vcnx-10q_20190630.htm

 

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 June 30, 2019

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

 

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 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, 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  

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

 

As of August 14, 2019, the registrant had 14,862,536 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.

Unaudited Condensed Consolidated Financial Statements

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

4

 

 

 

 

 

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (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 1.

Legal Proceedings

 

28

 

 

 

 

Item 1A.

Risk Factors

 

28

 

 

 

 

Item 6.

Exhibits

 

29

 

 

 

 

 

Signatures

 

30

 

 

2


PART I - FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

VACCINEX, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

 

As of

June 30, 2019

 

 

As of

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,279

 

 

$

5,618

 

Marketable securities

 

 

-

 

 

 

14,106

 

Accounts receivable, net

 

 

871

 

 

 

639

 

Prepaid expenses and other current assets

 

 

416

 

 

 

1,061

 

Total current assets

 

 

6,566

 

 

 

21,424

 

Property and equipment, net

 

 

555

 

 

 

604

 

TOTAL ASSETS

 

$

7,121

 

 

$

22,028

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,448

 

 

$

2,322

 

Accrued expenses

 

 

4,053

 

 

 

4,364

 

TOTAL LIABILITIES

 

 

9,501

 

 

 

6,686

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   June 30, 2019 and December 31, 2018; 11,481,056 and 11,476,601 shares issued

   as of June 30, 2019 and December 31, 2018; 11,480,204 and 11,475,749 shares

   outstanding as of June 30, 2019 and December 31, 2018

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

208,329

 

 

 

208,156

 

Treasury stock, at cost; 852 shares of common stock as of June 30, 2019

   and December 31, 2018

 

 

(11

)

 

 

(11

)

Accumulated deficit

 

 

(234,662

)

 

 

(216,767

)

Total Vaccinex, Inc. stockholders’ deficit

 

 

(26,343

)

 

 

(8,621

)

Noncontrolling interests

 

 

23,963

 

 

 

23,963

 

TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY

 

 

(2,380

)

 

 

15,342

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

7,121

 

 

$

22,028

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

25

 

 

$

126

 

 

$

119

 

 

$

332

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

16

 

 

 

246

 

 

 

191

 

 

 

486

 

Research and development

 

 

7,304

 

 

 

5,512

 

 

 

14,716

 

 

 

9,966

 

General and administrative

 

 

1,563

 

 

 

925

 

 

 

3,210

 

 

 

2,146

 

Total costs and expenses

 

 

8,883

 

 

 

6,683

 

 

 

18,117

 

 

 

12,598

 

Loss from operations

 

 

(8,858

)

 

 

(6,557

)

 

 

(17,998

)

 

 

(12,266

)

Change in fair value of derivative liabilities

 

 

-

 

 

 

30

 

 

 

-

 

 

 

338

 

Interest expense

 

 

-

 

 

 

(81

)

 

 

-

 

 

 

(348

)

Loss on extinguishment of related party convertible promissory note

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,180

)

Other income (expense), net

 

 

30

 

 

 

-

 

 

 

103

 

 

 

(14

)

Loss before provision for income taxes

 

 

(8,828

)

 

 

(6,608

)

 

 

(17,895

)

 

 

(14,470

)

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

(8,828

)

 

 

(6,608

)

 

 

(17,895

)

 

 

(14,470

)

Net loss attributable to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss attributable to Vaccinex, Inc.

 

 

(8,828

)

 

 

(6,608

)

 

 

(17,895

)

 

 

(14,470

)

Cumulative dividends on redeemable preferred stock

 

 

-

 

 

 

(800

)

 

 

-

 

 

 

(1,592

)

Net loss attributable to Vaccinex, Inc. common stockholders, basic

   and diluted

 

$

(8,828

)

 

$

(7,408

)

 

$

(17,895

)

 

$

(16,062

)

Net loss per share attributable to Vaccinex, Inc. common

   stockholders, basic and diluted

 

$

(0.77

)

 

$

(6.72

)

 

$

(1.56

)

 

$

(14.56

)

Weighted-average shares used in computing net loss per share

   attributable to Vaccinex, Inc. common stockholders,

   basic and diluted

 

 

11,479,294

 

 

 

1,103,144

 

 

 

11,477,521

 

 

 

1,102,853

 

 

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

 

4


 

VACCINEX, INC.

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)

(in thousands, except share data)

 

 

 

 

Redeemable Convertible

Preferred Stock

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Redeemable

Convertible

Preferred

Stock Shares

 

 

Common

Stock

Shares

 

 

Amount

 

 

Accumulated

Deficit

 

 

Total

Vaccinex, Inc.

Stockholders’

Deficit

 

 

Noncontrolling

Interests

 

 

Total

Stockholders’

Equity

(Deficit)

 

Balance as of January 1, 2018

 

 

53,089,959

 

 

$

111,718

 

 

 

 

5,702,450

 

 

$

7,684

 

 

 

1,103,396

 

 

$

-

 

 

$

54,123

 

 

 

163

 

 

 

836

 

 

$

(11

)

 

$

(187,249

)

 

$

(125,453

)

 

$

11,963

 

 

$

(113,490

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36

 

 

 

-

 

 

 

36

 

Capital contribution

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,000

 

 

 

8,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,862

)

 

 

(7,862

)

 

 

-

 

 

 

(7,862

)

Balance as of March 31, 2018

 

 

53,089,959

 

 

 

111,718

 

 

 

 

5,702,450

 

 

 

7,684

 

 

 

1,103,396

 

 

 

-

 

 

 

54,159

 

 

 

163

 

 

 

836

 

 

 

(11

)

 

 

(195,111

)

 

 

(133,279

)

 

 

19,963

 

 

 

(113,316

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52

 

 

 

-

 

 

 

52

 

Capital contribution

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,000

 

 

 

4,000

 

Exercise of stock options

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

700

 

 

 

-

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

-

 

 

 

5

 

Net loss

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,608

)

 

 

(6,608

)

 

 

-

 

 

 

(6,608

)

Balance as of June 30, 2018

 

 

53,089,959

 

 

$

111,718

 

 

 

 

5,702,450

 

 

$

7,684

 

 

 

1,104,096

 

 

$

-

 

 

$

54,216

 

 

 

163

 

 

 

836

 

 

$

(11

)

 

$

(201,719

)

 

$

(139,830

)

 

$

23,963

 

 

$

(115,867

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Convertible

Preferred Stock

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Redeemable

Convertible

Preferred

Stock Shares

 

 

Common

Stock

Shares

 

 

Amount

 

 

Accumulated

Deficit

 

 

Total

Vaccinex, Inc.

Stockholders’

Deficit

 

 

Noncontrolling

Interests

 

 

Total

Stockholders’

Equity

 

Balance as of January 1, 2019

 

 

-

 

 

$

-

 

 

 

 

-

 

 

$

-

 

 

 

11,476,601

 

 

$

1

 

 

$

208,156

 

 

 

-

 

 

 

852

 

 

$

(11

)

 

$

(216,767

)

 

$

(8,621

)

 

$

23,963

 

 

$

15,342

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

60

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

60

 

 

 

-

 

 

 

60

 

Net loss

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,067

)

 

 

(9,067

)

 

 

-

 

 

 

(9,067

)

Balance as of March 31, 2019

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

11,476,601

 

 

 

1

 

 

 

208,216

 

 

 

-

 

 

 

852

 

 

 

(11

)

 

 

(225,834

)

 

 

(17,628

)

 

 

23,963

 

 

 

6,335

 

Conversion of Vaccinex Products

   LP Units into common shares

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

4,455

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

113

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

113

 

 

 

-

 

 

 

113

 

Net loss

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,828

)

 

 

(8,828

)

 

 

-

 

 

 

(8,828

)

Balance as of June 30, 2019

 

 

-

 

 

$

-

 

 

 

 

-

 

 

$

-

 

 

 

11,481,056

 

 

$

1

 

 

$

208,329

 

 

 

-

 

 

 

852

 

 

$

(11

)

 

$

(234,662

)

 

$

(26,343

)

 

$

23,963

 

 

$

(2,380

)

 

 

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)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(17,895

)

 

$

(14,470

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

117

 

 

 

112

 

Amortization of debt discount

 

 

-

 

 

 

284

 

Net amortization of premiums and discounts on marketable securities

 

 

(45

)

 

 

-

 

Stock-based compensation

 

 

173

 

 

 

88

 

Change in fair value of derivative liabilities

 

 

-

 

 

 

(338

)

Loss on extinguishment of related party convertible promissory note

 

 

-

 

 

 

2,180

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(232

)

 

 

(235

)

Prepaid expenses and other current assets

 

 

645

 

 

 

(160

)

Accounts payable

 

 

3,126

 

 

 

1,014

 

Accrued expenses

 

 

(311

)

 

 

1,220

 

Deferred revenue

 

 

-

 

 

 

(194

)

Net cash used in operating activities

 

 

(14,422

)

 

 

(10,499

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Sales and maturities of marketable securities

 

 

14,150

 

 

 

-

 

Purchase of property and equipment

 

 

(67

)

 

 

(61

)

Net cash provided by (used in) investing activities

 

 

14,083

 

 

 

(61

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments of initial public offering costs

 

 

-

 

 

 

(327

)

Repayment of convertible promissory note, related party

 

 

-

 

 

 

(4,000

)

Proceeds from capital contribution

 

 

-

 

 

 

12,000

 

Proceeds from exercise of stock options

 

 

-

 

 

 

5

 

Net cash provided by financing activities

 

 

-

 

 

 

7,678

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(339

)

 

 

(2,882

)

CASH AND CASH EQUIVALENTS–Beginning of period

 

 

5,618

 

 

 

4,180

 

CASH AND CASH EQUIVALENTS–End of period

 

$

5,279

 

 

$

1,298

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Deferred offering costs in accounts payable and accrued expenses

 

$

-

 

 

$

1,360

 

 

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

6


VACCINEX, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.

COMPANY AND NATURE OF BUSINESS

Description 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.

The Company is subject to a number of risks common to other early-stage biotechnology companies including, but not limited to, 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, potential product liability, compliance with governmental regulations, technological and medical risks, customer demand, management of growth and effectiveness of marketing by the Company. 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 unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its 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 $14.4 million and $25.3 million for the six months ended June 30, 2019 and year ended December 31, 2018, respectively, and an accumulated deficit of $234.7 million and $216.8 million as of June 30, 2019 and December 31, 2018, respectively. The Company’s ability to continue as a going concern is at issue due to its historical net losses and negative cash flows from operations, and its need for additional financing to fund future operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The 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.

To date, the Company has relied on equity and debt financing to fund its operations. In addition, the Company received $12.0 million in capital contributions from noncontrolling interests during each of the years ended December 31, 2018 and 2017. As the Company’s product candidates are still in the early stages of development, substantial additional financing will be needed by the Company to fund its operations and ongoing research and development efforts prior to the commercialization, if any, of its product candidates. Given our projected operating requirements and our existing cash and cash equivalents and marketable securities, we plan to complete an additional financing transaction prior to the commencement of the 2020 second quarter in order to continue operations.  Management is currently evaluating different strategies to obtain the required funding of future operations. These strategies may include, but are not limited to, additional funding from current or new investors, refinancing of existing debt obligations or obtaining additional debt financing. There can be no assurances that the Company will be able to secure such additional financing, or if available, that it will be sufficient to meet its needs or on favorable terms.

7


Initial Public Offering

In August 2018, the Company completed its initial public offering (the “IPO”) in which it issued and sold 3,333,334 shares of its common stock, $0.0001 par value, at a public offering price of $12.00 per share. The Company received net proceeds of $37.2 million after deducting underwriting discounts and commissions of $2.8 million, but before deducting offering expenses of $2.7 million. In addition, in connection with the IPO:

 

all shares of the Company’s then-outstanding convertible preferred stock were automatically converted and reclassified into 7,039,155 shares of its common stock, $0.0001 par value;

 

a 1-for-10 reverse stock split of the Company’s common stock was effected; and

 

the Company repaid a $1.5 million convertible promissory note issued in June 2016 (the “June 2016 Note”), held by a related party, Vaccinex (Rochester), L.L.C. (“Vaccinex LLC”), which is majority owned and controlled by Dr. Maurice Zauderer, the Company’s President, Chief Executive Officer and a member of its board of directors.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

These condensed consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and following the requirements of the Securities and Exchange Commission ("SEC"), for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of the Company’s financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2019. The year-end balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted under the rules and regulations of the SEC.

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, 2018, filed with the SEC on March 13, 2019.

 

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, the valuation of derivative instruments, and valuation allowances against deferred income tax assets. Actual results could differ from those estimates.

8


Concentration of Credit Risk, Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. Cash equivalents are deposited in interest-bearing money market accounts and short-term investments consist of highly liquid U.S. government treasury bills and notes. The Company deposits its cash with multiple financial institutions and 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.

Comprehensive Loss

The Company did not have any other comprehensive income or loss for any of the periods presented and therefore comprehensive loss did not differ from net loss.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases, which supersedes the Accounting Standards Codification (“ASC”) No. 840, Leases. ASU No. 2016-02 requires lessees to recognize all leases, with exception of short-term leases, as lease liabilities on the balance sheet. Under ASU No. 2016-02, a lease is defined as a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset during the lease term. ASU No. 2016-02 also requires additional disclosure about the amount, timing and uncertainty of cash flow from leases. The new standard is effective for the Company at the earlier of losing the emerging growth company status or the Company’s fiscal year beginning January 1, 2020. Early adoption is permitted. This new standard will require the present value of these leases to be recorded in the condensed consolidated balance sheets as a right-of-use asset and lease liability. The Company will adopt the new standard effective January 1, 2020 and is continuing to evaluate the impact of this guidance on its condensed consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC No. 605, Revenue Recognition. ASU No. 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date by one year with early adoption permitted as of the original effective date. In addition, the FASB issued ASU Nos. 2016-08, 2016-10 and 2016-12 in March 2016, April 2016 and May 2016, respectively, to help provide interpretive clarification on the new guidance in ASC No. 606. ASU Nos. 2016-08, 2016-10 and 2016-12 are all effective beginning the same period as ASU No. 2014-09. The Company adopted the new revenue standards using the modified retrospective method as of January 1, 2019; however, it is not required to reflect the effects of adoption in its consolidated financial statements until it files its annual report for the fiscal year ending December 31, 2019. The Company is in the process of evaluating the effect that the new revenue standards will have on its consolidated financial statements and related disclosures.

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3.

BALANCE SHEET COMPONENTS

Property and Equipment

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

 

 

 

As of

June 30, 2019

 

 

As of

December 31, 2018

 

Leasehold improvements

 

$

3,145

 

 

$

3,145

 

Research equipment

 

 

3,286

 

 

 

3,219

 

Furniture and fixtures

 

 

350

 

 

 

350

 

Computer equipment

 

 

214

 

 

 

214

 

Property and equipment, gross

 

 

6,995

 

 

 

6,928

 

Less: accumulated depreciation and amortization

 

 

(6,440

)

 

 

(6,324

)

Property and equipment, net

 

$

555

 

 

$

604

 

 

Depreciation and amortization expense related to property and equipment was $57,000 and $56,000 for the three months ended June 30, 2019 and 2018, respectively, and $117,000 and $112,000 for the six months ended June 30, 2019 and 2018, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

As of

June 30, 2019

 

 

As of

December 31, 2018

 

Accrued clinical trial cost

 

$

3,612

 

 

$

3,796

 

Accrued payroll and related benefits

 

 

265

 

 

 

236

 

Accrued consulting and legal

 

 

102

 

 

 

296

 

Accrued other

 

 

74

 

 

 

36

 

Accrued expenses

 

$

4,053

 

 

$

4,364

 

 

4.

MARKETABLE SECURITIES

As of June 30, 2019, the Company did not hold any marketable securities. The fair value of available-for-sale marketable securities as of December 31, 2018, is as follows (in thousands):

 

 

 

As of

December 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

14,106

 

 

$

-

 

 

$

-

 

 

$

14,106

 

 

 

$