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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 March 31, 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:

001-37348

 

Corbus Pharmaceuticals Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

46-4348039

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

500 River Ridge Drive

Norwood, MA

 

02062

(Address of principal executive offices)

 

(Zip code)

 

(617) 963-0100

(Registrant’s telephone number, including area code)

 

 

 

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report): N/A

 

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

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, par value $0.0001 per share

 

CRBP

 

Nasdaq Global 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 May 5, 2022, 125,255,881 shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.

 

 

 

 


 

CORBUS PHARMACEUTICALS HOLDINGS, INC.

 

Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2022

 

TABLE OF CONTENTS

 

 

Page

PART I

 

 

 

FINANCIAL INFORMATION

 

 

 

1. Condensed Consolidated Financial Statements

3

Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 (unaudited)

4

Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited)

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

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

24

3. Quantitative and Qualitative Disclosures about Market Risk

29

4. Controls and Procedures

29

 

 

PART II

 

 

 

OTHER INFORMATION

 

 

 

1. Legal Proceedings

30

1A. Risk Factors

30

2. Unregistered Sales of Equity Securities and Use of Proceeds

30

3. Defaults Upon Senior Securities

30

4. Mine Safety Disclosures

30

5. Other Information

30

6. Exhibits

31

 

-2-


 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Balance Sheets

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

57,026,334

 

 

$

25,006,632

 

Investments

 

 

29,094,916

 

 

 

72,640,520

 

Restricted cash

 

 

192,475

 

 

 

192,475

 

Prepaid expenses and other current assets

 

 

2,161,860

 

 

 

2,365,010

 

Total current assets

 

 

88,475,585

 

 

 

100,204,637

 

Restricted cash

 

 

477,425

 

 

 

477,425

 

Property and equipment, net

 

 

2,210,426

 

 

 

2,392,696

 

Operating lease right of use assets

 

 

4,436,376

 

 

 

4,609,110

 

Other assets

 

 

75,275

 

 

 

46,385

 

Total assets

 

$

95,675,087

 

 

$

107,730,253

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Notes payable

 

$

440,815

 

 

$

767,938

 

Accounts payable

 

 

2,696,810

 

 

 

1,782,277

 

Accrued expenses

 

 

5,496,406

 

 

 

10,093,312

 

Derivative liability

 

 

133,710

 

 

 

133,710

 

Operating lease liabilities, current

 

 

1,171,858

 

 

 

1,136,948

 

Current portion of long-term debt

 

 

5,178,107

 

 

 

3,093,344

 

Total current liabilities

 

 

15,117,706

 

 

 

17,007,529

 

Long-term debt, net of debt discount

 

 

13,728,413

 

 

 

15,636,275

 

Other long-term liabilities

 

 

22,205

 

 

 

22,205

 

Operating lease liabilities, noncurrent

 

 

5,651,480

 

 

 

5,956,217

 

Total liabilities

 

 

34,519,804

 

 

 

38,622,226

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares
   issued and outstanding at March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares authorized,
   
125,255,881 and 125,230,881 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

12,526

 

 

 

12,523

 

Additional paid-in capital

 

 

420,483,456

 

 

 

418,891,713

 

Accumulated deficit

 

 

(359,171,006

)

 

 

(349,733,764

)

Accumulated other comprehensive loss

 

 

(169,693

)

 

 

(62,445

)

Total stockholders’ equity

 

 

61,155,283

 

 

 

69,108,027

 

Total liabilities and stockholders’ equity

 

$

95,675,087

 

 

$

107,730,253

 

 

See notes to the unaudited condensed consolidated financial statements.

-3-


 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

 

 

For the Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Revenue from awards

 

$

 

 

$

647,824

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

3,286,236

 

 

 

10,720,823

 

General and administrative

 

 

5,230,923

 

 

 

5,341,197

 

Total operating expenses

 

 

8,517,159

 

 

 

16,062,020

 

Operating loss

 

 

(8,517,159

)

 

 

(15,414,196

)

Other income (expense), net:

 

 

 

 

 

 

Other income (expense), net

 

 

(193,351

)

 

 

(15,094

)

Interest income (expense), net

 

 

(458,909

)

 

 

(646,550

)

Change in fair value of derivative liability

 

 

 

 

 

(6,000

)

Foreign currency exchange gain (loss), net

 

 

(267,823

)

 

 

16,672

 

Other income (expense), net

 

 

(920,083

)

 

 

(650,972

)

Net loss

 

$

(9,437,242

)

 

$

(16,065,168

)

Net loss per share, basic and diluted

 

$

(0.08

)

 

$

(0.14

)

Weighted average number of common shares outstanding, basic and diluted

 

 

125,243,242

 

 

 

116,344,900

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(9,437,242

)

 

$

(16,065,168

)

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gain (loss) on marketable debt securities

 

 

(107,248

)

 

 

(28,765

)

Total other comprehensive income (loss)

 

 

(107,248

)

 

 

(28,765

)

Total comprehensive loss

 

$

(9,544,490

)

 

$

(16,093,933

)

 

See notes to the unaudited condensed consolidated financial statements.

 

-4-


 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

For the Three Months Ended March 31, 2022

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at December 31, 2021

 

 

125,230,881

 

 

$

12,523

 

 

$

418,891,713

 

 

$

(349,733,764

)

 

$

(62,445

)

 

$

69,108,027

 

Issuance of common stock

 

 

25,000

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,591,746

 

 

 

 

 

 

 

 

 

1,591,746

 

Unrealized loss on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(107,248

)

 

 

(107,248

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,437,242

)

 

 

 

 

 

(9,437,242

)

Balance at March 31, 2022

 

 

125,255,881

 

 

$

12,526

 

 

$

420,483,456

 

 

$

(359,171,006

)

 

$

(169,693

)

 

$

61,155,283

 

 

 

 

For the Three Months Ended March 31, 2021

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at December 31, 2020

 

 

98,852,696

 

 

$

9,885

 

 

$

349,358,378

 

 

$

(304,093,338

)

 

$

 

 

$

45,274,925

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,580,402

 

 

 

 

 

 

 

 

 

2,580,402

 

Issuance of common stock, net of issuance costs of
   $
1,820,437

 

 

25,391,710

 

 

 

2,539

 

 

 

58,858,262

 

 

 

 

 

 

 

 

 

58,860,801

 

Issuance of common stock upon exercise of stock options

 

 

788,600

 

 

 

79

 

 

 

894,720

 

 

 

 

 

 

 

 

 

894,799

 

Unrealized loss on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,765

)

 

 

(28,765

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,065,168

)

 

 

 

 

 

(16,065,168

)

Balance at March 31, 2021

 

 

125,033,006

 

 

$

12,503

 

 

$

411,691,762

 

 

$

(320,158,506

)

 

$

(28,765

)

 

$

91,516,994

 

 

See notes to the unaudited condensed consolidated financial statements.

-5-


 

Corbus Pharmaceuticals Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(9,437,242

)

 

$

(16,065,168

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,591,746

 

 

 

2,580,402

 

Depreciation and amortization

 

 

195,719

 

 

 

272,186

 

Net amortization on premium of investments

 

 

454,978

 

 

 

(901

)

(Gain) Loss on foreign exchange

 

 

349,226

 

 

 

(73,976

)

Operating lease right of use asset amortization

 

 

172,734

 

 

 

152,360

 

Amortization of debt discount

 

 

176,901

 

 

 

170,284

 

Realized loss on investments

 

 

7,752

 

 

 

-

 

Change in fair value of derivative liability

 

 

-

 

 

 

6,000

 

Loss on sale of property and equipment

 

 

-

 

 

 

5,456

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Decrease in prepaid expenses

 

 

203,150

 

 

 

54,067

 

Decrease in contract asset

 

 

-

 

 

 

(647,824

)

Increase in other assets

 

 

(28,890

)

 

 

(70,000

)

Increase (decrease) in accounts payable

 

 

565,308

 

 

 

(3,691,841

)

Decrease in accrued expenses

 

 

(4,596,906

)

 

 

(4,262,958

)

Decrease in operating lease liabilities

 

 

(269,826

)

 

 

(237,592

)

Net cash used in operating activities

 

 

(10,615,350

)

 

 

(21,809,505

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of investments

 

 

(6,471,309

)

 

 

(57,427,043

)

Proceeds from sales and maturities of investments

 

 

49,446,935

 

 

 

-

 

Purchases of property and equipment

 

 

(13,449

)

 

 

-

 

Proceeds from sale of property and equipment

 

 

-

 

 

 

2,600

 

Net cash provided by (used in) investing activities

 

 

42,962,177

 

 

 

(57,424,443

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of short-term borrowings

 

 

(327,125

)

 

 

(301,880

)

Proceeds from issuance of common stock

 

 

 

 

 

62,536,070

 

Issuance costs paid for common stock financings

 

 

 

 

 

(1,820,437

)

Net cash (used in) provided by financing activities

 

 

(327,125

)

 

 

60,413,753

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

32,019,702

 

 

 

(18,820,195

)

Cash, cash equivalents, and restricted cash at beginning of the period

 

 

25,676,532

 

 

 

86,453,341

 

Cash, cash equivalents, and restricted cash at end of the period

 

$

57,696,234

 

 

$

67,633,146

 

Supplemental disclosure of cash flow information and non-cash transactions:

 

 

 

 

 

 

Cash paid during the period for interest

 

$

430,998

 

 

$

432,455

 

 

See notes to the unaudited condensed consolidated financial statements.

-6-


 

Corbus Pharmaceuticals Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2022

 

1. NATURE OF OPERATIONS

 

Business

 

Corbus Pharmaceuticals Holdings, Inc. (the “Company” or “Corbus”) is focused on the development of immune modulators that will have application in disease states spanning from immuno-oncology to fibrosis. Corbus’ current pipeline includes anti-integrin monoclonal antibodies that block activation of TGFβ and small molecules that activate or inhibit the endocannabinoid system. The Company plans to expand its pipeline in immuno-oncology through internal efforts and business development. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant risks and uncertainties and the Company will be dependent on raising substantial additional capital before it becomes profitable and it may never achieve profitability.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management of the Company, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2022 and the results of its operations and changes in stockholders’ equity for the three months ended March 31, 2022 and 2021 and its cash flows for the three months ended March 31, 2022 and 2021. The December 31, 2021 condensed consolidated balance sheet was derived from audited financial statements. The Company prepared the condensed consolidated financial statements following the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP) have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 8, 2022 (the “2021 Annual Report”). The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal year.

 

The Company is continuing to monitor the impact of the COVID-19 pandemic on its business and operations.

 

 

2. LIQUIDITY

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses since inception and as of March 31, 2022, had an accumulated deficit of $359,171,000. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, development of its product candidates and its preclinical and clinical programs, strategic alliances and the development of its administrative organization. The Company expects the cash, cash equivalents, and investments of approximately $86,121,000 at March 31, 2022 to be sufficient to meet its operating and capital requirements at least twelve months from the filing of this Quarterly Report on Form 10-Q.

 

The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of the Company’s clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to the Company. Lack of necessary funds may require the Company to, among other things, delay, scale back or eliminate some or all of the Company’s planned clinical or preclinical trials.

 

 

-7-


 

 

3. SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:

 

Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates and changes in estimates may occur. The most significant estimates are related to stock-based compensation, the accrual of research, product development and clinical obligations, and the valuation of warrants discussed in Note 14.

 

Cash, Cash Equivalents, and Restricted Cash

 

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months from date of purchase to be cash equivalents. At March 31, 2022 and December 31, 2021, cash equivalents were comprised of money market funds.

 

Restricted cash as of March 31, 2022 included security for a stand-by letter of credit issued in favor of a landlord for $669,900 of which $192,475 was classified in current assets and $477,425 was classified in noncurrent assets as of March 31, 2022.

 

Cash, cash equivalents, and restricted cash consisted of the following:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Cash

 

$

12,942,128

 

 

$

6,751,593

 

Cash Equivalents

 

 

44,084,206

 

 

 

18,255,039

 

Cash and cash equivalents

 

$

57,026,334

 

 

$

25,006,632

 

 

 

 

 

 

 

 

Restricted cash, current

 

 

192,475

 

 

 

192,475

 

Restricted cash, noncurrent

 

 

477,425

 

 

 

477,425

 

Restricted cash

 

 

669,900

 

 

 

669,900

 

Total cash, investments, and restricted cash shown in the statement of cash
   flows

 

$

57,696,234

 

 

$

25,676,532

 

 

As of March 31, 2022, all of the Company’s cash and cash equivalents was held in the United States, except for approximately $11,942,000 of cash which was held in its subsidiaries in the United Kingdom and Australia. As of December 31, 2021, all of the Company’s cash was held in the United States, except for approximately $5,752,000 of cash which was held principally in its subsidiary in the United Kingdom.

 

Investments

 

Investments consist of debt securities and term deposits with maturities greater than 90 days at their acquisition date. The Company has classified its investments with maturities beyond one year as current, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

 

The Company classifies all of its marketable debt securities as available-for-sale securities. The Company’s marketable debt securities are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale debt securities are reported as accumulated other comprehensive gain or loss, which is a separate component of stockholders’ equity. The cost of debt securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss.

 

-8-


 

The Company evaluates its marketable debt securities with unrealized losses for other-than-temporary impairment. When assessing marketable debt securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statements of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

 

Financial Instruments

 

The carrying values of the notes payable and debt approximate their fair value due to the fact that they are at market terms.

 

Fair Value Measurements

 

The valuation of the Company’s debt and embedded derivatives are determined primarily by an income approach that considers the present value of net cash flows of the debt with and without prepayment and default features. These embedded debt features, which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

 

Level 2 – Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

 

Level 3 – Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

 

The Company’s investments, debt, and its derivative liabilities are carried at fair value determined according to the fair value hierarchy described above. The carrying values of the Company’s prepaid expenses and other current assets, and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

 

To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include the discount rate, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.

 

Property and Equipment

 

The estimated life for the Company’s property and equipment is as follows: three years for computer hardware and software and three to five years for office furniture and equipment. The Company’s leasehold improvements and assets under capital lease are amortized over the shorter of their useful lives or the respective leases. See Note 7 for details of property and equipment and Note 8 for operating and capital lease commitments.

 

Research and Development Expenses

 

Costs incurred for research and development are expensed as incurred.

 

Nonrefundable advance payments for goods or services that have the characteristics that will be used or rendered for future research and development activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized as an expense as the related goods are delivered or the related services are performed.

 

 

-9-


 

Accruals for Research and Development Expenses and Clinical Trials

 

As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion with applicable internal personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations (“CROs”) and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the three months ended March 31, 2022 and 2021, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

The Company has subleased a portion of its leased facility under an agreement considered to be an operating lease according to GAAP. The Company has not been legally released from its primary obligations under the original lease and therefore it continues to account for the original lease as it did before commencement of the sublease. The Company will record both fixed and variable payments received from the sublessee in its statements of operations and comprehensive loss on a straight-line basis as an offset to rent expense.

 

Concentrations of Credit Risk

 

The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company may from time to time have cash in banks in excess of Federal Deposit Insurance Corporation insurance limits. However, the Company believes the risk of loss is minimal as these banks are large financial institutions.

 

Segment Information

 

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is developing and commercializing therapeutics for autoimmunity, fibrosis, and cancer. As of March 31, 2022, all of the Company’s assets were located in the United States, except for approximately $21,942,000 of cash, cash equivalents, and investments and $785,000 of prepaid expenses and other assets which were held outside of the United States, principally in its subsidiary in the United Kingdom. As of December 31, 2021, all of the Company’s assets were located in the United States, except for approximately $22,504,000 of cash, cash equivalents, and investments, $973,000 of prepaid expenses and other assets, and $1,000 of property and equipment, net which were held outside of the United States, principally in its subsidiary in the United Kingdom.

 

-10-


 

Income Taxes

 

For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded to reduce a net deferred tax benefit when it is not more likely than not that the tax benefit from the deferred tax assets will be realized. Accordingly, given the cumulative losses since inception, the Company has provided a valuation allowance equal to 100% of the deferred tax assets in order to eliminate the deferred tax assets amounts.

 

Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold, as well as accrued interest and penalties, if any, would be recorded as a tax expense in the current year. There were no uncertain tax positions that require accrual or disclosure to the financial statements as of March 31, 2022 or December 31, 2021.

 

Impairment of Long-lived Assets

 

The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long-lived assets may not be recoverable. An impairment loss is recognized when expected undiscounted cash flows of an asset are less than an asset’s carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. An impairment loss equal to the excess of the fair value of the asset over its carrying amount, is recorded when it is determined that the carrying value of the asset may not be recoverable. The Company recognized an impairment loss of approximately $606,000 in the third quarter of 2021 to write down the value of leasehold improvements as a result of entering into a sublease. The Company notes no other impairment charges were taken in 2022. See Note 8 for more details on sublease agreement.

 

Stock-based Payments

 

The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the statements of operations and comprehensive loss over the service period based on a measurement of fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model, net of estimated forfeitures. The fair value of each option grant is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

 

Foreign Currency

 

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the U.S. Dollar functional currency are recorded in the Company’s statements of operations and comprehensive loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date. The functional currency of the Company's foreign subsidiaries is the U.S. dollar.

 

Net Loss Per Common Share

 

Net loss per share was computed as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(9,437,242

)

 

$

(16,065,168

)

Weighted average number of common shares-basic

 

$

125,243,242

 

 

 

116,344,900

 

Net loss per share of common stock-basic

 

$

(0.08

)

 

$

(0.14

)

 

* Warrants and options that have not been exercised have been excluded from the diluted calculation as all periods presented have a net loss and the impact of these securities would be anti-dilutive

 

 

-11-


 

Recently Adopted Accounting Pronouncements

 

In May 2021, the FSB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options which is intended to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification of exchange. This standard is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company’s adoption of ASU 2021-04 as of January 1, 2022 had no impact on the Company’s financial statements and related disclosures.

 

Recently Issued Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity which is intended to simplify various aspects of GAAP for certain financial instruments with characteristics of liabilities and equity. The standard is effective for public companies that meet the definition of an SEC filer, excluding entities that are smaller reporting companies as defined by the SEC, for fiscal years, and interim periods within those years, beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. This standard will be effective for the Company on January 1, 2024 or when it ceases being eligible to be a smaller reporting company. The Company is currently evaluating the timing of the adoption of ASU 2020-06 and the potential impact that this standard may have on its consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are SEC filers, excluding entities that are eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. This standard will be effective for the Company on January 1, 2023 or when it ceases being eligible to be a smaller reporting company. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.

 

 

-12-


 

 

4. INVESTMENTS

 

The following table summarizes the Company’s investments as of March 31, 2022 (in thousands):

 

 

 

Amortized Cost

 

 

Gross
Unrealized
Gain

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

3,200

 

 

$

 

 

$

 

 

$

3,200

 

Corporate debt securities

 

 

10,993

 

 

 

 

 

 

(163

)

 

 

10,830

 

Asset backed securities

 

 

5,071

 

 

 

 

 

 

(6

)

 

 

5,065

 

Other Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Term deposits (Maturing 5/5/2022)

 

 

10,000

 

 

 

 

 

 

 

 

 

10,000

 

Total

 

$

29,264

 

 

$

 

 

$

(169

)

 

$

29,095

 

 

The following table summarizes the amortized cost and fair value of the Company’s available-for-sale marketable securities by contractual maturity as of March 31, 2022 (in thousands):

 

 

 

Amortized Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

Maturing in one year or less

 

$

14,598

 

 

$

14,478

 

Maturing after one year but less than three years

 

 

4,666

 

 

 

4,617

 

 

 

$

19,264

 

 

$

19,095

 

 

The following table summarizes the Company’s investments as of December 31, 2021 (in thousands):

 

 

 

Amortized Cost

 

 

Gross
Unrealized
Gain

 

 

Gross
Unrealized
Losses

 

 

Fair Value