NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
1.
|
Organization, Business
|
EyeGate Pharmaceuticals,
Inc. (“EyeGate” or the “Company”), a Delaware corporation, began operations in December 2004 and is a clinical-stage
pharmaceutical company developing and commercializing products for treating inflammatory and immune diseases with a focus on the eye and
certain systemic diseases.
In the fourth quarter of
2020, EyeGate acquired Panoptes Pharma Ges.m.b.H. (“Panoptes”), transforming EyeGate’s pipeline with the addition of
PP-001. PP-001, is a next-generation, non-steroidal, immuno-modulatory and small-molecule inhibitor of Dihydroorotate Dehydrogenase (“DHODH”)
with what EyeGate believes to be best-in-class picomolar potency and a validated immune modulating mechanism designed to overcome the
off-target side effects and safety issues associated with DHODH inhibitors. PP-001 has been developed in two clinical-stage ophthalmic
formulations: an intravitreal injection for inflammatory diseases of the eye including posterior uveitis, and a novel
nano carrier technology eye drop for ocular surface diseases such as conjunctivitis, dry eye disease and others. Other administration
routes are also in development and IND enabling studies are underway for conditions outside the ocular space.
In addition, EyeGate is
developing Ocular Bandage Gel (“OBG”), a modified form of the natural polymer hyaluronic acid, designed to protect the
ocular surface to permit re-epithelialization of the cornea and improve ocular surface integrity. OBG, with unique properties that
help hydrate and protect the ocular surface, is in clinical evaluation for patients undergoing photorefractive keratectomy
(“PRK”) surgery for corneal wound repair after refractive surgery and patients with punctate epitheliopathies
(“PE”) as a result of dry eye. A type-B meeting was held with the U.S. Food and Drug Administration’s
(“FDA”) Center for Drug Evaluation and Research (“CDER”) division during the first quarter of 2021 to
discuss eligibility of continuing OBG clinical studies as a drug. As a result, development of OBG has shifted from a medical device
to a drug, which allows for reimbursement under Medicare Part D.
As of March 31, 2021, there
were 7,097,912 shares of Common Stock outstanding, no shares of Series A Preferred Stock outstanding, no shares of Series B Preferred
Stock outstanding, 4,092 shares of Series C Preferred Stock outstanding, and 46 shares of Series D Preferred Stock outstanding.
Since its inception, EyeGate
has devoted substantially all of its efforts to business planning, research and development, and raising capital.
The accompanying Condensed
Consolidated Financial Statements have been prepared assuming that EyeGate will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. At March 31, 2021, EyeGate had unrestricted Cash and Cash
Equivalents of $6.610 million, and an Accumulated Deficit of $110.920 million. EyeGate has incurred losses and negative cash flows since
inception, and future losses are anticipated. Based on its cash on hand at March 31, 2021, the Company anticipates having sufficient
cash to fund planned operations through August 31, 2021, however, the acceleration or reduction of cash outflows by Company management
can significantly impact the timing for the need to raise additional capital to complete development of its products. To continue development,
EyeGate will need to raise additional capital through equity financing, license agreements, and/or additional U.S. government grants.
Although historically the Company has been successful at raising capital, most recently raising net proceeds of approximately $8.0 million
in a private placement that closed on January 6, 2021, additional capital may not be available on terms favorable to EyeGate, if at all.
On May 13, 2019, the SEC declared effective EyeGate’s registration statement on Form S-3, registering a total of $50,000,000 of
its securities for sale to the public from time to time in what is known as a “shelf offering”. The Company does not know
if any future offerings, including offerings pursuant to its shelf registration statement, will succeed. Accordingly, no assurances can
be given that Company management will succeed in these endeavors. The Company’s recurring losses from operations have caused management
to determine there is substantial doubt about the Company’s ability to continue as a going concern. The Condensed Consolidated
Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable
to continue as a going concern.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation and Principles of Consolidation
The accompanying Condensed Consolidated Financial
Statements include the accounts of the Company and its subsidiaries, EyeGate Pharma S.A.S. (through its dissolution on December 30, 2020),
Jade Therapeutics, Inc. (“Jade”) and Panoptes Pharma Ges.m.b.H. (“Panoptes”) (effective December 18, 2020 when
the Company acquired all of the capital stock of Panoptes), collectively referred to as “the Company”. All inter-company balances
and transactions have been eliminated in consolidation. These Condensed Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States (“U.S. GAAP”) pursuant to the rules and regulations of
the Securities and Exchange Commission (“SEC”) for interim financial information. Certain information and disclosures normally
included in Condensed Consolidated Financial Statements prepared in accordance with U.S. GAAP have been condensed or eliminated. Accordingly,
these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the annual financial statements of the
Company as of and for the year ended December 31, 2020. In the opinion of management, all adjustments necessary for a fair presentation
of the consolidated financial position, consolidated results of operations and other comprehensive loss and consolidated cash flows, for
the periods indicated, have been made. The results of operations for the three months ended March 31, 2021 are not necessarily indicative
of operating results that may be achieved over the course of the full year.
Unaudited Interim Financial Information
The accompanying interim financial statements
and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation of the results of
operations for the periods presented. The year-end balance sheet was derived from audited financial statements, but does not include all
disclosures required by U.S. GAAP. The results of operations for an interim period are not necessarily indicative of the results to be
expected for the full year or for any other future year or interim period.
Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of expenses during
the reporting periods. The Company makes significant estimates and assumptions in recording the accruals for its clinical trial and research
activities, establishing the useful lives of intangible assets and property and equipment, and conducting impairment reviews of long-lived
assets. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under
the circumstances. Although the Company monitors and regularly assesses these estimates, actual results could differ significantly from
these estimates. The Company records changes in estimates in the period that it becomes aware of the change.
Research and Development Expenses
The Company expenses research and development
(“R&D”) expenditures as incurred. R&D expenses are comprised of costs incurred in performing R&D activities, including
salaries, benefits, facilities, research-related overhead, sponsored research costs, contracted services, license fees, expenses related
to generating, filing, and maintaining intellectual property, and other external costs. Because the Company believes that, under its current
process for developing its products, the viability of the products is essentially concurrent with the establishment of technological feasibility,
no costs have been capitalized to date.
In-process Research and Development
The Company records in-process R&D projects
acquired in asset acquisitions that have not reached technological feasibility and which have no alternative future use. For in-process
R&D projects acquired in business combinations, the Company capitalizes the in-process R&D project and periodically evaluates
this asset for impairment until the R&D process has been completed. Once the R&D process is complete, the Company amortizes the
R&D asset over its remaining useful life. At March 31, 2021 and December 31, 2020, there is $9.536 million of in-process R&D,
as part of intangible assets and in-process R&D on the Condensed Consolidated Balance Sheets.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
2.
|
Summary of Significant Accounting Policies - (continued)
|
Intangible Assets
The Company records intangible assets acquired
in asset acquisitions of proprietary technology. The Company capitalizes intangible assets, amortizes them over the estimated useful life,
and periodically evaluates the assets for impairment. At March 31, 2021 and December 31, 2020, there is $0.188 million and $0.194 million,
respectively, of net intangible assets, as part of intangible assets and in-process R&D, net on the Condensed Consolidated Balance
Sheets.
Accrued Clinical Expenses
As part of the Company’s process of preparing
the Condensed Consolidated Financial Statements, the Company is required to estimate its accrued expenses. This process includes reviewing
open contracts and purchase orders, communicating with its applicable personnel to identify services that have been performed on its behalf
and estimating the level of service performed and the associated costs incurred for the service when the Company has not yet been invoiced
or otherwise notified of actual costs. The majority of the Company’s service providers invoice monthly in arrears for services performed.
The Company makes estimates of its accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances
known at the time. The Company periodically confirms the accuracy of these estimates with the service providers and makes adjustments
if necessary.
Related Party Transactions
The Company has entered into certain related-party
transactions, making payments for services to one vendor and three consultants for the three months ended March 31, 2021, all of whom
also are stockholders of the Company. These transactions generally are ones that involve a stockholder or option holder of the Company
to whom we also make payments during the year, typically as a consultant or a service provider. Additionally, on January 6, 2021, the
Company completed a private placement of 1,531,101 shares of Common Stock and warrants to purchase up to 1,531,101 shares of Common Stock
to an affiliate of Armistice Capital, LLC, with a combined purchase price per share and warrant of $5.225. Steven J. Boyd and Keith Maher,
each of whom are members of the Company’s board of directors, are affiliates of Armistice Capital, LLC, and Mr. Boyd holds voting
and investment power over such entity. The total net proceeds from the private placement were approximately $8.0 million. Except
as described above, the amounts recorded or paid to related parties during the three months ended March 31, 2021 are not material to the
accompanying Condensed Consolidated Financial Statements.
For the three months ended March 31, 2020, the
Company entered into certain related-party transactions, making payments for services to two vendors, five consultants and two public
universities, all of whom also are stockholders of the Company. The amounts recorded or paid during the three months ended March 31, 2020
are not material to the accompanying Condensed Consolidated Financial Statements.
Net Loss per Share – Basic and Diluted
Basic and diluted net loss per share is computed
by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding for the period, which
for basic net loss per share, does not include the weighted-average unvested restricted common stock that has been issued but is subject
to forfeiture of 54,709 shares for the three months ended March 31, 2021 and 91,028 shares for the three months ended March 31, 2020.
Dilutive common equivalent shares consist of stock
options, warrants, and preferred stock and are calculated using the treasury stock method, which assumes the repurchase of common shares
at the average market price during the period. Under the treasury stock method, options and warrants will have a dilutive effect when
the average price of common stock during the period exceeds the exercise price of options or warrants. Common equivalent shares do not
qualify as participating securities. In periods where the Company records a net loss, unvested restricted common stock and potential common
stock equivalents are not included in the calculation of diluted net loss per share as their effect would be anti-dilutive. All shares
of Common Stock that may potentially be issued in the future are as follows:
|
|
March 31, 2021
(unaudited)
|
|
|
March 31, 2020
(unaudited)
|
|
Common Stock Warrants
|
|
|
4,247,384
|
|
|
|
2,862,314
|
|
Employee Stock Options
|
|
|
370,359
|
|
|
|
237,695
|
|
Preferred Stock
|
|
|
865,500
|
|
|
|
852,500
|
|
Total Shares of Common Stock Issuable
|
|
|
5,483,243
|
|
|
|
3,952,509
|
|
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
2.
|
Summary of Significant Accounting Policies - (continued)
|
Fair Value of Financial Instruments
As of March 31, 2021 and December 31, 2020, the
fair value of the Company’s contingent consideration was $5.343 million. During the year ended December 31, 2020, the Company recorded
earn-out payments of $9.500 million at their estimated fair value of $3.633 million as a result of the Panoptes acquisition. During the
year ended December 31, 2016, the Company recorded earn-out payments of $2.164 million as a result of the Jade acquisition in connection
with three products in development, contingent upon FDA marketing approval, at an estimated fair value of $1.210 million. During the year ended December 31, 2019, taking into consideration discount factors and the probability of FDA approval of the OBG product,
the Company recorded an increase of $500,000 to the fair value of contingent consideration related to the Jade acquisition. The Company
evaluates the fair value of these earn-out payments on a quarterly basis and there were no changes recorded during the quarter ended March
31, 2021.
At March 31, 2021 and December 31, 2020, the Company
had no other assets or liabilities that are subject to fair value methodology and estimation in accordance with U.S. GAAP.
Revenue Recognition
The Company’s revenues were generated primarily
through arrangements that contained multiple elements, or deliverables, including licenses and R&D activities to be performed by the
Company on behalf of the licensor or grantor. Payments to EyeGate under these arrangements typically included one or more of the following:
(1) nonrefundable, upfront license fees, (2) funding of discovery research efforts on a full-time equivalent basis, (3) reimbursement
of research, development and intellectual property costs, (4) milestone payments, and (5) royalties on future product sales.
The Company recognizes revenue when its customer
obtains control of promised services, in an amount that reflects the consideration which the Company expects to receive in exchange for
those services. To determine whether arrangements are within the scope of this new guidance, the Company performs the following five steps:
(i) identifies the contract with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction
price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the
Company satisfies its performance obligation. The Company applies the five-step model to contracts when it is probable that the Company
will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company recognizes
revenue from the transaction price applied to each single performance obligation over time as milestones are reached for each performance
obligation. The Company only recognizes revenue on those milestones that are within the Company’s control and any constrained variable
consideration that requires regulatory approval will only be included in the transaction price when performance is complete.
In addition, the Company may receive U.S. and/or
foreign government grant funds for specified therapeutic research activities. Revenue under these grants will be recorded when the Company
performs the activities specified by the terms of each grant and is entitled to the funds.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill
and Other, which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which
requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying
value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely
unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test
is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying
amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The new
standard was effective for the Company on January 1, 2020 and is required to be applied prospectively. The Company adopted ASU No. 2017-04
effective January 1, 2020 and the adoption of this standard did not have a material impact on the Company’s Condensed Consolidated
Financial Statements and related disclosures.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. ASU No. 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit
loss estimates. The new guidance is effective for smaller reporting companies in fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. The Company does not expect the adoption of this standard to have a material effect on the
Company’s Condensed Consolidated Financial Statements and related disclosures.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
3.
|
Property and Equipment
|
Property and equipment at March 31, 2021 and December 31, 2020 consists
of the following:
|
|
Estimated Useful Life (Years)
|
|
|
March 31, 2021
(unaudited)
|
|
|
December 31,
2020
|
|
Laboratory Equipment
|
|
|
3
|
|
|
$
|
82,653
|
|
|
$
|
82,653
|
|
Office Equipment
|
|
|
3
|
|
|
|
3,737
|
|
|
|
3,888
|
|
Office Furniture
|
|
|
5
|
|
|
|
72,549
|
|
|
|
14,430
|
|
Leasehold Improvements
|
|
|
2
|
|
|
|
22,569
|
|
|
|
22,569
|
|
Total Property and Equipment, Gross
|
|
|
|
|
|
|
181,508
|
|
|
|
123,540
|
|
Less Accumulated Depreciation
|
|
|
|
|
|
|
97,244
|
|
|
|
92,974
|
|
Total Property and Equipment, Net
|
|
|
|
|
|
$
|
84,264
|
|
|
$
|
30,566
|
|
Depreciation expense was $4,349 and $817 for the three-month
periods ended March 31, 2021 and 2020, respectively.
Accrued expenses at March 31, 2021 and December
31, 2020 consist of the following:
|
|
March 31, 2021
(unaudited)
|
|
|
December 31,
2020
|
|
Payroll and Benefits
|
|
$
|
400,634
|
|
|
$
|
629,465
|
|
Professional Fees
|
|
|
335,665
|
|
|
|
328,420
|
|
Clinical Trials
|
|
|
145,738
|
|
|
|
203,646
|
|
Consulting
|
|
|
919
|
|
|
|
125,913
|
|
Interest
|
|
|
2,503
|
|
|
|
1,817
|
|
Total Accrued Expenses
|
|
$
|
885,459
|
|
|
$
|
1,289,261
|
|
In May 2020, the Company received loan funds (the
“Loan”) from the Paycheck Protection Program (“PPP”) of approximately $0.278 million. In April of 2021, the Company
was notified by the Small Business Administration (“SBA”) that this loan was forgiven in full.
The Company has no additional indebtedness at
March 31, 2021 and December 31, 2020.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
6.
|
Intangible Assets and In-Process R&D
|
Intangible assets at March 31, 2021 consist of
the rights to trade-secrets and know-how related to the manufacturing of the EyeGate Ocular Bandage Gel (“OBG”). During the
third quarter of 2018, the Company entered into an intellectual property license agreement with SentrX Animal Care, Inc. (“SentrX”)
with respect to certain rights relating to the manufacturing of the EyeGate OBG product. The intangible assets were recorded at $0.250
million, representing the upfront payment paid to SentrX. Additionally, SentrX is eligible to receive milestone payments totaling up to
$4.750 million, upon and subject to the achievement of certain specified development and commercial milestones. These future milestone
payments to SentrX will increase the carrying value of the intangible assets. The Company’s intangible assets are amortized on a
straight-line basis over the estimated useful lives. Additionally, in-process R&D at March 31, 2021 and December 31, 2020 consists
of projects acquired from the acquisitions of Jade and Panoptes that have not reached technological feasibility and which have no alternative
future use. Once the R&D process is complete, the Company will amortize the R&D asset over its remaining useful life. The Company
periodically evaluates these assets for impairment.
Intangible assets and in-process R&D at March
31, 2021 and December 31, 2020 consists of the following:
|
|
Estimated Useful
Life (Years)
|
|
|
March 31, 2021 (unaudited)
|
|
|
December 31, 2020
|
|
Trade Secrets
|
|
|
10
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less: Accumulated Amortization
|
|
|
|
|
|
|
(62,500
|
)
|
|
|
(56,250
|
)
|
Intangible Assets, Net
|
|
|
|
|
|
|
187,500
|
|
|
|
193,750
|
|
In-Process R&D
|
|
|
|
|
|
|
9,536,414
|
|
|
|
9,536,414
|
|
Total Intangible Assets and In-Process R&D, Net
|
|
|
|
|
|
$
|
9,723,914
|
|
|
$
|
9,730,164
|
|
Amortization expense on intangible assets was
$6,250 for each of the three-month periods ended March 31, 2021 and 2020.
On January 3, 2020, the Company completed a registered
direct offering with institutional investors for 500,000 shares of Common Stock with a purchase price of $10.00 per share. The total net
proceeds to the Company, after deducting the placement agent fees and offering expenses, were approximately $4.5 million.
On June 25, 2020, following the Company’s
2020 Annual Meeting of Stockholders, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation that decreased
the number of authorized shares of the Company’s common stock from 120,000,000 to 50,000,000.
In connection with the Panoptes acquisition, on
December 18, 2020, the Company filed a Certificate of Designation of Preferences, Rights and Limitations for up to 20,000 shares of Series
D Convertible Preferred Stock with the Delaware Secretary of State. The Series D Convertible Preferred Stock has a stated value of $1,000
per share and a conversion price of $3.5321 per share but may not be converted until stockholder approval is obtained. The Series D Preferred
Stock is only entitled to dividends in the event dividends are paid on the Company’s shares of Common Stock and does not have any
preferences over the Company's shares of Common Stock or any voting rights, except in limited circumstances.
On January 6, 2021, the Company
completed a private placement of 1,531,101 shares of Common Stock and warrants to purchase up to 1,531,101 shares of Common Stock to
an affiliate of Armistice Capital, LLC, with a combined purchase price per share and warrant of $5.225. The total net proceeds from the
private placement were approximately $8.0 million. The warrants have an exercise price of $5.225 per share, subject to adjustments as
provided under the terms of the warrants and will be exercisable on the six-month anniversary of their issuance date. The warrants are
exercisable for five years from the issuance date.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
The following is a summary of warrant activity for the three months
ended March 31, 2021 and 2020:
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Term in Years
|
|
Outstanding at December 31, 2020
|
|
|
2,726,700
|
|
|
$
|
8.41
|
|
|
|
2.45
|
|
Issued
|
|
|
1,531,101
|
|
|
|
5.23
|
|
|
|
4.77
|
|
Exercised
|
|
|
(10,417
|
)
|
|
|
4.80
|
|
|
|
2.05
|
|
Outstanding at March 31, 2021
|
|
|
4,247,384
|
|
|
$
|
7.27
|
|
|
|
3.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
2,875,006
|
|
|
$
|
14.14
|
|
|
|
3.37
|
|
Outstanding at March 31, 2020
|
|
|
2,862,314
|
|
|
$
|
13.10
|
|
|
|
3.11
|
|
All of the warrant agreements provide for a cashless
exercise in the event a registration statement covering the issuance of the shares of common stock underlying the warrants is not effective,
whereby the number of shares to be issued upon exercise of such warrants will be reduced based on the exercise price and the market value
of the shares at the time of exercise. The outstanding warrants expire from 2021 through 2026.
In 2005, the Company approved the 2005 Equity
Incentive Plan (the “2005 Plan”). The 2005 Plan provides for the granting of options, restricted stock or other stock-based
awards to employees, officers, directors, consultants and advisors. During 2010, the maximum number of shares of Common Stock that may
be issued pursuant to the 2005 Plan was increased to 59,414 shares. The Board of Directors (the “Board”) is responsible for
administration of the 2005 Plan. The Company’s Board determines the term of each option, the option exercise price, the number of
shares for which each option is granted and the rate at which each option is exercisable. Incentive stock options may be granted to any
officer or employee at an exercise price per share of not less than the fair value per common share on the date of the grant (not less
than 110% of fair value in the case of holders of more than 10% of the Company’s voting stock) and with a term not to exceed ten
years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company’s voting
stock). Nonqualified stock options may be granted to any officer, employee, consultant or director at an exercise price per share of not
less than the par value per share. Following adoption of the 2014 Equity Incentive Plan (the “2014 Plan”), no further
grants were made under the 2005 Plan. General terms of the 2014 Plan remain the same as that of the 2005 Plan.
The Company’s Board adopted the 2014 Plan
and the Employee Stock Purchase Plan (the “ESPP”) and the Company’s Stockholders approved the 2014 Plan and the ESPP
Plan in February 2015. As of March 31, 2021, the maximum number of shares of Common Stock that may be issued pursuant to the 2014 Plan
and the ESPP was 606,005 and 11,371 shares, respectively.
In January 2021, the number
of shares of common stock issuable under the 2014 Plan automatically increased by 23,333 shares pursuant to the terms of the 2014 Plan.
These additional shares are included in the total of 606,005 shares issuable under the 2014 Plan.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
9.
|
Equity Incentive Plan - (continued)
|
The following is a summary of stock option activity
for the three months ended March 31, 2021 and 2020:
|
|
Number of
Options
|
|
|
Weighted- Average
Exercise Price
|
|
|
Weighted-Average
Contractual Life
(In Years)
|
|
Outstanding at December 31, 2020
|
|
|
246,893
|
|
|
$
|
20.90
|
|
|
|
7.20
|
|
Granted
|
|
|
130,865
|
|
|
|
6.46
|
|
|
|
|
|
Expired
|
|
|
(7,103
|
)
|
|
|
10.83
|
|
|
|
|
|
Forfeited
|
|
|
(296
|
)
|
|
|
6.78
|
|
|
|
|
|
Outstanding at March 31, 2021
|
|
|
370,359
|
|
|
$
|
16.00
|
|
|
|
7.70
|
|
Exercisable at March 31, 2021
|
|
|
176,055
|
|
|
$
|
26.59
|
|
|
|
6.35
|
|
Vested and Expected to Vest at March 31, 2021
|
|
|
370,359
|
|
|
$
|
16.00
|
|
|
|
7.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
174,175
|
|
|
$
|
27.42
|
|
|
|
6.22
|
|
Granted
|
|
|
75,665
|
|
|
|
6.55
|
|
|
|
|
|
Expired
|
|
|
(8,812
|
)
|
|
|
11.06
|
|
|
|
|
|
Forfeited
|
|
|
(3,333
|
)
|
|
|
7.20
|
|
|
|
|
|
Outstanding at March 31, 2020
|
|
|
237,695
|
|
|
$
|
21.67
|
|
|
|
7.53
|
|
Exercisable at March 31, 2020
|
|
|
137,846
|
|
|
$
|
32.33
|
|
|
|
6.05
|
|
Vested and Expected to Vest at March 31, 2020
|
|
|
237,695
|
|
|
$
|
21.67
|
|
|
|
7.53
|
|
During the three months ended March 31, 2021 and
March 31, 2020, the Board approved the grant of options to purchase 130,865 and 75,665 shares of Common Stock, respectively. All option
grants were pursuant to the 2014 Plan. In general, options granted under the 2014 Plan vest with respect to one-third of the underlying
shares on the one-year anniversary of the grant date and the remainder ratably over a 24-month period.
For the three months ended March 31, 2021 and
2020, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes Option Pricing Model with the
following weighted-average assumptions:
|
|
2021
|
|
|
2020
|
|
Risk-Free Interest Rate
|
|
|
1.82
|
%
|
|
|
1.82
|
%
|
Expected Life
|
|
|
5.00 years
|
|
|
|
5.00 years
|
|
Expected Volatility
|
|
|
145
|
%
|
|
|
155
|
%
|
Expected Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Using the Black-Scholes Option
Pricing Model, the estimated weighted average fair value of an option to purchase one share of common stock granted during the three
months ended March 31, 2021 and 2020 was $6.33 and $6.46, respectively.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
9.
|
Equity Incentive Plan - (continued)
|
The following is a summary of restricted stock
activity for the three months ended March 31, 2021 and 2020:
|
|
Number of
Shares
|
|
|
Weighted- Average
Grant Date Fair Value
|
|
|
Weighted- Average
Remaining
Recognition Period
|
|
Non-vested Outstanding at December 31, 2020
|
|
|
67,420
|
|
|
$
|
7.10
|
|
|
|
1.66
|
|
Vested
|
|
|
(25,422
|
)
|
|
|
7.17
|
|
|
|
|
|
Forfeited
|
|
|
(233
|
)
|
|
|
6.89
|
|
|
|
|
|
Non-vested Outstanding at March 31, 2021
|
|
|
41,765
|
|
|
$
|
7.05
|
|
|
|
1.44
|
|
Non-vested Outstanding at December 31, 2019
|
|
|
50,187
|
|
|
$
|
8.64
|
|
|
|
1.49
|
|
Awarded
|
|
|
49,000
|
|
|
|
6.55
|
|
|
|
|
|
Vested
|
|
|
(8,159
|
)
|
|
|
9.07
|
|
|
|
|
|
Non-vested Outstanding at March 31, 2020
|
|
|
91,028
|
|
|
$
|
7.47
|
|
|
|
2.11
|
|
During the three months ended March 31, 2021,
233 shares of restricted stock, which had not vested, were forfeited and returned to the Company. During the three months ended March
31, 2020, the Board approved the grant of 49,000 restricted shares of Common Stock, respectively. All grants of restricted shares were
pursuant to the 2014 Plan. These vest with respect to one-third of the underlying shares on the one-year anniversary of the grant date
and the remainder ratably over a 24-month period.
The total stock-based compensation expense for
employees and non-employees is included in the accompanying Condensed Consolidated Statements of Operations and as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Research and Development
|
|
$
|
71,586
|
|
|
$
|
45,653
|
|
General and Administrative
|
|
|
145,359
|
|
|
|
100,267
|
|
Total Stock-Based Compensation Expense
|
|
$
|
216,945
|
|
|
$
|
145,920
|
|
The fair value of options granted for the three
months ended March 31, 2021 and 2020 was $0.829 million and $0.489 million, respectively. As of March 31, 2021 and 2020, there was $1.389
million and $1.267 million of total unrecognized compensation expense related to unvested stock-based compensation arrangements granted,
which cost is expected to be recognized over a weighted-average period of 2.40 and 2.37 years, respectively. The aggregate intrinsic value
of stock options outstanding and exercisable at March 31, 2021 and 2020 was $0.
At March 31, 2021, there
were 69,521 shares available for grant under the 2014 Plan and 7,806 shares available under the Company’s ESPP.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
10.
|
Commitments and Contingencies
|
Leases
The Company is a party to three real property
operating leases for the rental of office or lab space. The Company has office space in Waltham, Massachusetts of up to 4,516 square feet
that is used for its corporate headquarters with a term through March 31, 2022. The Company also has office and laboratory space of approximately
3,540 square feet in Salt Lake City, Utah with a term through November 30, 2023. The Company has office space in Vienna, Austria of approximately
1,555 square feet with a term through October 31, 2023 as a result of the Panoptes acquisition effective December 18, 2020.
Additional right-of-use assets and lease liabilities
were recorded upon the new lease agreements or extensions that were effective as of March 31, 2021.
Operating lease assets and liabilities are recognized
at the lease commencement date at the present value of lease payments to be paid. Operating lease assets represent the Company’s
right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments.
To determine the present value of lease payments to be paid, the Company estimated incremental secured borrowing rates corresponding to
the maturities of the leases. The Company estimated a rate of 10% based on prevailing financial market conditions, comparable company
and credit analysis, and management judgment. The Company recognizes expense for its leases on a straight-line basis over the lease term.
Operating lease expense, consisting of the reduction of the right-of-use asset and the imputed interest on the lease liability, totaled
$50,852 and $43,195 for the three months ended March 31, 2021 and 2020, respectively.
Maturities of lease liabilities were as follows as of March 31, 2021:
|
|
Operating Leases
|
|
2021
|
|
$
|
77,224
|
|
2022
|
|
|
104,686
|
|
2023
|
|
|
95,670
|
|
Less: Imputed Interest
|
|
|
(34,850
|
)
|
Lease Liabilities
|
|
$
|
242,730
|
|
License Agreements
The Company is a party to four license agreements
as described below. These license agreements require the Company to receive or pay royalties or fees to or from the licensor based on
revenue or milestones related to the licensed technology.
On July 2, 2013, Panoptes entered into a patent
and know-how assignment agreement with 4SC Discovery GmbH (“4SC”) transferring to Panoptes all patent rights and know-how
to the compound PP-001. The Company (through its Panoptes subsidiary) is responsible for paying royalties based on a specified percentage
of net sales of PP-001.
On July 2, 2013, Panoptes
entered into an out-license agreement with 4SC Discovery GmbH (“4SC”) granting 4SC the exclusive worldwide right to commercialize
the compound PP-001 for rheumatoid arthritis and inflammatory bowel disease, including Crohn’s Disease and Ulcerative Colitis. The
Company (through its Panoptes subsidiary) is eligible to receive milestone payments totaling up to 155 million euros, upon and subject
to the achievement of certain specified developmental and commercial milestones. In addition, the Company (through its Panoptes subsidiary)
is eligible to receive royalties based on a specified percentage of net sales of PP-001.
On September 12, 2013, Jade
entered into an agreement with BioTime, Inc. granting to it the exclusive worldwide right to commercialize cross-linked thiolated carboxymethyl
hyaluronic acid (“modified HA”) for ophthalmic treatments in humans. The agreement provides for a license issue fee
paid to BioTime of $50,000 and requires the Company (through its Jade subsidiary) to pay an annual fee of $30,000 and royalties to BioTime
based on revenue relating to any product incorporating the modified HA technology. The agreement expires when patent protection
for the modified HA technology lapses, which is expected to occur in the U.S. in 2028.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
10.
|
Commitments and Contingencies - (continued)
|
On September 26, 2018, the Company entered into
an intellectual property licensing agreement (the “SentrX Agreement”) with SentrX, a veterinary medical device company that
develops and manufactures veterinary wound care products. Under the SentrX Agreement, the Company will in-license the rights to trade-secrets
and know-how related to the manufacturing of its OBG. The SentrX Agreement will enable the Company to pursue a different vendor with a
larger capacity for manufacturing and an FDA-inspected facility for commercialization of a product for human use. Under the SentrX Agreement,
the Company paid SentrX an upfront payment of $0.250 million recorded as intangible assets on the Consolidated Balance Sheets. SentrX
is eligible to receive milestone payments totaling up to $4.750 million, upon and subject to the achievement of certain specified developmental
and commercial milestones. These future milestone payments to SentrX will increase the carrying value of the intangible assets.
COVID-19
The continued spread of the COVID-19 pandemic
could adversely impact the Company’s clinical studies. In addition, COVID-19 has resulted in significant governmental measures being
implemented to control the spread of the virus, including quarantines, travel restrictions, and business shutdowns. COVID-19 has also
caused volatility in the global financial markets and threatened a slowdown in the global economy, which could negatively affect the Company’s
ability to raise additional capital on attractive terms or at all. The extent to which COVID-19 may impact the Company’s business
will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak,
the emergence of new variants, and the effectiveness of actions to contain and treat COVID-19. The Company cannot presently predict the
scope and severity of any potential disruptions to its business, including to ongoing and planned clinical studies. Any such shutdowns
or other business interruptions could result in material and negative effects to the Company’s ability to conduct its business in
the manner and on the timelines presently planned, which could have a material adverse impact on its business, results of operation, and
financial condition. As of the date of this report, there have been no material adverse effects to the Company’s ongoing business
operations from COVID-19.
11.
|
Employee Benefit Plans
|
The Company has an employee benefit plan
for its United States-based employees under Section 401(k) of the Internal Revenue Code. The Plan allows all eligible employees to make
contributions up to a specified percentage of their compensation. Under the Plan, the Company may, but is not obligated to, match a portion
of the employee contribution up to a defined maximum. As a result of the 401(k) plan compliance review for the year ended December 31,
2020, the Company will contribute approximately $26,000 to eligible employees, which is accrued on the Condensed Consolidated Balance
Sheets as of March 31, 2021 and December 31, 2020.
As of March 31, 2021,
the Company has accrued an additional estimate of $5,568 for contributions likely due as a result of the 401(k) plan compliance
review for the year ended December 31, 2021. The Company made no matching contribution for each of the three months ended March 31,
2021 and 2020.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
Panoptes Pharma Ges.m.b.H. Acquisition
Effective December 18, 2020, the Company acquired
all of the capital stock of Panoptes Pharma Ges.m.b.H. (“Panoptes”), a privately held clinical stage biotech company focused
on developing a novel proprietary small molecule for the treatment of severe eye diseases with a high unmet medical need, as well as for
conditions outside the ocular space. With the Panoptes acquisition, Panoptes became a wholly owned subsidiary of EyeGate. The acquisition
has been accounted for in accordance with FASB's Accounting Standards Codification ("ASC") 805, "Business Combinations",
with the assets acquired and liabilities assumed recorded at fair value on the date of the acquisition. The excess of the purchase price
over the fair value of the net assets acquired is recorded as goodwill, which is not expected to be deductible for tax purposes.
Under the terms of the Panoptes
acquisition agreement, in consideration for 100% of the outstanding equity interests in Panoptes, the Company paid cash in the amount
of $0.445 million to certain founders and creditors, issued 884,222 shares of EyeGate common stock, and issued 45.893 shares (convertible
into 13,000 shares of common stock) of EyeGate Series D Convertible Preferred Stock. An additional cash payment is due to a creditor in
December 2021 and is recorded at a fair value of $0.212 million at the acquisition date.
Additionally, up to 1,500
shares of Series D Convertible Preferred Stock (convertible into 424,685 shares of common stock) will be issued after a period of 18 months
from closing, subject to post-closing adjustments or indemnification obligations, and are recorded as contingent consideration and fair
valued at $1.353 million at the acquisition date.
The Panoptes acquisition
also includes two cash or stock earn-out provisions providing for an additional cash or stock payment of $4.750 million per milestone
contingent upon (1) the enrollment and randomization of a first patient into the first FDA Phase III pivotal study of a Panoptes product
and (2) the FDA approval of the first New Drug Application of a Panoptes product. The cash or stock earn-out payments were recorded as
contingent consideration and fair valued at $2.067 million at the acquisition date.
The fair value of the shares
issued in the Panoptes acquisition was approximately $3.169 million based on the 30-day volume weighted average price of the Company’s
Common Stock as reported by Bloomberg on the closing date of the acquisition, or $3.5321 per share.
The following table summarizes the preliminary
purchase price allocation and the estimated fair value of the net assets acquired and liabilities assumed in the Panoptes acquisition
at the date of acquisition. The purchase price allocation for Panoptes is preliminary pending completion of the fair value analysis of
acquired assets and liabilities:
|
|
Panoptes
|
|
Current Assets
|
|
$
|
410,863
|
|
In-Process R&D
|
|
|
5,624,100
|
|
Goodwill
|
|
|
1,958,711
|
|
Property, Plant and Equipment
|
|
|
2,042
|
|
Accounts Payable and Other Liabilities
|
|
|
(87,777
|
)
|
Deferred Tax Liability
|
|
|
(351,507
|
)
|
Contingent Consideration
|
|
|
(3,632,950
|
)
|
Assumed Liabilities
|
|
|
(312,852
|
)
|
Total Purchase Price
|
|
$
|
3,610,630
|
|
(1)
|
Current Assets include cash, receivables, and prepaid expenses of $333,860, $73,368, and $3,635, respectively.
|
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
12.
|
Acquisition (continued)
|
Net loss in the Condensed Consolidated Statement
of Operations for the three months ended March 31, 2021 includes net losses of Panoptes of $0.439 million. The Company’s intangible
assets, which consist solely of in-process research and development, will not be amortized until the underlying development programs are
completed. Upon obtaining regulatory approval, the Intangible assets are then accounted for as finite-lived intangible assets and amortized
on a straight-line basis over its estimated useful life.
EyeGate recognized approximately $0.050 million
of acquisition-related costs for the Panoptes acquisition that were expensed in the current period as a component of general and administrative
expense.
Pro forma disclosure for Panoptes acquisition
The following table includes
the pro forma results for Panoptes the three months ended March 31, 2020 of the combined companies as though the Panoptes Acquisition
had been completed as of the beginning of the period presented.
|
|
Three Months Ended
March 31, 2020
(unaudited)
|
|
Revenues
|
|
$
|
110,819
|
|
Operating Expenses
|
|
|
2,132,051
|
|
Net Loss
|
|
$
|
(2,003,053
|
)
|
The pro forma financial information
is presented for information purposes only. The unaudited pro forma financial information may not necessarily reflect the Company’s
future results of operations or what the results of operations would have been had the Company owned and operated Panoptes as of the
beginning of the period presented.