
proceeds of $30,000. These notes are payable on demand and payments of $20,124 and $46,461 were made during the three months ended
December 31, 2020 and 2019, respectively. The interest on these notes was de minimis during each of those periods.
In
October 2019, the Company issued 8,526 shares of common stock to settle $0.2 million of related party notes.
PPP
Loan
On
March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
The CARES Act includes a provision for a Paycheck Protection Program (“PPP”), administered by the U.S. Small Business
Administration (“SBA”) and further amended by the Paycheck Protection Program Flexibility Act of 2020 (“PPP
Flexibility Act”), which was enacted on June 5, 2020.
In
May 2020, the Company received a PPP Loan of $0.1 million. The application for these funds required the Company to certify in
good faith that current economic uncertainty made the loan request necessary to support the ongoing operations of the Company.
The Company was also required to certify that the loan funds would be used to retain workers and maintain payroll or make mortgage
payments, lease payments, and utility payments. The PPP Loan has a two-year term and bears interest at a rate of 1.0% per year.
Under
the terms of the CARES Act, the Company can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness,
if any, will be determined, subject to limitations, based on the use of loan proceeds for payroll costs, rent and utility costs
and provided that only a portion of the use of proceeds are for non-payroll costs. The unforgiven portion of the PPP Loan may
be repaid by the Company at any time prior to maturity with no prepayment penalty. While the Company believes that its use of
the loan proceeds will meet the conditions for forgiveness of the PPP Loan, at this time there can be no assurance that the Company
will obtain forgiveness of the loan in whole or in part.
Loan
recipients may elect an eight week or 24 week forgiveness period and the repayment period begins on the date which the amount
of forgiveness is determined. In the event that a loan recipient has not applied for forgiveness within 10 months of the end of
its covered forgiveness period, the loan recipient must begin making principal and interest payments on that date. As of December
31, 2020 and September 30, 2020, the full amount of the PPP Loan is classified as a note payable within the Company’s consolidated
balance sheets.
5. Leases
The
Company adopted ASC 842 - Leases on October 1, 2019. Through September 30, 2019, the Company’s leases consisted of
leased office space under various operating leases with terms of one year or less. These leases qualified as short-term leases
and as such, there was no cumulative impact from the adoption of ASC 842.
In
December 2019, the Company entered a 36-month lease for office space in Princeton, New Jersey, which commenced February 1, 2020.
At that time, the Company terminated its existing month-to-month leases for office space.
The
components of lease expense for the three months ended December 31, 2020 are as follows:
Lease expense
|
|
|
|
|
Operating lease expense
|
|
$
|
25,540
|
|
Short-term lease expense
|
|
|
6,586
|
|
Total lease cost
|
|
$
|
32,126
|
|
At
December 31, 2020, the weighted-average remaining lease term was 2 years and the weighted average discount rate was 12%.
Cash
paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating loss
|
|
$
|
25,063
|
|
Future
minimum lease payments under non-cancellable leases at December 31, 2020 are as follows:
Fiscal year
|
|
|
|
|
2021 (excluding the three months ended December 31, 2020)
|
|
$
|
76,454
|
|
2022
|
|
|
103,440
|
|
2023
|
|
|
34,695
|
|
Total undiscounted lease payments
|
|
|
214,589
|
|
Less: imputed interest
|
|
|
(26,638
|
)
|
Total lease liabilities
|
|
$
|
187,951
|
|
6. Commitments and Contingencies
Legal
Proceedings
From
time to time, the Company is a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course
of its business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve
these matters will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
License
Agreements
The
Company has entered into a Discovery Collaboration Agreement (the “Collaboration Agreement”) with XOMA (US) LLC (“XOMA”),
pursuant to which XOMA granted to Sonnet a non-exclusive, non-transferrable license and/or right to use certain materials, technologies
and related information related to discovery, optimization and development of antibodies and related proteins and to develop and
commercialize products thereunder. Sonnet is obligated to make contingent milestone payments to XOMA totaling $3.8 million on
a product-by-product basis upon the achievement of certain development and approval milestones related to a product. Sonnet has
also agreed to pay XOMA low single-digit royalties on net sales of products sold by Sonnet. Royalties on each product are payable
on a country-by-country basis until the later of (i) a specified period of time after the first commercial sale, and (ii) the
date of expiration of the last valid claim in the last-to-expire of the issued patents covered by the Collaboration Agreement.
The
Company has entered into a License Agreement (the “ARES License Agreement”) with Ares Trading, a wholly-owned subsidiary
of Merck KGaA (“ARES”). Under the terms of the ARES License Agreement, ARES has granted the Company a sublicensable,
exclusive, worldwide, royalty-bearing license on proprietary patents to research, develop, use and commercialize products using
atexakin alfa (“Atexakin”), a low dose formulation of human interleukin-6 in peripheral neuropathies and vascular
complications. Pursuant to the ARES License Agreement, the Company will pay ARES high single-digit royalties on net sales of products
sold by the Company. Royalties are payable on a product-by-product and country-by-country basis until the later of (i) a specified
period of time after the first commercial sale in such country, and (ii) the last date on which such product is covered by a valid
claim in such country.
Employment
Agreements
The
Company has entered into employment contracts with its officers and certain employees that provide for severance and continuation
of benefits in the event of termination of employment either by the Company without cause or by the employee for good reason,
both as defined in the contract. In addition, in the event of termination of employment following a change in control, as defined,
either by the Company without cause or by the employee for good reason, any unvested portion of the employee’s initial stock
option grant becomes immediately vested.
7. Stockholders’ Equity (Deficit)
Common
stock
During
the three months ended December 31, 2019, the Company sold 128,313 shares of common stock for net proceeds of $2.7 million. In
addition, the Company issued 8,526 shares of common stock and warrants to purchase 4,262 upon conversion of outstanding promissory
notes with an outstanding principal balance of $0.2 million at the time of conversion.
Common
stock warrants
As
of December 31, 2020, the following equity-classified warrants and related terms were outstanding:
|
|
Warrants Outstanding
|
|
|
Exercise Price
|
|
|
Expiration Date
|
Warrants
|
|
|
105,812
|
|
|
$
|
29.32
|
|
|
October 1, 2022 - March 10, 2023
|
Chanticleer warrants
|
|
|
17,760
|
|
|
$
|
58.50 - $91.00
|
|
|
April 30, 2027 - December 17, 2028
|
Series B warrants
|
|
|
42,373
|
|
|
$
|
0.0001
|
|
|
April 16, 2025
|
Series C warrants
|
|
|
11,329,463
|
|
|
$
|
3.19
|
|
|
October 16, 2025
|
|
|
|
11,495,408
|
|
|
|
|
|
|
|
During
the three months ended December 31, 2020, the Series B warrant holders exercised 23,863 warrants for proceeds of $2. An additional
2,242,427 of Series B warrants were net share settled, resulting in the issuance of 2,242,339 shares of common stock.
During
the three months ended December 31, 2020, the Chanticleer warrants to purchase 186,161 shares of common stock with an exercise
price of $0.01 per share were net share settled, resulting in the issuance of 185,422 shares of common stock.
8. Share-Based Compensation
In
April 2020, the Company adopted the 2020 Omnibus Equity Incentive Plan (the “Plan”). The total number of shares authorized
under the Plan as of December 31, 2020 was 653,846, all of which have been granted as of December 31, 2020. The Plan increases
the amount of shares issuable under the Plan by four percent of the outstanding shares of common stock at each January 1, each
year. The Plan permits the granting of share-based awards, including stock options, restricted stock units and awards, stock appreciation
rights and other types of awards as deemed appropriate, in each case, in accordance with the terms of the Plan. The terms of the
awards are determined by the Company’s Board of Directors.
Restricted
Stock Units
In
July of 2020, 653,846 restricted stock units (“RSUs”) were granted, 50% of which vest on April 2, 2021 and the remaining
50% vest on April 2, 2022. Any unvested RSUs will be forfeited upon termination of services. The fair value of an RSU is equal
to the fair market value of the Company’s common stock on the date of grant. RSU expense is amortized straight-line over
the vesting period.
The
Company recorded share-based compensation expense associated with the RSUs in its accompanying statements of operations.
|
|
Three Months Ended
|
|
|
|
December 31, 2020
|
|
Research and development
|
|
$
|
105,694
|
|
General and administrative
|
|
|
264,361
|
|
|
|
$
|
370,055
|
|
The
following table summarizes RSU activity under the Plan:
|
|
RSU
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Unvested balance at September 30, 2020
|
|
|
653,845
|
|
|
$
|
3.63
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Unvested balance at December 31, 2020
|
|
|
653,845
|
|
|
$
|
3.63
|
|
As
of December 31, 2020, total unrecognized compensation expense relating to unvested RSUs granted was $1.6 million, which is expected
to be recognized over a period of 1.25 years.
9.
Subsequent Events
The
Company has evaluated subsequent events and there are no items requiring disclosure except the entrance into an At-the-Market
Sales Agreement discussed in Note 1.
Item
2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read together with our financial
statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion
contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere
in this Quarterly Report, particularly those under “Risk Factors.”
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties
and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify
these forward-looking statements through our use of words such as “may,” “can,” “anticipate,”
“assume,” “should,” “indicate,” “would,” “believe,” “contemplate,”
“expect,” “seek,” “estimate,” “continue,” “plan,” “point to,”
“project,” “predict,” “could,” “intend,” “target,” “potential”
and other similar words and expressions of the future.
There
are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking
statement made by us. These factors include, but are not limited to:
|
●
|
our
lack of operating history and history of operating losses;
|
|
|
|
|
●
|
our
need for significant additional capital and our ability to satisfy our capital needs;
|
|
|
|
|
●
|
our
ability to complete required clinical trials of our products and obtain approval from the FDA or other regulatory agents in
different jurisdictions;
|
|
|
|
|
●
|
the
potential impact of the recent COVID-19 pandemic on our operations, including on our clinical development plans and timelines;
|
|
|
|
|
●
|
our
ability to maintain or protect the validity of our patents and other intellectual property;
|
|
|
|
|
●
|
our
ability to retain key executive members;
|
|
|
|
|
●
|
our
ability to internally develop new inventions and intellectual property;
|
|
|
|
|
●
|
interpretations
of current laws and the passages of future laws;
|
|
|
|
|
●
|
acceptance
of our business model by investors;
|
|
|
|
|
●
|
the
accuracy of our estimates regarding expenses and capital requirements; and
|
|
|
|
|
●
|
our
ability to adequately support growth.
|
The
foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein
or risk factors that we are faced with that may cause our actual results to differ from those anticipate in our forward-looking
statements. Please see “Risk Factors” for additional risks which could adversely impact our business and financial
performance.
All
forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place
undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated
by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any
of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations,
beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations,
beliefs or projections will result or be achieved or accomplished.
Overview
Sonnet
BioTherapeutics Holdings, Inc. (“Sonnet Holdings” or ,” “we,” “us,” “our,”
or the “Company”), is a clinical stage, oncology-focused biotechnology company with a proprietary platform for innovating
biologic medicines of single- or bi-specific action. Known as FHAB™ (Fully Human Albumin Binding), the technology utilizes
a fully human single chain antibody fragment (scFv) that binds to and “hitch-hikes” on human serum albumin (HSA) for
transport to target tissues. Our pipeline of therapeutic compounds for oncology indications of high unmet medical need includes
lead candidate, SON-080, a fully human version of low dose Interleukin-6 (IL-6) that has successfully completed Phase I clinical
trials and will advance to a pilot efficacy study in patients with chemotherapy-induced peripheral neuropathy (CIPN) during 2021.
We
have incurred recurring operating losses and negative cash flows since inception. Our ability to generate product or licensing
revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of
one or more of our current or future product candidates. Our net losses were $5.9 million and $2.5 million for the three months
ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had cash of $2.3 million. We expect to continue to
incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and
capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
|
●
|
conduct
additional clinical trials for product candidates;
|
|
|
|
|
●
|
continue
to discover and develop additional product candidates;
|
|
|
|
|
●
|
acquire
or in-license other product candidates and technologies;
|
|
|
|
|
●
|
maintain,
expand and protect our intellectual property portfolio;
|
|
|
|
|
●
|
hire
additional clinical, scientific and commercial personnel;
|
|
|
|
|
●
|
establish
a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product
candidates for which we may obtain regulatory approval;
|
|
|
|
|
●
|
seek
regulatory approval for product candidates that successfully complete clinical trials;
|
|
●
|
establish
a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval;
and
|
|
|
|
|
●
|
add
operational, financial and management information systems and personnel, including personnel to support our product development
and planned future commercialization efforts, as well as to support our operation as a public reporting company.
|
We
will not generate revenue from product sales, if any, unless and until we receive licensing revenue and/or successfully complete
clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our
product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing
our internal commercialization capability to support product sales, marketing and distribution. As a result of the Merger, as
described below, we will continue to incur significant costs associated with operating as a public company.
As
a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until
such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the
sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic
transactions. We may not be able to raise additional funds or enter into such other agreements or arrangements when needed on
favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly
delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit
of potential in-licenses or acquisitions.
Because
of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of
increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product
sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis,
then we may be unable to continue our operations at planned levels and be forced to reduce or terminate operations.
Since
our inception in 2015, we have devoted substantially all of our efforts and financial resources to organizing and staffing the
Company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property
rights and conducting discovery, research and development activities for product candidates. We do not have any products approved
for sale and have not generated any revenue from product sales. We have funded our operations to date primarily with proceeds
from sales of common stock, warrants and proceeds from the issuance of convertible debt.
Recent
Events
Merger
On
April 1, 2020, Chanticleer Holdings, Inc (“Chanticleer”), now known as Sonnet BioTherapeutics Holdings, Inc, completed
its merger transaction (the “Merger”) with Sonnet BioTherapeutics, Inc. (“Sonnet”), in accordance with
the terms of the Agreement and Plan of Merger, dated as of October 10, 2019, as amended on February 7, 2020 (the “Merger
Agreement”). Chanticleer shares of common stock traded on the Nasdaq Capital Market through close of Business on Tuesday,
March 31, 2020 under the ticker symbol “BURG”. We commenced trading on the Nasdaq capital Market, under the ticker
symbol “SONN” on April 2, 2020.
Immediately
following the Merger, Sonnet became a wholly-owned subsidiary of Sonnet Holdings. For accounting purposes, Sonnet is considered
to be the acquiring company and the Merger has been accounted for as a reverse acquisition and recapitalization with Sonnet being
treated as the accounting acquirer. As such, the financial information prior to the Merger relate solely to Sonnet. Subsequent
to the Merger, the consolidated financial statements relate to the consolidated entities of the Company.
Relief
Acquisition
In
August 2019, Sonnet executed a Share Exchange Agreement with Relief Therapeutics Holdings SA (“Relief Holdings”),
in which Sonnet agreed to acquire the outstanding shares of Relief Therapeutics SA (“Relief”), a wholly-owned subsidiary
of Relief Holdings, by issuing common stock of Sonnet. Sonnet assumed the development of Relief’s asset, atexakin alfa,
together with its proprietary experimental drugs. The acquisition of Relief closed on April 1, 2020 and Relief is now a wholly-owned
subsidiary of Sonnet.
COVID-19
Pandemic
In
December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China and on March 11, 2020 was
declared a pandemic by the World Health Organization. To date, many countries around the world have imposed quarantines and restrictions
on travel and mass gatherings to slow the spread of COVID-19 and have closed non-essential businesses. As countries and state
and local jurisdictions continue to put restrictions in place, our ability to continue to operate our business may also be limited.
Such events may result in a period of business, supply and drug product manufacturing disruption, and in reduced operations, any
of which could materially affect our business, financial condition and results of operations.
This
pandemic or outbreak could result in difficulty securing clinical trial site locations, CROs, and/or trial monitors and other
critical vendors and consultants supporting the trial. In addition, outbreaks or the perception of an outbreak near a clinical
trial site location could impact our ability to enroll patients. These situations, or others associated with COVID-19, could cause
delays in our clinical trial plans and could increase expected costs, all of which could have a material adverse effect on our
business and its financial condition.
In
particular, although our CIPN program with SON-080 continues to progress forward, the COVID-19 pandemic has impacted workflow
at our contract research partners such that we now estimate delays pushing a trial initiation into 2021 from our previous plan
of late 2020.
While
the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic
could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the
future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could
materially affect our business and the value of our common shares.
The
COVID-19 outbreak may also affect the ability of our staff and the parties we work with to carry out our non-clinical, clinical,
and drug manufacturing activities. We rely or may in the future rely on clinical sites, investigators and other study staff, consultants,
independent contractors, contract research organizations and other third-party service providers to assist us in managing, monitoring
and otherwise carrying out our nonclinical studies and clinical trials. We also rely or may in the future rely on consultants,
independent contractors, contract manufacturing organizations, and other third-party service providers to assist us in managing,
monitoring and otherwise carrying out our API production, formulation, and drug manufacturing activities. COVID-19 may affect
the ability of any of these external people, organizations, or companies to devote sufficient time and resources to our programs
or to travel to perform work for us.
Potential
negative impacts of the COVID-19 outbreak on the conduct of current or future clinical studies include delays in gaining feedback
from regulatory agencies, starting new clinical studies, and recruiting subjects to studies that are enrolling. The potential
negative impacts also include inability to have study visits at study sites, incomplete collection of safety and efficacy data,
and higher rates of drop-out of subjects from ongoing studies, delays in site entry of study data into the data base, delays in
monitoring of study data because of restricted physical access to study sites, delays in site responses to queries, delays in
data-base lock, delays in data analyses, delays in time to top-line data, and delays in completing study reports. New or worsening
COVID-19 disruptions or restrictions could have the potential to further negatively impact our non-clinical studies, clinical
trials, and drug manufacturing activities.
Components
of Results of Operations
Operating
Expenses
Research
and Development Expenses
Research
and development expenses consist primarily of costs incurred in connection with the discovery and development of the Company’s
product candidates. The Company expenses research and development costs as incurred and such costs include:
|
●
|
employee-related
expenses, including salaries, share-based compensation and related benefits, for employees engaged in research and development
functions;
|
|
|
|
|
●
|
expenses
incurred in connection with the preclinical and clinical development of the Company’s product candidates, including
under agreements with third parties, such as consultants and clinical research organizations;
|
|
|
|
|
●
|
the
cost of manufacturing drug products for use in the Company’s preclinical studies and clinical trials, including under
agreements with third parties, such as consultants and contract manufacturing organizations;
|
|
|
|
|
●
|
facilities,
depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance;
|
|
|
|
|
●
|
costs
related to compliance with regulatory requirements; and
|
|
|
|
|
●
|
payments
made under third-party licensing agreements.
|
We
recognize external development costs based on an evaluation of the progress to completion of specific tasks using information
provided by our service providers. This process involves reviewing open contracts and purchase orders, communicating with their
personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated
cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance
payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid
expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed.
Our
direct research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs,
CMOs and research laboratories in connection with preclinical development, process development, manufacturing and clinical development
activities. Our direct research and development expenses also include fees incurred under third-party license agreements. We do
not allocate employee costs and costs associated with discovery efforts, laboratory supplies and facilities, including depreciation
or other indirect costs, to specific product candidates because these costs are deployed across multiple programs and as such,
are not separately classified. We use internal resources primarily to conduct its research and discovery as well as for managing
preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple
programs and therefore, we do not track its costs by product candidate.
We
expect our research and development expense will increase for the foreseeable future as we attempt to advance development of our
product candidates. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably
estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development
of our current pipeline or any future product candidates we may develop due to the numerous risks and uncertainties associated
with clinical development, including risk and uncertainties related to:
|
●
|
the
timing and progress of preclinical and clinical development activities;
|
|
|
|
|
●
|
the
number and scope of preclinical and clinical programs that we decide to pursue;
|
|
|
|
|
●
|
Our
ability to maintain our current research and development programs and to establish new ones;
|
|
|
|
|
●
|
establishing
an appropriate safety profile with investigational new drug-enabling studies;
|
|
|
|
|
●
|
successful
patient enrollment in, and the initiation and completion of, clinical trials;
|
|
|
|
|
●
|
the
successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any
comparable foreign regulatory authority;
|
|
|
|
|
●
|
the
receipt of regulatory approvals from applicable regulatory authorities;
|
|
|
|
|
●
|
the
timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
|
|
|
|
|
●
|
our
ability to establish new licensing or collaboration arrangements;
|
|
|
|
|
●
|
establishing
agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of
our product candidates is approved;
|
|
|
|
|
●
|
development
and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial
launch;
|
|
●
|
obtaining,
maintaining, defending and enforcing patent claims and other intellectual property rights;
|
|
|
|
|
●
|
launching
commercial sales of product candidates, if approved, whether alone or in collaboration with others;
|
|
|
|
|
●
|
maintaining
a continued acceptable safety profile of the product candidates following approval; and
|
|
|
|
|
●
|
the
potential impact of COVID-19 on operations which may affect among other things, the timing of clinical trials, availability of
raw materials, and the ability to access and secure testing facilities.
|
A
change in the outcome of any of these variables with respect to the development of our product candidates could significantly
change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory
approval for any of our product candidates.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries and related costs for personnel, including share-based compensation,
in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related
costs as well as professional fees for legal, patent, consulting, accounting, and audit services.
Our
general and administrative expenses will increase in the future as we increase our headcount to support continued research activities
and development of product candidates. We will continue to incur increased accounting, audit, legal, regulatory, compliance and
director and officer insurance costs as well as investor and public relations expenses associated with being a public company.
Foreign
exchange loss
Foreign
exchange loss consists of exchange rate changes on transactions denominated in currencies other than the U.S. dollar.
Results
of Operations
Comparison
of the three months ended December 31, 2020 and 2019
The
following table summarizes the Company’s results of operations for the three months ended December 31, 2020 and 2019:
|
|
Three Months Ended December 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
3,866,007
|
|
|
$
|
1,408,148
|
|
|
$
|
2,457,859
|
|
General and administration
|
|
|
1,997,986
|
|
|
|
1,060,906
|
|
|
|
937,080
|
|
Loss from operations
|
|
|
(5,863,993
|
)
|
|
|
(2,469,054
|
)
|
|
|
(3,394,939
|
)
|
Foreign exchange loss
|
|
|
(13,247
|
)
|
|
|
—
|
|
|
|
(13,247
|
)
|
Net loss
|
|
$
|
(5,877,240
|
)
|
|
$
|
(2,469,054
|
)
|
|
$
|
(3,408,186
|
)
|
Research
and Development Expenses
Research
and development expenses were $3.9 million for the three months ended December 31, 2020, compared to $1.4 million for the three
months ended December 31, 2019. The increase of $2.5 million was primarily due to the development of the cell line for IL12-FHAB
and IL12-FHAB-IL15 manufacturing and increased costs for research and development activities due to the acquisition of Relief,
including an increase in payroll and share-based compensation expense as we expanded our operations.
General
and Administrative Expenses
General
and administrative expenses were $2.0 million for the three months ended December 31, 2020, compared to $1.1 million for the three
months ended December 31, 2019. The increase of $0.9 million was primarily due to an increase in insurance expenses related to
directors and officer’s insurance, and an increase in payroll and share-based compensation expense as we expanded our operations
to support our overall business objectives.
Liquidity
and Capital Resources
Since
inception, we have not generated any revenue from any sources, including from product sales, and have incurred recurring losses
and negative cash flows from operations. We have funded operations to date primarily with proceeds from sales of common stock,
warrants and proceeds from the issuance of convertible debt. The following table summarizes the Company’s sources and uses
of cash for each of the periods presented:
|
|
Three Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash used in operating activities
|
|
$
|
(4,981,685
|
)
|
|
$
|
(1,807,981
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(21,748
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(20,122
|
)
|
|
|
2,683,569
|
|
Net increase (decrease) in cash
|
|
$
|
(5,001,807
|
)
|
|
$
|
853,840
|
|
Operating
Activities
During
the three months ended December 31, 2020, we used $5.0 million of cash in operating activities which was primarily attributable
to our net loss of $5.9 million. This amount was offset by a $0.4 million in share-based compensation expense and a $0.6 million
increase in accounts payable and accruals primarily related to increased research and development efforts.
During
the three months ended December 31, 2019, we used $1.8 million of cash in operating activities. Cash used in operating activities
reflected our net loss of $2.5 million offset by a $0.7 million increase in accounts payable and accruals primarily attributable
increased research and development efforts.
Investing
Activities
During
the three months ended December 31, 2019, we purchased $22 thousand of office furniture and computer equipment.
Financing
Activities
During
the three months ended December 31, 2020, we made repayments of related party notes of $20 thousand.
During
the three months ended December 31, 2019, net cash provided by financing activities was $2.7 million, consisting of proceeds of
$2.7 million from the sale of common stock, partially offset by $16 thousand in net repayments of related party notes.
Funding
Requirements
We
expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance preclinical
activities and clinical trials of product candidates in development. In addition, we expect to incur additional costs associated
with operating as a public company. The timing and amount of our operating expenditures will depend largely on:
|
●
|
the
scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials
and nonclinical studies for our current or future product candidates;
|
|
|
|
|
●
|
the
clinical development plans we establish for these product candidates;
|
|
|
|
|
●
|
the
number and characteristics of product candidates and programs that we develop or may in-license;
|
|
|
|
|
●
|
the
outcome, timing and cost of regulatory reviews, approvals or other actions to meet regulatory requirements established by
the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory
authorities to require that we perform more studies for our product candidates than those that we currently expect;
|
|
|
|
|
●
|
our
ability to obtain marketing approval for product candidates;
|
|
|
|
|
●
|
the
cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights covering our product
candidates;
|
|
|
|
|
●
|
our
ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual
property disputes, including patent infringement actions brought by third parties against us or our product candidates;
|
|
|
|
|
●
|
the
cost and timing of completion of commercial-scale outsourced manufacturing activities with respect to product candidates;
|
|
●
|
our
ability to establish and maintain licensing, collaboration or similar arrangements on favorable terms and whether and to what
extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
|
|
|
|
|
●
|
the
cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory
approval in regions where we choose to commercialize our products on our own;
|
|
|
|
|
●
|
the
success of any other business, product or technology that the we acquire or in which we invest;
|
|
|
|
|
●
|
the
costs of acquiring, licensing or investing in businesses, product candidates and technologies;
|
|
|
|
|
●
|
our
need and ability to hire additional management and scientific and medical personnel;
|
|
|
|
|
●
|
the
costs to operate as a public company in the United States, including the need to implement additional financial and reporting
systems and other internal systems and infrastructure for our business;
|
|
|
|
|
●
|
market
acceptance of our product candidates, to the extent any are approved for commercial sale;
|
|
|
|
|
●
|
the
effect of competing technological and market developments; and
|
|
|
|
|
●
|
the
potential impact of the COVID-19 pandemic on our clinical trials and operations.
|
Until
such time, if ever, as the we can generate substantial product revenue, we expect to finance our cash needs through a combination
of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements
with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
the ownership interest of the Company may be materially diluted, and the terms of such securities could include liquidation or
other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available,
may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances
or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to technologies,
future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If
we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required
to delay, reduce or eliminate product development or future commercialization efforts, sell off assets, or grant rights to develop
and market product candidates that we would otherwise prefer to develop and market.
The Company believes its cash of $2.3 million
at December 31, 2020 and net proceeds of $1.1 million from the sale of common stock discussed below will fund the Company’s
projected operations into March 2021. The Company will need to raise significant additional capital in the near term to fund its
continuing operations.
The Company entered into an At-the-Market
Sales Agreement with BTIG, LLC (“BTIG”) on February 5, 2021 (the “Sales Agreement”). Pursuant to the Sales
Agreement, the Company may offer and sell, from time to time, through BTIG, as sales agent and/or principal, shares of its common
stock, having an aggregate offering price of up to $15,875,000, subject to certain limitations on the amount of common stock that
may be offered and sold by the Company set forth in the Sales Agreement. The Company is not obligated to make any sales of shares
under the Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions
and the Company’s capital raising needs. Through February 12, 2021 the Company sold an aggregate of 380,199 shares under
the Sales Agreement for gross proceeds of an aggregate of $1,168,880 net of fees of $35,066 for net proceeds of $1,133,814.
Contractual
Obligations and Commitments
The
following table summarizes the Company’s contractual obligations as of December 31, 2020 and the effects that such obligations
are expected to have on its liquidity and cash flows in future periods:
|
|
Less than 1 Year
|
|
|
1 to 3 Years
|
|
|
4 to 5 Years
|
|
|
More than 5 Years
|
|
|
Total
|
|
Operating Lease (1)
|
|
$
|
101,991
|
|
|
$
|
112,598
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
214,589
|
|
Debt Obligations (2)
|
|
$
|
1,060
|
|
|
$
|
125,193
|
|
|
|
|
|
|
|
|
|
|
$
|
126,253
|
|
Total
|
|
$
|
103,051
|
|
|
$
|
237,791
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
340,842
|
|
(1)
Reflects obligations pursuant to the Company’s office lease in Princeton, New Jersey.
(2)
Reflects unsecured notes payable issued to certain related parties and a loan under the Payroll Protection Program.
In
addition to the contracts with payment commitments that we have reflected in the table above, we have entered into other contracts
in the normal course of business with certain CROs, CMOs and other third-parties for preclinical research studies and testing,
clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable
upon prior notice and as a result, are not included in the table of contractual obligations and commitments above. Payments due
upon cancellation consist only of payments for services provided and expenses incurred, including non-cancelable obligations to
our service providers, up to the date of cancellation.
Critical
Accounting Policies
Our
management’s discussion and analysis of financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure
of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments,
including those related to the accrual for research and development expenses. We base our estimates on historical experience,
known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or conditions.
While
the Company’s significant accounting policies are described in more detail in the notes to the interim consolidated financial
statements included elsewhere in this Form 10-Q, we believe that the following accounting policies are those most critical to
the judgments and estimates used in the preparation of the financial statements.
Research
and development expenses
Research
and development expense consist primarily of costs incurred in connection with the development of the our product candidates.
We expense research and development costs as incurred.
At
the end of each reporting period, we compare payments made to third-party service providers to the estimated progress toward completion
of the applicable research or development objectives. Such estimates are subject to change as additional information becomes available.
Depending on the timing of payments to the service providers and the progress that we estimate has been made as a result of the
service provided. We may record net prepaid or accrued expense relating to these costs. As of December 31, 2020, we did not make
any material adjustments to our prior estimates of accrued research and development expenses.
Off-Balance
Sheet Arrangements
We
do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to
as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition,
we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially
exposed to any financing, liquidity, market or credit risk that could arise if it had engaged in these relationships.
Recently
Issued Accounting Pronouncements
A
description of recently issued accounting pronouncements that may potentially impact the our financial position and results of
operations is disclosed in Note 2 to the interim consolidated financial statements included elsewhere in this Form 10-Q.