Actinium Pharmaceuticals, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders 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, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021 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 provide 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 25, 2022 F- 1 Actinium Pharmaceuticals, Inc. Consolidated Balance Sheets (amounts in thousands, except share and per share data) December 31, 2021 December 31, 2020 Assets Current Assets: Cash and cash equivalents $ 77,829 $ 63,560 Restricted cash – current 392 48 Security deposit 50 - Prepaid expenses and other current assets 1,478 1,317 Total Current Assets 79,749 64,925 Property and equipment, net of accumulated depreciation of $ 335 and $ 291 340 312 Operating lease right-of-use assets 241 579 Finance leases right-of-use assets 58 140 Security deposit - 50 Restricted cash - 391 Total Assets $ 80,388 $ 66,397 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable and accrued expenses $ 5,535 $ 4,340 Other liability 998 - Operating leases current liability 245 342 Finance leases current liability 62 85 Total Current Liabilities 6,840 4,767 Long-term operating lease obligations - 245 Long-term finance lease obligations 3 66 Total Liabilities 6,843 5,078 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; 22,143,974 and 17,532,893 shares issued and outstanding 22 18 Additional paid-in capital 329,271 292,275 Accumulated deficit ( 255,748 ) ( 230,974 ) Total Stockholders’ Equity 73,545 61,319 Total Liabilities and Stockholders’ Equity $ 80,388 $ 66,397 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) 2021 2020 Revenue Revenue $ - $ - Other Revenue 1,144 - Total revenue 1,144 - Operating expenses: Research and development, net of reimbursements 18,031 16,085 General and administrative 8,077 6,308 Total operating expenses 26,108 22,393 Loss from operations ( 24,964 ) ( 22,393 ) Other income: Interest income - net 190 178 Total other income 190 178 Net loss $ ( 24,774 ) $ ( 22,215 ) Deemed dividend for warrant down-round protection provision - ( 1 ) Net loss applicable to common stockholders $ ( 24,774 ) $ ( 22,216 ) Net loss per common share - basic and diluted $ ( 1.20 ) $ ( 1.83 ) Weighted average common shares outstanding - basic and diluted 20,568,373 12,134,259 See accompanying notes to the consolidated financial statements. F- 3 Actinium Pharmaceuticals, Inc. Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended December 31, 2021 and 2020 (amounts in thousands, except share amounts) Common Stock Additional Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance, January 1, 2020 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 Stock-based compensation 21,306 - 1,694 - 1,694 Sale of common stock, net of offering costs 4,588,875 4 35,296 - 35,300 Issuance of common stock from exercise of stock options 900 - 6 6 Net loss - - - ( 24,774 ) ( 24,774 ) Balance, December 31, 2021 22,143,974 $ 22 $ 329,271 $ ( 255,748 ) $ 73,545 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) 2021 2020 Cash Flows from Operating Activities: Net loss $ ( 24,774 ) $ ( 22,215 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 1,694 1,254 Depreciation and amortization expense 524 447 Changes in operating assets and liabilities: Decrease in: Prepaid expenses and other current assets ( 161 ) ( 531 ) Increase (decrease) in: Accounts payable and accrued expenses 1,195 ( 257 ) Other liability 998 - Operating lease liabilities ( 342 ) ( 315 ) Net Cash Used In Operating Activities ( 20,866 ) ( 21,617 ) Cash Flows from Investing Activities: Purchase of property and equipment ( 133 ) ( 253 ) Net Cash Used In Investing Activities ( 133 ) ( 253 ) Cash Flows from Financing Activities: Payments on note payable - ( 381 ) Payments on finance leases ( 85 ) ( 79 ) Proceeds from sales of shares of common stock and warrants, net of offering costs 35,300 76,589 Proceeds from the exercise of stock options 6 - Proceeds from the exercise of warrants - 47 Net Cash Provided By Financing Activities 35,221 76,176 Net change in cash, cash equivalents and restricted cash 14,222 54,306 Cash, cash equivalents and restricted cash at beginning of year 63,999 9,693 Cash, cash equivalents and restricted cash at end of year $ 78,221 $ 63,999 Supplemental disclosures of cash flow information: Cash paid for interest $ - $ 8 Cash paid for taxes $ - $ - Supplemental disclosure of non-cash investing and financing activities: Deemed dividend for warrant down-round protection provision $ - $ 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 targeted radiotherapies for patients with unmet needs. The Company applies its proprietary technology platform consisting of over 170 patients, know-how and clinical experience in approximately 600 patients to develop novel therapies for blood cancer and solid tumor indications. Its clinical and preclinical development programs utilize multiple isotopes including Actinium-225, Iodine-131 and Lutetium-177 directed at multiple validated cancer targets including CD45, CD33, CD38, CD47, HER2 and HER3 for targeted conditioning prior to cell and gene therapies including bone marrow transplant and cancer therapeutics as single agents or in combination with other therapeutic modalities. 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. Impact of COVID–19 Pandemic on Financial Statements - The global health crisis caused by the novel coronavirus (“COVID-19”) pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. In addition, the Omicron variant of COVID-19, which appears to be the most transmissible variant to date, has spread globally. The full impact of the Omicron variant, or any subsequent variants, cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Omicron variant and subsequent variants and the response by governmental bodies and regulators. Many countries around the world have continued to impose quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Accordingly, 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. 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. 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 and Restricted Cash- 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. F- 6 Following is a summary of cash, cash equivalents and restricted cash at December 31, 2021 and December 31, 2020: (in thousands) December 31, 2021 December 31, 2020 Cash and cash equivalents $ 77,829 $ 63,560 Restricted cash – current 392 48 Restricted cash – long-term - 391 Cash, cash equivalents and restricted cash $ 78,221 $ 63,999 Current restricted cash of $ 392 thousand at December 31, 2021 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. This restricted cash was classified as long-term restricted cash at December 31, 2020. Current restricted cash of $ 48 thousand at December 31, 2020 related to a credit card account. 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. 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. Revenue Recognition - The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers (“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue as the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses whether the promised goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. In determining whether goods or services are distinct, the Company evaluates certain criteria, including whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (capable of being distinct) and (ii) the good or service is separately identifiable from other goods or services in the contract (distinct in the context of the contract). The Company then determines the transaction price, which is the amount of consideration it expects to be entitled from a customer in exchange for the promised goods or services for each performance obligation and recognizes the associated revenue as each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which it expects to be entitled. Variable consideration includes payments in the form of collaboration milestone payments. If an arrangement includes collaboration milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. F- 7 ASC 606 requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined in the revenue standard as the price at which an entity would sell a promised good or service separately to a customer. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation as each performance obligation is satisfied, either at a point in time or over time, and if over time, recognition is based on the use of an output or input method. Collaborative Arrangements - The Company follows the accounting guidance for collaboration agreements with third parties, which requires that certain transactions between the Company and collaborators be recorded in its consolidated statements of operations on either a gross basis or net basis, depending on the characteristics of the collaborative relationship, and requires enhanced disclosure of collaborative relationships. The Company evaluates its collaboration agreements for proper classification in its consolidated statements of operations based on the nature of the underlying activity. When the Company has concluded that it has a customer relationship with one of its collaborators, the Company follows the guidance of ASC 606 . Grant Revenue – The Company has a grant from a government-sponsored entity for research and development related activities that provide for payments for reimbursed costs, which includes overhead and general and administrative costs as well as an administrative fee. The Company recognizes revenue from grants as it performs services under this arrangement. Associated expenses are recognized when incurred as research and development expense. Revenue and related expenses are presented gross in the consolidated statements of operations. 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. 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 Net 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 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. The Company issued pre-funded warrants in April 2020 and June 2020 that were considered outstanding shares for the purposes of calculating net loss per common share throughout 2020. As of December 31, 2020, all of the pre-funded warrants had been exercised. F- 8 For the years ended December 31, 2021 and 2020, 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, 2021 December 31, 2020 Options 1,362 815 Warrants 2,112 2,113 Total 3,474 2,928 Subsequent Events - The Company’s management reviewed all material events through the date the consolidated financial statements were issued for subsequent event disclosure consideration. Accounting Standards Recently Adopted - 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 than 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, although early adoption of this ASU was permitted effective January 1, 2021. The Company early adopted this standard effective January 1, 2021 and the standard did not have a significant impact on the Company’s financial statements. Accounting Standards Recently Issued– In May 2021, FASB 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 an Entity’s Own Equity (Subtopic 815-40) – Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options , which provides guidance of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The amendments in this ASU are effective January 1, 2022, including interim periods. Early adoption is permitted. The Company will apply the amendments prospectively to modifications or exchanges occurring on or after January 1, 2022. The Company will evaluate the impact of ASU 2017-09 on any future changes to the terms and conditions of its warrants. In October 2021, FASB issued ASU 2021-08, Business Combinations (Topic 805), Account for Contract Assets and Contract Liabilities from Contracts with Customers , which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. The amendments of ASU 2021-08 are effective January 1, 2023, including interim periods. Early adoption is permitted, including adoption in an interim period. The Company will evaluate the impact of ASU 2021-08 on any future business combinations the Company may enter in the future. In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance , which provides guidance on disclosure requirements to entities other than not-for-profit entities about transaction with a government that are accounted for by applying a grant or contribution accounting model by analogy. ASU 2021-10 requires an entity to make annual disclosures related to (1) the nature of the transactions and the related accounting policy used to account for the government transactions, (2) quantification and disclosure of amounts related to the government transactions included in balance sheet and income statement financial statement line items, and (3) significant terms and conditions of the government transactions, including commitments and contingencies. The amendments of ASU 2021-10 are effective January 1, 2022, including interim periods. The adoption of ASU 2021-10 is not expected to have a significant impact on the Company’s financial statements. F- 9 Note 2 - Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following at December 31, 2021 and 2020: December 31, December 31, 2021 2020 Prepaid insurance $ 874 $ 792 Prepaid clinical trial expenses 543 457 Other prepaid expenses and other current assets 61 68 Total prepaid expenses and other current assets $ 1,478 $ 1,317 Note 3 - Property and Equipment Property and equipment consisted of the following at December 31, 2021 and 2020: December 31, December 31, (in thousands) Lives 2021 2020 Lab equipment 5 years $ 476 $ 378 Office equipment and furniture 3 - 7 years 199 225 Less: accumulated depreciation ( 335 ) ( 291 ) Property and equipment, net $ 340 $ 312 Depreciation expense consisted of the following for the years ended December 31, 2021 and 2020, respectively: December 31, December 31, (in thousands) 2021 2020 Research and development $ 88 $ 36 General administrative 17 18 Total Depreciation expense $ 105 $ 54 Note 4 - Leases 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. The Company made an accounting policy election to exclude from balance sheet reporting those leases with initial terms of 12 months or less. 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. F- 10 At December 31, 2021, 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. The components of lease expense are as follows: (in thousands) Year ended December 31, 2021 Year ended December 31, 2020 Operating lease expense $ 372 $ 372 Finance lease cost Amortization of right-to-use assets $ 81 $ 81 Interest on lease liabilities $ 9 $ 16 Total finance lease cost 90 $ 97 Supplemental cash flow information related to leases are as follows: Year ended (in thousands) December 31, 2021 December 31, 2020 Cash flow information: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow use from operating leases $ 377 $ 375 Operating cash flow use from finance leases $ 9 $ 16 Financing cash flow use from finance leases $ 85 $ 78 Non-cash activity: Right-of-use assets obtained in exchange for lease obligations: Operating leases $ - $ 83 Finance Leases $ - $ - Weighted average remaining lease terms are as follows at December 31, 2021: Weighted average remaining lease term: Operating leases 0.6 years Finance Leases 0.8 years As the interest rate implicit in the leases was not readily determinable at the time that the leases were evaluated, 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 % F- 11 Maturities of lease liabilities are as follows: Year ending December 31, Operating Leases Finance Leases 2022 252 64 2023 - 4 Total lease payments $ 252 $ 68 Less imputed interest ( 7 ) ( 3 ) Present value of lease liabilities $ 245 $ 65 Note 5 - Other revenue The Company has a grant from a government-sponsored entity for research and development related activities that provide for payments for reimbursed costs, which includes overhead and general and administrative costs as well as an administrative fee. The Company recognizes revenue from grants as it performs services under this arrangement. Associated expenses are recognized when incurred as research and development expense. Revenue of $ 0.2 million was recognized during year ended December 31, 2021. The Company determined that certain collaborations with a third-party are within the scope of ASC 606. The collaboration agreement is made up of multiple modules related to various research activities. The Company identified a single performance obligation to provide research services within each module for which the Company receives monetary consideration. The third-party can choose to proceed with each module or can terminate the agreement at any time. The Company recognizes revenue for each module on a straight-line basis over the expected module period. Revenue for succeeding modules is not recognized until all contingencies are resolved, inclusive of the third-party’s ability to terminate the module. The consideration is recognized to revenue over each module and revenue recognized during the year ended December 31, 2021 was $ 0.9 million. Other liability consists of $ 1.0 million of deferred other revenue that is expected to be recognized during 2022. Note 6 - Commitments and Contingencies 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 apamistamab (licensed antibody). FHCRC has completed both a Phase 1 and Phase 2 clinical trial with apamistamab. The Company has been granted exclusive rights to the 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 antibody. Upon commercial sale of the drug, royalty payments of 2% of net sales will be due to FHCRC. Note 7 - 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. 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 had sold 2.1 million shares of common stock, resulting in gross proceeds of $ 22.6 million and net proceeds of $ 21.7 million. For the year ended December 31, 2021, the Company sold 4.6 million shares of common stock, resulting in gross proceeds of $ 36.5 million and net proceeds of $ 35.3 million. F- 12 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. At the Company’s Annual Meeting of Stockholders held on November 9, 2021, 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 5,833,333 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. 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, 2021 and 2020: (in thousands, except for per-share amount) Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value at December 31, 2021 Outstanding, January 1, 2020 380 35.10 7.88 155 Granted 458 9.99 Cancelled ( 23 ) 16.84 Outstanding, December 31, 2020 815 21.53 8.51 120 Granted 881 6.43 Exercised ( 1 ) 6.69 Cancelled ( 333 ) 18.78 Outstanding, December 31, 2021 1,362 12.45 8.69 - Exercisable, December 31, 2021 354 27.04 6.92 - During 2021, the Company granted its employees and members of the Board of Directors options to purchase 881 thousand shares of common stock with an exercise price ranging from $ 6.02 to $ 9.25 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 $ 3.9 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 0.65% to 1.28% (2) expected life of 6 years, (3) expected volatility range from 79.8% to 85.1%, and (4) zero expected dividends. 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. F- 13 During the years ended December 31, 2021 and 2020, options to purchase 333 thousand and 23 thousand common shares were cancelled, respectively, upon the termination of employment. During 2021, 1 thousand options were exercised for shares of common stock. There were no exercises of options during 2020. The fair values of all options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at December 31, 2021 was $ 4.9 million related to unvested options, which is expected to be expensed over a weighted average of 3.3 years. During 2021 and 2020, the Company recorded total option expense of $ 1.5 million and $ 1.2 million, respectively. Pre-funded Warrants As part of the April 2020 offering and the June 2020 offering, 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. Warrants Following is a summary of warrant activities for the years ended December 31, 2021 and 2020: (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, 2020 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 Granted 1 8.30 Exercised - - Cancelled ( 2 ) 50.17 Outstanding, December 31, 2021 2,112 20.52 1.76 276 Exercisable, December 31, 2021 2,108 20.12 1.76 276 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 2020 offering and June 2020 offering, the exercise price of the warrant was reset from $ 26.40 per share to $ 15.62 per share. The down-round protection provision in the above warrants created a deemed dividend to common stockholders of $ 1 thousand in the year ended December 31, 2020 which is 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, 2021 and 2020, the Company recorded stock-based compensation expense related to warrants of $ 16 thousand and $ 13 thousand, respectively. F- 14 Note 8 - 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, 2021 and 2020 are as follows: (in thousands) 2021 2020 Deferred tax assets: Net operating losses carry forward $ 36,405 $ 33,955 Share-based compensation 1,213 1,689 Research and development/orphan drug credits 14,536 12,638 Intangibles 10,426 7,873 Others 19 19 Less: valuation allowance ( 62,599 ) ( 56,174 ) Deferred tax assets, net $ - $ - The Company has recorded a valuation allowance of $ 62.6 million and $ 56.2 million against its deferred tax assets at December 31, 2021 and 2020 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 $ 163.0 million of unused net operating losses (“NOLs”) at December 31, 2021 available for carry forward to future years. NOLs of $120.8 million generated prior to 2018 will begin to expire if unused in 2022. NOLs generated in 2018 and later years of $42.2 million have an indefinite life, but will be limited to 80% of their value if used in a tax year ending after January 1, 2022. For state income tax purposes, the Company has $ 87.9 million of unused NOLs at December 31, 2021 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 $ 2.9 million at December 31, 2021 which will begin to expire in 2034 if unused and orphan drug credits of $ 11.6 million which will begin to expire in 2028 if unused. 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, 2021 and 2020 are as follows: (in thousands) December 31, 2021 December 31, 2020 Federal statutory income taxes $ ( 5,202 ) ( 21.0 )% $ ( 4,665 ) ( 21.0 )% State income taxes ( 373 ) ( 1.5 )% 56 0.3 % Deferred true-up 562 2.3 % ( 64 ) ( 0.3 )% Research and development/orphan drug tax credit ( 1,898 ) ( 7.7 )% ( 1,766 ) ( 8.0 )% Other 486 2.0 % 202 0.9 % Change in valuation allowance 6,425 25.9 % 6,237 28.1 % Provision for income tax $ - - $ - - F- 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.