NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
1.
|
Organization, Business
|
EyeGate Pharmaceuticals, Inc. (“EyeGate”
or the “Company”), a Delaware corporation, began operations in December 2004 and is a clinical-stage specialty pharmaceutical
company that is focused on developing and commercializing products for treating diseases and disorders of the eye. EyeGate’s
first product in clinical trials incorporates a reformulated topically active corticosteroid, dexamethasone phosphate, EGP-437,
that is delivered into the ocular tissues though its proprietary iontophoresis drug delivery system, the EyeGate® II Delivery
System. The Company is developing the EyeGate® II Delivery System and EGP-437 combination product (together, the “EGP-437
Product”) for the treatment of various inflammatory conditions of the eye, including anterior uveitis, a debilitating form
of intraocular inflammation of the anterior portion of the uvea, such as the iris and/or ciliary body, post-cataract surgery inflammation
and pain, and macular edema, an abnormal thickening of the macula associated with the accumulation of excess fluids in the retina.
For EyeGate’s second product, the Company’s wholly owned subsidiary, Jade Therapeutics, Inc. (“Jade”),
develops locally-administered, polymer-based products designed to treat poorly-served ophthalmic indications. EyeGate and Jade
are an integrated line of business developing ophthalmic solutions for a variety of ocular diseases and disorders.
As of September 30, 2018, there were 43,444,130
shares of Common Stock outstanding, no shares of Series A Preferred Stock outstanding, no shares of Series B Preferred Stock outstanding,
and 4,092 shares of Series C 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 September 30, 2018, EyeGate had Cash and Cash Equivalents
of $9,900,094, and an Accumulated Deficit of $90,622,193. EyeGate has incurred losses and negative cash flows since inception,
and future losses are anticipated. The Company anticipates having sufficient cash to fund planned operations for approximately
twelve months from September 30, 2018, however, the acceleration or reduction of cash outflows by Company management can significantly
impact the timing for raising 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
the Company successfully completed its IPO, a follow-on public offering, a registered direct offering, two public offerings, and
sales under an at-the-market equity offering, additional capital may not be available on terms favorable to EyeGate, if at all.
On May 6, 2016, the SEC declared effective EyeGate’s registration statement on Form S-3, registering a total of $100,000,000
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
September 30, 2018
|
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. and Jade (since date of acquisition),
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, 2017.
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 September 30, 2018 there is $3,912,314 of in-process R&D, as
part of intangible asset and in-process R&D on the Condensed Consolidated Balance Sheet.
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 September 30, 2018 there is $250,000 of intangible assets,
as part of intangible assets and in-process R&D on the Condensed Consolidated Balance Sheet.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
2.
|
Summary of Significant Accounting Policies - (continued)
|
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, seven consultants and one public university for the three months ending
September 30, 2018, 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.
The amounts recorded or paid are not material to the accompanying Condensed Consolidated Financial Statements.
Net Loss per Share
The computation of Net Loss per Common
Share – Basic and Diluted, is based on the weighted-average number of shares outstanding of Common Stock. In computing diluted
loss per share, no effect has been given to the shares of common stock issuable upon the conversion or exercise of the following
dilutive securities, as the Company’s net loss would make the effect anti-dilutive.
|
|
September 30,
2018
(unaudited)
|
|
|
September 30,
2017
(unaudited)
|
|
Common Stock Warrants
|
|
|
41,194,086
|
|
|
|
9,519,403
|
|
Employee Stock Options
|
|
|
2,187,525
|
|
|
|
1,858,300
|
|
Preferred Stock
|
|
|
12,787,500
|
|
|
|
400,000
|
|
Total Shares of Common Stock Issuable
|
|
|
56,169,111
|
|
|
|
11,777,703
|
|
Fair Value of Financial Instruments
The carrying amounts of Accounts Receivable
and Accounts Payable approximate their fair values due to the short-term nature of these items. As of September 30, 2018 and December
31, 2017, the fair value of the Company’s money market funds and contingent consideration was $0 and $1,210,000, and $750,965
and $1,210,000, respectively.
At September 30, 2018 and December 31,
2017, the Company had no other assets or liabilities that are subject to fair value methodology and estimation in accordance with
U.S. GAAP.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
2.
|
Summary of Significant Accounting Policies - (continued)
|
Revenue Recognition
The Company’s revenues are generated
primarily through arrangements which generally contain 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 include
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.
On July 9, 2015, the Company entered into
an exclusive, worldwide licensing agreement with a subsidiary of Bausch Health Companies, Inc. (“BHC”), formerly known
as Valeant Pharmaceuticals, Inc., through which the Company granted to BHC an exclusive, worldwide commercial and manufacturing
right to the Company’s EGP-437 Product in the field of anterior uveitis, as well as a right of last negotiation to license
its EGP-437 Product for indications other than anterior uveitis (the “BHC Agreement”). There are four principal R&D
milestones under the BHC Agreement: (i) the Phase 3 Clinical Trial, (ii) the Endothelial Cell Count Safety Trial (a trial to determine
that treatment has not adversely affected a patient’s corneal endothelial cell density), (iii) the CMC Validation, and
(iv) the New Drug Application, or “NDA”, filing with the FDA (collectively, the “Four Milestones”, and
each individually, a “Milestone”). Under the BHC Agreement, BHC paid to the Company an initial upfront payment of $1.0
million and the Company is eligible to receive milestone payments totaling up to $32.5 million, upon and subject to the achievement
of certain specified development and commercial progress of the EGP-437 Product for the treatment of anterior uveitis. The Company
has received milestone payments totaling $5.4 million through September 30, 2018. The Company receives payments both when it crosses
certain thresholds on the way to each Milestone (each, a “Progress Payment”), as well as once it achieves each Milestone.
The Company is entitled to retain all of these payments. In accordance with its former revenue recognition policy, through December
31, 2017 the initial upfront payment and milestone payments were recorded as Deferred Revenue. In addition, the Company is eligible
under the BHC Agreement to receive royalties based on a specified percent of net sales of its EGP-437 Product for the field of
anterior uveitis throughout the world, subject to adjustment in certain circumstances.
On February 21, 2017, the Company entered
into another exclusive, worldwide licensing agreement with a subsidiary of BHC (the “New BHC Agreement”), through which
the Company granted BHC exclusive, worldwide commercial and manufacturing rights to its EGP-437 Product in the field of ocular
iontophoretic treatment for post-operative ocular inflammation and pain in ocular surgery patients (the “New Field”).
Under the New BHC Agreement, BHC paid the Company an initial upfront payment of $4.0 million, and the Company is eligible to receive
milestone payments totaling up to approximately $99.0 million, upon and subject to the achievement of certain specified developmental
and commercial progress of the EGP-437 Product for the New Field. The Company has received milestone payments totaling $3.4 million
through September 30, 2018. In accordance with its former revenue recognition policy, through December 31, 2017 the initial upfront
payment and milestone payments were recorded as Deferred Revenue. In addition, the Company is eligible under the New BHC Agreement
to receive royalties based on a specified percent of net sales of its EGP-437 Product for the New Field throughout the world, subject
to adjustment in certain circumstances.
In May 2014, the FASB issued ASU No. 2014-09,
Revenues from Contracts with Customers
(“Topic 606”), as subsequently amended, that outlines a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent revenue recognition
guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. This standard is effective for public companies for years ending
after December 15, 2017, with early adoption permitted.
The Company did not elect to early adopt
and adopted the new standard on January 1, 2018, using the modified retrospective method, which resulted in a cumulative effect
adjustment in the amount of $9.5 million to beginning 2018 accumulated deficit and to deferred and unbilled revenue for the BHC
contracts impacted by the adoption of the new standard. The changes to the method and/or timing of the Company’s revenue
recognition associated with the adoption of the new standard primarily relate to the determination that there is one performance
obligation in each contract with BHC and that the license combined with the R&D services is the performance obligation.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
2.
|
Summary of Significant Accounting Policies - (continued)
|
The cumulative effect of initially applying
the new revenue recognition guidance to the Company’s Condensed Consolidated Balance Sheet on January 1, 2018 was as follows:
|
|
Balance as of
December 31,
2017
|
|
|
Cumulative Impact
from Adopting New
Revenue Guidance
|
|
|
Balance as of
January 1, 2018
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled Revenue
|
|
$
|
-
|
|
|
$
|
116,280
|
|
|
$
|
116,280
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
|
|
12,313,600
|
|
|
|
(9,361,600
|
)
|
|
|
2,952,000
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
$
|
(91,816,655
|
)
|
|
$
|
9,477,880
|
|
|
$
|
(82,338,775
|
)
|
The impact from adopting the new revenue
recognition guidance on the Company’s Condensed Consolidated Balance Sheet for the nine months ending September 30, 2018
was as follows:
|
|
As Reported
|
|
|
Previous
Accounting
Guidance
|
|
|
Impact from
Adopting New
Revenue
Guidance
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
|
$
|
2,686,000
|
|
|
$
|
13,618,600
|
|
|
$
|
(10,932,600
|
)
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
$
|
(90,622,193
|
)
|
|
$
|
(101,517,793
|
)
|
|
$
|
10,895,600
|
|
The impact from adopting the new revenue
recognition guidance on the Company’s Condensed Consolidated Statement of Operations and Comprehensive Loss for the three
and nine months ended September 30, 2018 was as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
As Reported
|
|
|
Previous
Accounting
Guidance
|
|
|
Impact from
Adopting
New Revenue
Guidance
|
|
|
As
Reported
|
|
|
Previous
Accounting
Guidance
|
|
|
Impact from
Adopting New
Revenue
Guidance
|
|
Collaboration Revenue
|
|
$
|
314,500
|
|
|
$
|
-
|
|
|
$
|
314,500
|
|
|
$
|
1,652,520
|
|
|
$
|
-
|
|
|
$
|
1,652,520
|
|
Operating Loss Before Other Expenses
|
|
|
(3,177,878
|
)
|
|
|
(3,492,378
|
)
|
|
|
314,500
|
|
|
|
(8,355,245
|
)
|
|
|
(10,007,765
|
)
|
|
|
1,652,520
|
|
Net Loss
|
|
|
(3,123,836
|
)
|
|
|
(3,438,336
|
)
|
|
|
314,500
|
|
|
|
(8,283,418
|
)
|
|
|
(9,935,938
|
)
|
|
|
1,652,520
|
|
Comprehensive Loss
|
|
$
|
(3,117,454
|
)
|
|
$
|
(3,431,954
|
)
|
|
$
|
314,500
|
|
|
$
|
(8,273,796
|
)
|
|
$
|
(9,926,316
|
)
|
|
$
|
1,652,520
|
|
Under this new guidance, 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. Upon adoption of ASU No. 2014-09, 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.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
2.
|
Summary of Significant Accounting Policies - (continued)
|
The below table represents the changes in
the Company’s contract assets and contract liabilities:
|
|
September 30,
2018
|
|
|
January 1, 2018
|
|
Contract Asset:
|
|
|
|
|
|
|
|
|
Unbilled Revenue
|
|
$
|
-
|
|
|
$
|
116,280
|
|
Contract Liabilities:
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
|
$
|
2,686,000
|
|
|
$
|
2,952,000
|
|
|
|
Three Months
Ended
September 30,
2018
|
|
|
Nine Months
Ended
September 30,
2018
|
|
Revenue recognized in the period from:
|
|
|
|
|
|
|
|
|
Amounts included in contract liability at the beginning of the period
|
|
$
|
37,000
|
|
|
$
|
266,000
|
|
In addition, the Company may receive government
grant funds for specified ocular 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 February 2016, the FASB issued ASU No.
2016-02,
Leases
, which is effective for fiscal years, and interim periods within those years, beginning after December 15,
2018, with early adoption permitted. Under ASU No. 2016-02, lessees will be required to recognize for all leases at the commencement
date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted
basis, and the right-to-use assets, which are asset that represents the lessee’s right to use or control the use of a specified
asset for the lease term. The Company does not expect to early adopt this standard and currently has leases (
see
Note 10)
that will be in place at the effective date. The Company has evaluated the effect of the new guidance and does not expect the adoption
of this guidance to have a material impact on its Consolidated Financial Statements and related disclosures.
On January 26, 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 is effective for
the Company on January 1, 2020. The new standard is required to be applied prospectively. Early adoption is permitted for any impairment
tests performed after January 1, 2017. The Company did not early adopt ASU No. 2017-04 prior to its December 2017 impairment evaluation
and is evaluating the effect that ASU No. 2017-04 will have on its Consolidated Financial Statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation-Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting
(“Topic 718”), which
simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope
of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Some of the areas
for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions
in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based
payment awards. The amendments also clarify 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 Topic 606,
Revenue from Contracts with Customers
. The amendments in this update are 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 has elected to early adopt Topic 718 effective for the third quarter of 2018. The adoption of
this guidance did not have a material impact on its Consolidated Financial Statements and related disclosures.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
3.
|
Property and Equipment
|
Property and equipment at September 30,
2018 (unaudited) and December 31, 2017 consists of the following:
|
|
Estimated
Useful Life
(Years)
|
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Laboratory Equipment
|
|
3
|
|
|
$
|
62,576
|
|
|
$
|
42,576
|
|
Office Furniture
|
|
5
|
|
|
|
14,430
|
|
|
|
14,430
|
|
Leasehold Improvements
|
|
2
|
|
|
|
22,569
|
|
|
|
22,569
|
|
Total Property and Equipment, Gross
|
|
|
|
|
|
|
99,575
|
|
|
|
79,575
|
|
Less: Accumulated Depreciation
|
|
|
|
|
|
|
49,388
|
|
|
|
23,824
|
|
Total Property and Equipment, Net
|
|
|
|
|
|
$
|
50,187
|
|
|
$
|
55,751
|
|
Depreciation expense was $9,633 and $4,536
for the three-month periods ended September 30, 2018 and 2017, respectively, and $25,564 and $13,608 for the nine-month periods
ended September 30, 2018 and 2017, respectively.
Accrued expenses consist of the following:
|
|
September 30,
2018
(unaudited)
|
|
|
December 31,
2017
|
|
Payroll and Benefits
|
|
$
|
650,797
|
|
|
$
|
788,551
|
|
Clinical Trials
|
|
|
302,292
|
|
|
|
807,322
|
|
Professional Fees
|
|
|
169,572
|
|
|
|
149,273
|
|
Consulting
|
|
|
18,646
|
|
|
|
57,487
|
|
Short-Term Portion of Capital Financing Obligation
|
|
|
6,445
|
|
|
|
11,214
|
|
Total Accrued Expenses
|
|
$
|
1,147,752
|
|
|
$
|
1,813,847
|
|
The Company has no indebtedness other than
trade and accounts payable and capital financing obligations in the ordinary course of business at September 30, 2018 and December
31, 2017.
Intangible assets at September 30,
2018 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 $250,000, representing the upfront payment paid to SentrX. Additionally,
SentrX is eligible to receive milestone payments totaling up to $4.75 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 capitalizes the intangible assets, amortizes them over the estimated useful
life, and periodically evaluates the assets for impairment. The Company had no intangible assets at December 31, 2017.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
On May 24, 2016, the Company entered into
an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (the “Sales Agent”),
to create an at the market equity program under which the Company can from time to time offer and sell up to 1,319,289 shares of
its Common Stock through the Sales Agent. On February 21, 2017, the Company authorized the Sales Agent to restart sales under the
ATM Agreement for maximum aggregate gross proceeds of up to $3,285,798. During the first quarter of 2017, the Company sold 642,150
shares of Common Stock under this agreement for total net proceeds to the Company from this offering, after deducting the placement
agent fees and offering expenses, of approximately $1.8 million. No further shares of Common Stock have been sold pursuant to the
ATM Agreement. On June 14, 2017, the Company closed on the sale of its equity securities in connection with a public offering,
described below, and as a result, the Company is restricted from issuing any shares pursuant to the ATM Agreement for a period
of twenty-four months following the closing date of the offering. However, this restriction is suspended for any sale of shares
of Common Stock under the ATM Agreement that is above $3.00 per share.
On June 14, 2017, the Company completed
a public offering of 5,336,667 shares of Common Stock and 1,995 shares of Series B Preferred Stock (convertible into 1,330,000
shares of Common Stock), along with warrants to purchase 6,666,667 shares of Common Stock. The total net proceeds to the Company
from the offering, after deducting the placement agent fees and offering expenses, were approximately $8.8 million. Additionally,
the investors received, for each share of Common Stock, or for each share of Common Stock issuable upon conversion of a share of
Series B Preferred Stock purchased in the public offering, warrants to purchase one share of Common Stock at an exercise price
of $1.50 per share, which totaled warrants to purchase an aggregate of 6,666,667 shares of Common Stock. The warrants issued to
investors became initially exercisable immediately upon issuance and terminate on June 14, 2022, five years following the date
of issuance. Concurrently with the closing of the public offering, a holder elected to convert 675 shares of Series B Preferred
Stock into 450,000 shares of Common Stock. Subsequently, on June 15, 2017 and April 9, 2018, holders converted 1,320 shares of
Series B Preferred stock into 880,000 shares of Common Stock.
On April 17, 2018, the Company completed
a public offering of 14,730,000 shares of Common Stock and 6,536.4 shares of Series C Preferred Stock (convertible into 20,426,250
shares of Common Stock), along with warrants to purchase 35,156,250 shares of Common Stock. The total net proceeds to the Company
from the offering, after deducting the placement agent fees and offering expenses, were approximately $10.1 million. Additionally,
the investors received, for each share of Common Stock, or for each share of Common Stock issuable upon conversion of a share of
Series C Preferred Stock purchased in the public offering, warrants to purchase one share of Common Stock at an exercise price
of $0.32 per share, which totaled warrants to purchase an aggregate of 35,156,250 shares of Common Stock. The warrants issued to
investors became initially exercisable immediately upon issuance and terminate on April 17, 2023, five years following the date
of issuance. Concurrently with the closing of the public offering, a holder elected to convert 1,400 shares of Series C Preferred
Stock into 4,375,000 shares of Common Stock. Subsequently, on April 18, 2018, April 23, 2018, and April 30, 2018, holders converted
1,044.4 shares of Series C Preferred stock into 3,263,750 shares of Common Stock.
At September 30, 2018, the Company had
120,000,000 authorized shares of Common Stock, $0.01 par value, of which 43,444,130 shares were outstanding. At September 30, 2018,
the Company had 9,994,184 authorized shares of Preferred Stock, $0.01 par value, of which 3,750 shares were designated as Series
A Preferred Stock and 0 shares are issued and outstanding, 10,000 shares were designated as Series B Preferred Stock and 0 shares
are issued and outstanding, and 10,000 shares were designated as Series C Preferred Stock and 4,092 shares are issued and outstanding.
At September 30, 2018, there were 0 shares of Common Stock underlying the outstanding shares of Series A Preferred Stock, 0 shares
of Common Stock underlying the outstanding shares of Series B Preferred Stock, and 12,787,500 shares of Common Stock underlying
the outstanding shares of Series C Preferred Stock.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
At September 30, 2018, the following warrants
were outstanding:
|
|
Number of
Awards
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Term in Years
|
|
Outstanding at December 31, 2017
|
|
|
9,455,961
|
|
|
$
|
3.26
|
|
|
|
4.23
|
|
Issued
|
|
|
35,156,250
|
|
|
|
0.32
|
|
|
|
4.55
|
|
Exercised
|
|
|
(3,418,125
|
)
|
|
|
0.32
|
|
|
|
4.55
|
|
Outstanding at September 30, 2018
|
|
|
41,194,086
|
|
|
$
|
1.00
|
|
|
|
4.30
|
|
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 warrants to be issued will be reduced by the number of shares which could be purchased
from the proceeds of the exercise of the respective warrant. The outstanding warrants expire from 2020 through 2025.
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 891,222 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.
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 September 30, 2018, the maximum number of shares of Common Stock that may be issued pursuant
to the 2014 Plan and the ESPP was 8,040,123 and 170,567 shares, respectively.
In January 2018, the number of shares of
common stock issuable under the 2014 Plan automatically increased by 350,000 shares pursuant to the terms of the 2014 Plan. On
July 10, 2018, an additional 6,000,000 Common Shares were reserved and available for issuance as an amendment under the Plan. These
additional shares are included in the total of 8,040,123 shares issuable under the 2014 Plan.
The following is a summary of stock option
activity for the nine months ended September 30, 2018:
|
|
Number of
Options
|
|
|
Weighted- Average
Exercise Price
|
|
|
Weighted-Average
Contractual Life
(In Years)
|
|
Outstanding at December 31, 2017
|
|
|
1,893,003
|
|
|
$
|
2.49
|
|
|
|
5.40
|
|
Granted
|
|
|
415,500
|
|
|
|
0.57
|
|
|
|
9.48
|
|
Forfeited
|
|
|
(23,489
|
)
|
|
|
1.06
|
|
|
|
|
|
Expired
|
|
|
(97,489
|
)
|
|
|
0.98
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
2,187,525
|
|
|
$
|
2.25
|
|
|
|
6.84
|
|
Exercisable at September 30, 2018
|
|
|
1,454,515
|
|
|
$
|
2.87
|
|
|
|
5.70
|
|
Vested and Expected to Vest at September 30, 2018
|
|
|
2,187,525
|
|
|
$
|
2.25
|
|
|
|
6.84
|
|
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
9.
|
Equity Incentive Plan - (continued)
|
On February 28, 2018, the Board approved
the grant of options to purchase 275,000 shares of its common stock to sixteen employees. On March 21, 2018, the Board approved
the grant of options to purchase 500 shares of its common stock to one employee. On July 10, 2018, the Board approved the grant
of options to purchase 120,000 shares of its common stock to one employee, two directors and three consultants. On July 27, 2018,
the Board approved the grant of options to purchase 20,000 shares of its common stock to two consultants. All 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 nine months ended September 30,
2018 and 2017, 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:
|
|
2018
|
|
|
2017
|
|
Risk-Free Interest Rate
|
|
|
1.82%
|
|
|
|
1.82%
|
|
Expected Life
|
|
|
8.01 years
|
|
|
|
7.28 years
|
|
Expected Volatility
|
|
|
158%
|
|
|
|
171%
|
|
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 nine months ended
September 30, 2018 and 2017 was $0.57 and $1.46, respectively.
The following is a summary of restricted
stock activity for the nine months ended September 30, 2018:
|
|
Number of
Shares
|
|
|
Weighted- Average
Grant Date Fair Value
|
|
|
Weighted- Average
Remaining
Recognition Period
|
|
Outstanding at December 31, 2017
|
|
|
103,000
|
|
|
$
|
1.52
|
|
|
|
|
|
Awarded
|
|
|
1,890,000
|
|
|
|
0.57
|
|
|
|
|
|
Released
|
|
|
(54,101
|
)
|
|
|
1.52
|
|
|
|
|
|
Forfeited
|
|
|
(50,252
|
)
|
|
|
0.57
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
1,888,647
|
|
|
$
|
0.59
|
|
|
|
2.51
|
|
On July 10, 2018, the Board approved the grant of 1.89 million
restricted shares of its common stock to fifteen employees, four directors and seven consultants.
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Research and Development
|
|
$
|
85,106
|
|
|
$
|
57,544
|
|
|
$
|
192,081
|
|
|
$
|
165,538
|
|
General and Administrative
|
|
|
244,373
|
|
|
|
131,148
|
|
|
|
428,254
|
|
|
|
535,295
|
|
|
|
$
|
329,479
|
|
|
$
|
188,692
|
|
|
$
|
620,335
|
|
|
$
|
700,833
|
|
The fair value of options granted for the
nine months ended September 30, 2018 and September 30, 2017 was approximately $230,000 and $550,000, respectively. The fair value
of restricted stock granted for the nine months ended September 30, 2018 and September 30, 2017 was approximately $1,077,000 and
$158,000, respectively. As of September 30, 2018 and September 30, 2017, there was approximately $1,594,000 and $1,113,000 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 1.81 and 2.12 years, respectively. The aggregate intrinsic value of stock options
outstanding and exercisable at September 30, 2018 and September 30, 2017 was approximately $0 and $242,000, respectively. The intrinsic
value of stock options exercised during the nine months ended September 30, 2018 and September 30, 2017 was approximately $0 and
$78,000, respectively.
At September 30, 2018, there were 4,275,079
shares available under the 2014 Plan and 117,090 shares available under the Company’s ESPP.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
10.
|
Commitments and Contingencies
|
Leases
The Company is a party to a real property
operating lease for the rental of office space in Waltham, Massachusetts of up to 4,516 square feet, that is used for its corporate
headquarters. This lease terminates in December 2019. On July 6, 2016, the Company entered into a real property operating lease
for office and laboratory space of approximately 2,300 square feet in Salt Lake City, Utah. This lease terminates in June 2019.
Estimated future minimum lease payments for the years ended December 31, 2018 and 2019 are approximately $43,000 and $144,000,
respectively.
License Agreements
The Company is a party to seven license
agreements as described below. Five of the seven license agreements require the Company to pay royalties or fees to the licensor
based on Revenue or milestones related to the licensed technology, and the agreements with BHC require BHC to pay royalties to
the Company based on revenue related to the licensed technology.
On February 15, 1999, the Company entered
in to an exclusive worldwide license agreement with the University of Miami School of Medicine to license technology relating to
the Company’s EyeGate® II Delivery System. This agreement, which was amended in December 2005, requires the Company to
pay to the University of Miami an annual license fee of $12,500. This license also requires payments to the University of Miami
upon the Company’s achievement of certain milestones. Unless terminated pursuant to the license agreement, this license will
expire 12 years after the date of the first commercial sale of a product containing the licensed technology.
On July 23, 1999, the Company entered into
a perpetual Transaction Protocol agreement with Francine Behar-Cohen to acknowledge the Company’s right to use certain patents
that Ms. Behar-Cohen had certain ownership rights with respect to and which are used in the Company’s EGP-437 Combination
Product. The agreement also provides for the Company to pay Ms. Behar-Cohen a fee based on a percentage of the pre-tax turnover
generated from sales of the Company’s EGP-437 Combination Product relating to its inclusion of the EyeGate® II Delivery
System. The fees due under the agreement expired in January 2018, but the Company continues to maintain its rights under the agreement.
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 (“CMHA-S”) for ophthalmic treatments in humans. The agreement calls 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 CMHA-S technology. The agreement expires when patent protection
for the CMHA-S technology lapses.
On July 9, 2015, the Company entered into
an exclusive worldwide licensing agreement with a subsidiary of BHC (the “BHC Agreement”) through which EyeGate has
granted BHC exclusive, worldwide commercial and manufacturing rights to its EGP-437 Product in the field of anterior uveitis, as
well as a right of last negotiation to license the EGP-437 Product for other indications. Under the BHC Agreement, BHC paid the
Company an upfront payment of $1.0 million. The Company is eligible to receive milestone payments totaling up to $32.5 million,
upon and subject to the achievement of certain specified developmental and commercial milestones. In addition, the Company is eligible
to receive royalties based on a specified percent of net sales of the Product throughout the world, subject to adjustment in certain
circumstances.
On June 17, 2016, the Company entered into
an exclusive worldwide license agreement with the University of Utah Research Foundation to further the commercial development
of the NASH technology, together with alkylated HA. The agreement calls for payments due to the University of Utah, consisting
of a license grant fee of $15,000 due within 30 days of signing, and an annual licensing fee, initially $5,000, and escalating
ratably up to $20,000 in 2021.
EYEGATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
|
10.
|
Commitments and Contingencies - (continued)
|
On February 21, 2017, the Company entered
into an exclusive, worldwide licensing agreement with a subsidiary of BHC (the “New BHC Agreement”), through which
the Company granted BHC exclusive, worldwide commercial and manufacturing rights to its EGP-437 Product in the field of ocular
iontophoretic treatment for post-operative ocular inflammation and pain in ocular surgery patients (the “New Field”).
Under the New BHC Agreement, BHC paid the Company an initial upfront payment of $4.0 million, and the Company is eligible to receive
milestone payments totaling up to approximately $99.0 million, upon and subject to the achievement of certain specified developmental
and commercial progress of the EGP-437 Product for the New Field. In addition, the Company is eligible under the New BHC Agreement
to receive royalties based on a specified percent of net sales of its EGP-437 Product for the New Field throughout the world, subject
to adjustment in certain circumstances.
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 EyeGate 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 $250,000 recorded as intangible
assets on the Condensed Consolidated Balance Sheet. SentrX is eligible to receive milestone payments totaling up to $4.75
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.
|
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. The Company made no matching contribution for the nine
months ended September 30, 2018 and 2017.