Actinium Pharmaceuticals, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Actinium Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Actinium Pharmaceuticals, Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2012 . Houston, Texas March 31, 2021 F- 1 Actinium Pharmaceuticals, Inc. Consolidated Balance Sheets (amounts in thousands, except share and per share data) December 31, 2020 December 31, 2019 Assets Current Assets: Cash and cash equivalents $ 63,560 $ 9,254 Restricted cash – current 48 48 Prepaid expenses and other current assets 1,317 786 Total Current Assets 64,925 10,088 Property and equipment, net of accumulated depreciation of $291 and $237 312 113 Operating lease right-of-use assets 579 807 Finance leases right-of-use assets 140 221 Security deposit 50 50 Restricted cash 391 391 Total Assets $ 66,397 $ 11,670 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable and accrued expenses $ 4,340 $ 4,598 Note payable - 381 Operating leases current liability 342 286 Finance leases current liability 85 79 Total Current Liabilities 4,767 5,344 Long-term operating lease obligations 245 531 Long-term finance lease obligations 66 151 Total Liabilities 5,078 6,026 Commitments and contingencies Stockholders’ Equity: Preferred stock, $0.001 par value; 50,000,000 shares authorized, 0 shares issued and outstanding - - Common stock, $0.001 par value; 1,000,000,000 and 600,000,000 shares authorized; 17,532,893 and 5,490,038 shares issued and outstanding 18 5 Additional paid-in capital 292,275 214,397 Accumulated deficit (230,974 ) (208,758 ) Total Stockholders’ Equity 61,319 5,644 Total Liabilities and Stockholders’ Equity $ 66,397 $ 11,670 See accompanying notes to the consolidated financial statements. F- 2 Actinium Pharmaceuticals, Inc. Consolidated Statements of Operations For the Year ended December 31, (amounts in thousands, except share and per share data) 2020 2019 Revenue $ - $ - Operating expenses: Research and development, net of reimbursements 16,085 16,550 General and administrative 6,308 5,522 Total operating expenses 22,393 22,072 Loss from operations (22,393 ) (22,072 ) Other income: Interest income - net 178 172 Total other income 178 172 Net loss $ (22,215 ) $ (21,900 ) Deemed dividend for warrant down-round protection provision (1 ) (1 ) Net loss applicable to common stockholders $ (22,216 ) $ (21,901 ) Loss per common share - basic and diluted $ (1.83 ) $ (4.40 ) Weighted average common shares outstanding - basic and diluted 12,134,259 4,975,721 See accompanying notes to the consolidated financial statements. F- 3 Actinium Pharmaceuticals, Inc. Consolidated Statement of Changes in Stockholders’ Equity For the Years Ended December 31, 2020 and 2019 (amounts in thousands, except share amounts) Common Stock Additional Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance, January 1, 2019 3,856,768 $ 4 $ 195,666 $ (186,857 ) $ 8,813 Stock-based compensation 13,143 - 1,295 - 1,295 Sale of common stock and warrants, net of offering costs 1,535,334 1 15,931 - 15,932 Issuance of common stock from exercise of warrants 84,793 - 1,504 - 1,504 Deemed dividend for warrant down-round protection provision - - 1 (1 ) - Net loss - - - (21,900 ) (21,900 ) Balance, December 31, 2019 5,490,038 $ 5 $ 214,397 $ (208,758 ) $ 5,644 Stock-based compensation 6,262 - 1,254 - 1,254 Sale of common stock and warrants, net of offering costs 8,575,051 9 76,580 - 76,589 Issuance of common stock from exercise of pre-funded warrants 3,458,929 4 6 - 10 Issuance of common stock from exercise of warrants 2,613 - 37 37 Deemed dividend for warrant down-round protection provision - - 1 (1 ) - Net loss - - - (22,215 ) (22,215 ) Balance, December 31, 2020 17,532,893 $ 18 $ 292,275 $ (230,974 ) $ 61,319 See accompanying notes to the consolidated financial statements. F- 4 Actinium Pharmaceuticals, Inc. Consolidated Statements of Cash Flows For the Year ended December 31, (amounts in thousands) 2020 2019 Cash Flows from Operating Activities: Net loss $ (22,215 ) $ (21,900 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 1,254 1,295 Depreciation and amortization expense 447 420 Changes in operating assets and liabilities: Decrease in: Prepaid expenses and other current assets (531 ) 253 Increase (decrease) in: Accounts payable and accrued expenses (257 ) (1,255 ) Operating lease liabilities (315 ) (275 ) Net Cash Used In Operating Activities (21,617 ) (21,462 ) Cash Flows from Investing Activities: Purchase of property and equipment (253 ) (64 ) Net Cash Used In Investing Activities (253 ) (64 ) Cash Flows from Financing Activities: Payments on note payable (381 ) (249 ) Payments on finance leases (79 ) (73 ) Proceeds from sales of shares of common stock and warrants, net of offering costs 76,589 15,932 Proceeds from the exercise of warrants 47 1,504 Net Cash Provided By Financing Activities 76,176 17,114 Net change in cash, cash equivalents and restricted cash 54,306 (4,412 ) Cash, cash equivalents and restricted cash at beginning of year 9,693 14,105 Cash, cash equivalents and restricted cash at end of year $ 63,999 $ 9,693 Supplemental disclosures of cash flow information: Cash paid for interest $ 8 $ 26 Cash paid for taxes $ - $ - Supplemental disclosure of non-cash investing and financing activities: Prepaid expenses financed by accounts payable $ 753 $ 423 Deemed dividend for warrant down-round protection provision $ 1 $ 1 See accompanying notes to the consolidated financial statements. F- 5 Actinium Pharmaceuticals, Inc. Notes to Consolidated Financial Statements Note 1 - Description of Business and Summary of Significant Accounting Policies Nature of Business - Actinium Pharmaceuticals, Inc. (the “Company”, “Actinium”, or “We”) is a clinical-stage, biopharmaceutical company focused on developing and potentially commercializing therapies for targeted conditioning prior to cell therapies such as a BMT or Bone Marrow Transplant or CAR-T, a type of cellular therapy that genetically alters a patient’s own T cells to target and kill their cancer cells, and for other adoptive cell therapies. In addition, the Company is also developing potential therapies for targeting and killing of cancer cells either as single agents or in combination with other drugs. Principles of Consolidation - The consolidated financial statements include the Company’s accounts and those of the Company’s wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Use of Estimates in Financial Statement Presentation - The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Reverse Stock Split In August 2020, the Company effected a reverse stock split of its outstanding common stock by combining outstanding shares of common stock into a lesser number of outstanding shares of common stock by a ratio of 1-for-30. Accordingly, all common share and per common share data in these consolidated financial statements and related notes hereto have been retroactively adjusted to account for the effect of this reverse stock split for all periods presented. Impact of COVID–19 Pandemic on Financial Statements In December 2019, a novel strain of COVID-19 was reported in China. Since then, COVID-19 has spread globally. The spread of COVID-19 from China to other countries has resulted in the World Health Organization (“WHO”) declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses, and many local jurisdictions continue to have such restrictions in place. As local jurisdictions continue to put restrictions in place, the Company’s ability to continue to operate its business may also be limited. Such events may result in a period of business, supply and drug product manufacturing disruption, and in reduced operations, any of which could materially affect the Company’s business, financial condition and results of operations. In response to COVID-19, the Company implemented remote working and thus far, has not experienced a significant disruption or delay in its operations as it relates to the clinical development or drug production of our drug candidates. F- 6 The spread of COVID-19, which has caused a broad impact globally, may materially affect the Company economically. While the ultimate economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others, the pandemic has resulted in significant disruptions in the general commercial activity and the global economy and caused financial market volatility and uncertainty in significant and unforeseen ways in the recent months. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on the Company’s ability to access capital, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of the Company’s common stock. Additionally, COVID-19 may result in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with IRB’s or Institutional Review Boards, local and foreign regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees. To date, COVID-19 has not had a financial impact on the Company. However, COVID-19 has caused severe disruptions in transportation and limited access to the Company’s facility, resulting in limited support from its staff and professional advisors. The Company continues to monitor the impacts of COVID-19 on the global economy and on its business operations. However, at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will last or to what degree further disruption might impact the Company’s operations and financial results. Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less to be cash equivalents. Balances held by the Company are typically in excess of Federal Deposit Insurance Corporation insured limits. Following is a summary of cash, cash equivalents and restricted cash at December 31, 2020 and December 31, 2019: (in thousands) December 31, 2020 December 31, 2019 Cash and cash equivalents $ 63,560 $ 9,254 Restricted cash – current 48 48 Restricted cash – long-term 391 391 Cash, cash equivalents and restricted cash $ 63,999 $ 9,693 Current restricted cash relates to credit card accounts, while long-term restricted cash relates to a certificate of deposit held as collateral for a letter of credit issued in connection with the Company’s lease for corporate office space. Property and Equipment - Machinery and equipment are recorded at cost and depreciated on a straight-line basis over estimated useful lives of three to five years. Furniture and fixtures are recorded at cost and depreciated on a straight-line basis over estimated useful lives of seven years. When assets are retired, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in operations. Repairs and maintenance expenditures are charged to operations. Capitalized lease assets are recorded at the lesser of the present value of minimum lease payments or fair value and amortized over the estimated useful life of the related property or term of the lease. Leases – The Company has operating and finance leases for corporate office space, office equipment and furniture located at the corporate office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. F- 7 Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Income Taxes - The Company accounts for income taxes in accordance with FASB ASC 740 Income Taxes, which requires the asset and liability method to calculate deferred taxes. Deferred taxes are recognized based on the differences between the financial reporting and income tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized. FASB ASC 740 prescribes guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions. Tax positions must meet a “more-likely-than-not” recognition threshold to be recognized. There were no tax positions for which it is considered reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next year. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses Revenue Recognition - Revenue will be recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration expected to be entitled to in exchange for those goods or services . Research and Development Costs - Research and development costs are expensed as incurred. These costs include the costs of manufacturing drug product, the costs of clinical trials, costs of employees and associated overhead, and depreciation and amortization costs related to facilities and equipment. Research and development reimbursements are recorded by the Company as a reduction of research and development costs. Share-Based Payments - The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The Company accounts for forfeitures of stock options as they occur. Loss Per Common Share - Basic loss per common share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding during the reporting period. For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common shares underlying common stock options and warrants using the treasury stock method. For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all potential dilutive common shares is anti-dilutive. For the years ended December 31, 2020 and 2019, the Company’s potentially dilutive shares, which include outstanding common stock options and warrants have not been included in the computation of diluted net loss per share as the result would have been anti-dilutive. (in thousands) December 31, 2020 December 31, 2019 Options 815 380 Warrants 2,113 2,871 Total 2,928 3,251 Subsequent Events - The Company’s management reviewed all material events through the date the consolidated financial statements were issued for subsequent event disclosure consideration. F- 8 Accounting Standards Recently Adopted - In August 2018, FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements, primarily associated with Level 3 fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the standard for disclosures modified or removed with a delay of adoption of the additional disclosures until their effective date. The Company adopted this standard effective January 1, 2020 and the standard did not have a significant impact to the Company’s financial statements. In November 2018, FASB issued ASU 2018-18, C ollaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted this standard effective January 1, 2020 and the standard did not have a significant impact to the Company’s financial statements. Recent Accounting Standards – In August 2018, FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the standard for disclosures modified or removed with a delay of adoption of the additional disclosures until their effective date. The Company is in the process of evaluating the impact the standard will have on its financial statements. In November 2018, FASB issued ASU 2018-18, C ollaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating the impact the standard will have on its financial statements. Accounting Standards Recently Issued- In August 2020, 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, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated the need for the Company to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty rights rank higher shareholder’s rights, and (3) whether collateral is required. In addition, the ASU requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial instruments accounted for under this ASU on earnings per share. This ASU may be applied on a full retrospective of modified retrospective basis. This ASU is effective January 1, 2022 and interim periods presented. Early adoption of the ASU is permitted by the Company effective January 1, 2021. The Company is in the process of assessing the adoption of the ASU on the Company’s financial statements. Note 2 - Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following at December 31, 2020 and 2019: December 31, December 31, 2020 2019 Prepaid insurance $ 792 $ 480 Prepaid clinical trial expenses 457 236 Other prepaid expenses and other current assets 68 70 Total prepaid expenses and other current assets $ 1,317 $ 786 F- 9 Note 3 - Property and Equipment Property and equipment consisted of the following at December 31, 2020 and 2019: December 31, December 31, (in thousands) Lives 2020 2019 Lab equipment 5 years $ 378 $ 148 Office equipment & furniture 3 - 7 years 225 202 Less: accumulated depreciation (291 ) (237 ) Property and equipment, net $ 312 $ 113 Depreciation expense consisted of the following for the years ended December 31, 2020 and 2019, respectively: December 31, December 31, (in thousands) 2020 2019 Research & development $ 36 $ 32 General administrative 18 22 Total Depreciation expense $ 54 $ 54 Note 4 - Leases The Company adopted ASC 842 as of January 1, 2019, using a modified retrospective approach and applying the standard’s transition provisions at January 1, 2019, the effective date. The Company made an accounting policy election to exclude from balance sheet reporting those leases with initial terms of 12 months or less. The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of a fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable. Right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate was not readily determinable in the Company’s leases, the incremental borrowing rate was used based on the information available at commencement date in determining the present value of lease payments. The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met. At December 31, 2020, the Company has an operating lease for corporate office space and two finance leases for office equipment and furniture located in the corporate office space. In addition, the Company has auxiliary corporate office space that it rents on a month-to-month basis; this rental is accounted for as an operating lease with the same term as the Company’s main office in the same building. F- 10 The components of lease expense are as follows: (in thousands) Year ended December 31, 2020 Year ended December 31, 2019 Operating lease expense $ 372 $ 369 Finance lease cost Amortization of right-to-use assets $ 81 $ 81 Interest on lease liabilities $ 16 $ 22 Total finance lease cost 97 $ 103 Supplemental cash flow information related to leases are as follows: Year ended (in thousands) December 31, 2020 December 31, 2019 Cash flow information: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow use from operating leases $ 375 $ 356 Operating cash flow use from finance leases $ 16 $ 22 Financing cash flow use from finance leases $ 78 $ 73 Non-cash activity: Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 83 $ 807 Finance Leases $ - $ 221 Weighted average remaining lease terms are as follows at December 31, 2020: Weighted average remaining lease term: Operating leases 1.8 years Finance Leases 1.7 years As the Company’s leases did not provide an implicit rate, the Company used its incremental borrowing rate based on the information available in determining the present value of lease payments. The Company’s incremental borrowing rate was based on the term of the lease, the economic environment of the lease and reflect the rate the Company would have had to pay to borrow on a secured basis. Below is information on the weighted average discount rates used at the time that the leases were evaluated: Weighted average discount rates: Operating leases 8 % Finance Leases 8 % Maturities of lease liabilities are as follows: Year ending December 31, Operating Leases Finance Leases 2021 377 94 2022 252 64 2023 - 4 Total lease payments $ 629 $ 162 Less imputed interest (42 ) (11 ) Present value of lease liabilities $ 587 $ 151 F- 11 Note 5 - Commitments and Contingencies Agreements The Company has entered into agreements with third parties for the rights to certain intellectual property, manufacturing and clinical trial services under which the Company may incur obligations to make payments, including upfront payments, as well as milestone and royalty payments. Notable inclusions in this category are: a. Oak Ridge National Laboratory (“ORNL”) – The Company is contracted to purchase radioactive material to be used for research and development, with a renewal option at the contract end. During the years ended December 31, 2020 and 2019, the Company purchased material from ORNL of $0.2 million and $0.2 million, respectively. In December 2020, the Company signed a contract with ORNL to purchase $0.3 million of radioactive material during calendar year 2021. b. On June 15, 2012, the Company entered into a license and sponsored research agreement with Fred Hutchinson Cancer Research Center (“FHCRC”) to build upon previous and ongoing clinical trials with BC8 (licensed antibody). FHCRC has completed both a Phase 1 and Phase 2 clinical trial with BC8. The Company has been granted exclusive rights to the BC8 antibody and related master cell bank developed by FHCRC. A milestone payment of $1 million will be due to FHCRC upon FDA approval of the first drug utilizing the licensed BC 8 antibody. Upon commercial sale of the drug, royalty payments of 2% of net sales will be due to FHCRC. Collaborative Agreement In March 2018, the Company entered into a research and option agreement with Astellas Pharma Inc. (“Astellas”) to develop ARCs using the Company’s AWE Technology Platform. Under this collaboration, the Company will utilize its AWE Platform to conjugate and label selected Astellas targeting agents with an Actinium-225 payload. The Company is also responsible for conducting preclinical validation studies on any ARCs generated. Payments from Astellas under this agreement are accounted for as a reduction to research and development expense Note 6 - Equity On April 24, 2020, the Company issued and sold 4.3 million shares of common stock and 2.8 million pre-funded warrants to purchase shares of common stock. The price to the public in this offering for each share of common stock was $4.50 and for each pre-funded warrant was $4.497. Each pre-funded warrant had an exercise price of $0.003 per share and was exercisable immediately upon issuance. Gross proceeds from this offering were $31.6 million, before deducting underwriting discounts and commissions and other offering expenses payable by the Company. Net proceeds from this offering were $29.1 million. During the year ended December 31, 2020, holders of all of the 2.8 million pre-funded April 2020 warrants exercised their warrants at $0.003 per share and received 2.8 million shares of common stock. On June 19, 2020, the Company issued and sold 1.9 million shares of common stock and 0.7 million pre-funded warrants to purchase shares of common stock. The price to the public in this offering for each share of common stock was $9.75 and for each pre-funded warrant was $9.747. Each pre-funded warrant had an exercise price of $0.003 per share and was exercisable immediately upon issuance. Gross proceeds from this offering were $25.0 million, before deducting underwriting discounts and commissions and other offering expenses payable by the Company. Net proceeds from this offering were $23.0 million. During the year ended December 31, 2020, holders of all of the 0.7 million pre-funded June 2020 warrants exercised their warrants at $0.003 per share and received 0.7 million shares of common stock. F- 12 In August 2020, the Company entered into the Capital on Demand™ Sales Agreement with JonesTrading Institutional Services LLC (“JonesTrading”), pursuant to which the Company may sell, from time to time, through or to JonesTrading, up to an aggregate of $200 million of its common stock. Shares of common stock are offered pursuant to the Company’s shelf registration statement on Form S-3 filed with the SEC on August 7, 2020. As of December 31, 2020, the Company has sold 2.1 million shares of common stock, resulting in gross proceeds of $22.6 million and net proceeds of $21.7 million. In December 2018, the Company entered into the Amended and Restated At Market Issuance Sales Agreement with B. Riley FBR, Inc. and JonesTrading, pursuant to which the Company conducted its at-the market program. During the year ended December 31, 2020, the Company sold 0.3 million shares of common stock through its at-the-market program, resulting in net proceeds of $2.5 million. In October 2018, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a purchase agreement and a registration rights agreement, pursuant to which the Company has the right to sell to Lincoln Park shares of the Company’s common stock having an aggregate value of up to $32.5 million, subject to certain limitations and conditions set forth in the agreement. During the year ended December 31, 2020, the Company elected to sell to Lincoln Park 27 thousand shares and received $0.2 million. In April 2019, the Company sold 1.4 million shares of common stock at an offering price of $11.55 per share and warrants to purchase 1.4 million shares of common stock at an exercise price of $15.00 per share and with a term of 5 years, resulting in gross proceeds of $16.5 million and net proceeds of $15.1 million after deducting underwriting and other offering expenses. For the year ended December 31, 2019, the Company sold 93 thousand shares of common stock through its at-the-market program with Jones Trading, resulting in net proceeds of $0.7 million. The Company elected to sell to Lincoln Park 13 thousand shares and received $0.1 million. In March 2018, the Company sold an aggregate of 1.0 million units consisting of an aggregate of 1.0 million shares of common stock, 0.3 million series A warrants and 0.8 million series B warrants, with each series A warrant exercisable for one share of common stock at an exercise price of $18.00 per share and each series B warrant exercisable for one share of common stock at an exercise price of $21.00 per share. During the year ended December 31, 2019, holders of March 2018 series A warrants exercised 84 thousand shares, resulting in the Company receiving $1.5 million. The remaining March 2018 series A warrants expired in March 2019. The March 2018 Series B warrants expired in September 2020. 2019 Amended and Restated Stock Plan In December 2019, the Company’s 2019 Stock Plan was established. The expiration date of the plan is October 18, 2029 and the total number of shares of the Company’s common stock available for grant to employees, directors and consultants of the Company was 333,333 shares. At the Company’s Annual Meeting of Stockholders held on November 18, 2020, its stockholders authorized an increase in the number of shares authorized under the plan, resulting in the number of shares authorized in the plan to be 3,083,333 shares 2013 Amended and Restated Stock Plan In September 2013, the Company’s 2013 Stock Plan was established. The expiration date of the plan is September 9, 2023 and at the time of approval, the total number of shares of the Company’s common stock available for grant to employees, directors and consultants of the Company under the plan was 91,666 shares. After a number of amendments approved by stockholders, the number of shares authorized under the plan is 758,333 shares. F- 13 2013 Equity Incentive Plan In September 2013, the Company’s 2013 Equity Incentive Plan was established. The expiration date of the plan is September 9, 2023 and the total number of shares of the Company’s common stock available for grant to employees, directors and consultants of the Company under the plan was 15,000 shares. In December 2013, the shareholders of the Company approved the plan and increased the number of shares authorized under the plan to 33,333 shares. Stock Options Following is a summary of stock option activity for the years ended December 31, 2020 and 2019: (in thousands, except for per-share amount) Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding, January 1, 2019 241 52.20 7.97 6,400 Granted 195 8.10 Cancelled (56 ) 14.40 Outstanding, December 31, 2019 380 35.10 7.88 155 Granted 458 9.99 Cancelled (23 ) 16.84 Outstanding, December 31, 2020 815 21.53 8.51 120 Exercisable, December 31, 2020 254 45.98 6.74 41 During 2020, the Company granted its employees and members of the Board of Directors options to purchase 458 thousand shares of common stock with an exercise price ranging from $6.63 to $12.41 per share, a term of 10 years, and a vesting period from 4 to 4.2 years. The options have an aggregated fair value of $3.2 million that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate range from 0.34% to 0.56% (2) expected life of 6 years, (3) expected volatility range from 83.6% to 85.5%, and (4) zero expected dividends. During 2019, the Company granted its employees and members of the Board of Directors options to purchase 195 thousand shares of common stock with an exercise price ranging from $6.44 to $17.40 per share, a term of 10 years, and a vesting period from 4 to 4.2 years. The options have an aggregated fair value of $1.1 million that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate range from 1.38% to 2.6% (2) expected life of 6 years, (3) expected volatility range from 78.5% to 81.8%, and (4) zero expected dividends. During the years ended December 31, 2020 and 2019, options to purchase 23 thousand and 56 thousand common shares were cancelled, respectively, upon the termination of employment. There were no exercises of options during 2020 and 2019. The fair values of all options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at December 31, 2020 was $4.0 million related to unvested options, which is expected to be expensed over a weighted average of 3.3 years. During 2020 and 2019, the Company recorded total option expense of $1.2 million and $1.2 million, respectively. F- 14 Pre-funded Warrants As part of the financings in April 2020 and June 2020, the Company issued pre-funded warrants. Each pre-funded warrant had an exercise price of $0.003 per share and was exercisable immediately upon issuance. The pre-funded warrants did not have an expiration date. During 2020 all the pre-funded warrants were exercised for shares of common stock. Following is a summary of pre-funded warrant activity for the year ended December 31, 2020: (in thousands, except for per-share amounts) Number of Shares Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding, December 31, 2019 - $ - $ - Granted 3,459 0.003 Exercised (3,459 ) 0.003 Outstanding, December 31, 2020 - $ - $ - Warrants Following is a summary of warrant activities for the years ended December 31, 2020 and 2019: (in thousands, except for per-share amounts) Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding, January 1, 2019 1,861 36.00 2.04 569 Granted 1,430 15.00 Exercised (85 ) 17.70 Cancelled (335 ) 82.80 Outstanding, December 31, 2019 2,871 20.71 2.95 301 Granted - - Exercised (2 ) 15.00 Cancelled (756 ) 20.99 Outstanding, December 31, 2020 2,113 20.55 2.76 362 Exercisable, December 31, 2020 2,111 20.56 2.76 362 In April 2019, the Company sold 1.4 million shares of common stock at an offering price of $11.55 per share and warrants to purchase 1.4 million shares of common stock at an exercise price of $15.00 per share and with a term of 5 years. The transaction date relative fair value of the April 2019 warrants of $5.3 million was determined utilizing the Black-Scholes option pricing model and variables of (1) a discount rate of 2.35%, (2) expected term of 5 years, (3) expected volatility of 78% and (4) zero expected dividends. In March 2018, the Company sold an aggregate of 1.0 million units consisting of an aggregate of 1.0 million shares of common stock, 0.3 million series A warrants and 0.8 million series B warrants, with each series A warrant exercisable for one share of common stock at an exercise price of $18.00 per share and each series B warrant exercisable for one share of common stock at an exercise price of $21.00 per share. During the year ended December 31, 2019, holders of March 2018 series A warrants exercised 84 thousand shares, resulting in the Company receiving $1.5 million. The remaining March 2018 series A warrants expired in March 2019. The March 2018 Series B warrants expired in September 2020. F- 15 The Company has an outstanding warrant to purchase 1,907 shares of common stock, issued on March 14, 2017 to Sandesh Seth, the Company’s Chairman and Chief Executive Officer. The warrant included down-round protection up until it was amended on August 11, 2020. For warrants with down-round protection, a deemed dividend is recorded for the change in fair value of the warrants when the down-round provision is triggered. As a result of the April 2019 offering, the exercise price of the warrant was reset from $37.50 per share to $26.40 per share. As a result of the April 2020 offering and June 2020 offering, the exercise price of the warrant was reset from $26.40 per share to $15.61515 per share. The down-round protection provision in the above warrants created a deemed dividend to common stockholders of $1 thousand in the years ended December 31, 2020 and 2019, which are reflected in the accompanying consolidated statement of operations and consolidated statement of changes in stockholders’ equity. On August 11, 2020, the Company and Mr. Seth agreed to amend the warrant to remove the anti-dilution provision that had been in the warrant. Accordingly, pursuant to the amendment, as of August 11, 2020, the exercise price of the warrant will no longer be subject to a proportional adjustment if and when the Company issues any shares of its common stock for a consideration less than the exercise price of the warrant. All other terms of the warrant remained the same. During the years ended December 31, 2020 and 2019, the Company recorded stock-based compensation expense related to warrants of $13 thousand and $8 thousand, respectively. Note 7 - Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows: (in thousands) 2020 2019 Deferred tax assets: Net operating losses carry forward $ 33,955 $ 31,688 Share-based compensation 1,689 1,422 Research and development/orphan drug credits 12,638 10,872 Intangibles 7,873 5,942 Others 19 13 Less: valuation allowance (56,174 ) (49,937 ) Deferred tax assets, net $ - $ - The Company has recorded a valuation allowance of $56.2 million and $49.9 million against its deferred tax assets at December 31, 2020 and 2019, respectively, because management determined that it is not more-likely-than not that those assets will be realized. For federal income tax purposes, the Company has $152.0 million of unused net operating losses (“NOLs”) at December 31, 2020 available for carry forward to future years. NOLs generated prior to 2018 will begin to expire if unused in 2021. The NOLs generated in 2018 and later years have an indefinite life, but will be limited to 80% of their value if used in a tax year ending after January 1, 2021. For state income tax purposes, the Company has $81.7 million of unused NOLs at December 31, 2020 available for carry forward to future years. These NOLs will begin to expire in 2034 if unused. The Company has federal research and development tax credits of $2.2 million at December 31, 2020 which will begin to expire in 2034 if unused and orphan drug credits of $10.4 million which will begin to expire in 2028 if unused. F- 16 Federal and state tax laws impose limitations on the utilization of net operating losses and credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company’s ability to utilize these carryforwards may be limited as a result of an ownership change which may have already happened or may happen in the future. Such an ownership change could result in a limitation in the use of the net operating losses in future years and possibly a reduction of the net operating losses available. The difference between the income tax provision and the amount that would result if the U.S. Federal statutory rates were applied to pre-tax losses for the year ended December 31, 2020 and 2019 are as follows: (in thousands) December 31, 2020 December 31, 2019 Federal statutory income taxes $ (4,665 ) (21.0 )% $ (4,599 ) (21.0 )% State income taxes 56 0.3 % 1,077 4.9 % Deferred true-up (64 ) (0.3 )% 1,810 8.3 % Research and Development/Orphan Drug Tax Credit (1,766 ) (8.0 )% (1,975 ) (9.0 )% Other 202 0.9 % 145 0.6 % Change in valuation allowance 6,237 28.1 % 3,542 16.2 % Provision for income tax $ - - $ - - Note 9 - Subsequent Events Since December 31, 2020, the Company has sold 1.7 million shares of common stock under its Capital on Demand™ Sales Agreement with JonesTrading, resulting in net proceeds of $14.4 million. F- 17 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.