What changed in this filing

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Item 9A. Controls and Procedures

2021-02-17 compared with 2020-02-26 · 139 added, 155 removed, 647 unchanged (31% of the section changed)

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Attestation Report on Internal Control over Financial Reporting.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowed under the JOBS Act for emerging growth companies.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowed given we are neither an accelerated or large accelerated filer.

Changes in Internal Control over Financial Reporting.

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Other Information.

Effective February 15, 2021, Greg Zante, our Chief Financial Officer and principal financial officer, was appointed our principal accounting officer until s uch time as his successor is appointed, or until his earlier resignation or removal.

There are no reportable family relationships or related party transactions (as defined in Item 404(a) of Regulation S-K) involving us and Mr.

Zante has served as our Chief Financial Officer since January 2021.

Zante’s appointment as our Chief Financial Officer, Mr.

Zante served as our Senior Vice President of Finance since August 2019 and as Vice President, Finance & Operations from December 2016 to July 2019.

Zante possesses nearly 25 years of financial management experience at public and private companies in the biotechnology and accounting industries.

Prior to joining us, Mr.

Zante was Chief Financial Officer at Dance Biopharm, Inc., a diabetes-focused biopharmaceutical company, from 2013 to 2016, where he managed the company’s private financing strategy and positioned it for initial public offering activities.

Zante has also previously held senior positions at several biopharmaceutical companies including Sangamo Therapeutics, Inc.

from 2003 to 2013, Calyx Therapeutics Inc.

from 2001 to 2003 and Matrix Pharmaceuticals, Inc.

from 2000 to 2001.

He is a certified public accountant in the State of California and previously served as a senior staff accountant at Ernst & Young.

He holds a BA in Business-Economics from the University of California, Los Angeles.

Zante’s annualized salary is currently $400,000 and he is currently eligible to receive an annual performance bonus of up to 40% of his base salary for fiscal year 2021.

His salary and performance bonus percentage may be adjusted in the future at the discretion of the Compensation Committee of our Board of Directors.

Zante’s employment is on an “at will” basis.

Zante was not awarded any equity in connection with his appointment as our principal accounting officer.

Directors, Executive Officers and Corporate Governance.

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and Brian Lian, Ph.D.

Form of Securities Purchase Agreement, dated June 14, 2017 by and between Viking Therapeutics, Inc.

and purchasers in the June 2017 offering.

Office Lease, dated May 25, 2018, by and between Viking Therapeutics, Inc.

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

Inline XBRL Instance Document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):

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KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Brian Lian, Ph.D.

and Michael Morneau, and each of them acting individually, as his attorney-in-fact, each with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

and Greg Zante, and each of them acting individually, as his attorney-in-fact, each with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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Brian Lian, Ph.D.

/s/ Michael Morneau

Vice President Finance and Administration

/s/ Greg Zante

Chief Financial Officer

(Principal Accounting and Financial Officer)

February 17, 2021

Michael Morneau

/s/ Lawson Macartney, DVM, Ph.D.

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Matthew Singleton

/s/ Stephen W.

February 26, 2020

INDEX TO FINANCIAL STATEMENTS

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Notes to Financial Statements

Report of Independent Regist ered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

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(the “Company”) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No.

2016-02, Leases (Topic 842) , as amended, effective January 1, 2019, using the modified retrospective approach.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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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.

Our audit s 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.

Our audit s 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 audit s provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was 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.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accrual for preclinical study and clinical trial costs

As described in Note 1 to the financial statements, the Company estimates its preclinical study and clinical trial expenses based on the services it received pursuant to contracts with research institutions and contract research organizations (“CROs”) that conduct and manage preclinical studies and clinical trials on the Company’s behalf.

Clinical trial-related contracts vary significantly in length, and may be for a fixed amount based on milestones or deliverables, a variable amount based on actual costs incurred, capped at a certain limit, or a combination of these elements.

The Company accrues service fees based on work performed, which relies on estimates of total costs incurred based on milestones achieved, patient enrollment and other events.

The majority of the Company’s service providers invoice the Company in arrears, and to the extent that amounts invoiced differ from its estimates of expenses incurred, the Company accrues for additional costs.

The financial terms of these agreements vary from contract to contract and may result in uneven expenses and payment flows.

The principal consideration for our determination that performing procedures related to the preclinical study and clinical trial expenses, specifically related to the year-end accrual for preclinical study and clinical trial costs, is a critical audit matter is that there

was judgment by management in determining the achievement of milestones, patient enrollments and occurrence of other events that creates a present obligation for the Company to pay the research institutions and CROs for their services.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) obtaining an understanding the Company’s estimation process relating to accrual for preclinical study and clinical trial costs;

(ii) testing management’s identification of milestones, patient enrollment requirements and other events in its contracts with the research institutions and CROs;

(iii) testing management’s determination of the accrual for preclinical study and clinical trial costs for a sample of such milestones, patient enrollments and other events;

and (iv) testing the mathematical accuracy of the schedule of accrual for preclinical study and clinical trial costs prepared by management.

/s/ Marcum LLP

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Deferred public offering and other financing costs

Liabilities, convertible notes and stockholders’ equity

Liabilities and stockholders’ equity

Current liabilities:

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Total current liabilities

Deferred rent

Lease liability, net of current portion

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Other income (expense):

Change in fair value of debt conversion feature liability

Amortization of debt discount

Amortization of financing costs

Interest income, net

Realized gain (loss) on investments

Realized gain on investments

Total other income, net

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Issuance of common stock from warrant exercises

Sale of common stock, net of issuance costs

Unrealized gain (loss) on investments

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Adjustments to reconcile net loss to net cash used in operating

Amortization of debt discount on notes payable

Amortization of investment premiums

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Amortization of non-cash clinical trial costs

Change in fair value of debt conversion feature liability

Stock-based compensation

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Interest expense related to operating lease liability

Realized (gain) loss on investments

Realized gain on investments

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Accrued interest, net of interest received on maturity of investments

Accounts payable

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Proceeds from sales and maturities of investments

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows from financing activities

Proceeds from issuances of common stock, net of underwriting discounts and commissions

Public offering and financing costs

Value of shares withheld related to employee tax withholding

Repayment of convertible notes payable

Proceeds from stock issuance under employee stock purchase plan and warrant exercises

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Cash and cash equivalents end of period

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

Supplemental disclosure of non-cash investing and financing

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The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve.

Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic slowdown or recession.

Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole.

The magnitude and overall effectiveness of these actions remain uncertain.

In addition, the Company’s clinical trials have been affected by and may continue to be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment have been and may continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic.

Some patients have not been and others may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.

Similarly, any inability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact the Company’s clinical trial operations.

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s service providers, suppliers, contract research organizations (“CROs”) and the Company’s clinical trials, all of which are uncertain and cannot be predicted.

As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations is uncertain.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements.

Significant estimates made in preparing these financial statements relate to determining the fair value of the debt conversion feature liability, through May 21, 2018, and accounting for operating lease and certain commitments.

Significant estimates made in preparing these financial statements relate to accounting for operating lease and certain commitments.

Actual results could differ from those estimates.

Reclassification

Certain amounts reported in prior years in the Statements of Cash Flows have been reclassified to conform to the current year’s presentation.

Cash and Cash Equivalents

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Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss).

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of

discounts to maturity.

The amortization of premiums and accretion of discounts is included in interest income.

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ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease.

ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease

ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As the Company’s leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

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The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense is recognized on a s traight-line basis over the lease term.

Lease expense is recognized on a straight-line basis over the lease term.

Please refer to Note 5 for additional information.

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On January 1, 2018, the Company adopted ASU No.

2014-09, Revenue from Contracts with Customers and all related amendments (“ASC 606” or “the new revenue standard”).

2014-09, Revenue from Contracts with Customers and all related amendments (“ASC 606” or “the revenue standard”).

ASC 606 is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-s pecific guidance.

The new revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve this core principle, ASC 606 provides that an entity should apply the following steps:

(1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, and costs to obtain or fulfill contracts.

The revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, and costs to obtain or fulfill contracts.

The Company will apply ASC 606 prospectively to all contracts.

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To date, the Company has not experienced any events requiring it to make material adjustments to its accruals for service fees.

If the Company does not identify costs that it has begun to incur or if it underestimates or overestimates the level of services performed or the costs of these services, its actual expenses

could differ from its estimates which could materially affect its results of operations.

Adjustments to the Company’s accruals are recorded as changes in estimates become evi dent.

If the Company does not identify costs that it has begun to incur or if it underestimates or overestimates the level of services performed or the costs of these services, its actual expenses could differ from its estimates which could materially affect its results of operations.

Adjustments to the Company’s accruals are recorded as changes in estimates become evident.

Furthermore, based on amounts invoiced to the Company by its service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered.

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At the grant date, the Company determines the grant date fair value, as a publicly traded company, using the intrinsic value, or the closing price of the Company’s common stock on the date of grant.

At the point where the criteria are deemed probable of being met, the Company records stock-based compensation with a cumulative catch-up expense in the period first recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

At the point where the criteria are deemed probable of being met, the Company records stock-based compensation with a cumulative catch-up expense in the period first

recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

For the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”), the Company generally recognizes compensation expense for the fair value of the purchase options, as measured on the grant date, and uses the graded vesting method to allocate this compensation cost to each purchase period within the related two-year offering period.

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Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision making purposes.

Recent Accounting Pronouncements

Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02 (“ASU 2016-02”), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for most leases.

In July 2018, the FASB issued ASU No.

2018-11 (“ASU 2018-11”), which amends the guidance to add a method of adoption whereby the issuer may elect to recognize a cumulative effect adjustment at the beginning of the period of adoption.

ASU 2018-11 does not require comparative period financial information to be adjusted.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

ASU 2016-02 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

To determine whether a contract conveys the right to control the use of the identified asset for a period of time, the customer has to have both (1) the right to obtain substantially all of the economic benefits from the use of the identified asset and (2) the right to direct the use of the identified asset;

a contract does not contain an identified asset if the supplier has a substantive right to substitute such asset (“the leasing criteria”).

The Company has determined that its office lease, which has a term in excess of one year, meets the leasing criteria.

Therefore, on January 1, 2019, the Company adopted ASU 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected not to reassess

the following:

(i) whether any expired or existing contrac ts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) initial direct costs for any existing leases.

The Company elected to apply the transition provisions as of January 1, 2019, the date of adoption, and the Company recorded lease ROU assets of $858,000 and related lease liabilities of $882,000 on its balance sheet related to its operating lease.

The Company has no financing leases.

There were no changes to the Company’s statements of operations or cash flows.

In July 2017, the FASB issued ASU No.

2017-11, Earnings Per Share (Topic 260);

Distinguishing Liabilities from Equity (Topic 480);

Derivatives and Hedging (Topic 815) :

(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”).

Among others, Part I of ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.

ASU 2017-11 requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock for purposes of determining liability or equity classification.

Companies that provide earnings per share (“EPS”) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

ASU 2017-11 also addresses navigational concerns within the ASC related to an indefinite deferral available to private companies.

The provisions of the new ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (fiscal 2019 for the Company).

Early adoption is permitted for all entities.

The Company’s adoption of ASU 2017-11 effective January 1, 2019 did not have a material effect on its financial statements and related disclosures.

Investments in Marketable Securities

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The unrealized losses were less than $ 21,000 individually and $ 148,000 in the aggregate.

Nine of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months.

Four of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months.

The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity.

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Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

At December 31, 2019, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $5.9 million of these securities were scheduled to mature outside of one year at the time of purchase.

At December 31, 2020, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $ 53.4 million of the corporate debt securities were scheduled to mature outside of one year at the time of purchase.

Investments classified as available-for-sale as of December 31, 2019 consisted of the following (in thousands):

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Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss.

At December 31, 2018, there were 181 securities in an unrealized loss position and three securities in an unrealized gain position.

These unrealized losses were less than $17,000 individually and $416,000 in the aggregate.

The unrealized gains were less than $1,000 individually and $1,000 in the aggregate.

These securities have not been in a continuous unrealized loss position for more than 12 months.

At December 31, 2019, there were 87 securities in an unrealized gain position and 66 securities in an unrealized loss position.

These unrealized gains were less than $ 22,000 individually and $ 190,000 in the aggregate.

The unrealized losses were less than $ 32,000 individually and $ 178,000 in the aggregate.

Nine of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months.

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At December 31, 2018, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $10 million of these securities were scheduled to mature outside of one year at the time of purchase.

At December 31, 201 9 , none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $ 5.9 million of the corporate debt securities were scheduled to mature outside of one year at the time of purchase .

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, investments and accounts payable and, through May 21, 2018, debt and its related debt conversion feature liability.

The Company’s financial instruments consist of cash and cash equivalents, investments and accounts payable.

The carrying amounts reported in the accompanying balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the short-term maturity of those instruments.

Further, the Company believed the fair value of the debt approximated its carrying value based upon relatively stable interest rates and the short-term maturity of the instrument.

Fair value measurements are classified and disclosed in one of the following three categories:

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Government money market funds

Corporate debt securities, available-for-sale

Short-term investments

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As partial consideration for the grant of the rights and licenses to the Company under the Master License Agreement, the Company issued to Ligand at the closing of the Company’s initial public offering (“IPO”) 3,655,964 shares of its common stock having an estimated aggregate value of $ 29.2 million.

Furthermore, as partial consideration for the grant of the rights and licenses to the Company under the Master License Agreement the Company entered into the Loan and Security Agreement with Ligand.

As further partial consideration for the grant of the rights and licenses to the Company by Ligand under the Master License Agreement, the Company has agreed to pay to Ligand certain one-time, non-refundable milestone payments in connection with the Licensed Products of up to $ 1.54 billion in the aggregate upon the achievement of certain development, regulatory and sales milestones.

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In the event that the Master License Agreement is terminated in its entirety or with respect to a specific licensed program for any reason:

Ligand may direct), at no cost to Ligand, all regulatory documentation and all regulatory approvals prepared or obtained by the Company or on its behalf related to the Licensed Products (or those related to the specific licensed program), or, if Ligand does not make such a request, the Company will wind down any ongoing clinical trials with respect to the Licensed Products (or those related to the specific licensed program) at no cost to Ligand;

(B) the C ompany will, upon Ligand’s request, sell and transfer to Ligand (or to such transferee as Ligand may direct), at a price equal to 125% of the Company’s costs of goods, any and all chemical, biological or physical materials relating to or comprising the Lic ensed Products (or those related to the specific licensed program);

(C) the Company will have, for a period of six months following termination, the right to sell on the normal business terms in existence before such termination any finished commercial inv entory of Licensed Products (or those related to the specific licensed program) which remains on hand, so long as the Company pays to Ligand the applicable royalties and sales milestones;

(A) all licenses granted to the Company under the Master License Agreement (or with respect to the specific licensed program) will terminate and the Company will, upon Ligand’s request (subject to Ligand assuming legal responsibility for any clinical trials of the Licensed Products then ongoing), assign and transfer to Ligand (or to such transferee as Ligand may direct), at no cost to Ligand, all regulatory documentation and all regulatory approvals prepared or obtained by the Company or on its behalf related to the Licensed Products (or those related to the specific licensed program), or, if Ligand does not make such a request, the Company will wind down any ongoing clinical trials with respect to the Licensed Products (or those related to the specific licensed program) at no cost to Ligand;

(B) the Company will, upon Ligand’s request, sell and transfer to Ligand (or to such transferee as Ligand may direct), at a price equal to 125 % of the Company’s costs of goods, any and all chemical, biological or physical materials relating to or comprising the Licensed Products (or those related to the specific licensed program);

(C) the Company will have, for a period of six months following termination, the right to sell on the normal business terms in existence before such termination any finished commercial inventory of Licensed Products (or those related to the specific licensed program) which remains on hand, so long as the Company pays to Ligand the applicable royalties and sales milestones;

(D) Ligand has the right to require the Company to assign to Ligand the trademarks owned by the Company relating to the Licensed Products (or those related to the specific licensed program);

and (E) the Company will grant to Ligand a non-exclusive, worldwide, royalty-bearing sublicensable license under any patent rights an d know-how controlled by the Company to the extent necessary to make, have made, import, use, offer to sell and sell the Licensed Products (or those related to the specific licensed program) anywhere in the world at a royalty rate in the low single digits.

and (E) the Company will grant to Ligand a non-exclusive, worldwide, royalty-bearing sublicensable license under any patent rights and know-how controlled by the Company to the extent necessary to make, have made, import, use, offer to sell and sell the Licensed Products (or those related to the specific licensed program) anywhere in the world at a royalty rate in the low single digits.

Under the Master License Agreement, the Company has agreed to indemnify Ligand for claims relating to the performance of the Company’s obligations under the Master License Agreement, any breach of the representations and warranties made by the Company under the Master License Agreement, clinical trials conducted by the Company and the research, development and commercialization of the Licensed Products by the Company and its affiliates, sublicensees, distributors and agents.

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Each party’s indemnification obligations will not apply to the extent the claims result from the negligence or willful misconduct of the indemnified party or any of its employees, agents, officers or directors or from the indemnified party’s breach of its representations or warranties set forth in the Master License Agreement.

On September 6, 2014, the Company and Ligand entered into an amendment to the Master License Agreement pursuant to which the parties agreed to certain modifications to the calculations used to determine the number of shares issuable to Ligand pursuant to the Master License Agreement.

As a result of the modification, the Company incurred an incremental charge to research and development expense of $518,000 and a corresponding increase in the accrued license fees.

In connection with entering into the Master License Agreement with Ligand, the Company entered into the Loan and Security Agreement, pursuant to which, among other things, Ligand agreed to provide the Company with loans in the aggregate amount of up to $2.5 million.

On May 21, 2018, the Company repaid the entire remaining balance of $3.9 million due on the Ligand Note in cash.

During the year ended December 31, 2018, the Company recorded $38,000 of interest expense, $404,000 of amortization of debt discount, and $1.4 million as other income related to the decrease in the fair value of the debt conversion feature liability.

In May 2014, the Company also entered into a Management Rights Letter (the “Management Rights Letter”) with Ligand that requires the Company to expand the size of the Company’s board of directors to create an additional directorship on the Company’s board of directors and to allow Ligand to appoint an individual to fill the new directorship.

The Management Rights Letter will terminate upon the earliest to occur of the liquidation or indefinite cessation of the Company’s business operations, the execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the Company’s property and assets, an acquisition of the Company by means of any transaction (including, without limitation, any reorganization, merger or consolidation) if the Company’s stockholders of record as constituted immediately prior to the transaction hold less than 50 % of the voting power of the surviving or acquiring entity, or following the issuance of the Company’s securities pursuant to the Master License Agreement, the date that Ligand ceases to beneficially own at least 7.5 % of the Company’s outstanding voting stock, or the date of May 21, 2024 .

The Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Ligand in May 2014 for which the Company granted certain registration rights to Ligand with respect to the securities of the Company issued to Ligand pursuant to the Master License Agreement and the Ligand Note (collectively, the “Viking Securities”), the shares of the Company’s common stock issued or issuable upon conversion of the Viking Securities, if applicable, the shares of the Company’s common stock issued as a dividend or other distribution with respect to, in exchange for or in replacement of the Viking Securities and the shares of the Company’s capital stock issued upon conversion of the Ligand Note (collectively, the “Registrable Securities”).

Under the Registration Rights Agreement, the Company agreed to file with the SEC a registration statement on under the Securities Act of 1933, as amended (the “Securities Act”), that covered the resale of the full amount of the Registrable Securities.

On February 14, 2017, the Company filed a Registration Statement on Form S-3 under the Securities Act covering the resale of the full amount of the Registrable Securities.

Operating Leases – Right-of-Use Assets and Lease Liability Obligations

The Company has only one operating lease which is for office space that expires in January 2022 .

Below is a summary of the Company’s right-of-use assets and lease liabilities as of December 31, 2019 (in thousands, except for years and %):

Below is a summary of the Company’s right-of-use assets and lease liabilities as of December 31, 2020 and 2019 (in thousands, except for years and %):

Right of use assets

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Weighted-average discount rate

During the year ended December 31, 2019, the Company recognized $308,000 in operating lease expenses, which are included in operating expenses in the Company’s statement of operations.

During the years ended December 31, 2020 and 2019, the Company recognized $319,000 and $ 308,000 , respectively, in operating lease expenses, which are included in operating expenses in the Company’s statement of operations.

Approximate future minimum lease payments for the Company’s right-of-use assets over the remaining lease period as of December 31, 2020 are as follows (in thousands):

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The shares were subject to a repurchase option and were to vest in two tranches of 500,000 shares each, upon achievement of the performance target or upon a triggering event as defined.

The Company determined that the fair value of the unrecognized expense was $168,000 at February 20, 2014, the grant da te.

The Company determined that the fair value of the unrecognized expense was $ 168,000 at February 20, 2014, the grant date.

In May 2015, the Company repurchased 633,810 of these shares at a purchase price of $ 0.00001 per share.

In connection with the repurchase, the Company entered into an amendment to the stock purchase agreement to provide that the remaining 366,190 share s will continue to vest in two tranches of 183,095 shares each, upon achievement of the performance target or upon a triggering event as defined.

In connection with the repurchase, the Company entered into an amendment to the stock purchase agreement to provide that the remaining 366,190 shares will continue to vest in two tranches of 183,095 shares each, upon achievement of the performance target or upon a triggering event as defined.

The pro rata grant date fair value of the unrecognized expense is $ 62,000 .

In October 2015, a triggering even t became probable of occurrence and was deemed achieved in October 2016;

In October 2015, a triggering event became probable of occurrence and was deemed achieved in October 2016;

therefore, the Company recorded $ 31,000 of stock-based compensation expense through December 31, 2016.

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The Company has accounted for the $ 1,800,000 as a prepaid expense on the balance sheet, which was fully amortized as of December 31, 2020.

During the years ended December 31, 2019 and 2018, the Company recorded amortization expense of $140,000 and $666,000, respectively, in clinical study costs related to the SPA with PoC.

The Company recorded amortization expense of $ 140,000 in clinical study costs related to the SPA with PoC during the year ended December 31, 2019.

No similar expense was recognized during the year ended December 31, 2020.

On September 28, 2017, the Company entered into the Registered Offering Purchase Agreement, pursuant to which, on September 29, 2017, the Company sold to Lincoln Park Capital Fund, LLC (“LPC”), 701,282 shares of common stock, at a price of approximately $ 1.78 per share for an aggregate purchase price of $ 1.3 million, pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No.

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From inception of the Commitment Purchase Agreement through December 31, 2017, 343,051 shares were issued pursuant to the Commitment Purchase Agreement resulting in aggregate gross proceeds of $ 802,000 in addition to the Initial Shares and the Commitment Shares.

No additional shares were issued during the years ended December 31, 2019 and 2018.

On February 6, 2018, the Company completed an underwritten public offering of common stock pursuant to the Shelf Registration Statement (the “February 2018 Offering”).

In the February 2018 Offering, the Company sold 12,650,000 shares of the Company’s common stock at a public offering price of $5.00 per share of common stock.

Upon the closing of the February 2018 Offering on February 6, 2018, the Company received net proceeds of $58.7 million, after deducting underwriting discounts, commissions and other offering expenses.

On June 11, 2018, the Company completed an underwritten public offering of common stock (the “June 2018 Offering”) pursuant to the Shelf Registration Statement and a registration statement on Form S-3MEF (File No.

333-225479) filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended.

In the June 2018 Offering, the Company sold 8,625,000 shares of the Company’s common stock at a public offering price of $9.00 per share of common stock.

Upon the closing of the June 2018 Offering on June 11, 2018, the Company received net proceeds of $72.3 million, after deducting underwriting discounts, commissions and other offering expenses.

On September 25, 2018, the Company completed an underwritten public offering of common stock (the “September 2018 Offering”) pursuant to the Company’s universal shelf registration statement on Form S-3 (File No.

333-226133), filed with the SEC on July 11, 2018 and declared effective on July 19, 2018.

In the September 2018 Offering, the Company sold 9,500,000 shares of the Company’s common stock at a public offering price of $18.50 per share.

Upon the closing of the September 2018 Offering on September 25,

2018, the Company received net proceeds of $165.0 million, after deducting underwriting discounts, commissions and other offering expenses .

In May 2020, the Company extended the

termination date of the Commitment Purchase Agreement to May 1, 2023.

No additional shares were issued for the period of January 1, 2018 through December 31, 20 20 .

On August 1, 2019, the Company entered into an At-The-Market Equity Offering Sales Agreement (the “ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated and Oppenheimer & Co.

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No shares of the Company’s common stock were sold under the ATM Agreement from its inception through December 31, 2020.

On March 17, 2020, the Company’s Board of Directors authorized a stock repurchase program, whereby the Company may purchase up to $ 50.0 million in shares of its common stock and outstanding warrants to purchase its common stock, over a period of up to two years (the “Repurchase Program”).

The Repurchase Program may be carried out at the discretion of a committee of the Company’s Board of Directors through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions.

Through December 31, 2020, no shares of the Company’s common stock or warrants to purchase its common stock were repurchased by the Company under the Repurchase Program.

Shares repurchased by the Company under the Repurchase Program, if any, are expected to be held in treasury until such time as they are reissued or retired by the Company.

During the years ended December 31, 2020 and 2019, and in accordance with the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”), the Company issued an aggregate of 34,595 and 20,114 shares of its common stock to certain employees, respectively.

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The 2014 Plan provides that the compensation committee of the Company’s Board of Directors (the “Compensation Committee”) may grant or issue stock options, stock appreciation rights, restricted shares, restricted stock units and unrestricted shares, deferred share units, performance and cash-settled awards and dividend equivalent rights to participants under the 2014 Plan.

Initially, a total of 1,527,770 shares of the Company’s common stock were reserved for issuance pursuant to the 2014 Plan, which number is also the limit on shares of common stock available for awards of incentive stock options.

Initially, a total of 1,527,770 shares of the Company’s common stock were reserved for issuance pursuant to the 2014 Plan.

The number of shares available for issuance under the 2014 Plan will, unless otherwise determined by the Company’s Board of Directors or the Compensation Committee, be automatically increased on January 1st of each year commencing on January 1, 2016 and ending on (and including) January 1, 2024, in an amount equal to 3.5 % of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year.

The shares of common stock deliverable pursuant to awards under the 2014 Plan are authorized but unissued shares of the Company’s common stock, or shares of the Company’s common stock that the Company otherwise holds in treasury or in trust.

Any shares of the Company’s common stock underlying awards that are settled in cash or otherwise expire, or are forfeited, terminated or cancelled (including pursuant to an exchange program established by the Compensation Committee) prior to the issuance of stock will again be available for issuance under the 2014 Plan.

Any shares of the Company’s common stock underlying awards that are settled in

cash or otherwise expire, or are forfeited, terminated or cancelled (including pursuant to an exchange program established by the Compensation Committee) prior to the issuance of stock will again be available for issuance under the 2014 Plan.

In addition, shares of the Company’s common stock that are withheld (or not issued) in payment of the exercise price or taxes relating to an award, and shares of the Company’s common stock equal to the number surrendered in payment of any exercise price or withholding taxes relating to an award, will again be available for issuance under the 2014 Plan.

Initially, a total of 458,331 shares of the Company’s common stock were reserved for issuance pursuant to the ESPP.

The number of shares available for issuance under the ESPP will, unless otherwise determined by the Company’s Board of Directors or the Compensation Committee, be automatically increased on January 1st of each ye ar commencing on January 1, 2016 and ending on (and including) January 1, 2024, in an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year.

The shares of common stock ava ilable for purchase pursuant to the ESPP are authorized but unissued shares of the Company’s common stock, shares of the Company’s common stock that the Company otherwise holds in treasury or shares of the Company’s common stock that were purchased on the open market in arms’ length transactions in accordance with applicable securities laws.

Shares of the Company’s common stock will be offered for purchase under the ESPP as determined by the Compensation Committee through a series of successive offerings th at each have a term of 24 months and consist of four consecutive purchase periods of six months each.

Prior to the commencement of any future offering under the ESPP, the Compensation Committee may determine that the current offering shall end, may commenc e a new offering on the first day after the end of such terminal purchase period (or any desired later date), and may decide that future offerings will consist of one or more consecutive purchase periods, each to be of such duration as determined by the Co mpensation Committee;

The number of shares available for issuance under the ESPP will, unless otherwise determined by the Company’s Board of Directors or the Compensation Committee, be automatically increased on January 1st of each year commencing on January 1, 2016 and ending on (and including) January 1, 2024, in an amount equal to 1 % of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year.

The shares of common stock available for purchase pursuant to the ESPP are authorized but unissued shares of the Company’s common stock, shares of the Company’s common stock that the Company otherwise holds in treasury or shares of the Company’s common stock that were purchased on the open market in arms’ length transactions in accordance with applicable securities laws.

Shares of the Company’s common stock will be offered for purchase under the ESPP as determined by the Compensation Committee through a series of successive offerings that each have a term of 24 months and consist of four consecutive purchase periods of six months each.

Prior to the commencement of any future offering under the ESPP, the Compensation Committee may determine that the current offering shall end, may commence a new offering on the first day after the end of such terminal purchase period (or any desired later date), and may decide that future offerings will consist of one or more consecutive purchase periods, each to be of such duration as determined by the Compensation Committee;

however, no offering will exceed 27 months and no purchase period will exceed one year .

Each employee of the Company who (1) is an employee on the first date of any offering under the ESPP, (2) is customarily scheduled to work for mor e than 20 hours per week and more than five months per calendar year, and (3) meets such other criteria as may be determined by the Compensation Committee (consistent with Section 423 of the Internal Revenue Code of 1986, as amended), is eligible to partic ipate in the ESPP for each purchase period within such offering.

Each employee of the Company who (1) is an employee on the first date of any offering under the ESPP, (2) is customarily scheduled to work for more than 20 hours per week and more than five months per calendar year, and (3) meets such other criteria as may be determined by the Compensation Committee (consistent with Section 423 of the Internal Revenue Code of 1986, as amended), is eligible to participate in the ESPP for each purchase period within such offering.

The purchase price per share of the Company’s common stock under the ESPP may not be less than, and will initially be equal to, the lesser of:

(1) 85% of the fair market value per share of th e Company’s common stock on the first day of the offering, or (2) 85% of the fair market value per share of the Company’s common stock on the date the purchase right is exercised, which will be the last day of the applicable purchase period.

(1) 85 % of the fair market value per share of the Company’s common stock on the first day of the offering, or (2) 85 % of the fair market value per share of the Company’s common stock on the date the purchase right is exercised, which will be the last day of the applicable purchase period.

During the years ended December 31, 2020 and 2019, the Company recognized the following stock-based compensation expense (in thousands):

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Unvested at December 31, 2020

The following table summarizes restricted stock units activity during the years ended December 31, 2019 and 2018:

The following table summarizes restricted stock unit activity during the years ended December 31, 2020 and 2019:

Unvested at December 31, 2018

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The shares subject to the PRSU awards shall vest upon the Company achieving certain milestones, with 100 % of the PRSU awards vesting upon the achievement of three of the milestones over a four-year period, with any then-unvested portion of the PRSU awards to be cancelled on the four-year anniversary of the grant dates.

As of December 31, 2019, 20,000 PRSU awards were forfeited and three of the milestones were deemed as probable of achievement, resulting in the Company recording stock-based compensation expense of $734,000 during the year ended December 31, 2019.

As of December 31, 2020, 40,000 PRSU awards were forfeited and three of the milestones were deemed as probable of achievement, resulting in the Company recording stock-based compensation expense of $ 383,000 and $ 734,000 during the year ended December 31, 2020 and 2019, respectively.

In January 2020, the Company issued 244,000 PRSU awards to several of its employees, which are reflected in the above table summarizing restricted stock unit activity.

The shares subject to these PRSU awards shall vest upon the Company achieving certain milestones, with 100 % of the PRSU awards vesting upon the achievement of three of the milestones over a four-year period, with any then-unvested portion of the PRSU awards to be cancelled on the four-year anniversary of the grant dates.

As of December 31, 2020, 10,500 PRSU awards were forfeited, and one of the three milestones has been met and the remaining two were deemed probable of achievement, resulting in the Company recording a stock-based compensation expense of $ 1.2 million during the year ended December 31, 2020.

The following table summarizes stock option activity during the years ended December 31, 2020 and 2019:

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The Company received $ 213,000 and $ 197,000 in cash proceeds from exercises of stock options during the years ended December 31, 2020 and 2019, respectively.

The total fair value of stock options that vested during the years ended December 31, 2019 and 2018 was $1,343,000 and $852,000, respectively.

The total fair value of stock options that vested during the years ended December 31, 2020 and 2019 was $ 2.6 million and $ 1.3 million, respectively.

Compensation expense for stock options granted to employees is based on the estimated grant date fair value and is recognized ratably over the vesting period of the applicable option.

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Available for issuance under Employee Stock Purchase Plan

Upon the closing of the IPO, on May 4, 2015, the Company issued to the representative of the underwriters as additional compensation a warrant to purchase the aggregate of 82,500 shares of the Company’s common stock.

All 82,500 warrants were exercised during the year ended December 31, 2018.

The warrant was exercisable for cash or on a cashless basis at a per share exercise price equal to $10.00 commencing on April 28, 2016, one year following the date of the prospectus filed with the SEC relating to the IPO.

On April 13, 2016, pursuant to the Offering, the Company sold 7,500,000 shares of its common stock and warrants to purchase up to 7,500,000 shares of its common stock at a public offering price of $ 1.25 per share of common stock and related warrant.

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As of December 31, 2020, 3,647,413 warrants were outstanding and 348,493 and 528,695 warrants were exercised during the years ended December 31, 2020 and 2019, respectively.

On April 13, 2016, pursuant to the terms of the Loan and Security Agreement , the Company issued to Ligand the Ligand Warrant to purchase up to 960,000 shares of the Company’s common stock.

On April 13, 2016, the Company issued to Ligand the Ligand Warrant to purchase up to 960,000 shares of the Company’s common stock.

The Ligand Warrant has an exercise price of $ 1.50 per share of Company common stock, was immediately exercisable upon issuance (subject to a limitation on exercise to the extent that any exercise thereof would increase Ligand’s beneficial ownership of the Company’s common stock to greater than 49.9 %) and expires on April 13, 2021 .

The Ligand Warrant was issued to Ligand as a part of the repayment of $1,200,000 of the Company’s obligation under the Ligand Note .

The Ligand Warrant was issued to Ligand as a part of the repayment of $ 1,200,000 of the Company’s obligation under a Secured Convertible Promissory Note previously issued by the Company to Ligand .

On June 14, 2017, pursuant to the terms of the Securities Purchase Agreement, the Company sold the 3,749,783 Shares and the Warrants to purchase up to 2,812,337 shares of its common stock to the Purchasers.

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Income tax expense (benefit) from continuing operations consists of the following for the years ended December 31, 2020 and 2019 (in thousands):

Change in federal tax rate

Change in valuation allowance

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Stock options

Enactment of the Tax Cuts and Jobs Act

Research and development credits

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The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state agencies for the years ended December 31, 2016 through December 31, 2020.

The differences between the Company’s effective inco me tax rate and the statutory federal rate for the year ended December 31, 201 9 and the year ended December 31, 201 8 relate primarily to losses incurred for which no tax benefit was recognized, due to the uncertainty of realization.

The ultimate realizatio n of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible.

The Company considers projected future taxable income and tax planning strategies in making this as sessment.

The differences between the Company’s effective income tax rate and the statutory federal rate for the year ended December 31, 2020 and the year ended December 31, 2019 relate primarily to losses incurred for which no tax benefit was recognized, due to the uncertainty of realization.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible.

The Company considers projected future taxable income and tax planning strategies in making this assessment.

At each of December 31, 2020 and December 31, 2019, the Company provided a full valuation allowance against its deferred tax assets due to uncertainty surrounding the realization of those assets as a result of historical taxable net losses.

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The state credits do not expire.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted March 27, 2020.

Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property.

Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020 which provided additional COVID relief provisions for businesses.

The Company has evaluated the impact of the both Acts and has determined that any impact is not material to its financial statements.

The Company has reviewed its operations and has not identified any material uncertain tax positions.

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See Note 4 for more information related to this agreement.

In connection with entering into the Master License Agreement, the Company also entered into a Loan and Security Agreement (see Note 6), a Management Rights Letter (see Note 4) and a Registration Rights Agreement (see Note 4).

As Ligand beneficially owns 10.2% of the Company’s outstanding shares as of December 31, 2019, the Company considers Ligand to be a related party.

In connection with entering into the Master License Agreement, the Company also entered into a Management Rights Letter (see Note 4) and a Registration Rights Agreement (see Note 4).

As Ligand beneficially owns 9.8 % of the Company’s outstanding shares as of December 31, 2020, and has a member of its management team on our Board of Directors, the Company considers Ligand to be a related party.

Commitments and Contingencies

On July 7, 2015, the Company entered into a Sublease (the “Sublease”) for approximately 7,049 rentable square feet of space located at 12340 El Camino Real, Suite 250, San Diego, California 92130 (the “Premises”).

Under the Sublease, the Company is responsible for certain charges for common area maintenance and other costs, and the Sublease provides for abatement of rent during certain periods and escalating rent payments throughout the term of the Sublease.

Rent expense is being recorded on a straight line basis over the life of the Sublease and the difference between the rent expense and rent paid is being recorded as deferred rent.

In September 2018, the Company renewed the Sublease for one additional month through October 31, 2018.

Minimum payments pursuant to the Sublease were $22,000 in the aggregate through October 31, 2018.

Additionally, on May 25, 2018, the Company entered into an Office Lease (the “Lease”) with Kilroy Realty, L.P.

The Lease is for approximately 7,149 rentable square feet of space located at the Premises.

On May 25, 2018, the Company entered into an Office Lease (the “Lease”) with Kilroy Realty, L.P.

The Lease is for approximately 7,149 rentable square feet of space located at 12340 El Camino Real, Suite 250, San Diego, California 92130 (the “Premises”).

The Premises will continue to be the Company’s corporate headquarters.

The Lease commenced on November 1, 2018 and will expire on January 31, 2022 , unless terminated earlier in accordance with the terms of the Lease (the “Term”).

Monthly base rent payments due under the Lease for the Premises will be $27,000, subject to annual increases of 3.0% during the term of the Lease.

The Company is also responsible for certain other costs under the Lease, including electricity and utility expenses and certain repair and maintenance obligations.

Monthly base rent payments due under the Lease for the Premises will be $ 27,000 , subject to annual increases of 3.0 % during the Term.

Under the Lease, the Company is responsible for certain charges for common area maintenance and other costs, including electricity and utility expenses and the Lease provides for abatement of rent during certain periods and escalating rent payments throughout the Term.

Rent expense is being recorded on a straight-line basis over the life of the Lease and the difference between the rent expense and rent paid is being recorded as deferred rent.

The Lease provides the Company with an option to extend the term of the lease for a period of three years beyond the Term.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures