Notes
to Unaudited Condensed Consolidated Financial Statements
Three
Months Ended March 31, 2017
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 March 31, 2017 and the results of its operations and cash flows for the three months ended
March 31, 2017 and 2016. The December 31, 2016 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, 2016, filed on March 8, 2017. The results of operations for such interim periods are not necessarily
indicative of the operating results for the full fiscal year.
2.
|
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 and the accrual of research, product development and clinical obligations.
Prior
to the registration of its common stock and the subsequent public listing of the common stock, the Company had granted stock options
at exercise prices not less than the fair value of its common stock as determined by the board of directors, with input from management.
The Company’s board of directors determined the estimated fair value of the common stock based on a number of objective
and subjective factors, including external market conditions affecting the biotechnology industry sector and the historic prices
at which the Company sold shares of preferred stock.
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 maturities in excess of three months. At March
31, 2017 and December 31, 2016, cash equivalents were comprised of money market funds. The Company had no marketable investments
at March 31, 2017 and December 31, 2016.
Restricted
cash as of March 31, 2017 and December 31, 2016 included a $150,000 collateral account for the Company’s corporate credit
cards and is classified in current assets. Additionally, as of March 31, 2017 and December 31, 2016 restricted cash included a
stand-by letter of credit issued in favor of a landlord for $50,000 (See Note 4) and is classified in noncurrent assets.
Cash,
cash equivalents, and restricted cash consists of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Cash
|
|
$
|
100,046
|
|
|
$
|
1,127,530
|
|
Money market fund
|
|
|
48,827,079
|
|
|
|
13,864,727
|
|
Cash and cash equivalents
|
|
|
48,927,125
|
|
|
|
14,992,257
|
|
|
|
|
|
|
|
|
|
|
Restricted cash, current
|
|
|
150,000
|
|
|
|
150,000
|
|
Restricted cash, noncurrent
|
|
|
50,000
|
|
|
|
50,000
|
|
Restricted cash
|
|
|
200,000
|
|
|
|
200,000
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
|
$
|
49,127,125
|
|
|
$
|
15,192,257
|
|
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 shorter of their useful lives or the terms of the respective leases. See Note 3 for details of property
and equipment and Note 4 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
the development award received from the CFFT during 2015 and 2016 (See Note 7), 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 second 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 months ended March 31, 2017 and 2016, 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 March 31, 2017
and December 31, 2016, 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 March 31, 2017 or December 31, 2016.
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 during the three months ended March 31, 2017 and 2016.
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 income per share of the Company’s common stock has been computed by dividing
net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options,
warrants and convertible securities. Diluted net loss per share of the Company’s common stock has been computed by dividing
the net loss for the period by the weighted average number of shares of the Company’s common stock outstanding during such
period. For years in which there is a net loss, 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 months ended March 31, 2017 and 2016
|
|
Three Months Ended March 31
|
|
|
|
2017
|
|
|
2016
|
|
Basic and diluted net loss per share of common stock:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,465,439
|
)
|
|
$
|
(2,892,241
|
)
|
Weighted average shares of common stock outstanding
|
|
|
46,381,482
|
|
|
|
37,605,210
|
|
Net loss per share of common stock-basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.08
|
)
|
The
following potentially dilutive securities outstanding during the three months ended March 31, 2017 and 2016 have been excluded
from the computation of dilutive weighted average shares outstanding as the inclusion would be anti-dilutive.
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Warrants
|
|
|
1,288,500
|
|
|
|
1,967,375
|
|
Stock options
|
|
|
7,513,130
|
|
|
|
5,152,685
|
|
Total
|
|
|
8,801,630
|
|
|
|
7,120,060
|
|
Recent
Accounting Pronouncements
Restricted
Cash Presentation
On
November 17, 2016
,
the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-18,
Restricted
Cash (a consensus of the FASB Emerging Issues Task Force
) (“ASU 2016-18”), which addresses classification and
presentation of changes in restricted cash on the statement of cash flows. ASU 2016-18 requires an entity’s reconciliation
of the beginning-of-period and end-of-period total amounts shown on the statement of cash flows to include in cash and cash equivalents
amounts generally described as restricted cash and restricted cash equivalents. ASU 2016-18 is effective for public business entities
for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, adjustments should be reflected at the beginning
of the fiscal year that includes that interim period. The Company early adopted ASU 2016-18 for the fiscal year ended December
31, 2016
using a retrospective transition method for each period presented
.
Revenue
Recognition
In
May 2014, the FASB issued guidance codified in
Accounting Standards Codification (ASC) 606, Revenue Recognition — Revenue
from Contracts with Customers
(“ASC 606”) which amends the guidance in former
ASC 605, Revenue Recognition
,
and is effective for public companies for annual and interim periods beginning after December 15, 2017. The Company plans to adopt
the standard in the first quarter of 2018 and believes that its adoption may have an impact on the Company’s consolidated
financial statements. Specifically, the new standard differs from the current accounting standard in many respects, such as in
the accounting for variable consideration received, including milestone payments or contingent payments. Under the Company’s
current accounting policy, milestone payments are recognized as revenue in the period that the payment-triggering event occurred
or was achieved (See Note 7). ASC 606, however, may require the Company to recognize these payments before the payment-triggering
event is completely achieved, subject to management’s assessment of whether it is probable that the triggering event will
be achieved and that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty
associated with the variable consideration is subsequently resolved.
Accounting
for Leases
In
February 2016, the FASB issued ASU No
.
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 March 31, 2017 in the amount
of $969,370 (see Note 4) for which ASU 2016-02 would apply.
Employee
Share-Based Payment Accounting
On
March 30, 2016, the FASB issued ASU No.
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 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.
3.
|
PROPERTY AND EQUIPMENT
|
Property
and equipment consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Computer hardware and software
|
|
$
|
96,131
|
|
|
$
|
96,131
|
|
Office furniture and equipment
|
|
|
265,162
|
|
|
|
259,138
|
|
Leasehold improvements
|
|
|
188,219
|
|
|
|
188,219
|
|
Property and equipment, gross
|
|
|
549,512
|
|
|
|
543,488
|
|
Less: accumulated depreciation
|
|
|
(139,726
|
)
|
|
|
(108,237
|
)
|
Property and equipment, net
|
|
$
|
409,786
|
|
|
$
|
435,251
|
|
Depreciation
expense was $31,489 and $17,825 for the three months ended March 31, 2017 and 2016, 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 4 for details of this capital lease commitment.
4.
|
COMMITMENTS AND CONTINGENCIES
|
Operating
Lease Commitment
In
September 2016, the Company amended its commercial lease for office space to expand into an additional 4,088 square feet of office
space within the existing building for an aggregate total of 10,414 square feet of leased office space (“September 2016
Amendment”). The Company began occupying this space in early November 2016 and the final lease payment is due in January
2021. Additionally, the September 2016 Amendment required an increase in the standby letter of credit to $50,000 (See Note 3).
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 deferred rent, current and
deferred rent, noncurrent in the Company’s balance sheet as of March 31, 2017 and December 31, 2016.
Pursuant
to the terms of the Company’s non-cancelable lease agreements in effect at March 31, 2017, the future minimum rent commitments
are as follows:
2017 (remainder of year)
|
|
$
|
183,547
|
|
2018
|
|
|
249,502
|
|
2019
|
|
|
254,709
|
|
2020
|
|
|
259,916
|
|
2021
|
|
|
21,696
|
|
Total
|
|
$
|
969,370
|
|
Total
rent expense for the three months ended March 31, 2017 and 2016 was $58,508 and $36,546, respectively.
Capital
Lease Commitment
The
lease payments under the capital lease agreement for the copier machine 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 March 31, 2017, 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 March 31, 2017:
2017 (remainder of year)
|
|
$
|
3,407
|
|
2018
|
|
|
4,543
|
|
2019
|
|
|
379
|
|
Total future minimum lease payments
|
|
|
8,329
|
|
Less: interest
|
|
|
(787
|
)
|
Future capital lease obligations
|
|
|
7,542
|
|
Less: current portion
|
|
|
(3,933
|
)
|
Long-term portion
|
|
$
|
3,609
|
|
In
November 2015, the Company entered into a loan agreement with a financing company for $207,750 to finance one of the Company’s
insurance policies. The terms of the loan stipulated equal monthly payments of principal and interest payments of $23,397 over
a nine-month period. Interest on this loan was accrued at an annual rate of 3.25%. This loan was fully repaid in July 2016.
In
October 2016, the Company entered into a loan agreement with a financing company for $348,750 to finance one of the Company’s
insurance policies. 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%. Prepaid expenses as of March 31, 2017 and December
31, 2016, included $262,500 and $378,750, respectively, related to this insurance policy.
Interest
expense for notes payable for the three months ended March 31, 2017 and 2016 totaled $1,278 and $1,130, respectively.
Notes
payable consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Notes payable
|
|
$
|
155,726
|
|
|
$
|
271,757
|
|
Less: current portion
|
|
|
(155,726
|
)
|
|
|
(271,757
|
)
|
Long term portion
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued
expenses consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Accrued clinical operations and trials costs
|
|
$
|
1,333,114
|
|
|
$
|
1,647,490
|
|
Accrued product development costs
|
|
|
1,246,527
|
|
|
|
713,426
|
|
Accrued compensation
|
|
|
122,175
|
|
|
|
778,250
|
|
Accrued other
|
|
|
172,302
|
|
|
|
117,289
|
|
Total
|
|
$
|
2,874,118
|
|
|
$
|
3,256,455
|
|
7.
|
DEVELOPMENT AWARD AND DEFERRED REVENUE
|
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 oral anti-inflammatory
drug anabasum in adults with cystic fibrosis (“CF”). The Company has billed and received a total of $4.5 million in
payments since the inception of the Award as outlined below. The payments received under the award have been recorded as deferred
revenue and are being amortized on a straight-line basis over the expected duration of the performance period under the Award,
which is expected to conclude in the second quarter of 2017.
Upon
the execution of the Award agreement, the Company received a payment of $1,250,000 in May 2015. In November 2015, the Company
received a second payment of $1,250,000 upon the achievement of a milestone for dosing the first patient. In August 2016, the
Company received a third payment from the CFFT in the amount of $1,000,000 for achieving a milestone in July 2016 related to dosing
the median clinical trial patient. In January 2017, the Company received a fourth payment from the CFFT in the amount of $1,000,000
for achieving a milestone in December 2016 related to completing the final visit for the final patient, which was billed by the
Company to CFFT in December 2016 and was classified in grants receivable as of December 31, 2016. The Company expects that the
last milestone payment of $500,000 under the Award will be recorded in the second quarter of 2017 upon the achievement of the
final milestone related to 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 CFFT contingent upon commercialization
of anabasum 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 anabasum, the first of which is due within 90 days following the first commercial sale of anabasum. 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 anabasum in the Field of Use exceed
$500 million. Lastly, the Company is obligated to make royalty payment(s) to CFFT of up to approximately $15 million if the Company
transfers, sells or licenses anabasum 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 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.
The
Company recorded $1,293,697 and $396,598 of revenue during the three months ended March 31, 2017 and 2016, respectively. Deferred
revenue consists of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Deferred revenue
|
|
|
646,498
|
|
|
$
|
1,940,195
|
|
Less: current portion
|
|
|
(646,498
|
)
|
|
|
(1,940,195
|
)
|
Long-term portion
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company has authorized 150,000,000 shares of common stock, $0.0001 par value per share, of which 50,143,742 shares and 44,681,745
shares were issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.
On
February 28, 2017, the Company entered in a securities purchase agreement providing for the issuance and sale by the Company of
3,887,815 shares of its common stock in a registered direct offering to institutional and accredited investors at a purchase price
of $7.00 per share with gross proceeds to the Company totaling $27,214,705 less issuance costs of approximately $48,291.
In
November 2016, the Company entered into a sales agreement with Cantor Fitzgerald (“Cantor”) under which the Company
may direct Cantor as its placement agent to sell common stock under an “At the Market Offering” (“Sales Agreement”).
Sales of common stock under the Sales Agreement are made pursuant to an effective registration statement for an aggregate offering
of up to $35 million, under which the Company has sold an aggregate of approximately $15.4 million of common stock through March
31, 2017. Under the Sales Agreement, the Company is obligated to pay Cantor a 3% commission on gross proceeds. During the three
months ended March 31, 2017, the Company sold 1,413,633 shares of its common stock under the Sales Agreement at an average selling
price of approximately $9.71 per share for gross proceeds of $13.724,591 and net proceeds of $13,302,443.
During
the three months ended March 31, 2017, the Company issued 160,549 shares of common stock upon the exercise of stock options to
purchase common stock and the Company received proceeds of $80,248 from these exercises.
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. On January 1, 2016, pursuant to an annual evergreen provision
contained in the 2014 Plan, the number of shares reserved for future grants was increased by 1,250,000 shares, respectively. As
of December 31, 2016, there was a total of 9,916,017 shares reserved for issuance under the 2014 Plan and there were 2,840,133
shares available for future grants. Options issued under the 2014 Plan are exercisable for up to 10 years from the date of issuance.
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 automatically increase on January 1 of each year by at least seven percent (7%) of the total number of shares
of common stock outstanding on December 31st of the preceding calendar year, or, pursuant to the terms of the 2014 Plan, in any
year, the Board of Directors may determine that such increase will provide for a lesser number of shares. In accordance with the
terms of the 2014 Plan, effective as of January 1, 2017, the number of shares of common stock available for issuance under the
2014 Plan increased by 3,127,722 shares, which was seven percent (7%) of the outstanding shares of common stock on December 31,
2016. As of January 1, 2017, the 2014 Plan had a total reserve of 13,043,739 shares and there were 5,967,855 shares available
for future grants. As of March 31, 2017, there were 4,904,355 shares available for future grants.
Share-based
Compensation
For
stock options issued and outstanding for the three months ended March 31, 2017 and 2016, respectively, the Company recorded non-cash,
stock-based compensation expense of $1,583,156 and $311,238, 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 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:
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk free interest rate
|
|
|
2.17
|
%
|
|
|
1.81
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term in years
|
|
|
6.35
|
|
|
|
6.28
|
|
Expected volatility
|
|
|
85.8
|
%
|
|
|
88.3
|
%
|
Estimated forfeiture rate
|
|
|
5
|
%
|
|
|
5
|
%
|
A
summary of option activity for the three months ended March 31, 2017 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Term in
|
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
|
Exercise Price
|
|
|
Years
|
|
|
Value
|
|
Outstanding at December 31, 2016
|
|
|
6,610,179
|
|
|
$
|
2.54
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,063,500
|
|
|
|
9.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(160,549
|
)
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
|
7,513,130
|
|
|
$
|
3.51
|
|
|
|
8.31
|
|
|
$
|
36,752,235
|
|
Vested at March 31, 2017
|
|
|
3,290,104
|
|
|
$
|
1.26
|
|
|
|
7.36
|
|
|
$
|
23,011,278
|
|
The
weighted average grant-date fair value of options granted during the three months ended March 31, 2017 and 2016 was $6.66 and
$1.05 per share, respectively. The aggregate intrinsic value of options exercised during the three months ended March 31, 2017
was approximately $1,402,164. No stock options were exercised during the three months ended March 31, 2016. The total fair value
of options that were vested as of March 31, 2017 was $3,503,337. As of March 31, 2017, there was approximately $14,104,971 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 3.42 years as of March 31, 2017.
At
March 31, 2017, there were warrants outstanding to purchase 1,288,500 shares of common stock with a weighted average exercise
price of $1.00 and a weighted average remaining life of 2.16 years. No warrants were exercised during the three months ended March
31, 2017. During the three months ended March 31, 2016, a warrant to purchase 1,875 shares of common stock was exercised on a
cashless basis resulting in the issuance of 693 shares. There were no warrants issued or cancelled during the three months ended
March 31, 2017 and 2016.
11.
|
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
June 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.
Orchestra was compensated at a rate of $5,000 per month for twelve months, payable quarterly in advance. During the year ended
December 31, 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 expired on March 20, 2017. Pursuant to the terms of the 2016 Consulting
Agreement, the Company paid to Orchestra cash compensation in an aggregate amount of $100,000. In connection with this agreement,
the Company granted an equity incentive award to Mr. Hochman consisting of options to purchase 50,000 shares (“Option Shares”)
of common stock (the “Option Award”) pursuant to the Company’s 2014 Equity Compensation Plan, of which fifty
percent (50%) vested on the three (3) month anniversary of the date of grant of the Option Award and the remainder of the Option
Shares vested on the six (6) month anniversary of the date of grant of the Option Award. The Option Shares were granted with an
exercise price of $7.14 per share. The Company recorded stock-based compensation expense of approximately $222,000 during the
year ended December 31, 2016 and $171,000 during the three months ended March 31, 2017 related to the Option Shares.