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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to    

Commission File Number: 001-38624

 

Vaccinex, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

16-1603202

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1895 Mount Hope Avenue

Rochester, New York

14620

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (585) 271-2700

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

VCNX

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of November 9, 2022, the registrant had 42,718,957 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

 

 

VACCINEX, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

4

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

Item 4.

Controls and Procedures

 

27

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1A.

Risk Factors

 

28

 

 

 

 

Item 6.

Exhibits

 

29

 

 

 

 

 

Signatures

 

30

 

 

2


 

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VACCINEX, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

 

As of

September 30, 2022

 

 

As of

December 31, 2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,186

 

 

$

8,589

 

Accounts receivable

 

 

50

 

 

 

-

 

Prepaid expenses and other current assets

 

 

789

 

 

 

816

 

Total current assets

 

 

8,025

 

 

 

9,405

 

Property and equipment, net

 

 

236

 

 

 

297

 

Operating lease right-of-use asset

 

 

351

 

 

 

141

 

TOTAL ASSETS

 

$

8,612

 

 

$

9,843

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

494

 

 

$

1,061

 

Accrued expenses

 

 

1,256

 

 

 

980

 

Current portion of long-term debt

 

 

74

 

 

 

74

 

Operating lease liability

 

 

163

 

 

 

141

 

Total current liabilities

 

 

1,987

 

 

 

2,256

 

Long-term debt

 

 

119

 

 

 

175

 

Operating lease liability, net of current portion

 

 

188

 

 

 

-

 

TOTAL LIABILITIES

 

 

2,294

 

 

 

2,431

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, par value of $0.0001 per share; 100,000,000 shares authorized

   as of September 30, 2022, and December 31, 2021; 42,664,903 and 30,801,962

   shares issued as of September 30, 2022 and December 31, 2021, respectively;

   42,664,051 and 30,801,110 shares outstanding as of September 30, 2022

   and December 31, 2021, respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

320,923

 

 

 

307,281

 

Treasury stock, at cost; 852 shares of common stock as of September 30, 2022 and

   December 31, 2021, respectively

 

 

(11

)

 

 

(11

)

Accumulated deficit

 

 

(314,598

)

 

 

(299,861

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

6,318

 

 

 

7,412

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

8,612

 

 

$

9,843

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

 

VACCINEX, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

50

 

 

$

50

 

 

$

50

 

 

$

900

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,429

 

 

 

3,629

 

 

 

10,238

 

 

 

13,206

 

General and administrative

 

 

1,413

 

 

 

1,484

 

 

 

4,599

 

 

 

4,666

 

Total costs and expenses

 

 

4,842

 

 

 

5,113

 

 

 

14,837

 

 

 

17,872

 

Loss from operations

 

 

(4,792

)

 

 

(5,063

)

 

 

(14,787

)

 

 

(16,972

)

Interest expense

 

 

(1

)

 

 

(142

)

 

 

(2

)

 

 

(825

)

Other income (expense), net

 

 

34

 

 

 

(1

)

 

 

52

 

 

 

48

 

Loss before provision for income taxes

 

 

(4,759

)

 

 

(5,206

)

 

 

(14,737

)

 

 

(17,749

)

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

(4,759

)

 

 

(5,206

)

 

 

(14,737

)

 

 

(17,749

)

Net loss attributable to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss attributable to Vaccinex, Inc. common stockholders

 

$

(4,759

)

 

$

(5,206

)

 

$

(14,737

)

 

$

(17,749

)

Comprehensive loss

 

$

(4,759

)

 

$

(5,206

)

 

$

(14,737

)

 

$

(17,749

)

Net loss per share attributable to Vaccinex, Inc. common

   stockholders, basic and diluted

 

$

(0.11

)

 

$

(0.17

)

 

$

(0.36

)

 

$

(0.63

)

Weighted-average shares used in computing net loss per share

   attributable to Vaccinex, Inc. common stockholders, basic and

   diluted

 

 

42,664,051

 

 

 

30,801,110

 

 

 

41,362,128

 

 

 

28,198,559

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

 

VACCINEX, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands, except share data)

 

 

 

Common Stock

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Common

Stock

Shares

 

 

Amount

 

 

Accumulated

Deficit

 

 

Total

Vaccinex, Inc.

Stockholders’

Equity (Deficit)

 

 

Noncontrolling

Interests

 

 

Total

Stockholders’

Equity (Deficit)

 

Balance as of January 1, 2021

 

 

22,388,027

 

 

$

3

 

 

$

250,914

 

 

 

852

 

 

$

(11

)

 

$

(277,481

)

 

$

(26,575

)

 

$

23,963

 

 

$

(2,612

)

Issuance of Common Shares

 

 

5,937,900

 

 

 

-

 

 

 

32,848

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,848

 

 

 

-

 

 

 

32,848

 

Common shares issuance costs

 

 

-

 

 

 

-

 

 

 

(985

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(985

)

 

 

-

 

 

 

(985

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

104

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

104

 

 

 

-

 

 

 

104

 

Shares issued for compensation

 

 

9,979

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exchange of partnership units for common shares (Note 5)

 

 

109,900

 

 

 

-

 

 

 

2,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,000

 

 

 

(2,000

)

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,574

)

 

 

(6,574

)

 

 

-

 

 

 

(6,574

)

Balance as of March 31, 2021

 

 

28,445,806

 

 

 

3

 

 

 

284,881

 

 

 

852

 

 

 

(11

)

 

 

(284,055

)

 

 

818

 

 

 

21,963

 

 

 

22,781

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

128

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

128

 

 

 

-

 

 

 

128

 

Exchange of partnership units for common shares (Note 5)

 

 

2,356,156

 

 

 

-

 

 

 

21,963

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21,963

 

 

 

(21,963

)

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,969

)

 

 

(5,969

)

 

 

-

 

 

 

(5,969

)

Balance as of June 30, 2021

 

 

30,801,962

 

 

 

3

 

 

 

306,972

 

 

 

852

 

 

 

(11

)

 

 

(290,024

)

 

 

16,940

 

 

 

-

 

 

 

16,940

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

156

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

156

 

 

 

-

 

 

 

156

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,206

)

 

 

(5,206

)

 

 

-

 

 

 

(5,206

)

Balance as of September 30, 2021

 

 

30,801,962

 

 

$

3

 

 

$

307,128

 

 

 

852

 

 

$

(11

)

 

$

(295,230

)

 

$

11,890

 

 

$

-

 

 

$

11,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Common

Stock

Shares

 

 

Amount

 

 

Accumulated

Deficit

 

 

Total

Vaccinex, Inc.

Stockholders’

Equity

 

 

Noncontrolling

Interests

 

 

Total

Stockholders’

Equity

 

Balance as of January 1, 2022

 

 

30,801,962

 

 

$

3

 

 

$

307,281

 

 

 

852

 

 

$

(11

)

 

$

(299,861

)

 

$

7,412

 

 

$

-

 

 

$

7,412

 

Issuance of Common Shares

 

 

11,862,941

 

 

 

1

 

 

 

13,229

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,230

 

 

 

-

 

 

 

13,230

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

141

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

141

 

 

 

-

 

 

 

141

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,595

)

 

 

(4,595

)

 

 

-

 

 

 

(4,595

)

Balance as of March 31, 2022

 

 

42,664,903

 

 

 

4

 

 

 

320,651

 

 

 

852

 

 

 

(11

)

 

 

(304,456

)

 

 

16,188

 

 

 

-

 

 

 

16,188

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

138

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

138

 

 

 

-

 

 

 

138

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,383

)

 

 

(5,383

)

 

 

-

 

 

 

(5,383

)

Balance as of June 30, 2022

 

 

42,664,903

 

 

 

4

 

 

 

320,789

 

 

 

852

 

 

 

(11

)

 

 

(309,839

)

 

 

10,943

 

 

 

-

 

 

 

10,943

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

134

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

134

 

 

 

-

 

 

 

134

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,759

)

 

 

(4,759

)

 

 

-

 

 

 

(4,759

)

Balance as of September 30, 2022

 

 

42,664,903

 

 

$

4

 

 

$

320,923

 

 

 

852

 

 

$

(11

)

 

$

(314,598

)

 

$

6,318

 

 

$

-

 

 

$

6,318

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


 

 

 

VACCINEX, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,737

)

 

$

(17,749

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

162

 

 

 

128

 

Debt related charges included in interest expense

 

 

-

 

 

 

458

 

Stock-based compensation

 

 

413

 

 

 

388

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(50

)

 

 

107

 

Prepaid expenses and other current assets

 

 

27

 

 

 

(538

)

Accounts payable

 

 

(567

)

 

 

(2,220

)

Accrued expenses

 

 

277

 

 

 

(729

)

Net cash used in operating activities

 

 

(14,475

)

 

 

(20,155

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(101

)

 

 

(32

)

Net cash used in investing activities

 

 

(101

)

 

 

(32

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

3,519

 

 

 

32,848

 

Redemption of convertible debt

 

 

-

 

 

 

(8,531

)

Payments of long-term debt

 

 

(56

)

 

 

-

 

Proceeds from private offering of common stock

 

 

9,710

 

 

 

-

 

Payments of common stock issuance costs

 

 

-

 

 

 

(985

)

Net cash provided by financing activities

 

 

13,173

 

 

 

23,332

 

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(1,403

)

 

 

3,145

 

CASH AND CASH EQUIVALENTS–Beginning of period

 

 

8,589

 

 

 

10,596

 

CASH AND CASH EQUIVALENTS–End of period

 

$

7,186

 

 

$

13,741

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment in accounts payable

 

$

-

 

 

$

7

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


 

 

VACCINEX, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1.

  COMPANY AND NATURE OF BUSINESS

Vaccinex, Inc. (together with its subsidiaries, the “Company”) was incorporated in Delaware in April 2001 and is headquartered in Rochester, New York. The Company is a clinical-stage biotechnology company engaged in the discovery and development of targeted biotherapeutics to treat serious diseases and conditions with unmet medical needs, including cancer, neurodegenerative diseases, and autoimmune disorders. Since its inception, the Company has devoted substantially all of its efforts toward product research, manufacturing and clinical development, and raising capital.

The Company is subject to a number of risks and uncertainties common to other early-stage biotechnology companies including, but not limited to, dependency on the successful development and commercialization of its product candidates, rapid technological change and competition, dependence on key personnel and collaborative partners, uncertainty of protection of proprietary technology and patents, clinical trial uncertainty, fluctuation in operating results and financial performance, the need to obtain additional funding, compliance with governmental regulations, technological and medical risks, management of growth and effectiveness of marketing by the Company. The Company is also subject to risks related to the ongoing COVID-19 pandemic, discussed under “COVID-19 Pandemic” below. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Going Concern

These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue from the commercialization of its product candidates. The Company had negative cash flow from operations of $14.5 million for the nine months ended September 30, 2022, and an accumulated deficit of $314.6 million as of September 30, 2022. Given the Company’s projected operating requirements and its existing cash and cash equivalents, the Company is projecting insufficient liquidity to sustain its operations through one year following the date that the condensed consolidated financial statements are issued.  These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

In response to these conditions, management is currently evaluating different strategies to obtain the required funding for future operations. Financing strategies may include, but are not limited to, the public or private sale of equity, debt financings or funds from other capital sources, such as government funding, collaborations, strategic alliances, or licensing arrangements with third parties.  There can be no assurances that the Company will be able to secure additional financing, or if available, that it will be sufficient to meet its needs or on favorable terms.  Because management’s plans have not yet been finalized and are not within the Company’s control, the implementation of such plans cannot be considered probable.  As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

 

7


 

 

COVID-19 Pandemic

In order to mitigate the spread of COVID-19, governments have at times imposed unprecedented restrictions on business operations, travel, and gatherings, resulting in a global economic downturn and other adverse economic and societal impacts. The Company has complied with state reopening guidance and has allowed research and development staff to begin working in the laboratory when necessary and using recommended health and safety precautions.  The COVID-19 pandemic has impacted the expected timing of the Company’s clinical trials, the economy, the biotechnology industry, and the Company’s business. For example, the Company previously anticipated initiating a trial of pepinemab in Alzheimer’s disease in mid-2020 but the initial enrollment date was delayed until the first half of 2021.  In addition, to mitigate the impacts of the COVID-19 pandemic, including impacts on the Company’s ability to raise capital and to maintain its personnel, the Company applied for and received a PPP Loan (See Note 9).  The Company may experience further disruptions as a result of the COVID-19 pandemic that could adversely impact its business, including disruption of research and development activities, plans for release of data, manufacturing, supply, and interactions with regulators and other third parties, and difficulties in raising additional capital.  The extent to which the COVID-19 pandemic may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

 

Note 2.

  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

Through the period ended September 3, 2021, the Company’s accounts included Vaccinex Products, LP, a Delaware limited partnership (“Vaccinex Products”), and VX3 (DE) LP, a Delaware limited partnership (“VX3”). Subsequently on September 3, 2021, Vaccinex Products and VX3 were dissolved when all remaining partnership interests were exchanged for shares of our common stock. Accordingly, prior to dissolution, these condensed consolidated financial statements reflect the accounts and operations of the Company for the nine months ended September 30, 2021and those of its subsidiaries in which the Company had a controlling financial interest.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting) and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these financial statements do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with GAAP. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented. Intercompany transactions and balances have been fully eliminated in consolidation.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022.

 

Use of Estimates

These condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of expenses during the reporting period. Such management estimates include those relating to assumptions used in the valuation of stock option awards, and valuation allowances against deferred income tax assets. Actual results could differ from those estimates.

8


 

Concentration of Credit Risk, Other Risks and Uncertainties

The Company is subject to a number of risks, including, but not limited to, the lack of available capital; the possible delisting of our common stock from Nasdaq, possible failure of preclinical testing or clinical trials; inability to obtain regulatory approval of product candidates; competitors developing new technological innovations; potential interruptions in the manufacturing and commercial supply operations; unsuccessful commercialization strategy and launch plans for its proprietary drug candidates; risks inherent in litigation, including purported class actions; market acceptance of the Company’s products; and protection of proprietary technology.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. Cash equivalents are deposited in interest-bearing money market accounts. Although the Company deposits its cash with multiple financial institutions, cash balances may occasionally be in excess of the amounts insured by the Federal Deposit Insurance Corporation. Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date.

The Company depends on third-party manufacturers for the manufacture of drug substance and drug product for clinical trials. The Company also relies on certain third parties for its supply chain. Disputes with these third- party manufacturers or shortages in goods or services from third-party suppliers could delay the manufacturing of the Company’s product candidates and adversely impact its results of operations.

Convertible Instruments

The Company applies the accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that contain conversion options and other embedded features. The accounting standards require companies to bifurcate embedded features from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company’s derivative instrument related to certain features embedded within the Company’s 8% Original Issue Discount Senior Secured Convertible Debenture (“the Debenture”) was extinguished in connection with the repayment of the Debenture, which is described in Note 10. The derivative was accounted for as a derivative liability and remeasured to fair value as of each balance sheet date and the related remeasurement adjustments were included in interest expense in the Company’s condensed consolidated statement of operations and comprehensive loss.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“the FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Measurement of Credit Losses on Financial Instruments” to improve reporting requirements specific to loans, receivables, and other financial instruments. The new standard requires that credit losses on financial assets measured at amortized cost be determined using an expected loss model, instead of the current incurred loss model, and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit losses and limited to the amount by which carrying value exceeds fair value. The new standard also requires enhanced disclosure of credit risk associated with financial assets. The standard is effective for interim and annual periods beginning after December 15, 2022 with early adoption permitted. Based on the composition of the Company’s financial assets, current market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.

9


 

 

Note 3.  BALANCE SHEET COMPONENTS

Property and Equipment

Property and equipment consist of the following (in thousands):

 

 

 

As of

September 30, 2022

 

 

As of

December 31, 2021

 

Leasehold improvements

 

$

3,259

 

 

$

3,213

 

Research equipment

 

 

3,515

 

 

 

3,499

 

Furniture and fixtures

 

 

352

 

 

 

350

 

Computer equipment

 

 

321

 

 

 

284

 

Property and equipment, gross

 

 

7,447

 

 

 

7,346

 

Less: accumulated depreciation and amortization

 

 

(7,211

)

 

 

(7,049

)

Property and equipment, net

 

$

236

 

 

$

297

 

 

Depreciation expense related to property and equipment was $67,000 and $162,000 for the three and nine months ended September 30, 2022 and $37,000 and $128,000 for the three and nine months ended September 30, 2021, respectively.

 

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

As of

September 30, 2022

 

 

As of

December 31, 2021

 

Accrued clinical trial cost

 

$

811

 

 

$

468

 

Accrued payroll and related benefits

 

 

321

 

 

 

409

 

Accrued consulting and legal

 

 

101

 

 

 

74

 

Accrued other

 

 

23

 

 

 

29

 

Accrued expenses

 

$

1,256

 

 

$

980

 

 

Note 4.

  FAIR VALUE MEASUREMENTS OF FINANCIAL MEASUREMENTS

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recorded at fair value on a nonrecurring basis in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities, and long-term debt. Cash, accounts receivable, accounts payable, accrued liabilities, and debt, are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date of such amounts.  

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair value measurement standards also apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). For the Company, these financial assets and liabilities include its cash equivalents deposited in money market funds and derivative instruments. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.

10


 

The following table sets forth the fair value of the Company’s financial assets by level within the fair value hierarchy (in thousands):

 

 

 

As of September 30, 2022

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

4,588

 

 

$

4,588

 

 

$