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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39676

 

INHIBIKASE THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

26-3407249

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3350 Riverwood Parkway SE, Suite 1900
Atlanta, GA

30339

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (678) 392-3419

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

IKT

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 1, 2023, the registrant had 31,056,238 shares of common stock, $0.001 par value per share, outstanding.

 

 


Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022

1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 (Unaudited)

2

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (Unaudited)

3

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited)

4

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

Signatures

28

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Inhibikase Therapeutics, Inc.

Condensed Consolidated Balance Sheets

 

 

 

 

March 31,
2023

 

 

December 31,
2022

 

 

 

(unaudited)

 

 

(Note 3)

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

   Cash and cash equivalents

 

$

3,956,604

 

 

$

7,188,553

 

   Marketable securities

 

 

21,761,564

 

 

 

15,861,620

 

   Accounts receivable

 

 

64,521

 

 

 

39,881

 

   Prepaid research and development

 

 

923,128

 

 

 

1,117,616

 

   Prepaid expenses and other current assets

 

 

922,764

 

 

 

163,452

 

      Total current assets

 

 

27,628,581

 

 

 

24,371,122

 

   Equipment and improvements, net

 

 

231,489

 

 

 

236,532

 

   Right-of-use asset

 

 

303,263

 

 

 

328,643

 

         Total assets

 

$

28,163,333

 

 

$

24,936,297

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

   Accounts payable

 

$

959,078

 

 

$

1,151,173

 

   Lease obligation, current

 

 

146,901

 

 

 

145,836

 

   Accrued expenses and other current liabilities

 

 

1,558,221

 

 

 

2,398,436

 

      Total current liabilities

 

 

2,664,200

 

 

 

3,695,445

 

   Lease obligation, net of current portion

 

 

178,110

 

 

 

205,451

 

         Total liabilities

 

 

2,842,310

 

 

 

3,900,896

 

Commitments and contingencies (see Note 13)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 31,056,238 and 25,227,051 shares issued and outstanding at March 31, 2023 and December 31, 2022

 

 

31,056

 

 

 

25,227

 

Additional paid-in capital

 

 

77,473,765

 

 

 

68,777,298

 

Accumulated other comprehensive income

 

 

165,822

 

 

 

104,718

 

Accumulated deficit

 

 

(52,349,620

)

 

 

(47,871,842

)

      Total stockholders' equity

 

 

25,321,023

 

 

 

21,035,401

 

         Total liabilities and stockholders’ equity

 

$

28,163,333

 

 

$

24,936,297

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

1


 

Inhibikase Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

Grant revenue

 

$

64,521

 

 

$

46,031

 

Total revenue

 

 

64,521

 

 

 

46,031

 

Costs and expenses:

 

 

 

 

 

 

Research and development

 

 

2,854,119

 

 

 

3,016,991

 

Selling, general and administrative

 

 

1,925,351

 

 

 

1,669,636

 

Total costs and expenses

 

 

4,779,470

 

 

 

4,686,627

 

Loss from operations

 

 

(4,714,949

)

 

 

(4,640,596

)

Interest income (expense)

 

 

237,171

 

 

 

(5

)

Net loss

 

 

(4,477,778

)

 

 

(4,640,601

)

Other comprehensive income, net of tax

 

 

 

 

 

 

  Unrealized gains on marketable securities

 

 

61,104

 

 

 

 

Comprehensive Loss

 

$

(4,416,674

)

 

$

(4,640,601

)

Net loss per share – basic and diluted

 

$

(0.16

)

 

$

(0.18

)

Weighted-average number of common shares – basic and diluted

 

 

27,510,077

 

 

 

25,205,454

 

See accompanying notes to condensed consolidated financial statements.

2


 

Inhibikase Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid-In
Capital

 

 

Accumulated Other Comprehensive Income

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

Balance at December 31, 2022

 

 

25,227,051

 

 

$

25,227

 

 

$

68,777,298

 

 

$

104,718

 

 

$

(47,871,842

)

 

$

21,035,401

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

123,273

 

 

 

 

 

 

 

 

 

123,273

 

Issuance of common stock, pre-funded warrants and warrants, net of issuance costs

 

 

5,829,187

 

 

 

5,829

 

 

 

8,573,194

 

 

 

 

 

 

 

 

 

8,579,023

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

61,104

 

 

 

 

 

 

61,104

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,477,778

)

 

 

(4,477,778

)

Balance at March 31, 2023

 

 

31,056,238

 

 

$

31,056

 

 

$

77,473,765

 

 

$

165,822

 

 

$

(52,349,620

)

 

$

25,321,023

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid-In
Capital

 

 

Accumulated Other Comprehensive Income

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

Balance at December 31, 2021

 

 

25,155,198

 

 

$

25,155

 

 

$

68,208,081

 

 

$

 

 

$

(29,817,687

)

 

$

38,415,549

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

123,229

 

 

 

 

 

 

 

 

 

123,229

 

Issuance of common stock for services

 

 

50,000

 

 

 

50

 

 

 

66,950

 

 

 

 

 

 

 

 

 

67,000

 

Issuance of common stock, stock options exercised

 

 

21,853

 

 

 

22

 

 

 

44,120

 

 

 

 

 

 

 

 

 

44,142

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,640,601

)

 

 

(4,640,601

)

Balance at March 31, 2022

 

 

25,227,051

 

 

$

25,227

 

 

$

68,442,380

 

 

$

 

 

$

(34,458,288

)

 

$

34,009,319

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

Inhibikase Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(4,477,778

)

 

$

(4,640,601

)

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

 

 

 

 

 

 

   Depreciation

 

 

5,043

 

 

 

 

   Stock-based compensation expense

 

 

123,273

 

 

 

123,229

 

   Non-cash consulting fees

 

 

 

 

 

67,000

 

   Changes in operating assets and liabilities:

 

 

 

 

 

 

   Accounts receivable

 

 

(24,638

)

 

 

62,165

 

   Operating lease right‑of‑use assets

 

 

25,380

 

 

 

 

   Prepaid expenses and other assets

 

 

(759,312

)

 

 

337,653

 

   Prepaid research and development

 

 

194,488

 

 

 

(458,301

)

   Accounts payable

 

 

(192,095

)

 

 

(283,582

)

   Operating lease liabilities

 

 

(26,276

)

 

 

 

   Accrued expenses and other current liabilities

 

 

(840,215

)

 

 

858,240

 

Net cash used in operating activities

 

 

(5,972,130

)

 

 

(3,934,197

)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investments - marketable securities

 

 

(21,611,032

)

 

 

 

Maturities of investments - marketable securities

 

 

15,772,190

 

 

 

 

Net cash used in investing activities

 

 

(5,838,842

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Issuance of common stock from exercise of stock options

 

 

 

 

 

44,142

 

Proceeds from issuance of common stock, pre-funded warrants and warrants, net of issuance costs

 

 

8,579,023

 

 

 

 

Repayments of note payable

 

 

 

 

 

(248,911

)

Net cash (used in)/provided by financing activities

 

 

8,579,023

 

 

 

(204,769

)

Net decrease in cash and cash equivalents

 

 

(3,231,949

)

 

 

(4,138,966

)

Cash and cash equivalents at beginning of year

 

 

7,188,553

 

 

 

40,750,133

 

Cash and cash equivalents at end of year

 

$

3,956,604

 

 

$

36,611,167

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

973

 

Issuance costs

 

$

1,420,398

 

 

$

 

See accompanying notes to condensed consolidated financial statements.

4


 

Inhibikase Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.
Nature of Business

Inhibikase Therapeutics, Inc. (the “Company,” “we” or “our”) is a clinical-stage pharmaceutical company developing protein kinase inhibitor therapeutics to modify the course of Parkinson’s disease ("PD"), Parkinson’s-related disorders and other diseases of the Abelson Tyrosine Kinases. The Company’s multi-therapeutic pipeline has a primary focus on neurodegeneration and its lead program utilizing IkT-148009, a selective inhibitor of the non-receptor Abelson Tyrosine Kinases, targets the treatment of Parkinson’s disease inside and outside the brain as well as other diseases that arise from Abelson Tyrosine Kinases. In 2021, we commenced clinical development of IkT-148009, which we believe can modify the course of Parkinson’s disease including its manifestation in the gastrointestinal tract, or GI. The U.S. Food and Drug Administration (“FDA”) review of the Phase 1/1b data and the protocol for the Phase 2a three-month dosing study resulted in the FDA agreeing with the Company’s view that it was appropriate for the Phase 2a study to begin, prompting the Company to initiate the Phase 2a study, the 201 trial, at the end of May 2022. In October 2022, an IND to expand use of IkT-148009 into the Parkinson’s-related disease Multiple System Atrophy, or MSA, was filed with the FDA. On November 7, 2022, following review of the IND for IkT-148009 as a treatment for MSA, the FDA notified the Company that it was placing the IkT-148009 programs for Parkinson’s disease and MSA on clinical hold. The FDA lifted the full clinical hold in January 2023 for the Parkinson’s programs and in March 2023 on the MSA program, opening the IND for MSA. 20 of 36 planned sites have completed site opening procedures and 7 sites are currently screening patients.

The Company is also developing platform technologies for alternate ways to deliver protein kinase inhibitors in patients. Our first example of this technology is IkT-001Pro, a prodrug of the anticancer agent imatinib mesylate, to treat Stable Phase Chronic Myelogenous Leukemia (SP-CML). Pursuant to its IND, which was cleared by the FDA in August 2022, IkT-001Pro is being evaluated in a two-part dose finding/dose equivalence study in up to 59 healthy volunteers (the 501 trial). The study is designed to evaluate the 96-hour pharmacokinetics of imatinib delivered as IkT-001Pro and determine the dose of IkT-001Pro that can deliver the equivalent 400 mg imatinib, the standard-of-care dose for SP-CML. As of the date of this Report, four of four dose escalation cohorts have completed the trial. Only four mild adverse events have been observed, none of clinical significance for IkT-001Pro. IkT-001Pro has high oral bioavailability and a pharmacokinetic profile of delivered imatinib that closely matches the exposure of imatinib delivered as 400 mg imatinib mesylate. Following the 501 study, Inhibikase will confer with the FDA and seek agreement on the requirements for the New Drug Application (“NDA”) process following the proposed approval path for IkT-001Pro under the 505(b)(2) approval pathway. The Company plans to simultaneously pursue a superiority study comparing the selected doses of IkT-001Pro to standard-of-care 400 mg imatinib in SP-CML patients using a novel, two-period-wait-list-crossover-switching study.

For both IkT-148009 and IkT-001Pro, we have completed clinical batch manufacturing of a film-coated tablet formulation. The bioequivalence studies with IkT-001Pro have already implemented these tablets into the study.

2.
Liquidity

The Company has recognized recurring losses. At March 31, 2023, the Company had working capital of $24,964,381, an accumulated deficit of $52,349,620, cash of $3,956,604, marketable securities of $21,761,564 and accounts payable, accrued expenses and other current liabilities of $2,664,200. The Company had active grants, of $195,982, all of which remained available in accounts held by the U.S. Treasury as of May 1, 2023.

The future success of the Company is dependent on its ability to successfully obtain additional working capital, obtain regulatory approval for and successfully launch and commercialize its product candidates and to ultimately attain profitable operations. Historically, the Company has funded its operations primarily through cash received in connection with revenue from its various grant programs. In addition, in December 2020, June 2021 and January 2023, the Company raised approximately $14.6 million, $41.1 million and $8.6 million in net proceeds for working capital from its initial public offering (“IPO”), June 2021 Offering and January 2023 Offering, respectively.

The Company is subject to a variety of risks similar to other early-stage life science companies including, but not limited to, the successful development, regulatory approval, and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology, and raising additional working capital. The Company has incurred significant research and development expenses and general and administrative expenses related to its product candidate programs. The Company anticipates costs and expenses to increase in the future as the Company continues to develop its product candidates.

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The Company may seek to fund its operations through additional public equity, private equity, or debt financings, as well as other sources. However, the Company may be unable to raise additional working capital, or if it is able to raise additional capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on the Company’s business, results of operations and financial condition and the Company’s ability to continue to develop its product candidates.

The Company estimates that its working capital at March 31, 2023 is sufficient to fund its normal operations into the fourth quarter of 2024.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

3.
Basis of Presentation and Significant Accounting Policies

Basis of Presentation of Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. The December 31, 2022 balance sheet was derived from December 31, 2022 audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for the interim periods are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2023. The condensed unaudited consolidated financial statements contained herein should be read in conjunction with the Company’s annual audited financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC.

The unaudited condensed consolidated financial statements have been prepared in conformity with US GAAP, which prescribes elimination of all significant intercompany accounts and transactions in the accounts of the Company and its wholly-owned subsidiary, IKT Securities Corporation, Inc., which was incorporated in the Commonwealth of Massachusetts in December 2021. Any reference in these notes to applicable guidance is meant to refer to the authoritative US GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and are generally adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. The JOBS Act permits an emerging growth company such as the Company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company has elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that it either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

Use of Estimates

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company utilizes certain estimates in the determination of our liquidity and working capital adequacy, the fair value of its stock options and warrants, deferred tax valuation allowances and revenue recognition, to record expenses relating to research and development contracts and accrued expenses. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results could differ from such estimates.


New Accounting Pronouncements

6


 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its condensed consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates to amend the effective date of ASU 2016-13, for entities eligible to be “smaller reporting companies,” as defined by the SEC, to be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 as of January 1, 2023, on a prospective basis. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded features that could be recognized separately from the host contract. Consequently, more convertible debt instruments will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. ASU 2020-06 also requires use of the if-converted method in the diluted earnings per share calculation for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years for smaller reporting companies, with early adoption permitted. The Company adopted ASU 2020-06 as of January 1, 2023, on a prospective basis. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

Concentrations of Credit Risk

For the three months ended March 31, 2023 and 2022, the Company derived 100% of its total revenue from a single source, the United States Government, in the form of federal research grants.

Revenue Recognition

The Company generates revenue from research and development grants under contracts with third parties that do not create customer-vendor relationships. The Company’s research and development grants are non-exchange transactions and are not within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Contribution revenue earned from activities performed pursuant to research and development grants is reported as grant revenue in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss. Revenue from these grants is recognized as the Company incurs qualifying expenses as stipulated by the terms of the respective grant. Cash received from grants in advance of incurring qualifying expenses is recorded as deferred revenue. The Company records revenue and a corresponding receivable when qualifying costs are incurred before the grants are received.

Leases

The Company accounts for its leases under ASU 2021-09, ASU 2018-10, and ASC Topic 842, Leases (“ASC 842”). ASC 842 requires a lessee to record a right-of-use asset and a corresponding lease liability for most lease arrangements on the Company's balance sheet. Under the standard, disclosure of key information about leasing arrangements to assist users of the financial statements with assessing the amount, timing and uncertainty of cash flows arising from leases is required.

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred if any, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease

7


 

liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the secured incremental borrowing rate for the same term as the underlying lease.

Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Lease cost for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease cost are any variable lease payments incurred in the period that are not included in the initial lease liability and lease payments incurred in the period for any leases with an initial term of 12 months or less. Lease cost for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.

The Company has made an accounting policy election to not recognize leases with an initial term of 12 months or less within our condensed consolidated balance sheets and to recognize those lease payments on a straight-line basis in our condensed consolidated statements of operations and comprehensive loss over the lease term.

Equipment and Improvements

Equipment and improvements are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized using the straight-line method, allocating the cost of the assets over their estimated usefulness from three to five years for network equipment, office equipment, and furniture classified as fixed assets.

 

 

 

Estimated Useful Economic Life

Leasehold property improvements, right of use assets

 

Lesser of lease term or useful life

Furniture and office equipment

 

5 years

Lab equipment

 

3 Years

IT equipment

 

3 years

Fair Value Measurement

The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

· Level 1 — Fair values are determined utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access;

· Level 2 — Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves and foreign currency spot rates; and

· Level 3 — inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The Company’s financial assets, which include cash equivalents and marketable securities, have been initially valued at the transaction price, and subsequently revalued at the end of each reporting period, utilizing third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market based approaches, to determine value and improvements are stated at cost, less accumulated depreciation.

 

Marketable Securities

The Company's marketable securities consist of U.S. Treasury securities with maturities of less than one year which are classified as available-for-sale and included in current assets on the condensed consolidated balance sheets. Available-for-sale debt securities are carried at fair value with unrealized gains and losses reported as a component of stockholders’ equity in accumulated other comprehensive income. Realized gains and losses, if any, are included in other income, net in the condensed consolidated statements of operations and comprehensive loss.

Available-for-sale securities are reviewed for possible impairment at least quarterly, or more frequently if circumstances arise that may indicate impairment. When the fair value of the securities declines below the amortized cost basis, impairment is indicated and it must be determined whether it is other than temporary. Impairment is considered to be other than temporary if the Company: (i)

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intends to sell the security, (ii) will more likely than not be forced to sell the security before recovering its cost, or (iii) does not expect to recover the security’s amortized cost basis. If the decline in fair value is considered other than temporary, the cost basis of the security is adjusted to its fair market value and the realized loss is reported.

 

4.
Fair Value of Financial Instruments

 

The following table summarizes cash equivalents and marketable securities measured at their fair value on a recurring basis as of March 31, 2023:

 

 

 

Fair Value Measurements as of March 31, 2023 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

   Money market funds

 

$

2,195,192

 

 

$

 

 

$

 

 

$

2,195,192

 

Total

 

$

2,195,192

 

 

$

 

 

$

 

 

$

2,195,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

   U.S. treasury obligations

 

$

21,761,564

 

 

$

 

 

$

 

 

$

21,761,564

 

Total

 

$

21,761,564

 

 

$

 

 

$

 

 

$

21,761,564

 

 

 

 

 

Fair Value Measurements as of December 31, 2022 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

   Money market funds

 

$

5,304,405

 

 

$

 

 

$

 

 

$

5,304,405

 

Total

 

$

5,304,405

 

 

$

 

 

$

 

 

$

5,304,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

   U.S. treasury obligations

 

$

15,861,620

 

 

$

 

 

$

 

 

$

15,861,620

 

Total

 

$

15,861,620

 

 

$

 

 

$

 

 

$

15,861,620

 

 

5.
Marketable Securities

 

Marketable securities consisted of the following as of March 31, 2023:

 

March 31, 2023

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

Marketable securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

$

21,595,742

 

 

$

165,822

 

 

$

 

 

$

21,761,564

 

Total

 

$

21,595,742

 

 

$

165,822

 

 

$

 

 

$

21,761,564

 

 

December 31, 2022

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

Marketable securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

$

15,756,902

 

 

$

104,718

 

 

$

 

 

$

15,861,620

 

Total

 

$

15,756,902

 

 

$

104,718

 

 

$

 

 

$

15,861,620

 

As of March 31, 2023, the Company held six U.S. Treasury debt securities that were in an unrealized gain position totaling $165,822. As of December 31, 2022, the Company held three U.S. Treasury debt securities that were in an unrealized gain position totaling $104,718.

The Company received proceeds of $15.7 million from maturities of marketable securities for the period ended March 31, 2023. The Company received proceeds of $4.96 million from maturities of marketable securities for the year ended December 31, 2022. The Company did not realize any gains or losses from maturities of marketable securities for the period ended March 31, 2023 or the year ended December 31, 2022.

 

6.
Equipment and Improvements

 

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Equipment and Improvements, net

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Furniture and office equipment

 

$

72,692

 

 

$

72,692

 

Lab equipment

 

 

153,668

 

 

 

153,668

 

IT equipment

 

 

16,895

 

 

 

16,895

 

 

 

 

243,255

 

 

 

243,255

 

    Less: Accumulated Depreciation

 

 

11,766

 

 

 

6,723

 

Total

 

$

231,489

 

 

$

236,532

 

 

Depreciation expense for the period ended March 31, 2023 was $5,043 and for year ended December 31, 2022 was $6,723.

7.
Supplemental Balance Sheet Information

Accrued expenses and other current liabilities consist of the following:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Accrued consulting

 

$

423,464

 

 

$

232,390

 

Accrued compensation

 

 

283,657

 

 

 

459,997

 

Accrued research and development

 

 

851,000

 

 

 

1,696,129

 

Accrued other

 

 

100

 

 

 

9,920

 

Total accrued expenses and other current liabilities

 

$

1,558,221

 

 

$

2,398,436

 

 

 

8.
Stockholders’ Equity

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding. As of March 31, 2023, a total of 24,221,725 shares of common stock were reserved for issuance upon the exercise of outstanding stock options and warrants under the 2020 Equity Incentive Plan (the "2020 Plan") and the 2011 Equity Incentive Plan.

Share Issuances

On January 25, 2023, the Company entered into a securities purchase agreement in connection with a registered direct offering and concurrent private placement with an institutional investor. The Company also entered into a securities purchase agreement and a registration rights agreement in connection with a concurrent private placement with the same institutional investor (collectively the "January 2023 Offering"). The January 2023 Offering Consisted of (i) 2,800,789 shares of Common Stock sold at $0.86 per share, (ii) Common Warrants to purchase up to 11,627,908 shares of Common Stock with an exercise price of $0.86, and (iii) Pre-Funded Warrants to purchase up to 8,827,119 shares of Common Stock with an exercise price of $0.86 all issued to Armistice Capital Master Fund Ltd ("Armistice"). The warrants will expire on January 27, 2028. As part of the January 2023 Offering, the Company further issued warrants to H.C. Wainwright & Co., LLC (“Placement Agent Warrants”) to purchase up to 406,977 shares of Common Stock with an exercise price of $1.075 and an expiration date of January 25, 2028. As of the date of issuance, Armistice exercised 3,028,398 Pre-Funded Warrants.

The Company receive net proceeds from the January 2023 Offering of approximately $8.6 million. Effective January 25, 2023, the Company terminated the Equity Distribution Agreement with Piper Sandler & Co. by providing a notice of termination in accordance with the terms of the Equity Distribution Agreement (see Note 10).
 

9.
Stock-Based Compensation

2020 Equity Incentive Plan

The Company’s 2020 Plan was established for granting stock incentive awards to directors, officers, employees and consultants to the Company.

 

Stock Options

During the three months ended March 31, 2023, the Company granted 300,000 options with a weighted average strike price of $0.74 to purchase common stock to certain employees that will vest annually in 3 equal parts over 3 years. The Company granted

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150,000 performance-based options with a weighted average strike price of $0.74 to purchase common stock to certain employees. These options are subject to performance vesting and will vest and become exercisable once the performance conditions have been met. There is no assurance that the performance conditions will be met and therefore some or all of these options may never vest or become exercisable. The total aggregate grant date fair value of all options granted was $243,155.

During the three months ended March 31, 2022, the Company granted 209,887 options with a weighted average strike price of $1.08 to purchase common stock to certain employees that will vest annually in 3 equal parts over 3 years. The Company