Notes
to Unaudited Condensed Consolidated Financial Statements
Nine
Months Ended September 30, 2016
Business
Corbus
Pharmaceuticals Holdings, Inc. (the “Company”) is a clinical stage pharmaceutical company, focused on the development
and commercialization of novel therapeutics to treat rare, chronic, and serious inflammatory and fibrotic diseases. Since its
inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting
management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant
risks and uncertainties and the Company will be dependent on raising substantial additional capital before it becomes profitable
and it may never achieve profitability.
In
the opinion of management of the Company, the accompanying unaudited condensed consolidated interim financial statements reflect
all adjustments (which include only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated
financial position of the Company as of September 30, 2016 and the results of its operations and cash flows for the three months
and nine months ended September 30, 2016 and 2015. The December 31, 2015 condensed consolidated balance sheet was derived from
audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 28, 2016. The results of operations for such interim
periods are not necessarily indicative of the operating results for the full fiscal year.
The
Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research
funding, development of its product candidates and its preclinical and clinical programs, strategic alliances and the development
of its administrative organization. The Company has incurred recurring losses since inception and as of September 30, 2016, had
an accumulated deficit of $25,706,214. In June 2016, the Company completed a sale of shares of its common stock pursuant to the
terms of a securities purchase agreement under which the Company sold an aggregate of 5,960,000 shares of its common stock in
a registered direct offering to investors at a purchase price of $2.50 per share with net proceeds to the Company totaling approximately
$14,875,000. The Company expects the cash on hand of $18,909,348 at September 30, 2016 together with the remaining milestone payments
of $1,500,000 from the Cystic Fibrosis Foundation Therapeutics, Inc. (“CFFT”) which the Company expects to receive
in the first quarter of 2017 (See Note 13), to be sufficient to meet its operating and capital requirements into the fourth quarter
of 2017 based on current planned expenditures.
Should
the Company be unable to raise sufficient additional capital, the Company may undertake cost-cutting measures including delaying
or discontinuing certain clinical activities. The Company will need to raise significant additional capital to continue to fund
the clinical trials for Resunab. The Company may seek to sell common or preferred equity or convertible debt securities, enter
into a credit facility or another form of third-party funding, or seek other debt financing. The sale of equity and convertible
debt securities may result in dilution to the Company’s stockholders and certain of those securities may have rights senior
to those of the Company’s common shares. If the Company raises additional funds through the issuance of preferred stock,
convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict
the Company’s operations. Any other third-party funding arrangement could require the Company to relinquish valuable rights.
The
source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically,
on the progress of the Company’s clinical development programs. Funding may not be available when needed, at all, or on
terms acceptable to the Company. Lack of necessary funds may require the Company, among other things, to delay, scale back or
eliminate some or all of the Company’s planned clinical trials.
3.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
A
summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:
Use
of Estimates
The
process of preparing financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates and changes in estimates may occur. The most significant estimates are
related to stock based compensation, the accrual of research and clinical obligations, and revenue recognition under collaborative
arrangements.
Cash
and Cash Equivalents
The
Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months
from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three months.
At September 30, 2016 and December 31, 2015, cash equivalents were comprised of money market funds. The Company had no marketable
investments at September 30, 2016 and December 31, 2015. Cash and cash equivalents consist of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
146,170
|
|
|
$
|
255,943
|
|
Money market
funds
|
|
|
18,763,178
|
|
|
|
12,082,332
|
|
|
|
$
|
18,909,348
|
|
|
$
|
12,338,275
|
|
Restricted
Cash
Restricted
cash as of September 30, 2016 included a $150,000 collateral account for the Company’s corporate credit cards. Additionally,
as of September 30, 2016 and December 31, 2015 restricted cash included a $36,375 stand-by letter of credit issued in favor of
a landlord (See Note 5).
Financial
Instruments
The
carrying amounts reported in the consolidated balance sheet for cash and cash equivalents and accounts payable approximate fair
value based on the short-term nature of these instruments. The carrying values of loans payable approximate their fair value due
to their market terms.
Property
and Equipment
The
estimated life for the Company’s property and equipment is as follows: three years for computer hardware and software and
three to five years for office furniture and equipment. The Company’s leasehold improvements and assets under capital lease
are amortized over the life of the respective leases. See Note 4 for details of property and equipment and Note 5 for operating
and capital lease commitments.
Research
and Development Expenses and Collaborative Research Agreements
Costs
incurred for research and development are expensed as incurred.
For
amounts received under the development award received from the CFFT during 2015 and 2016 (See Note 13), the Company is amortizing
these amounts on a straight-line basis over the expected duration of the performance period of the development program under the
award, which is expected to conclude in the first quarter of 2017.
Accruals
for Research and Development Expenses and Clinical Trials
As
part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its
obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in
connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from
contract to contract and may result in payment terms that do not match the periods over which materials or services are provided
under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching
those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses
according to the timing of various aspects of the expenses. The Company determines accrual estimates through financial models
taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials,
or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual
results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on
the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely
and accurate reporting of contract research organizations and other third-party vendors. Although the Company does not expect
its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services
performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that
are too high or too low for any particular period. For the three and nine months ended September 30, 2016 and 2015, there were
no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.
Concentrations
of Credit Risk
The
Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts
or other hedging arrangements. The Company may from time to time have cash in banks in excess of Federal Deposit Insurance Corporation
insurance limits.
Segment
Information
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing
performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which
is developing and commercializing therapeutics to treat rare life-threating, inflammatory fibrotic diseases. As of September 30,
2016 and December 31, 2015, all of the Company’s assets were located in the United States.
Income
Taxes
For
federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the
financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted
laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded to reduce a net deferred
tax benefit when it is more likely than not that the tax benefit from the deferred tax assets will not be realized. Accordingly,
given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% of the tax benefit in
order to eliminate the deferred tax assets amounts. Tax positions taken or expected to be taken in the course of preparing the
Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not”
of being sustained by the applicable tax authority.
Tax
positions not deemed to meet a more-likely-than-not threshold, as well as accrued interest and penalties, if any, would be recorded
as a tax expense in the current year. There were no uncertain tax positions that require accrual or disclosure to the financial
statements as of September 30, 2016 or December 31, 2015.
Impairment
of Long-lived Assets
The
Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets
may not be recoverable. An impairment loss is recognized when expected cash flows are less than an asset’s carrying value.
Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to
the operating performance and future undiscounted cash flows of the underlying assets. The Company’s policy is to record
an impairment loss when it is determined that the carrying value of the asset may not be recoverable. No impairment charges were
recorded for the three and nine months ended September 30, 2016 and 2015.
Share-based
Payments
The
Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors
as an expense in the statement of operations over the service period based on a measurement of fair value for each stock-based
award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model.
The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which
is generally the vesting period. Stock options granted to non-employee consultants are revalued at the end of each reporting period
until vested and the changes in their fair value are recorded as adjustments to expense over the related vesting period.
Net
Loss Per Common Share
Basic
net loss per share of the Company’s common stock has been computed by dividing net loss by the weighted average number of
shares outstanding during the period. Diluted net loss per share of the Company’s common stock has been computed by dividing
net loss for the period by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding
stock options, warrants and convertible securities. In a net loss period, options, warrants and convertible securities are anti-dilutive
and therefore are excluded from diluted loss per share calculations. The following table sets forth the computation of basic and
diluted earnings per share for the three and nine months ended September 30, 2016 and 2015:
|
|
Three
Months Ended September 30
|
|
|
Nine
Months Ended September 30
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic and diluted net loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,346,768
|
)
|
|
|
(2,253,885
|
)
|
|
$
|
(12,428,400
|
)
|
|
$
|
(6,352,144
|
)
|
Net loss applicable
to common stockholders
|
|
$
|
(5,346,768
|
)
|
|
|
(2,253,885
|
)
|
|
$
|
(12,428,400
|
)
|
|
$
|
(6,352,144
|
)
|
Weighted average shares of common
stock outstanding
|
|
|
43,783,504
|
|
|
|
34,770,597
|
|
|
|
40,059,364
|
|
|
|
29,242,236
|
|
Net loss per
share of common stock-basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.22
|
)
|
The
following potentially dilutive securities outstanding at September 30, 2016 and 2015 have been excluded from the computation of
dilutive weighted average shares outstanding as the inclusion would be anti-dilutive.
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Warrants
|
|
|
1,789,250
|
|
|
|
1,969,250
|
|
Stock options
|
|
|
5,932,679
|
|
|
|
3,828,065
|
|
Total
|
|
|
7,721,929
|
|
|
|
5,797,315
|
|
Recent
Accounting Pronouncements
Accounting
for Share-Based Payments
In
June 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-12,
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force)
(“ASU 2014-12”). ASU 2014-12
clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment
award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of
the grant date without taking into account the effect of the performance target) related to an award for which transfer to the
employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance
target will be met. There are no new disclosures required under ASU 2014-12. ASU 2014-12 is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2015. The Company’s adoption of ASU 2014-12 in the first quarter
of 2016 had no impact on its financial position, results of operations, cash flows, or disclosures.
Reporting
of Going-Concern Uncertainties
In
August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements—Going Concern
(“ASU 2014-15”)
,
which states management should evaluate whether there are conditions or events, considered in the aggregate, that raise a
substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial
statements are issued. Management’s evaluation should be based on relevant conditions and events that are known and likely
to occur at the date that the financial statements are issued. ASU 2014-15 will be effective for the annual period ending after
December 15, 2016, and for annual periods and interim periods thereafter, however, early application is permitted. Management
is not applying ASU 2014-15 early and does not expect the adoption of ASU 2014-15 to have a material impact on the Company’s
consolidated financial statements, although there may be additional disclosures upon adoption.
Accounting
for Leases
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
(“ASU 2016-02”)
.
Under ASU 2016-02, a
lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with
current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily
will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases
to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. ASU
2016-02 will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with
early application permitted. Management has not yet determined if it will adopt ASU 2016-02 earlier than the required adoption
date. The adoption of ASU 2016-02 will have an impact on the Company’s financial position, results of operations, cash flows,
and disclosures as the Company has an operating lease commitment for office space as of September 30, 2016 through January
2021 in the amount of $1,082,163 (see Note 5) for which ASU 2016-02 would apply.
Employee
Share-Based Payment Accounting
On
March 30, 2016, the FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting
(“ASU 2016-09”)
.
ASU 2016-09 simplifies several aspects of the accounting for employee
share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements,
as well as classification in the statement of cash flows. ASU 2016-09 will take effect for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2017, with early application permitted. Management is not applying ASU 2016-09
early and does not expect the adoption of ASU 2016-09 to have a material impact on the Company’s consolidated financial
statements, although there may be additional disclosures upon adoption.
4.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
$
|
69,213
|
|
|
$
|
40,202
|
|
Office furniture and equipment
|
|
|
171,099
|
|
|
|
35,209
|
|
Leasehold improvements
|
|
|
145,632
|
|
|
|
19,310
|
|
Construction
in progress
|
|
|
37,751
|
|
|
|
83,765
|
|
Property and equipment, gross
|
|
|
423,695
|
|
|
|
178,486
|
|
Less: accumulated
depreciation
|
|
|
(78,267
|
)
|
|
|
(54,348
|
)
|
Property and
equipment, net
|
|
$
|
345,428
|
|
|
$
|
124,138
|
|
Depreciation
expense was $20,464 and $14,701 for the three months ended September 30, 2016 and 2015, respectively and $57,695 and $26,242 for
the nine months ended September 30, 2016 and 2015, respectively.
On
December 30, 2015, the Company entered into a lease agreement for a copier machine. The cost of the machine was approximately
$12,000 and is included in office furniture and equipment category in the table above. The lease payments commenced when the machine
was placed in service in January 2016. The machine is being amortized over the life of the lease, which is for a three-year term
and includes a bargain purchase option at the end of the term. See Note 5 for details of this capital lease commitment.
At
December 31, 2015, construction in progress consisted of purchased property and equipment that was not placed in service until
January 2016 upon the Company’s relocation into 6,326 square feet of office space. At September 30, 2016, construction in
progress consisted of purchased property and equipment that will not be placed in service until the Company begins occupation
of an additional 4,088 square feet of office space in November 2016. (See Note 5).
5.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Lease Commitment
On
May 30, 2014, the Company entered into a commercial lease for 2,387 square feet of office space in Norwood, MA. The lease commenced
on July 1, 2014, had a three-year term, and required a standby letter of credit of $13,725 payable in favor of the landlord.
In August 2015, the lease was amended for the relocation of the Company into 6,326 square feet of office space within the existing
building (“August 2015 Amendment”). In January 2016, the Company began occupying the space under this lease amendment,
which is for a five-year term. The August 2015 Amendment also required an increase in the standby letter of credit to $36,375
(See Note 3).
In
September 2016, the lease was amended for the Company’s expansion into an additional 4,088 square feet of office space within
the existing building (“September 2016 Amendment”). The Company began occupying this space in early November
2016 and the final lease payment per the terms of the September 2016 Amendment is due in January 2021. Additionally, the September
2016 Amendment requires an increase in the standby letter of credit to $50,000.
The
Company records the total rent payable during the lease term on a straight-line basis over the term of the lease and records the
difference between the rents paid and the straight-line rent as deferred rent, which is classified in other long-term liabilities
as of September 30, 2016.
Pursuant
to the terms of the Company’s non-cancelable lease agreements in effect at September 30, 2016, the future minimum rent commitments
are as follows:
2016 (remainder
of year)
|
|
$
|
52,045
|
|
2017
|
|
|
244,295
|
|
2018
|
|
|
249,502
|
|
2019
|
|
|
254,709
|
|
2020
|
|
|
259,916
|
|
2021
|
|
|
21,696
|
|
Total
|
|
$
|
1,082,163
|
|
Total
rent expense for the three months ended September 30, 2016 and 2015 was $37,666 and $14,024, respectively. Total rent expense
for the nine months ended September 30, 2016 and 2015 was $111,878 and $41,472, respectively.
Capital
Lease Commitment
On
December 30, 2015, the Company entered into a capital lease agreement for a copier machine. The lease payments commenced when
the machine was placed in service in January 2016. The lease is for a three-year term and includes a bargain purchase option at
the end of the term. In the accompanying balance sheet as of September 30, 2016, the current portion of this capital lease obligation
is classified in accrued expenses and the long-term portion of the capital lease obligation is classified in other long-term liabilities.
Pursuant to the terms of this capital lease agreement, the future minimum capital lease commitments are as follows as of September
30, 2016:
2016 (remainder of year)
|
|
$
|
757
|
|
2017
|
|
|
4,543
|
|
2018
|
|
|
4,543
|
|
2019
|
|
|
379
|
|
Total future minimum lease payments
|
|
|
10,222
|
|
Less: interest
|
|
|
(1,159
|
)
|
Future capital lease obligations
|
|
|
9,063
|
|
Less: current
portion
|
|
|
(3,765
|
)
|
Long-term portion
|
|
$
|
5,298
|
|
In
October 2014, the Company entered into a loan agreement with a financing company for $192,000. The terms of the loan stipulated
equal monthly payments of principal and interest payments of $24,293 over an eight-month period. Interest accrued on this loan
at annual rate of 3.25%. This loan was fully repaid as of September 30, 2015.
In
November 2015, the Company entered into a loan agreement with a financing company for $207,750. The terms of the loan stipulate
equal monthly payments of principal and interest payments of $23,397 over a nine-month period. Interest accrues on this loan at
an annual rate of 3.25%. This loan was fully repaid as of September 30, 2016.
For
three months ended September 30, 2016 and 2015, interest expense related to these loan agreements totaled $63 and $0, respectively.
For the nine months ended September 30, 2016 and 2015, interest expense related to these loan agreements totaled $1,760 and $1,372,
respectively.
Notes
payable consisted of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
—
|
|
|
$
|
162,019
|
|
Less: current
portion
|
|
|
—
|
|
|
|
(162,019
|
)
|
Long term portion
|
|
$
|
—
|
|
|
$
|
—
|
|
In
October 2016, the Company entered into a loan agreement with a financing company for $348,750. The terms of the loan stipulate
equal monthly payments of principal and interest payments of $39,114 over a nine-month period. Interest accrues on this loan at
an annual rate of 2.25%.
Accrued
expenses consisted of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Accrued
clinical operations and trials costs
|
|
$
|
1,537,459
|
|
|
$
|
365,188
|
|
Accrued
product development costs
|
|
|
664,930
|
|
|
|
152,018
|
|
Accrued
other
|
|
|
140,463
|
|
|
|
45,073
|
|
Total
|
|
$
|
2,342,852
|
|
|
$
|
562,279
|
|
In
May 2015, the Company received $1,250,000 upon signing the CFFT award agreement and in the fourth quarter of 2015, the Company
received $1,250,000 from CFFT upon the achievement of a milestone for dosing the first patient. In August 2016, the Company received
a third payment from the CFFT for achieving a milestone in July 2016 related to dosing the median clinical trial patient as per
the terms of the Award in the amount of $1,000,000. (See Note 3 and Note 13). The Company recorded these amounts as deferred revenue
and is amortizing the deferred revenue and recognizing revenue on a straight-line basis over the performance period for the development
program, which is expected to conclude during the first quarter of 2017. For the three months ended September 30, 2016 and 2015,
the Company recorded revenue of $742,558 and $170,454, respectively. For the nine months ended September 30, 2016 and 2015, the
Company recorded revenue of $1,535,754 and $284,090, respectively. Deferred revenue consisted of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
1,315,865
|
|
|
$
|
1,851,618
|
|
Less:
current portion
|
|
|
(1,315,865
|
)
|
|
|
(1,591,358
|
)
|
Long-term
portion
|
|
$
|
—
|
|
|
$
|
260,260
|
|
The
Company has authorized 150,000,000 shares of common stock, $0.0001 par value per share, of which 43,987,361 shares and 37,605,134
shares were issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.
In
June 2016, the Company completed a sale of shares of its common stock pursuant to the terms of a securities purchase agreement
under which the Company sold an aggregate of 5,960,000 shares of its common stock in a registered direct offering to investors
at a purchase price of $2.50 per share with gross proceeds to the Company totaling approximately $14,900,000 less issuance costs
of $25,409.
During
the nine months ended September 30, 2016, the Company issued 422,227 shares of common stock upon the exercise of stock options
and warrants for proceeds of $360,693.
In
April 2014, the Company adopted the Corbus Pharmaceuticals Holdings, Inc. 2014 Equity Incentive Plan (the “2014 Plan”).
Pursuant to the 2014 Plan, the Company’s Board of Directors may grant incentive and nonqualified stock options and restricted
stock to employees, officers, directors, consultants and advisors. Pursuant to the terms of an annual evergreen provision in the
2014 Plan, the number of shares of common stock available for issuance under the 2014 Plan shall be subject to an automatic annual
increase on January 1st of each year equal to the greater of (i) seven percent (7%) of the total number of shares of common stock
outstanding on December 31st of the preceding calendar year, or, (ii) the difference between (x) twenty percent (20%) of the total
number of shares of common stock outstanding on December 31st of the preceding calendar year, and (y) the total number of shares
of common stock reserved under the 2014 Plan on December 31st of such preceding calendar year or a lesser number of shares of
common stock determined by the Company’s Board of Directors. In accordance with the terms of the 2014 Plan, effective as
of January 1, 2016, the Board of Directors approved an increase in the number of shares of common stock available for issuance
under the 2014 Plan in an amount of 1,250,000 shares, such amount being less than seven percent (7%) of the outstanding shares
of common stock on December 31, 2015. As of September 30, 2016, there was a total of 9,916,017 shares reserved for issuance under
the 2014 Plan and there were 3,585,133 shares available for future grants. Options issued under the 2014 Plan are exercisable
for up to ten years from the date of issuance.
Share-based
Compensation
For
stock options issued and outstanding for the three months ended September 30, 2016 and 2015, respectively, the Company recorded
non-cash, stock-based compensation expense of $828,097 and $240,664, respectively, net of estimated forfeitures. For the nine
months ended September 30, 2016 and 2015, respectively, the Company recorded non-cash, stock-based compensation expense of $1,522,345
and $843,527, respectively, net of estimated forfeitures.
The
fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions
noted in the following table. Due to its limited operating history and limited number of sales of its common stock, the Company
estimated its volatility in consideration of a number of factors, including the volatility of comparable public companies and,
commencing in 2015, the Company also included the volatility of its own common stock. The Company uses historical data, as well
as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercises and employee terminations
within the valuation model. The expected term of options granted to employees under the 2014 Plan, all of which qualify as “plain
vanilla” per SEC Staff Accounting Bulletin 107, is based on the average of the 6.25 years. For non-employee options, the
expected term is the contractual term. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent
with the option.
The
assumptions used principally in determining the fair value of options granted were as follows:
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Nine
Months Ended
September 30,
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2016
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|
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2015
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Risk
free interest rate
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1.65
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%
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|
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1.70
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%
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Expected
dividend yield
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0
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%
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0
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%
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Expected
term in years
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6.74
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|
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7.23
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Expected
volatility
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93.1
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%
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|
|
92.7
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%
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Estimated
forfeiture rate
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5
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%
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|
|
3
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%
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A
summary of option activity for the nine months ended September 30, 2016 and is presented below:
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Weighted
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Average
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Remaining
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Weighted
|
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Contractual
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Average
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Average
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Term
in
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Intrinsic
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|
Options
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Shares
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Exercise
Price
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Years
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Value
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Outstanding
at December 31, 2015
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|
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3,982,065
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$
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1.03
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|
|
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Granted
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2,265,000
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|
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3.07
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Exercised
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(259,386
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)
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1.39
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$
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610,608
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Forfeited
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(55,000
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)
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2.29
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Outstanding
at September 30, 2016
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|
5,932,679
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$
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1.78
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|
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8.20
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$
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29,898,632
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|
Vested
at September 30, 2016
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2,465,024
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$
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0.99
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7.20
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$
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14,305,415
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|
The
weighted average grant-date fair value of options granted during the nine months ended September 30, 2016 was $2.85 per share.
The average intrinsic value of options exercised during the nine months ended September 30, 2016 and 2015 was approximately $610,608
and $95,108, respectively. As of September 30, 2016, there was approximately $6,134,356 of total unrecognized compensation expense,
related to non-vested share-based option compensation arrangements. The unrecognized compensation expense is estimated to be recognized
over a period of 2.71 years.
At
September 30, 2016, there were warrants outstanding to purchase 1,789,250 shares of common stock with a weighted average exercise
price of $1.00 and a weighted average remaining life of 2.66 years. During the nine months ended September 30, 2016, warrants
to purchase 178,750 shares of common stock were exercised on a cashless basis resulting in the issuance of 161,591 shares and
1,250 shares of common stock were exercised on a for cash basis. During the nine months ended September 30, 2015, warrants to
purchase 11,615,674 shares of common stock were exercised for net proceeds of approximately $10,817,326. There were no warrants
issued or cancelled during the nine months ended September 30, 2016 and 2015.
12.
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RELATED
PARTY TRANSACTIONS
|
In
connection with the formation of Corbus Pharmaceutical Holdings, Inc. in December 2013, certain affiliates of Aegis Capital Corp.
(the “Placement Agent”) and certain other parties not affiliated with us or the Placement Agent subscribed for an
aggregate of 6,000,000 shares of common stock for which they paid an aggregate of $120,000 ($0.02 per share), including David
Hochman, one of our directors who purchased 450,000 shares and whose family trust purchased 90,000 shares of common stock.
Following
the Initial Closing of the 2014 Private Placement, which took place on April 11, 2014, the Placement Agent had a right to appoint
one member of the Company’s board of directors for a two-year term (the “Aegis Nominee”). David Hochman was
appointed as the Aegis Nominee.
On
March 21, 2014, the Company entered into a consulting agreement with Orchestra Medical Ventures, LLC (“Orchestra”),
of which David Hochman is Managing Partner. The agreement provided that Orchestra would render a variety of consulting and advisory
services relating principally to identifying and evaluating strategic relationships, licensing opportunities, and business strategies
for the Company. Orchestra was compensated at the rate of $5,000 per month for twelve months, payable quarterly in advance. During
the nine months ended September 30, 2015, the Company paid Orchestra $15,000. The consulting agreement expired on April 11, 2015
and the Company was not obligated to make future payments.
On
September 20, 2016, the Company entered into a new consulting agreement with Orchestra for similar services as provided under
the previous agreement (the “2016 Consulting Agreement”). The term of the 2016 Consulting Agreement commenced on September
20, 2016 and will expire on March 20, 2017, subject to renewal upon mutual agreement of the parties. Pursuant to the terms of
the 2016 Consulting Agreement, the Company will pay to Orchestra cash compensation in an aggregate amount of $100,000, payable
in equal monthly installments over the six-month term of the 2016 Consulting Agreement. In connection with this agreement, the
Company granted an equity incentive award to Orchestra consisting of options to purchase 50,000 shares of the Company’s
common stock at an exercise price of $7.14 per share pursuant to the Company’s 2014 Equity Compensation Plan.
As
of September 30, 2015, one of the members of the Company’s scientific advisory board was considered an affiliate of the
Company as he owned more than 10% of the Company’s common stock at that date. This individual’s ownership of the Company’s
common stock was less than 10% as of September 30, 2016.
Cystic
Fibrosis Development Award
On
April 20, 2015, the Company entered into an award agreement with the CFFT, a non-profit drug discovery and development affiliate
of the Cystic Fibrosis Foundation, pursuant to which it received a development award (the “Award”) for up to $5 million
in funding. The funding from the Award is supporting a first-in-patient Phase 2 clinical trial of the Company’s Resunab
drug in adults with cystic fibrosis (CF). Upon the execution of the Award agreement, the Company received a payment of $1,250,000
in May 2015 from the CFFT (See Notes 3 and 8). In the fourth quarter of 2015, the Company received a second payment of $1,250,000
from the CFFT upon the achievement of a milestone for dosing the first patient. In August 2016, the Company received a third payment
from the CFFT for achieving a milestone in July 2016 related to dosing the median clinical trial patient as per the terms of the
Award in the amount of $1,000,000. The Company recorded these amounts received from the CFFT totaling $3,500,000 as deferred revenue.
The Company is amortizing these amounts on a straight-line basis over the expected duration of the performance period of the development
program under the award, which is expected to conclude in the first quarter of 2017. The remaining $1,500,000 under the Award
is expected to be paid to the Company incrementally in the first quarter of 2017 upon the achievement of certain milestones related
to the progress of the Phase 2 CF clinical trial, as set forth in the Award agreement.
Pursuant
to the terms of the Award agreement, the Company is obligated to make royalty payments to the CFFT contingent upon commercialization
of Resunab in the Field of Use (as defined in the Award agreement) including a royalty payment equal to five times the amount
the Company receives under the Award agreement, up to $25 million, payable in three equal annual installments following the first
commercial sale of Resunab, the first of which is due within 90 days following the first commercial sale of Resunab. The Company
is also obligated to make a royalty payment to CFFT equal to the amount the Company receives under the Award agreement, up to
$5 million, due in the first calendar year in which the aggregate cumulative net sales of Resunab in the Field of Use exceed $500
million. Lastly, the Company is obligated to make royalty payment(s) to the CFFT of up to approximately $15 million if the Company
transfers, sells or licenses Resunab in the Field of Use other than for certain clinical or development purposes, or if the Company
enters into a change of control transaction, with such payment(s) to be credited against the royalty payments due upon commercialization.
The Field of Use is defined in the Award as the treatment in humans of CF, asbestosis, bronchiectasis, byssinosis, chronic bronchitis/COPD
hypersensitivity pneumonitis, pneumoconiosis, primary ciliary dyskinesis, sarcoidosis and silicosis. Either the CFFT or the Company
may terminate the agreement for cause, which includes the Company’s material failure to achieve certain commercialization
and development milestones. The Company’s payment obligations survive the termination of the Award agreement.
Note
Payable
In
October 2016, the Company entered into a loan agreement with a financing company for $348,750. The terms of the loan stipulate
equal monthly payments of principal and interest payments of $39,114 over a nine-month period. Interest accrues on this loan at
an annual rate of 2.25%.