Notes
to Unaudited Condensed Consolidated Financial Statements
Nine
Months Ended September 30, 2018
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.
The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. During 2018,
the Company formed a subsidiary in each of the United Kingdom and Australia. All significant intercompany transactions and accounts
have been eliminated in consolidation. 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, 2018, the results of its operations
for the three months and nine months ended September 30, 2018 and 2017 and its cash flows for the nine months ended September
30, 2018 and 2017. The December 31, 2017 condensed consolidated balance sheet was derived from audited financial statements. The
Company prepared the condensed consolidated financial statements following the requirements of the SEC for interim reporting.
Accordingly, 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, 2017, filed on March 12, 2018. The results of operations for such interim periods
are not necessarily indicative of the operating results for the full fiscal year.
2.
|
LIQUIDITYAND
GOING CONCERN
|
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal
course of business. The Company has incurred recurring losses since inception and as of September 30, 2018, had an accumulated
deficit of $104,064,048. 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 expects the cash and cash equivalents of $55,659,346
at September 30, 2018 to be insufficient to meet its operating and capital requirements at least 12 months from the filing of
this 10-Q.
Should
the Company be unable to raise sufficient additional capital, the Company may be required to 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 lenabasum and CRB-4001 (see Note 4). 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. These factors among others create a substantial doubt about
the Company’s ability to continue as a going concern. There have been no adjustments made to these consolidated financial
statements as a result of these uncertainties.
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 (“GAAP”) 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 the 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, product development and clinical
obligations, the recognition of revenue under the Investment Agreement (See Note 9), and the valuation of the CFF Warrant discussed
in Note 12.
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. At September 30, 2018 and December 31, 2017, cash equivalents were comprised of
money market funds. For purposes of preparing the statement of cash flows, the Company considers payments of amounts previously
accrued for stock issuance costs or property, plant, and equipment as payments for those original purposes.
Restricted
cash as of December 31, 2017 in the amount of $108,991 was classified in current assets and included a collateral account for
the Company’s corporate credit cards. This collateral account was closed in the first quarter of 2018 and accordingly the
cash became unrestricted. Additionally, as of December 31, 2017, restricted cash included a stand-by letter of credit issued in
favor of a landlord for $50,000 which was classified in current assets as of December 31, 2017. This stand-by letter of credit
was terminated in the first quarter of 2018 in connection with the August 2017 Lease Agreement discussed in Note 6, and accordingly,
the cash became unrestricted.
Cash,
cash equivalents, and restricted cash consists of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Cash
|
|
$
|
423,443
|
|
|
$
|
206,510
|
|
Money market fund
|
|
|
55,235,903
|
|
|
|
62,330,985
|
|
Cash and cash equivalents
|
|
|
55,659,346
|
|
|
|
62,537,495
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
—
|
|
|
|
158,991
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
|
$
|
55,659,346
|
|
|
$
|
62,696,486
|
|
As
of September 30, 2018, all of the Company’s cash was held in the United States, except for approximately $360,000 of cash
which was held in our subsidiary in the United Kingdom. As of December 31, 2017, all of the Company’s cash was held in the
United States.
Financial
Instruments
The
carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, receivables, accounts payable and accrued
expenses approximate their fair value based on the short-term nature of these instruments. The carrying values of the notes payable
approximate their fair value due to the fact that they are at 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 respective leases. See Note 5 for details of property and equipment
and Note 6 for operating and capital lease commitments.
Research
and Development Expenses
Costs
incurred for research and development are expensed as incurred.
Nonrefundable
advance payments for goods or services that have the characteristics that will be used or rendered for future research and development
activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized
as an expense as the related goods are delivered or the related services are performed.
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 by 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, 2018 and 2017, 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. However, the Company believes the risk of loss is minimal as these banks are large financial institutions.
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,
2018 and December 31, 2017, all of the Company’s assets were located in the United States, except for approximately $360,000
of cash which was held in our subsidiary in the United Kingdom as of September 30, 2018.
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 not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly,
given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% of the deferred tax
assets 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, 2018 or December 31, 2017.
On December 22, 2017, Staff Accounting
Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does
not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete
the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has recorded a provisional
estimate in these financial statements for the effect of the corporate tax rate change. There has been no change to the provisional
amounts recorded by the Company since December 31, 2017.
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 undiscounted cash flows of an asset 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. An impairment loss equal
to the excess of the fair value of the asset over its carrying amount, is recorded when it is determined that the carrying value
of the asset may not be recoverable. No impairment charges were recorded during the three and nine months ended September 30,
2018 and 2017.
Stock-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 to employees is estimated as of the date of grant using the Black-Scholes option-pricing
model, net of estimated forfeitures. 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 using the Black-Scholes option-pricing model and the changes in their fair value
are recorded as adjustments to expense over the related vesting period.
Foreign
Currency
Transaction
gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the U.S.
Dollar functional currency are recorded in the Company’s statement of operations. Such transaction gains and losses may
be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance
sheet date.
Net
Loss Per Common Share
Basic
and diluted 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. For periods in which there is a net loss, options and warrants 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, 2018 and 2017:
|
|
Three Months Ended
September 30
|
|
|
Nine Months Ended
September 30
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Basic and diluted net loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,601,211
|
)
|
|
$
|
(6,965,596
|
)
|
|
$
|
(38,365,947
|
)
|
|
$
|
(21,727,922
|
)
|
Weighted average shares of common stock outstanding
|
|
|
57,218,832
|
|
|
|
50,221,597
|
|
|
|
56,917,897
|
|
|
|
48,946,335
|
|
Net loss per share of common stock-basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(0.44
|
)
|
The
impact of the following potentially dilutive securities outstanding as of September 30, 2018 and 2017 have been excluded from
the computation of dilutive weighted average shares outstanding as the inclusion would be anti-dilutive.
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Warrants
|
|
|
2,283,500
|
|
|
|
1,288,500
|
|
Stock options
|
|
|
9,434,241
|
|
|
|
7,724,779
|
|
Total
|
|
|
11,717,741
|
|
|
|
9,013,279
|
|
Recent
Accounting Pronouncements
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”), as amended, which amends the guidance in former
ASC 605, Revenue
Recognition
(“ASC 605”), and is effective for public companies for annual and interim periods beginning after
December 15, 2017. Specifically, the new standard differs from ASC 605 in many respects, such as in the accounting for variable
consideration received, including milestone payments or contingent payments. Under the Company’s accounting policy prior
to the adoption of ASC 606 in the first quarter of 2018, milestone payments were initially recognized only in the period that
the payment-triggering event occurred or was achieved (See Note 9). ASC 606, however, may require a company to recognize such
payments before the payment-triggering event is completely achieved based on the Company’s estimate of the amount of consideration
to which it will be entitled in exchange for transferring the services, subject to management’s assessment of whether it
is probable 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.
The
Company adopted ASC 606 in the first quarter of 2018 using the modified retrospective method according to which the cumulative
effect of initially applying ASC 606 is recognized at the date of initial application, and elected to utilize a practical expedient
and did not restate contracts that were completed as of the date of adoption. Since the Company has concluded its performance
obligations and has completed recognizing revenue under the 2015 CFFT Award discussed in Note 9 in the third quarter of 2017,
there was no cumulative effect to record at the date of the Company’s adoption of ASC 606 and no revenue to recognize for
the first quarter of 2018 related to the 2015 CFFT Award. Revenue for the three and nine months ended September 30, 2018 was $1,090,878
and $2,894,966, respectively, recognized in accordance with ASC 606 and pertains only to the 2018 CFF Award discussed in
Note 9. The total impact to revenue for the three and nine months ended September 30, 2018 as a result of the adoption of ASC
606 was lower revenue of approximately $511,000 and $525,000, respectively.
The
Company will assess any new agreements it enters into under ASC 606, including whether such agreements fall under the scope of
such standard. This standard applies to all contracts with customers, except for contracts that are within the scope of other
standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes
revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the
entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity
determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a
customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies
a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect
the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception,
once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within
each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation
when (or as) the performance obligation is satisfied.
Revenue
associated with the performance obligation is being recognized as revenue as the research and development services are provided
using an input method, according to the costs incurred as related to the research and development activities and the costs expected
to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over this time period and,
in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The research and
development services related to this performance obligation are expected to be performed over an approximately two and a half-year
period expected to be completed in the second quarter of 2020. Amounts received prior to revenue recognition are recorded as deferred
revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as
current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as
revenue within the 12 months following the balance sheet date would be classified as deferred revenue, net of current portion.
Amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets.
Accounting
for Leases
In
February 2016, the FASB issued ASU No
.
2016-02,
Leases (Topic 842),
as amended (“ASU 2016-02”)
.
Under
ASU 2016-02, a lessee will be required to recognize assets and liabilities for all 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. The adoption of ASU 2016-02 will have an impact on the Company’s financial position
as the Company has an operating lease commitment for office space as of September 30, 2018 with future non-cancelable lease payments
amounting to $5,146,790 (see Note 6) for which ASU 2016-02 would apply. The Company anticipates that the adoption of ASU 2016-02
will result in the recognition of additional right of use assets and corresponding liabilities on its condensed consolidated balance
sheets. The Company is in the process of quantifying the amount of financing and operating leases, corresponding liabilities and
the cumulative effect adjustment to accumulated deficit that will be recorded upon adoption of the amended guidance. The Company
also anticipates implementing changes to its controls to support the lease accounting and related disclosures under ASU 2016-02.
Nonemployee
Share-Based Payment Accounting
In
June 2018, the FASB issued ASU 2018-07,
Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment Accounting
(“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees. Under ASU 2018-07, consistent with the accounting requirement
for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are to be measured
at the grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or
the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
Equity-classified nonemployee share-based payment awards are to be measured at the grant date. The definition of the term grant
date is amended to generally state the date at which a grantor and a grantee reach a mutual understanding of the key terms and
conditions of a share-based payment award. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions
in which a grantor acquires goods or services to be used or consumed in its own operations by issuing share-based payment awards.
ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to
the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for
under ASC 606. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including
interim periods within that fiscal year. Early adoption is permitted, The Company expects to adopt ASU 2018-07 in the first quarter
of fiscal 2019 and is evaluating the expected impact the adoption will have on the Company’s financial statements.
The
Company, entered into a License Agreement (the “Jenrin Agreement”) with Jenrin Discovery, LLC, a privately-held Delaware
limited liability company (“Jenrin”), effective September 20, 2018. Pursuant to the Jenrin Agreement, Jenrin granted
the Company exclusive worldwide rights to develop and commercialize the Licensed Products (as defined in the Jenrin Agreement)
which includes the Jenrin library of over 600 compounds and multiple issued and pending patent filings. The compounds are designed
to treat inflammatory and fibrotic diseases by targeting the endocannabinoid system. The lead product candidate is CRB-4001, a
peripherally-restricted CB-1 inverse agonist targeting fibrotic liver, lung, heart and kidney diseases. The Company plans to commence
a Phase 1 clinical trial of CRB-4001 in 2019.
In
consideration of the license and other rights granted by Jenrin, the Company paid Jenrin a $250,000 upfront cash payment and is
obligated to pay potential milestone payments to Jenrin totaling up to $18.4 million for each compound it elects to develop based
upon the achievement of specified development and regulatory milestones. In addition, Corbus is obligated to pay Jenrin royalties
in the mid, single digits based on net sales of any Licensed Products, subject to specified reductions.
In
January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU
2017-01”) which clarifies the definition of a business and determines when an integrated set of assets and activities is
not a business. ASU 2017-01 requires that if substantially all of the fair value of gross assets acquired or disposed of is concentrated
in a single asset or group of similar identifiable assets, the assets would not represent a business. The Company determined that
substantially all of the fair value of the Jenrin Agreement was attributable to a single in-process research and development asset,
CRB-4001, which did not constitute a business. The Company concluded that it did not have any alternative future use for the acquired
in-process research and development asset. Thus, the Company recorded the $250,000 upfront payment to research and development
expenses in the third quarter of 2018. The Company will account for the $18.4 million of development and regulatory milestone
payments in the period that the relevant milestones are achieved as either research and development expense or as an intangible
asset as applicable.
5.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
$
|
279,151
|
|
|
$
|
136,522
|
|
Office furniture and equipment
|
|
|
907,916
|
|
|
|
287,048
|
|
Leasehold improvements
|
|
|
2,026,495
|
|
|
|
191,244
|
|
Construction in progress
|
|
|
—
|
|
|
|
1,181,730
|
|
Property and equipment, gross
|
|
|
3,213,562
|
|
|
|
1,796,544
|
|
Less: accumulated depreciation
|
|
|
(511,296
|
)
|
|
|
(363,889
|
)
|
Property and equipment, net
|
|
$
|
2,702,266
|
|
|
$
|
1,432,655
|
|
Depreciation
expense was $132,337 and $126,641 for the three months ended September 30, 2018 and 2017, respectively and $338,651 and $191,093
for the nine months ended September 30, 2018 and 2017, respectively. In the first quarter of 2018, the Company wrote off $191,244
of fully amortized leasehold improvements related to the termination of the September 2016 Amendment in February 2018 as discussed
in Note 6.
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 6 for details of this capital lease commitment.
6.
|
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 was to be 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 September 2016 Amendment was terminated upon the commencement date of the August 2017 Lease Agreement discussed below.
On
August 21, 2017, the Company entered into a lease agreement (“August 2017 Lease Agreement”) with the same landlord,
pursuant to which the Company agreed to lease 32,733 square feet of office space (“Leased Premises”). The initial
term of the August 2017 Lease Agreement is for a period of seven years which began with the Company’s occupancy of the Leased
Premises in February 2018. The base rent for the Leased Premises ranges from approximately $470,000 for the first year to approximately
$908,000 for the seventh year. Per the terms of the August 2017 Lease Agreement, the landlord agreed to reimburse the Company
for $1,080,189 of leasehold improvements. The reimbursements have been deferred and will be recognized as a reduction of rent
expense over the term of the lease. Additionally, the August 2017 Lease Agreement required a standby irrevocable letter of credit
of $400,000, which may be reduced, if the Company is not in default under the August 2017 Lease Agreement, to $300,000 and $200,000
on the third and fourth anniversary of the commencement date, respectively. The Company entered into an unsecured letter of credit
for $400,000 in connection with the August 2017 Lease Agreement for which it incurred interest expense of $612 and $4,161 for
the three and nine months ended September 30, 2018, respectively.
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, noncurrent
in the Company’s balance sheet as of September 30, 2018 and December 31, 2017.
Pursuant
to the terms of the Company’s non-cancelable lease agreements in effect at September 30, 2018, the future minimum rent commitments
are as follows:
2018 (remainder of year)
|
|
$
|
117,500
|
|
2019
|
|
|
623,958
|
|
2020
|
|
|
784,243
|
|
2021
|
|
|
830,600
|
|
2022
|
|
|
855,150
|
|
Thereafter
|
|
|
1,935,339
|
|
Total
|
|
$
|
5,146,790
|
|
Total
rent expense for the three months ended September 30, 2018 and 2017 was $146,229 and $92,671, respectively. Total rent expense
for the nine months ended September 30, 2018 and 2017 was $440,972 and $209,687, 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 September 30, 2018 and December 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 September 30, 2018:
2018 (remainder of year)
|
|
$
|
1,135
|
|
2019
|
|
|
379
|
|
Total future minimum lease payments
|
|
|
1,514
|
|
Less: interest
|
|
|
(33
|
)
|
Future capital lease obligations
|
|
|
1,481
|
|
Less: current portion
|
|
|
(1,481
|
)
|
Long-term portion
|
|
$
|
—
|
|
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 stipulated equal monthly payments of principal and interest payments of $39,114 over
a nine-month period. Interest accrued on this loan at an annual rate of 2.25%. This loan was fully repaid in July 2017.
In
November 2017, the Company entered into a loan agreement with a financing company for $415,265 to finance one of the Company’s
insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $41,975 over
a ten-month period. Interest accrues on this loan at an annual rate of 2.35%. This loan was fully repaid in August 2018.
Prepaid
expenses as of September 30, 2018 and December 31, 2017 included $29,226 and $368,976, respectively, related to this insurance
policy.
For
the three months ended September 30, 2018 and 2017, interest expense for notes payable totaled $213 and $73, respectively. For
the nine months ended September 30, 2018 and 2017, interest expense for notes payable totaled $2,777 and $2,042, respectively.
In
November 2018, the Company entered into a loan agreement with a financing company for $491,629 to finance one of the Company’s
insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $49,857
over a ten-month period. Interest accrues on this loan at an annual rate of 3.07%.
Accrued
expenses consisted of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Accrued clinical operations and trials costs
|
|
$
|
4,223,787
|
|
|
$
|
2,003,799
|
|
Accrued product development costs
|
|
|
1,333,392
|
|
|
|
1,255,439
|
|
Accrued compensation
|
|
|
1,504,736
|
|
|
|
1,335,672
|
|
Accrued other
|
|
|
323,681
|
|
|
|
146,609
|
|
Total
|
|
$
|
7,385,596
|
|
|
$
|
4,741,519
|
|
9.
|
DEVELOPMENT
AWARDS AND DEFERRED REVENUE
|
2015
CFFT Award
On
April 20, 2015, the Company entered into an award agreement (the “2015 CFFT Award Agreement “) with the Cystic Fibrosis
Foundation Thereapeutics, Inc (“CFFT”), a non-profit drug discovery and development affiliate of the Cystic Fibrosis
Foundation (“CFF”) pursuant to which the Company received a development award (the “2015 CFFT Award”)
for up to $5 million in funding. The funding from the 2015 CFFT Award supported a first-in-patient Phase 2 clinical trial of the
Company’s oral anti-inflammatory drug lenabasum in adults with cystic fibrosis (“CF”). The Company has received
$5.0 million in payments since the inception of the 2015 CFFT Award as outlined below. The payments received under the 2015 CFFT
Award were recorded as deferred revenue when the triggering event to receive those amounts had occurred and were amortized on
a straight-line basis over the expected duration of the remaining performance period under the 2015 CFFT Award which concluded
in the third quarter of 2017.
Upon
the execution of the 2015 CFFT 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 received
the final payment from CFFT in the amount of $500,000 in November 2017 for achieving the final milestone in September 2017 related
to the issuance to CFFT of the final integrated statistical report for to the Phase 2 CF clinical trial. At that time the Company
had completed all its performance obligations under the contract and therefore the performance period had concluded.
In
accordance with ASC 605, the Company recorded $796,312 and $2,440,195 of revenue during the three and nine months ended September
30, 2017, respectively, under the 2015 CFFT Award Agreement. No revenue was recorded under the 2015 CFFT Award Agreement during
the three and nine months ended September 30, 2018 as the final performance period concluded in the third quarter of 2017. Under
ASC 605, milestone payments were initially recognized only in the period that the payment-triggering event occurred or was achieved.
Effective January 1, 2018, ASC 605 was superseded by ASC 606 (See Note 3). The Company adopted ASC 606 in the first quarter of
2018 using the modified retrospective method according to which the cumulative effect of initially applying ASC 606 is recognized
at the date of initial application. Since the Company concluded its performance obligations and completed recognizing revenue
under the 2015 CFFT Award Agreement in the third quarter of 2017, there was no cumulative effect to record at the date of the
Company’s adoption of ASC 606.
Pursuant
to the terms of the 2015 CFFT Award Agreement, the Company is obligated to make royalty payments to CFFT contingent upon commercialization
of lenabasum in the Field of Use (as defined in the 2015 CFFT Award Agreement) as follows: (i) a royalty payment equal to five
times the amount the Company receives under the 2015 CFFT Award Agreement, up to $25 million, payable in three equal annual installments
following the first commercial sale of lenabasum, the first of which is due within 90 days following the first commercial sale
of lenabasum, (ii) a royalty payment to CFFT equal to the amount the Company receives under the 2015 CFFT Award Agreement, up
to $5 million, due in the first calendar year in which the aggregate cumulative net sales of lenabasum in the Field of Use exceed
$500 million, and (iii) royalty payment(s) to CFFT of up to approximately $15 million if the Company transfers, sells or licenses
lenabasum 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 2015 CFFT 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, if any, would survive the termination of the 2015 CFFT Award
Agreement.
2018
CFF Award
On
January 26, 2018, the Company entered into the Cystic Fibrosis Program Related Investment Agreement with the CFF (“Investment
Agreement”), a non-profit drug discovery and development corporation, pursuant to which the Company received an award for
up to $25 million in funding (the “2018 CFF Award”) to support a Phase 2b Clinical Trial (the “Phase 2b Clinical
Trial”) of lenabasum in patients with cystic fibrosis, of which the Company has received $6.25 million in the first quarter
of 2018 and an additional $6.25 million in the second quarter of 2018 upon the Company’s achievement of milestones related
to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement.
The
Company expects that the remainder of the 2018 CFF Award will be paid incrementally upon the Company’s achievement of the
remaining milestones related to the progress of the Phase 2b Clinical Trial, as set forth in the Investment Agreement.
Pursuant
to the terms of the Investment Agreement, the Company is obligated to make certain royalty payments to CFF, including a royalty
payment of one and one-half times the amount of the 2018 CFF Award, payable in cash within sixty days upon the first receipt of
approval of lenabasum in the United States and a second royalty payment of one and one-half times the amount of the 2018 CFF Award
upon approval in another major market, as set forth in the Investment Agreement (the “Approval Royalty”). At the Company’s
election, the Company may satisfy the first of the two Approval Royalties in registered shares of the Company’s common stock.
Additionally,
the Company is obligated to make (i) royalty payments to CFF of two and one-half percent of net sales from lenabasum due within
sixty days after any quarter in which such net sales occur in the Field, as defined in the Investment Agreement, (ii) royalty
payments to CFF of one percent of net sales of Non-Field Products, as defined in the Investment Agreement due within sixty days
after any quarter in which such net sales occur, and (iii) royalty payments to CFF of ten percent of any amount the Company and
its stockholders receive in connection with the license, sale, or other transfer to a third party of lenabasum, if indicated for
the treatment or prevention of CF, or a change of control transaction, except that such payment shall not exceed five times the
amount of the 2018 CFF Award, with such payments to be credited against any other net sales royalty payments due. Either CFF or
the Company may terminate the Investment 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 Investment
Agreement.
Pursuant
to the terms of the Investment Agreement, the Company issued a warrant to CFF to purchase an aggregate of 1,000,000 shares of
the Company’s common stock (the “CFF Warrant”). The CFF Warrant is exercisable at a price equal to $13.20 per
share and is immediately exercisable for 500,000 shares of the Company’s common stock. Upon completion of the final milestone
set forth in the Investment Agreement and receipt of the final payment from CFF to the Company pursuant to the Investment Agreement,
the CFF Warrant will be exercisable for the remaining 500,000 shares of the Company’s common stock. The CFF Warrant expires
on January 26, 2025. Any shares of the Company’s common stock issued upon exercise of the CFF Warrant will be unregistered
and subject to a one-year lock-up.
The
Company recorded $1,090,878 and $2,894,966 of revenue during the three and nine months ended September 30, 2018, respectively,
under the Investment Agreement. The Company assessed the 2018 CFF Award for accounting under ASC 606, which it adopted in the
first quarter of 2018 (Note 3). To determine revenue recognition for arrangements that an entity determines are within the scope
of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The
Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, CFF, is a customer.
The Company identified the following material promise under the arrangement: research and development activities and related services
under the Phase 2b Clinical Trial. Based on these assessments, the Company identified one performance obligation at the outset
of the Investment Agreement, which consists of: Phase 2b Clinical Trial research and development activities and related services.
To
determine the transaction price, the Company included the total aggregate payments under the Investment Agreement which amount
to $25 million and reduced the revenue to be recognized by the payment to the customer of $6,215,225 in the form of the CFF Warrant
representing its fair value, leaving the remaining $18,784,775 as the transaction price as of the outset of the arrangement, which
will be recognized as revenue over the performance period as discussed below. The $6,215,225 fair value of the warrant was also
recorded as an increase to additional paid in capital. The Company billed and collected $12,500,000 in milestone payments during
the nine months ended September 30, 2018 which was recorded as an increase to deferred revenue. A roll forward of deferred revenue
for the nine months ended September 30, 2018 is presented below:
|
|
September 30, 2018
|
|
Beginning balance
|
|
$
|
—
|
|
Billing to CFF upon achievement of milestones
|
|
|
12,500,000
|
|
Fair value of CFF Warrant
|
|
|
(6,215,225
|
)
|
Recognition of revenue
|
|
|
(2,894,966
|
)
|
Ending balance
|
|
$
|
3,389,809
|
|
The
CFF Warrant is accounted for as a payment to the customer under ASC 606. See Note 12 for further information related to the CFF
Warrant. The Company notes that the Investment Agreement contains an initial payment that was received upon contract execution
and subsequent milestone payments, which are a form of variable consideration that require evaluation for constraint considerations.
The Company concluded that the related performance milestones are generally within the Company’s control and as result are
considered probable. Revenue associated with the performance obligation is being recognized as revenue as the research and development
services are provided using an input method, according to the costs incurred as related to the research and development activities
on each program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control
occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance
obligation. The research and development services related to this performance obligation are expected to be performed over an
approximately two and a half year period expected to be completed in the second quarter of 2020. The amounts received that have
not yet been recognized as revenue are recorded in deferred revenue and the amounts recognized as revenue, but not yet received
or invoiced are generally recognized as contract assets on the Company’s condensed consolidated balance sheet.
The
Company has authorized 150,000,000 shares of common stock, $0.0001 par value per share, of which 57,237,496 shares and 55,603,427
shares were issued and outstanding as of September 30, 2018 and December 31, 2017, respectively.
During
the three and nine months ended September 30, 2018, the Company issued 40,000 and 129,069 shares of common stock upon the exercise
of stock options to purchase common stock and the Company received proceeds of $34,378 and $337,645 from these exercises, respectively.
During the three and nine months ended September 30, 2017, the Company issued 2,500 and 239,817 shares of common stock upon the
exercise of stock options to purchase common stock and the Company received proceeds of $8,250 and $109,053 from these exercises,
respectively.
On
January 5, 2018, the Company entered into a sales agreement with Cantor Fitzgerald under which the Company may direct Cantor Fitzgerald
as its sales agent to sell common stock up to an aggregate offering of up to $50 million under an “At the Market Offering”
(“January 2018 Sales Agreement”). Sales of common stock under the January 2018 Sales Agreement were made pursuant
to an effective registration statement for an aggregate offering of up to $50 million. During the first quarter of 2018, the Company
sold 1,500,000 shares of its common stock to an institutional investor under the January 2018 Sales Agreement for which the Company
received net proceeds of approximately $11.2 million. The Company did not sell any shares under the January 2018 Sales Agreement
in the second or third quarter of 2018. In the nine months ended September 30, 2017, the Company sold 1,413,633 shares of its
common stock under a sales agreement that the Company entered into in November 2016 with Cantor Fitzgerald (“Sales Agreement”)
for net proceeds of $13,268,208. The Sales Agreement was terminated in October 2017.
On
February 28, 2017, the Company entered into 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 $36,291.
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, 2017, pursuant to an annual evergreen provision
contained in the 2014 Plan, the number of shares reserved for future grants was increased by 3,127,722 shares. As of December
31, 2017, there was a total of 13,043,739 shares reserved for issuance under the 2014 Plan and there were 4,460,334 shares available
for future grants. Options issued under the 2014 Plan generally vest over 4 years from the date of grant in multiple tranches
and 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 31
st
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, 2018, the number of shares of common stock available for issuance
under the 2014 Plan increased by 2,500,000 shares, such amount being less than seven percent (7%) of the outstanding shares of
common stock on December 31, 2017. As of January 1, 2018, the 2014 Plan had a total reserve of 15,543,739 shares and there were
6,960,334 shares available for future grants. As of September 30, 2018, there were 5,241,990 shares available for future grants.
Stock-based
Compensation
For
stock options issued and outstanding for the three months ended September 30, 2018 and 2017, the Company recorded non-cash, stock-based
compensation expense of $1,958,917 ($1,943,865 for employees and $15,052 for non-employees) and $1,351,284 ($1,213,552
for employees and $137,732 for non-employees), respectively, net of estimated forfeitures. For stock options issued and outstanding
for the nine months ended September 30, 2018 and 2017, the Company recorded non-cash, stock-based compensation expense of $5,659,928
($5,584,313 for employees and $75,615 for non-employees) and $4,233,511 ($3,302,437 for employees and $931,073 for non-employees),
respectively, net of estimated forfeitures.
The
fair value of each option award for employees is estimated on the date of grant and for non-employees is estimated at the end
of each reporting period until vested using the Black-Scholes option pricing model that uses the assumptions noted in the following
table. 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 in order to estimate its forfeiture rate. The expected term of options
granted under the 2014 Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is determined
based on the simplified method due to the Company’s limited operating history, and is 6.25 years based on the average between
the vesting period and the contractual life of the option. 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
weighted average assumptions used principally in determining the fair value of options granted to employees were as follows:
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Risk free interest rate
|
|
|
2.48
|
%
|
|
|
2.13
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term in years
|
|
|
6.25
|
|
|
|
6.57
|
|
Expected volatility
|
|
|
87.6
|
%
|
|
|
85.8
|
%
|
A
summary of option activity for the nine months ended September 30, 2018 and is presented below:
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term in
Years
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2017
|
|
|
7,844,966
|
|
|
$
|
3.75
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,138,500
|
|
|
|
7.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(129,069
|
)
|
|
|
2.62
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(420,156
|
)
|
|
|
7.85
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
9,434,241
|
|
|
$
|
4.46
|
|
|
|
7.45
|
|
|
$
|
32,456,058
|
|
Vested at September 30, 2018
|
|
|
5,671,042
|
|
|
$
|
2.73
|
|
|
|
6.61
|
|
|
$
|
28,253,546
|
|
The weighted average grant-date
fair value of options granted during the nine months ended September 30, 2018 and 2017 was $5.67 and $6.22 per share, respectively.
The aggregate intrinsic value of options exercised during the nine months ended September 30, 2018 and 2017 was approximately
$494,360 and $1,935,624, respectively. The total fair value of options that were vested as of September 30, 2018 and 2017 was
$12,359,043 and $5,806,159, respectively. As of September 30, 2018, there was approximately $16,378,737 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 2.69 years as of September 30, 2018.
During
the three and nine months ended September 30, 2018, 5,000 warrants were exercised for proceeds of $5,000. No warrants were exercised
during the three and nine months ended September 30, 2017.
At
September 30, 2018, there were warrants outstanding to purchase 2,283,500 shares of common stock with a weighted average exercise
price of $6.34 and a weighted average remaining life of 3.14 years, including the warrant issued to CFF pursuant to the terms
of the Investment Agreement (Note 9). The Company issued a warrant to CFF to purchase an aggregate of 1,000,000 shares of the
Company’s common stock (the “CFF Warrant”). The CFF Warrant is exercisable at a price equal to $13.20 per share
and is immediately exercisable for 500,000 shares of the Company’s common stock. Upon completion of the final milestone
set forth in the Investment Agreement and receipt of the final payment from CFF to the Company pursuant to the Investment Agreement,
the CFF Warrant will be exercisable for the remaining 500,000 shares of the Company’s common stock. The CFF Warrant expires
on January 26, 2025. Any shares of the Company’s common stock issued upon exercise of the CFF Warrant will be unregistered
and subject to a one-year lock-up. The CFF Warrant is classified as equity as it meets all the conditions under GAAP for equity
classification. In accordance with GAAP, the Company has calculated the fair value of the warrant for initial measurement and
will reassess whether equity classification for the warrant is appropriate upon any changes to the warrants or capital structure,
at each balance sheet date. The weighted average assumptions used in determining the $6,215,225 fair value of the CFF Warrant
were as follows:
Risk free interest rate
|
|
|
2.60
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected term in years
|
|
|
7.00
|
|
Expected volatility
|
|
|
83.5
|
%
|
13.
|
RELATED
PARTY TRANSACTIONS
|
On
September 20, 2016, the Company entered into a consulting agreement (the “2016 Consulting Agreement”) with Orchestra
Medical Ventures, LLC (“Orchestra”), of which a member of our Board of Directors, David Hochman, is Managing Partner.
Under this agreement, Orchestra rendered a variety of consulting and advisory services relating principally to identifying and
evaluating strategic relationships, licensing opportunities, and business strategies. 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, of which $50,000 was expensed in the first quarter of
2017. 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 first quarter of 2017 in respect
of the Option Award. No stock-based compensation expense was recorded after the first quarter of 2017 related to the Option Shares
as they were fully vested in March 2017.