Item 1. Financial Statements
Item 1. Financial Statements
Moleculin Biotech, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except for share and per share data)
(Unaudited)
September 30,
December 31,
2024
2023
Assets
Current assets:
Cash and cash equivalents
$ 9,405 $ 23,550
Prepaid expenses and other current assets
2,201 2,723
Total current assets
11,606 26,273
Furniture and equipment, net
190 272
Intangible assets
11,148 11,148
Operating lease right-of-use asset
450 524
Total assets
$ 23,394 $ 38,217
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 2,550 $ 2,498
Accrued expenses and other current liabilities
3,043 4,317
Total current liabilities
5,593 6,815
Operating lease liability - long-term, net of current portion
390 474
Warrant liability - long-term
9,932 4,855
Total liabilities
15,915 12,144
Commitments and contingencies (Note 7)
Stockholders' equity
Preferred stock, $ 0.001 par value; 5,000,000 shares authorized, no shares issued or outstanding
— —
Common stock, $ 0.001 par value; 100,000,000 shares authorized; 3,001,895 and 2,227,516 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
3 33
Additional paid-in capital
158,957 157,653
Accumulated other comprehensive income (loss)
4 ( 9 )
Accumulated deficit
( 151,485 ) ( 131,604 )
Total stockholders’ equity
7,479 26,073
Total liabilities and stockholders’ equity
$ 23,394 $ 38,217
See accompanying notes to condensed consolidated financial statements.
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Moleculin Biotech, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Revenues
$
—
$
—
$
—
$
—
Operating expenses:
Research and development
4,932
3,280
13,274
12,855
General and administrative
2,172
2,635
6,629
7,765
Depreciation and amortization
31
32
95
92
Total operating expenses
7,135
5,947
19,998
20,712
Loss from operations
( 7,135
)
( 5,947
)
( 19,998
)
( 20,712
)
Other income (loss):
(Loss) gain from change in fair value of warrant liability
( 1,728
)
1
1,423
76
Transaction costs allocated to warrant liabilities
( 993
)
—
( 993
)
—
Loss on issuance of warrant liabilities
( 847
)
—
( 847
)
—
Other income, net
9
13
31
30
Interest income, net
102
324
503
1,106
Net loss
$
( 10,592
)
$
( 5,609
)
$
( 19,881
)
$
( 19,500
)
Net loss per common share - basic and diluted
$
( 2.85
)
$
( 2.82
)
$
( 6.83
)
$
( 9.94
)
Weighted average common shares outstanding, basic and diluted
3,714,278
1,987,283
2,910,842
1,961,327
Net Loss
$
( 10,592
)
$
( 5,609
)
$
( 19,881
)
$
( 19,500
)
Other comprehensive income (loss):
Foreign currency translation
14
( 10
)
13
( 15
)
Comprehensive loss
$
( 10,578
)
$
( 5,619
)
$
( 19,868
)
$
( 19,515
)
See accompanying notes to condensed consolidated financial statements.
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Moleculin Biotech, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended September 30,
2024
2023
Cash flows from operating activities:
Net loss
$
( 19,881
)
$
( 19,500
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
95
92
Stock-based compensation
1,299
1,505
License rights expense settled in stock
—
772
Change in fair value of warrant liability
( 1,423
)
( 76
)
Loss on issuance of warrant liabilities
847
—
Operating lease, net
106
105
Transaction costs allocated to warrant liabilities
993
—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
522
( 573
)
Accounts payable
52
( 87
)
Accrued expenses and other current liabilities
( 1,389
)
( 932
)
Net cash used in operating activities
( 18,779
)
( 18,694
)
Cash flows from investing activities:
Purchase of fixed assets
( 13
)
( 43
)
Net cash used in investing activities
( 13
)
( 43
)
Cash flows from financing activities:
Payment of tax liability for vested restricted stock units
( 26
)
( 25
)
Proceeds from sale of common stock, pre-funded and common warrants, net of issuance costs
4,660
211
Net cash provided by financing activities
4,634
186
Effect of exchange rate changes on cash and cash equivalents
13
( 15
)
Net decrease in cash and cash equivalents
( 14,145
)
( 18,566
)
Cash and cash equivalents, - beginning of period
23,550
43,145
Cash and cash equivalents, - end of period
$
9,405
$
24,579
Supplemental disclosures of cash flow information:
Non-cash investing and financing activities:
Transaction costs related to the sale of common stock, pre-funded and common warrants
$
156
$
—
Transaction costs included in accounts payable and accrued liabilities
$
42
$
—
See accompanying notes to condensed consolidated financial statements.
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Moleculin Biotech, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except for shares)
(Unaudited)
Nine Months Ended September 30, 2024
Common Stock
Accumulated
Shares
Par Value Amount
Additional Paid-In Capital
Accumulated Deficit
Other Comprehensive Income (Loss)
Total Stockholders' Equity
Balance, December 31, 2023
2,227,516
$
33
$
157,653
$
( 131,604
)
$
( 9
)
$
26,073
Issuance of common stock in connection with Consulting Agreements
6,834
—
37
—
—
37
Reverse stock split
77,186
( 31
)
31
—
—
—
Stock-based compensation
—
—
456
—
—
456
Net loss
—
—
—
( 4,970
)
—
( 4,970
)
Cumulative translation adjustment
—
—
—
—
( 9
)
( 9
)
Balance, March 31, 2024
2,311,536
$
2
$
158,177
$
( 136,574
)
$
( 18
)
$
21,587
Warrants exercised
229,506
1
—
—
—
1
Common stock issued upon vesting of restricted stock units (net of shares withheld for payment of tax liability)
19,743
—
( 25
)
—
—
( 25
)
Stock-based compensation
—
—
453
—
—
453
Consolidated net loss
—
—
—
( 4,319
)
—
( 4,319
)
Cumulative translation adjustment
—
—
—
—
8
8
Balance, June 30, 2024
2,560,785
$
3
$
158,605
$
( 140,893
)
$
( 10
)
$
17,705
Issued for cash - sale of common stock, pre-funded and common warrants
283,000
—
—
—
—
—
Warrants exercised
157,368
—
—
—
—
—
Common stock issued upon vesting of restricted stock units (net of shares withheld for payment of tax liability)
742
—
( 1
)
—
—
( 1
)
Stock-based compensation
—
—
353
—
—
353
Consolidated net loss
—
—
—
( 10,592
)
—
( 10,592
)
Cumulative translation adjustment
—
—
—
—
14
14
Balance, September 30, 2024
3,001,895
$
3
$
158,957
$
( 151,485
)
$
4
$
7,479
Nine Months Ended September 30, 2023
Common Stock Accumulated
Shares
Par Value Amount
Additional Paid-In Capital
Accumulated Deficit
Other Comprehensive Income (Loss)
Total Stockholders' Equity
Balance, December 31, 2022
1,908,522 $ 29 $ 153,985 $ ( 101,835 ) $ 12 $ 52,191
Issuance of common stock with equity purchase agreement
10,026 — 141 — — 141
Common stock issued for license rights
54,808 1 771 — — 772
Stock-based compensation
— — 499 — — 499
Net loss
— — — ( 7,915 ) — ( 7,915 )
Cumulative translation adjustment
— — — — ( 4 ) ( 4 )
Balance, March 31, 2023
1,973,356 $ 30 $ 155,396 $ ( 109,750 ) $ 8 $ 45,684
Issuance of common stock in connection with equity purchase agreement
5,013 69 69
Common stock issued upon vesting of restricted stock units (net of shares withheld for payment of tax liability)
7,588 — ( 21 ) — — ( 21 )
Stock-based compensation
— — 513 — — 513
Consolidated net loss
— — — ( 5,976 ) — ( 5,976 )
Cumulative translation adjustment
— — — — ( 1 ) ( 1 )
Balance, June 30, 2023
1,985,957 $ 30 $ 155,957 $ ( 115,726 ) $ 7 $ 40,268
Common stock issued upon vesting of restricted stock units (net of shares withheld for payment of tax liability)
1,409 — ( 4 ) — — ( 4 )
Stock-based compensation
— — 493 — — 493
Consolidated net loss
— — — ( 5,609 ) — ( 5,609 )
Cumulative translation adjustment
— — — — ( 10 ) ( 10 )
Balance, September 30, 2023
1,987,366 $ 30 $ 156,446 $ ( 121,335 ) $ ( 3 ) $ 35,138
See accompanying notes to condensed consolidated financial statements.
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Moleculin Biotech, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Business
The terms “MBI” or “the Company”, “we”, “our” and “us” are used herein to refer to Moleculin Biotech, Inc. MBI is a clinical-stage pharmaceutical company, organized as a Delaware corporation in July 2015, with clinical programs for hard-to-treat cancers and viruses. The Company has three core technologies, each of which have had one or more drugs successfully complete a Phase 1 clinical trial, based substantially on discoveries made at and licensed from MD Anderson Cancer Center (MD Anderson) in Houston, Texas. In July 2024 the Company’s lead program Annamycin completed a Phase 2 trial and has held it End-of-Phase 1/2 meeting with the Food and Drug Administration in the US and in August 2024 announced the preparations for a Phase 3 trial. The Company has two wholly owned subsidiaries, Moleculin Australia Pty. Ltd., which was set up to perform certain preclinical development and Moleculin Amsterdam B.V., which acts as its legal representative for clinical trials in Europe. The Company utilizes its own internal resources and funds to conduct some of these trials and also has trials being conducted via physician-sponsored trials. The physician-sponsored trials utilize primarily external funds, such as grant funds, which are not presented in these financial statements. The Company does not have manufacturing facilities, and all manufacturing activities are contracted out to third parties. Additionally, the Company does not have a sales organization. The Company’s overall strategy is to seek potential outlicensing or outsourcing opportunities with development/commercialization strategic partners who are better suited for the marketing, sales and distribution of its drugs, if approved.
In 2019, the Company sublicensed its technologies to Animal Life Sciences, Inc. (ALI), to enable research and commercialization for non-human use and share development data. As part of this agreement, ALI issued to the Company a 10 % equity interest in ALI.
On May 5, 2023, the Company received a letter from the Nasdaq Capital Market (Nasdaq) notifying the Company that for the prior 30 consecutive business days the bid price for the Company's common stock had closed below the minimum $ 1.00 per share requirement for continued inclusion on Nasdaq pursuant to Nasdaq Listing Rule 5550 (a)( 2 ) (Bid Price Rule). The deficiency letter did not result in the immediate delisting of the Company's common stock from the Nasdaq. In accordance with Nasdaq Listing Rule 5810 (c)( 3 )(A), the Company was provided an initial period of 180 calendar days, until November 1, 2023, to regain compliance with the Bid Price Rule. On November 2, 2023, the Company received a 180 -calendar day extension, until April 29, 2024, from the Nasdaq to regain compliance with Bid Price Rule. On March 5, 2024, the Board of Directors approved a reverse 1 -for- 15 reverse stock split effective 11:59 P.M. (Eastern time) on March 21, 2024, with trading to commence on a split-adjusted basis on March 22, 2024. On April 8, 2024, the Company received a letter from Nasdaq notifying the Company that it had regained compliance with Bid Price Rule 5550 (a)( 2 ) as a result of the closing bid price of the Company's common stock being at $ 1.00 per share or greater for the 10 consecutive business days from March 22, 2024 through April 5, 2024. Accordingly, the Company is in compliance with the Bid Price Rule and Nasdaq considers the matter closed.
2. Basis of presentation, principles of consolidation, and significant accounting policies and liquidity
Reverse Stock Split - On March 22, 2024, the Company completed a reverse stock split of all the issued and outstanding shares of the Company's common stock at a ratio of 1 to 15 . The accompanying consolidated financial statements and notes to the consolidated financial statements gives retroactive effect to the reverse stock split for all periods presented. Certain amounts previously reported include rounding up of fractional shares as a result of the reverse stock split.
Basis of Presentation – Condensed Consolidated Financial Information - The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for financial information, and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) with respect to Form 10 -Q and Article 8 of Regulation S- X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements furnished reflect all normal adjustments, which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company as of December 31, 2023 and for the year then ended, including the notes thereto contained in the Form 10 -K filed with the SEC on March 22, 2024.
Principles of Consolidation - The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The Company views its operations and manages its business in one operating segment. All material long-lived assets of the Company reside in the U.S.
Significant Accounting Policies - The Company's significant accounting policies are described in Note 2, Basis of Presentation, principles of consolidation and significant accounting policies , to the consolidated financial statements included in the Company's Annual Report on Form 10 -K for the year ended December 31, 2023 . There have been no material changes to the significant accounting policies during the nine months ended September 30, 2024 .
Use of Estimates - The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of financial statements. Estimates are used in the following areas, among others: fair value estimates on intangible assets, warrants, and stock-based compensation expense, as well as accrued expenses and taxes.
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Intangible Assets – Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Acquired intangible assets identified as in-process research and development (IPR&D) assets, are considered indefinite lived until the completion or abandonment of the associated research and development efforts. If the associated research and development effort is abandoned, the related IPR&D assets will be written-off and the Company will record a noncash impairment loss on its statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. Intangible assets are tested for impairment on an annual basis, which was completed as of September 30, 2024, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. The Company evaluates the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No impairments of intangible assets have been identified during any of the periods presented.
Going Concern and Liquidity - These condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As of September 30, 2024 , the Company had an accumulated defici t of $ 151.5 million since inception and had not yet generated any revenues from operations. Additionally, management anticipates that its cash on hand of $ 9.4 million a s of September 30, 2024 is not sufficient to fund its planned operations for a period of at least one year from when these consolidated financial statements are issued. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company intends to seek additional funding through one or more of the following: a combination of equity offerings, debt financings, government or other third -party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. There can be no assurance that such events or a combination thereof can be achieved.
In March 2022, the Company received a subpoena from the SEC requesting information and documents, including materials related to certain individuals ( none of which are the Company's officers or directors) and entities, and materials related to the development of and statements regarding the Company's drug candidate for the treatment of COVID- 19. The Company has received, and expects to continue to receive, periodic further requests from the SEC staff with respect to this matter. The Company is not aware of the specific nature of the underlying investigation by the SEC, and to the extent that this investigation relates to prior public disclosures that it has made, the Company believes in the accuracy and adequacy of such prior disclosures. The correspondence from the SEC transmitting the subpoena to the Company states that the SEC is trying to determine whether there have been any violations of federal securities laws, but that its investigation does not mean that the SEC has concluded that anyone has violated the law or that the SEC has a negative opinion of any person, entity, or security. The Company cannot predict when this matter will be resolved or what, if any, action the SEC may take following the conclusion of the investigation. The company expensed approximately $ 0.1 million and $ 0.4 million in related general and administrative fees and expenses for the three months ended September 30, 2024 and 2023 , respectively, and $ 0.2 million and $ 1.4 milli on for the nine months ended September 30, 2024 and 2023 , respectively . The Company is in the process of filing a claim with its insurance carriers related to this loss which may cover a portion of the related expenses but not all. The claim is currently under review by the insurance company. The claim has not yet been approved nor has a reimbursement amount been determined which, if any, would be limited by the applicable retention as defined under the policy . Accordingly, the Company has not recorded any provision for insurance reimbursement. The Company expects to record the insurance reimbursement at the time that the amount to be reimbursed is determined and approved by the insurance carrier. Any insurance reimbursement receivable will be recorded at an amount not to exceed the recorded loss and only if the terms of the legally enforceable insurance contracts support that the insurance recovery will not be disputed and is deemed collectible, or if recovery of the loss is probable.
Cash and Cash Equivalents - Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company maintains cash accounts principally at one financial institution in the U.S., which at times, may exceed the Federal Deposit Insurance Corporation’s limit. The Company has not experienced any losses from cash balances in excess of the insurance limit. The Company’s management does not believe the Company is exposed to significant credit risk at this time due to the financial condition of the financial institution where its cash is held.
Fair Value of Financial Instruments - The Company's financial instruments consist primarily of non-trade receivables, accounts payable, accrued expenses and its warrant liability. The carrying amount of non-trade receivables, accounts payable, and accrued expenses approximates their fair value because of the short-term maturity of such.
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three -level fair value hierarchy in accordance with U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1 ) and lowest priority to unobservable inputs (Level 3 ).
Assets and liabilities recorded in the condensed consolidated balance sheets at fair value are categorized based on a hierarchy of inputs as follows:
Level 1 – Unadjusted quoted prices in active markets of identical assets or liabilities.
Level 2 – Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 – Unobservable inputs for the asset or liability.
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The Company’s financial assets and liabilities recorded at fair value on a recurring basis include the fair value of warrant liability discussed in Note 4.
The following table provides the financial liabilities reported at fair value and measured on a recurring basis at September 30, 2024 and December 31, 2023 (table in thousands):
Description
Fair Value
Level 1
Level 2
Level 3
Fair value of warrant liability as of September 30, 2024:
$ 9,932 $ — $ — $ 9,932
Fair value of warrant liability as of December 31, 2023:
$ 4,855 $ — $ — $ 4,855
The table below of Level 3 liabilities (table in thousands) begins with the valuation as of the beginning of the third quarter and then is adjusted for changes in fair value that occurred during the third quarter. The ending balance of the Level 3 financial instrument presented above represents the Company's best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.
Three Months Ended September 30, 2024
Warrant Liability Long-Term
Balance, June 30, 2024
$ 1,704
Issuances of warrants
6,111
Warrant amendment
389
Change in fair value - net
1,728
Balance, September 30, 2024
$ 9,932
The table below of Level 3 liabilities (table in thousands) begins with the valuation as of December 31, 2023 and then is adjusted for changes in fair value that occurred during the nine months ended September 30, 2024 . The ending balance of the Level 3 financial instrument presented above represents the Company's best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.
Nine Months Ended September 30, 2024
Warrant Liability Long-Term
Balance, December 31, 2023
$ 4,855
Issuances of warrants
6,111
Warrant amendment
389
Change in fair value - net
( 1,423 )
Balance, September 30, 2024
$ 9,932
Loss Per Common Share - Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. For purposes of this calculation, options to purchase common stock, restricted stock units subject to vesting and warrants to purchase common stock are considered to be common stock equivalents. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. For the three months ended September 30, 2024 and 2023 , approximatel y 4.8 million and 0.6 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their anti-dilutive effect. For the nine months ended September 30, 2024 and 2023 , approximately 2.7 million and 0.5 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their anti-dilutive effect.
Subsequent Events - The Company’s management reviewed all material events through the date of these unaudited condensed consolidated financial statements.
Recent Accounting Pronouncements - In November 2024, FASB issued ASU 2024 - 03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures, but expects additional disclosures upon adoption. There are no other recently issued accounting standards updates that are currently expected to have a material impact on the Company.
3. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following components (in thousands):
September 30, 2024
December 31, 2023
Accrued payroll and bonuses
$ 1,512 $ 765
Accrued research and development
894 2,845
Accrued legal, regulatory, professional and other
431 547
Operating lease liability - current
116 100
Accrued liabilities due to related party
90 60
Total accrued expenses and other current liabilities
$ 3,043 $ 4,317
Additionally, accounts payable inclu des $ 20,000 and $ 67,000 as of September 30, 2024 and December 31, 2023 , respectively, for related party payables.
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4. Warrants and Equity
2024 Warrant and Stock Issuances
In August 2024, the Company entered into a securities purchase agreement with an institutional investor for the sale by the Company of 283,000 shares of common stock, and 2,183,368 pre-funded warrants to purchase shares of common stock, series A warrants to purchase up to 2,466,368 shares of common stock, series B warrants to purchase up to 2,466,368 shares of common stock, and placement agent warrants. The combined purchase price for the securities was $ 2.23 per share of common stock (or pre-funded warrant in lieu thereof). Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $ 0.001 per share. The pre-funded warrants are exercisable immediately and may be exercised at any time until all of the pre-funded warrants are exercised in full, subject to the beneficial ownership limitation. Each common warrant has an exercise price of $ 2.23 per share and will be exercisable beginning on the effective date of shareholder approval. The series A warrants expire on the earlier of (i) two years from the initial exercise date, or (ii) 60 days from the Company's public announcement that it has achieved the series A milestone event. The series B warrants expire on the earlier of (i) five years from the initial exercise date, or (ii) six months from the Company's public announcement that it has achieved the series B milestone event. The series A milestone event means the Company releases interim data for the first subject group from the MIRACLE trial whereby the complete remission rate for either dose of the Company's study drug is greater than placebo; and series B milestone event means the Company releases final topline data from the MIRACLE trial and documented a statistically significant improvement in the primary efficacy endpoint. In addition, in August 2024, the Company entered into a warrant amendment agreement, pursuant to which the Company agreed that effective upon closing of the offering, and subject to shareholder approval, to amend 895,834 existing warrants originally issued on December 26, 2023 at an exercise price of $ 9.60 per share and a termination date of February 14, 2029, so that the amended warrants would have a reduced exercise price of $ 2.23 per share and would expire five years from the date of shareholder approval. The Company calculated the valuation of the warrant amendment immediately prior to the offering, as well as the valuation of the warrant amendment with the repriced terms, and a 50% probability of obtaining shareholder approval. The loss on modification of the warrants of $0.4 million was recorded as a loss on issuance of warrant liabilities in the three and nine months ended September 30, 2024. The Company also considered a 50% probability of obtaining shareholder approval in the valuation for the August 2024 warrants in the three and nine months ended September 30, 2024. In October 2024, the Company’s shareholders approved the issuance of both the August 2024 warrants, as well as the warrant amendment.
The Company received gross proceeds of $ 5.5 million, before deducting the placement agent's fees and other offering expenses payable by the Company. Proceeds of offerings are allocated between common shares and warrants first by allocating to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which would include pre-funded warrants. As the fair value of the liability classified warrants in the August 2024 offering exceeded the total proceeds, no consideration was allocated to the Common Shares or Pre-Funded Warrants. The full proceeds of the August 2024 offering were recorded to warrant liabilities, with an initial liability of $ 6.1 million, and a loss on initial recognition of $ 0.8 million. Transaction costs related to the offering were correspondingly fully allocated to warrant liabilities, and $ 1.0 million in related transaction costs were expensed during the three and nine months ended September 30, 2024 .
Lincoln Park Equity Line
The Company did not utilize the 2021 Lincoln Park purchase agreement during the nine months ended September 30, 2024 . The 2021 Lincoln Park Agreement terminated in June 2024.
Other Components of Equity
In March 2024, the Company issued 6,834 shares of common stock to consultants in exchange for services to be provided. In addition, during the nine months ended September 30, 2024 , the Company issued 20,485 shares of common stock related to the vesting of restricted stock units.
Liability Classified Warrants
The Company uses the Black-Scholes option pricing model (BSM) to determine the fair value of its warrants at the date of issue and outstanding at each reporting date. The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds linearly interpolated to obtain a maturity period commensurate with the term of the warrants. Estimated volatility is a measure of the amount by which the Company's stock price is expected to fluctuate each year during the expected life of the warrants. Only the volatility of the Company's own stock is used in the Black-Scholes option pricing mode l. Certain assumptions, including the expected term, are subjective and require judgment to develop. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our warrant liability could be materially different.
The assumptions used in determining the fair value of the Company's outstanding liability classified warrants are as follows:
September 30, 2024
December 31, 2023
Risk-free interest rate
3.6 % to 4.5 %
3.8 % to 5.4 %
Volatility
78.7 % to 111.5 %
79.5 % to 108.7 %
Expected life (years)
0.4 to 5.0
0.3 to 5.0
Dividend yield
—%
—%
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A summary of the Company's liability classified warrant activity during the nine months ended September 30, 2024 and related information follows:
Number of Shares
Range of Warrant Exercise
Weighted Average
Weighted Average Remaining Contractual
Under Warrant
Price per Share
Exercise Price
Life (Years)
Balance at January 1, 2024
1,082,895 $ 9.60 $ 157.50 $ 24.32 5.1
Granted
5,056,054 $ 2.23 $ 2.79 $ 2.24 2.9
Expired warrants
( 75,909 ) $ 99.00 $ 99.00 $ 99.00 —
Balance at September 30, 2024
6,063,040 $ 2.23 $ 94.50 $ 12.90 3.1
Exercisable at September 30, 2024
1,006,986 $ 2.23 $ 94.50 $ 8.75 4.1
For a summary of the changes in fair value associated with the Company's warrant liability for the nine months ended September 30, 2024 , see Note 2 - Basis of presentation, principles of consolidation and significant accounting policies - Fair Value of Financial Instruments.
Equity Classified Warrants
In March 2024, the Company granted equity-classified warrants to purchase up to 3,334 shares of Company common stock with a ten -year term and an exercise price of $ 9.15 . The warrants vest annually over four years while services are being performed.
At September 30, 2024 , the Company had 2,089,105 equity classified warrants outstanding (including the remaining August 2024 pre-funded warrants) an d 2,066,894 w arrants were exercisable. At December 31, 2023 , the Company had 289,276 equity classified warrants outstanding and 266,350 warrants were exercisable.
5. Stock Based Compensation
The 2015 Stock Plan provides for the grant of stock options, stock awards, stock unit awards, and stock appreciation rights to employees, non-employee directors and consultants. In May 2023 and 2022, the 2015 Stock Plan (the Plan) was amended to authorize an additional 116,667 shares and 133,334 shares, respectively, such that 366,667 total shares may be issued under the Plan. As of September 30, 2024 , there wer e 2,853 shar es remaining to be issued under the 2015 Stock Plan. In October 2024, the Company's shareholders approved the 2024 Stock Plan, which authorizes a total of 1,000,000 shares of common stock, which will replace the 2015 Stock Plan.
Stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023 , respectively, is as follows (table in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
General and administrative
$ 259 $ 346 $ 980 $ 1,094
Research and development
94 147 319 411
Total stock-based compensation expense
$ 353 $ 493 $ 1,299 $ 1,505
The Company recorded stock compensation expense for the equity classified warrants relating to non-employee consulting agreements o f $ 26,000 a nd $ 50,000 for the three months ended September 30, 2024 and 2023 , respectively, and $ 94,000 a nd $ 142,000 for the nine months ended September 30, 2024 and 2023 , respectively, which are included in the table above. At September 30, 2024 , there was $ 283,000 of unrecognized stock compensation expense related to the Company's equity classified warrants.
In October and November 2024, the Company granted 545,000 stock options, 267,500 shares of restricted stock units, 73,334 shares of performance based restricted stock units, and 36,000 in warrants to employees and contractors. These stock options have an exercise price ranging from $ 2.45 to $ 2.54 and vest over a one -to- four year period from the grant date on a straight-line basis over the requisite service period. The restricted stock units vest annually in four equal installments.
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6. Income Taxes
Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company does not expect to pay any significant federal, state, or foreign income taxes in 2024 as a result of the losses recorded during the three and nine months ended September 30, 2024 and the additional losses expected for the remainder of 2024 and cumulative net operating loss carryforwards. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As a result, as of September 30, 2024 and December 31, 2023 the Company maintained a full valuation allowance for all deferred tax assets.
The Company recorded no income tax provision for the three and nine months ended September 30, 2024 and 2023 , respectively. The effective tax rate for the nine months ended September 30, 2024 and 2023 is nil. The income tax rates vary from the federal and state statutory rates primarily due to the change in fair value of the stock warrants, Internal Revenue Code Section 162 (m) limitations and ISO activity, as well as the valuation allowances on the Company’s deferred tax assets. The Company estimates its annual effective tax rate at the end of each quarterly period. Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation allowance could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
7. Commitments and Contingencies
In addition to the commitments and contingencies described elsewhere in these notes, see below for a discussion of the Company's commitments and contingencies as of September 30, 2024 .
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Lease Obligations Payable
The following summarizes quantitative information about the Company's operating leases for the three and nine months ended September 30, 2024 and 2023 , respectively (table in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Lease cost:
Operating lease cost
$ 37 $ 34 $ 112 $ 99
Variable lease cost
7 5 17 19
Total
$ 44 $ 39 $ 129 $ 118
I n September 2023, th e Company executed an amendment to extend the corporate office lease until August 31, 2029, with an option to renew. The Company is required to remit base monthly rent of a pproximately $ 4,700 which will increase at an average approximate rate of 2 % each year. The Company is also required to pay additional rent in the form of its pro-rata share of certain specified operating expenses of the building.
In June 2022, the Company extended the lab lease until September 30, 2027, with no further right or option to renew. The Company recorded approximately $ 12,000 i n sublease income from a related party for the three months ended September 30, 2024 and 2023 , and $ 37,000 for the nine months ended September 30, 2024 and 2023 . Sublease income is recorded as other income, net on the Company's condensed consolidated statement of operations and comprehensive loss. Operating cash flows from operating leases w as $ 39,000 and $ 34,000 for the three months ended September 30, 2024 and 2023 , respectively, and $ 107,000 and $ 109,000 for the nine months ended September 30, 2024 and 2023 , respectively .
Licenses
MD Anderson - Total expenses related to the Company's license agreements with MD Anderson w ere $ 63,000 and $ 64,000 for the three months ended September 30, 2024 and 2023 , respectively, and $ 180,000 and $ 193,000 for the nine months ended September 30, 2024 and 2023 , respectively .
HPI - The Company has two agreements with a related party, Houston Pharmaceuticals, Inc. (HPI) with total expenses o f $ 59,000 for e ach of the three months ended September 30, 2024 and 2023 , respectively, and $ 176,000 for the nine months ended September 30, 2024 and 2023 , respectively.
Sponsored Research Agreements - The expenses recognized under the agreements were $ 767,000 and $ 221,000 for the three months ended September 30, 2024 and 2023 , respectively, and $ 1,300,000 and $ 552,000 for the nine months ended September 30, 2024 and 2023 , respectively .
8. Subsequent Events
In addition to the subsequent events discussed elsewhere in these notes, no other subsequent events were noted as occurring after September 30, 2024 .
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.