The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
INmune Bio Inc. (the “Company” or “INmune
Bio”) was organized in the State of Nevada on September 25, 2015 and is a clinical stage biotechnology pharmaceutical company focused
on developing and commercializing its product candidates to treat diseases where the innate immune system is not functioning normally
and contributing to the patient’s disease. INmune Bio has two product platforms. The DN-TNF product platform utilizes dominant-negative
technology to selectively neutralize soluble TNF, a key driver of innate immune dysfunction and mechanistic target of many diseases. DN-TNF
is currently being developed for Alzheimer’s and treatment resistant depression (“XPro”) and cancer (“INB03”)
and an out-licensing strategy for Duchenne’s Muscular Dystrophy (“DMD”). The Natural Killer Cell Priming Platform includes
INKmune aimed at priming the patient’s NK cells to eliminate minimal residual disease in patients with cancer. INmune Bio’s
product platforms utilize a precision medicine approach for the treatment of a wide variety of hematologic malignancies, solid tumors
and chronic inflammation.
NOTE 2 – LIQUIDITY
As of March 31, 2023, the Company had an accumulated
deficit of $97,550,000 and experienced losses since its inception. The Company had cash, cash equivalents of $51,003,000 as of March 31,
2023, and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily through the sale
of its common stock. Although it is difficult to predict the Company’s liquidity requirements, as of March 31, 2023, and based upon
the Company’s current operating plan, the Company believes that it will have sufficient cash to meet its projected operating requirements
for at least the next 12 months following the filing date of this Quarterly Report on Form 10-Q based on the balance of cash available
as of March 31, 2023.
Management expects operating losses to continue for
the foreseeable future. There can be no assurance that the Company will ever earn revenues or achieve profitability, or if achieved, that
they will be sustained on a continuing basis. In addition, the manufacturing, clinical and preclinical development activities as well
as the commercialization of the Company’s products, if approved, will require significant additional financing. The Company may
be unable to secure such financing when needed, or if available, such financings may be under terms that are unfavorable to the Company
or the current stockholders. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce the scope
of, or eliminate development programs, which may adversely affect its business and operations.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis
of Presentation
The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”), and pursuant to the accounting and disclosure rules and regulations
of the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of INmune
Bio Inc. and its subsidiaries. Intercompany transactions and balances have been eliminated.
In the opinion
of management, the interim financial information includes all normal recurring adjustments necessary for a fair statement of the results
for the interim periods. These unaudited consolidated interim financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2022, filed with the SEC on March 2, 2023.
Risks and Uncertainties
The Company is subject to risks and uncertainties
as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain
and difficult to predict. Also, economies worldwide have also been negatively impacted by the COVID-19 pandemic, however policymakers
around the globe have responded with fiscal policy actions to support the healthcare industry and economy. The magnitude and
overall effectiveness of these actions remain uncertain.
In addition, the Company’s clinical trials have
been affected by and may continue to be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment have and may
continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients have not, and others may
not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly,
the ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened
exposure to COVID-19, may adversely impact the Company’s clinical trial operations.
The severity of the impact of the COVID-19 pandemic
on the Company’s business will depend on several factors, including, but not limited to, the duration and severity of the pandemic
and the extent and severity of the impact on the Company’s service providers, suppliers, contract research organizations (“CROs”)
and the Company’s clinical trials, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s
financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity
or results of operations is uncertain.
Use of Estimates
Preparing financial statements in conformity with
US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.
Actual results and outcomes may differ from management’s estimates and assumptions.
Fair Value of Financial Instruments
The Company measures certain assets and liabilities
in accordance with authoritative guidance which requires fair value measurements to be classified and disclosed in one of the following
three categories:
Level 1: Quoted prices (unadjusted)
in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that
are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used
when little or no market data is available.
Assets and liabilities are classified based on the
lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification
on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets
or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of
the fair value measurement hierarchy during the years presented.
The carrying amounts of financial instruments such
as cash and cash equivalents, research and development tax credit receivable, other receivable, prepaid expenses, and accounts payable
and accrued liabilities approximate the related fair values due to the short-term maturities of these instruments.
Cash and Cash Equivalents
The Company
considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less to be cash
equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation
limits. The Company maintains its cash deposits with major financial institutions.
Research
and Development Tax Incentive Receivable
The Company, through its wholly owned subsidiary
in Australia (“AUS”), participates in the Australian research and development tax incentive program, such that a percentage
of our qualifying research and development expenditures are reimbursed by the Australian government, and such incentives are reflected
as a reduction of research and development expense. The Australian research and development tax incentive is recognized when there is
reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the consideration
can be reliably measured. At each period end, management estimates the reimbursement available to the Company based on available information
at the time.
The Company, through its wholly owned subsidiary
in the United Kingdom (“UK”), participates in the research and development program provided by the United Kingdom tax relief
program, such that a percentage of our qualifying research and development expenditures are reimbursed by the United Kingdom government,
and such incentives are reflected as a reduction of research and development expense. The United Kingdom research and development tax
incentive is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred
and the amount of the consideration can be reliably measured. At each period end, management estimates the reimbursement available to
the Company based on available information at the time.
Intangible Assets
The Company capitalizes costs incurred in connection
with in-process research and development purchased from others if the asset has alternative uses and such uses are not restricted under
applicable license agreements; patent applications (principally legal fees), patent purchases, and trademarks related to its cell line
as intangible assets. Acquired in-process research and development costs that do not have alternative uses are expensed as incurred. When
the assets are determined to have a finite life (upon completion of the development of the in-process research and development for its
DN-TNF platform), the useful life will be determined and the in-process research and development intangible assets will be amortized.
During the fourth quarter and if business factors
indicate more frequently, the Company performs an assessment of the qualitative factors affecting the fair value of our in-process research
and development. If the qualitative assessment suggests that impairment is more likely than not, a quantitative analysis is performed.
The quantitative analysis involves a comparison of the fair value of the in-process research and development with the carrying amount.
If the carrying amount of the in-process research and development exceeds its fair value, an impairment loss is recognized in an amount
equal to that excess.
Basic and Diluted Loss per Share
Basic loss per share is computed by dividing net loss
available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share
gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common
shares if their effect is anti-dilutive. For all periods presented, there is no difference in the number of shares used to calculate basic
and diluted shares outstanding due to the Company’s net loss position.
At March 31, 2023 and 2022, the Company had potentially
issuable shares as follows:
| |
March 31, | |
| |
2023 | | |
2022 | |
Stock options | |
| 5,441,000 | | |
| 4,859,333 | |
Warrants | |
| 74,074 | | |
| 80,221 | |
Total | |
| 5,515,074 | | |
| 4,939,554 | |
Revenue Recognition
The Company recognizes revenue when the customer obtains
control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those
goods or services. The Company recognizes revenue following the five-step model prescribed under ASC Topic 606: (1) identify contract(s)
with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations in the contract; and (5) recognize revenues when (or as) the Company satisfies the performance obligations.
The Company records the expenses related to revenue in research and development expense, in the periods such expenses were incurred.
The Company records deferred revenues when cash payments
are received or due in advance of performance, including amounts which are refundable.
Stock-Based Compensation
The Company
utilizes the Black-Scholes option pricing model to estimate the fair value of stock option awards at the date of grant, which requires
the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can
materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally
require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined
from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate
weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. The Company accounts for
forfeitures of stock options as they occur.
Research and Development
Research and development (“R&D”) costs
are expensed as incurred. Research and development credits are recorded by the Company as a reduction of research and development costs.
Major components of research and development costs include cash compensation, stock-based compensation, costs of preclinical studies,
clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead
costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development
activities on the Company’s behalf.
The Company
recognizes grants as contra research and development expense in the consolidated statement of operations on a systematic basis over the
periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.
Income Taxes
The Company follows the liability method of accounting
for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable
to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect
on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Foreign Currency Translation
The Company’s financial statements are presented
in the U.S. dollar (“$”), which is the Company’s reporting currency, while its functional currencies are the U.S. Dollar
for its U.S. based operations, British Pound (“GBP”) for its United Kingdom-based operations and Australian Dollars (“AUD”)
for its Australian-based operations. All assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’
equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations
of foreign currency transactions and balances are reflected in the statement of operations and comprehensive income (loss).
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit
Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as clarified in subsequent amendments. ASU 2016-13 changes
the impairment model for certain financial instruments. The new model is a forward-looking expected loss model and will apply to financial
assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes loans, held-to-maturity
debt securities, loan commitments, financial guarantees and net investments in leases, as well as trade receivables. For available-for-sale
debt securities with unrealized losses, credit losses will be measured in a manner similar to today, except that the losses will be recognized
as allowances rather than reductions in the amortized cost of the securities. In October 2019, the FASB voted to delay the effective date
of this standard. Topic 326 will be effective for the Company on January 1, 2023. Adoption of the ASU is on a modified retrospective basis.
The Company adopted ASU 2013-13 on January 1, 2023, and the adoption of the ASU did not impact the Company’s financial position,
results of operations, cash flows or net loss per share.
Subsequent Events
The Company
evaluates events that have occurred after the balance sheet date of March 31, 2023, through the date which the financial statements are
issued.
NOTE 4 – RESEARCH AND DEVELOPMENT
ACTIVITY
According to UK tax law, the Company is allowed an
R&D tax credit that reduces a company’s tax bill in the UK for expenses incurred in R&D subject to certain requirements.
The Company’s UK subsidiary submits R&D tax credit requests annually for research and development expenses incurred. At March
31, 2023 and December 31, 2022, the Company recorded a research and development tax credit receivable in the amount of $0 and $2,690,000,
respectively. During the three months ended March 31, 2023 and 2022, the Company received $2,710,000 and $0, respectively, of R&D
tax credit reimbursements from the UK.
According to AUS tax law, the Company is allowed an
R&D tax credit that reduces a company’s tax bill in AUS for expenses incurred in R&D subject to certain requirements. The
Company’s Australian subsidiary submits R&D tax credit requests annually for research and development expenses incurred. At
March 31, 2023 and December 31, 2022, the Company recorded a research and development tax credit receivable of $1,814,000 and $5,409,000,
respectively, for R&D expenses incurred in Australia. During the three months ended March 31, 2023 and 2022, the Company received
$3,763,000 and $0, respectively, of R&D tax credit reimbursements from Australia.
Xencor, Inc. License Agreement
On October 3,
2017, the Company entered into a license agreement (“Xencor License Agreement”) with Xencor, Inc. (“Xencor”),
which discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor. On June 10, 2021, the Company
and Xencor entered into a First Amendment to License Agreement pursuant to which, among other things, Section 3.2 of the Xencor License
Agreement was amended to change the due diligence milestones. Pursuant to the Xencor License Agreement, Xencor granted the Company an
exclusive worldwide, royalty-bearing license in licensed patent rights, licensed know-how and licensed materials (as defined in the license
agreement) to make, develop, use, sell and import any pharmaceutical product that comprises, contains, or incorporates Xencor’s
proprietary protein known as “XPro” that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants
of the licensed protein that specifically bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients,
in any dosage or formulation (“Licensed Products”). The Company believes the protein has numerous medical applications. Such
additional alternative applications of the technology are available under the Xencor License Agreement.
The Company
also agreed to pay Xencor a 5% royalty on Net Sales of all Licensed Products in a given calendar year, which are payable on a country-by-
country and licensed product by licensed product basis until the date that is the later of (a) the expiration of the last to expire valid
claim covering such Licensed Product in such country or (b) ten years following the first sale to a third party of the licensed product
in such country.
INKmune License Agreement
On October 29, 2015, the Company entered into an exclusive
license agreement (the “INKmune License Agreement”) with Immune Ventures, LLC (“Immune Ventures”). Pursuant to
the INKmune License Agreement, the Company was granted exclusive worldwide rights to the patents, including rights to incorporate any
improvements or additions to the patents that may be developed in the future. In consideration for the patent rights, the Company agreed
to the following milestone payments:
(in thousands) | |
| |
Each Phase I initiation | |
$ | 25 | |
Each Phase II initiation | |
$ | 250 | |
Each Phase III initiation | |
$ | 350 | |
Each NDA/EMA filing | |
$ | 1,000 | |
Each NDA/EMA awarded | |
$ | 9,000 | |
In addition, the Company agreed to pay the licensor
a royalty of 1% of net sales during the life of each patent granted to the Company. The License is owned by Immune Ventures. RJ Tesi,
the Company’s President and a member of our Board of Directors, David Moss, its Chief Financial Officer and Treasurer and Mark Lowdell,
its Chief Scientific Officer, are the owners of Immune Ventures. No sales have occurred under this license.
The term of the agreement began on October 29, 2015
and ends on a country-by-country basis on the date of the expiration of the last to expire patent rights where patent rights exists, unless
terminated earlier in accordance with the agreement. Upon the termination of the agreement, we shall have a fully paid up, perpetual,
royalty-free license without further obligation to Immune Ventures. The agreement can be terminated by Immune Ventures if, after 60 days
from the Company’s receipt of notice that the Company has not made a payment under the agreement, and the Company still does not
make this payment. On July 20, 2018 and October 30, 2020, the parties amended the agreement under which the Company was required
achieve milestones pursuant to the agreement.
On April 17, 2023, the parties executed an additional
amendment to the agreement under which the Company removed the milestone achievement requirements to remove the due diligence requirements
to achieve reasonable commercial efforts to bring INKmune to market. This removed all requirements of clinical trial timelines and the
filing timelines of a NDA or equivalent. All other provisions in the INKmune License Agreement shall continue in full force and effect.
University of Pittsburg License Agreement
On October 3, 2017, the Company entered into an Assignment
and Assumption Agreement with Immune Ventures related to intellectual property licensed from the University of Pittsburgh. Pursuant to
the Assignment and Assumption Agreement (“Assignment Agreement”), Immune Ventures assigned all of its rights, obligations
and liabilities under an Exclusive License Agreement between the University of Pittsburgh – Of the Commonwealth System of Higher
Education (“Licensor”) and Immune Ventures to INmune Bio (“Licensee”), (the “PITT Agreement”).
Consideration under the PITT Agreement includes: (i)
annual maintenance fees, (ii) royalty payments based on the sale of products making use of the licensed technology, and (iii) milestone
payments.
Annual maintenance fees under the PITT Agreement include
the following:
(in thousands) | |
| |
June 26 of each year 2021-2022 | |
$ | 5 | |
June 26 of each year 2023-2024 | |
$ | 10 | |
June 26 of each year 2025 until first commercial sale | |
$ | 25 | |
Upon first commercial sale of a product making use
of the licensed technology under the PITT Agreement, the Licensee is required to pay royalties equal to 2.5% of Net Sales each calendar
quarter.
Moreover, under the PITT Agreement the Licensee is
required to make milestone payments as follows:
(in thousands) | |
| |
Each Phase I initiation | |
$ | 50 | |
Each Phase III initiation | |
$ | 500 | |
First commercial sale of product making use of licensed technology | |
$ | 1,250 | |
The Company had no amounts owed pursuant to the PITT
Agreement as of March 31, 2023.
The PITT Agreement expires upon the earlier of: (i)
expiration of the last claim of the Patent Rights (as defined in the PITT Agreement) forming the subject matter of the PITT Agreement;
or (ii) the date that is 20 years from the effective date of the agreement (June 26, 2037).
The Licensee may terminate the PITT Agreement upon
3 months prior written notice provided all payments under the license are current. The Licensor may terminate the PITT Agreement upon
written notice if: (i) Licensee defaults as to performance of material obligations which have not been cured within 60 days after receiving
written notice; or (ii) Licensee ceases to carry out its business, becomes bankrupt or insolvent, applies for or consents to the appointment
of a trustee, receiver or liquidator of its assets or seeks relief under any law for the aid of debtors.
NOTE 5 – FAIR VALUE MEASUREMENTS
The following table presents the hierarchy for
assets and liabilities measured at fair value on a recurring basis:
(in thousands) | |
Total | | |
Quoted
Price in Active
Market (Level 1) | | |
Significant Other Observable
Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | |
March 31, 2023: | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Cash equivalents | |
| | |
| | |
| | |
| |
Money market funds | |
$ | 49,910 | | |
$ | 49,910 | | |
$ | - | | |
$ | - | |
Total cash equivalents | |
$ | 49,910 | | |
$ | 49,910 | | |
$ | - | | |
$ | - | |
(in thousands) | |
Total | | |
Quoted Price in Active
Market (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | |
December 31, 2022: | |
| | |
| | |
| | |
| |
Cash equivalents | |
| | |
| | |
| | |
| |
Money market fund | |
$ | 51,058 | | |
$ | 51,058 | | |
$ | - | | |
$ | - | |
Total cash equivalents | |
$ | 51,058 | | |
$ | 51,058 | | |
$ | - | | |
$ | - | |
NOTE 6 – LEASE
The Company leases office space in Florida from a
third party. The lease agreement has a 64-month term and commenced during the fourth quarter of 2021.
Below is a summary of the Company’s right-of-use
assets and liabilities:
(in thousands, except years and rate) | |
March 31, 2023 | | |
December 31, 2022 | |
Right-of-use asset | |
$ | 485 | | |
$ | 507 | |
| |
| | | |
| | |
Operating lease, current liability | |
$ | 106 | | |
$ | 87 | |
| |
| | | |
| | |
Long-term operating lease liability | |
$ | 498 | | |
$ | 526 | |
| |
| | | |
| | |
Total lease liability | |
$ | 604 | | |
$ | 613 | |
| |
| | | |
| | |
Weighted-average remaining lease term | |
| 4.1 years | | |
| 4.3 years | |
| |
| | | |
| | |
Weighted-average discount rate | |
| 12.0 | % | |
| 12.0 | % |
NOTE 7 – RELATED PARTY TRANSACTIONS
UCL
At March 31,
2023 and December 31, 2022, the Company owed UCL Consultants Limited (“UCL”) $9,000 in connection with medical research performed
on behalf of the Company. During the three months ended March 31, 2023 and 2022, the Company paid UCL $104,000 and $32,000, respectively,
for medical research performed on behalf of the Company. At March 31, 2023 and December 31, 2022, the Company recorded $35,000
and $34,000, respectively, of prepaid expenses – related party for payments made to UCL in advance
of services to be provided. UCL is a wholly owned subsidiary of the University of London. The Company’s Chief Scientific and Manufacturing
Officer is a professor at the University of London.
AmplifyBio
At March 31, 2023 and December 31, 2022, the Company
owed AmplifyBio $0 in connection with medical research performed on behalf of the Company. The CEO
of AmplifyBio is on the Board of Directors of the Company. During the three months ended March 31, 2023 and 2022, the Company paid AmplifyBio
$6,000 and $80,000, respectively, for pre-clinical research performed on behalf of the Company.
NOTE 8 – DEBT
On June 10,
2021, the Company entered into a Loan and Security Agreement (the “Term Loan”) with Silicon Valley Bank and SVB Innovation
Credit Fund VIII, L.P. The Term Loan provided for a $15.0 million term loan, of which the Company borrowed the entire amount
on June 10, 2021, and is secured by the Company’s assets.
The term loan
and debt discount are as follows as of March 31, 2023:
(in thousands) | |
| |
Term Loan | |
$ | 15,000 | |
Less: debt discount and financing costs, net | |
| (236 | ) |
Less: current portion | |
| (7,500 | ) |
Long-term debt | |
$ | 7,264 | |
For the
three months ended March 31, 2023 and 2022, the Company recognized interest expense of $612,000 and $435,000, respectively, related
to the Term Loan.
The Company
is required to make interest only payments monthly until July 1, 2023, at which time the Company shall make interest and principal payments
monthly through the maturity date of January 1, 2025. All outstanding principal and accrued and unpaid interest will be due and
payable on the maturity date. The Term Loan provides for an annual interest rate equal to the greater of (i) the prime rate then
in effect as reported in The Wall Street Journal plus 4.50% and (ii) 7.75%. At March 31, 2023, the interest rate was 12.5%.
The Term Loan
includes a final payment fee equal to 6.5% of the original principal amount borrowed payable on the earlier of the repayment of the
loan in full and the maturity date. The Company has the option to prepay the outstanding balance of the term loans in full, subject
to a prepayment premium of (i) 2% of the original principal amount borrowed for any prepayment after the first anniversary and on
or before the second anniversary of the loan or (ii) 1% of the original principal amount borrowed for any prepayment after the second
anniversary of the loan but before the maturity date.
The expected
repayment of the $15.0 million Term loan principal is as follows as of March 31, 2023:
(in thousands, except years) | |
| |
2023 | |
$ | 5,000 | |
2024 | |
| 10,000 | |
Total debt | |
| 15,000 | |
Upon the occurrence
of certain events, including but not limited to the Company’s failure to satisfy its payment obligations under the Term Loan, the
breach of certain of its other covenants under the Term Loan, or the occurrence of a material adverse change, the Lenders will have the
right, among other remedies, to declare all principal and interest immediately due and payable, and will have the right to receive the
final payment fee and, if the payment of principal and interest is due prior to maturity, the applicable prepayment fee. The Company violated certain non-financial debt covenants as of December 31, 2022 and received a waiver from the Lenders waiving these
debt covenant violations during the three months ended March 31, 2023. The Company was
in compliance with its debt covenants at March 31, 2023.
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock – Issuance to Directors and
Officers
During the three months ended March 31, 2022, directors
and officers of the Company purchased 82,900 shares of the Company’s common stock from the Company at
$8.43 per share (which was the closing price of the Company’s common stock on March 22, 2022) for gross proceeds of
$699,000.
Stock options
During the three months ended March 31, 2023, the Company granted certain
employees and directors options to purchase 605,000 shares of its common stock pursuant to the 2017, 2019 and 2021 Incentive Stock Plans.
The stock options had a fair value of approximately $4.5 million that was calculated using the Black-Scholes option-pricing model. Variables
used in the Black-Scholes option-pricing model include: (1) discount rate of 3.99% based on the applicable US Treasury bill rate (2) expected
life of 6.0 years, (3) expected volatility of approximately 91% based on the trading history of similar companies, and (4) zero expected
dividends.
The following
table summarizes stock option activity during the three months ended March 31, 2023:
(in thousands, except share and per share amounts) | |
Number
of
Shares | | |
Weighted-
average
Exercise
Price | | |
Weighted-
average
Remaining
Contractual
Term (years) | | |
Aggregate
Intrinsic
Value | |
Outstanding at January 1, 2023 | |
| 4,841,417 | | |
$ | 8.60 | | |
| 6.28 | | |
$ | 4,155 | |
Options granted | |
| 605,000 | | |
$ | 9.74 | | |
| - | | |
| - | |
Options exercised | |
| - | | |
$ | - | | |
| - | | |
| - | |
Options cancelled | |
| (5,417 | ) | |
$ | 15.48 | | |
| - | | |
| - | |
Outstanding at March 31, 2023 | |
| 5,441,000 | | |
$ | 8.72 | | |
| 6.98 | | |
$ | 4,361 | |
Exercisable at March 31, 2023 | |
| 3,925,271 | | |
$ | 7.61 | | |
| 6.23 | | |
$ | 4,324 | |
During the three months ended March 31, 2023 and
2022, the Company recognized stock-based compensation expense of approximately $1.7 million and $1.5 million, respectively, related to
the vesting of stock options. As of March 31, 2023, there was approximately $9.8 million of total unrecognized compensation cost related
to non-vested stock options which is expected to be recognized over a weighted-average period of 2.88 years.
Warrants
The Company
issued warrants to the Company’s lenders upon obtaining its loan in June 2021. The warrants have a 10-year term and an exercise
price of $14.05. At March 31, 2023, 45,386 of these warrants are outstanding and the intrinsic value of these warrants is $0.
The Company
issued warrants to its placement agents in connection with its February 2019 initial public offering. The warrants are exercisable until
December 19, 2023, and have an exercise price of $9.60. At March 31, 2023, 28,688 of these warrants are outstanding and the
intrinsic value is $0.
During the three months ended March 31, 2022, a third
party exercised 19,792 warrants for cash proceeds of approximately $30,000.
Stock-based Compensation by Class of Expense
The following summarizes the components of stock-based
compensation expense in the consolidated statements of operations for the three months ended March 31, 2023 and 2022 respectively:
(in thousands) | |
Three Months Ended March 31, 2023 | | |
Three Months Ended March 31, 2022 | |
Research and development | |
$ | 649 | | |
$ | 573 | |
General and administrative | |
| 1,088 | | |
| 963 | |
Total | |
$ | 1,737 | | |
$ | 1,536 | |
Shareholder Rights Agreement
On December 30, 2020, the Board of Directors (the
“Board”) of the Company approved and adopted a Rights Agreement, dated as of December 30, 2020, by and between the Company
and VStock Transfer, LLC, as rights agent, pursuant to which the Board declared a dividend of one preferred share purchase right (each,
a “Right”) for each outstanding share of the Company’s common stock held by stockholders as of the close of business
on January 11, 2021. When exercisable, each right initially would represent the right to purchase from the Company one one-thousandth
of a share of a newly designated series of preferred stock, Series A Junior Participating Preferred Stock, par value $0.001 per share,
of the Company, at an exercise price of $300.00 per one one-thousandth of a Series A Junior Participating Preferred Share, subject to
adjustment. Subject to various exceptions, the Rights become exercisable in the event any person (excluding certain exempted or grandfathered
persons) becomes the beneficial owner of twenty percent or more of the Company’s common stock without the approval of the Board. The
Rights Agreement shall expire on December 30, 2023.
NOTE 10 – COLLABORATIVE AGREEMENTS
During September 2020, the Company was awarded a grant
of up to $2.9 million from the National Institutes of Health (“NIH”). The grant will support a Phase 2 study of XPro1595 in
patients with treatment resistant depression. As of March 31, 2023, the Company has not received any proceeds pursuant to this grant.
NOTE 11 – COMMITMENTS
Lease
During September
2021, the Company signed a lease agreement with a third party for office space in Boca Raton, Florida. The lease agreement has a 64-month
term and commenced during the fourth quarter of 2021.
Future minimum payments pursuant
to the leases are as follows:
(in thousands, except years) | |
| |
2023 | |
$ | 136 | |
2024 | |
| 187 | |
2025 | |
| 192 | |
2026 | |
| 198 | |
2027 | |
| 51 | |
Total lease payments | |
| 764 | |
Less: imputed interest | |
| (160 | ) |
Present value of future lease payments | |
| 604 | |
Less: operating lease, current liabilities | |
| (106 | ) |
Long-term operating lease liabilities | |
$ | 498 | |
During the three months ended March 31, 2023 and 2022,
the Company recognized $43,000 and $54,000, respectively, in operating lease expense, which is included in general and administrative
expenses in the Company’s consolidated statement of operations.
Litigation
The Company
is subject to claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes
that resolving claims against the Company, individually or in aggregate, will not have a material adverse impact in the Company’s
consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may
change in the future.