ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The information and financial data discussed
below is derived from the audited consolidated financial statements of Actinium Pharmaceuticals, Inc. for its fiscal years ended
December 31, 2020 and 2019. The consolidated financial statements of Actinium Pharmaceuticals, Inc. were prepared
and presented in accordance with generally accepted accounting principles in the United States. The information and financial data
discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes
of Actinium Pharmaceuticals, Inc. contained elsewhere in this Report. The financial statements contained elsewhere in this
Report fully represent Actinium Pharmaceuticals, Inc.’s financial condition and operations; however, they are not indicative
of the Company’s future performance. See “Cautionary Note Regarding Forward-Looking Statements” above for a discussion
of forward-looking statements and the significance of such statements in the context of this Report.
Actinium Pharmaceuticals,
Inc. is a clinical-stage, biopharmaceutical company applying its proprietary platform technology and deep understanding of radiobiology
to the development of novel targeted therapies known as Antibody Radiation-Conjugates, or ARCs. Radiation is an effective therapeutic
modality that is used in the treatment of over fifty percent of all cancer patients and is often combined with chemotherapy, immunotherapy
and other treatments for greater therapeutic effect. Radiation is typically administered via an external beam source from outside
the body, leading to off-target exposure to normal healthy tissue and organs, which can constrain the amount of radiation that
can be administered to patients due to associated dose-limiting toxicities. In addition, use of external beam radiation is largely
limited to solid tumors and cannot be used in blood cancers, which are diffuse throughout the body of a patient. ARCs combine the
cell-killing ability of radiation via a radioisotope payload with a targeting agent, such as a monoclonal antibody to deliver radiation
in a precise manner inside the body to specific, targeted cells, to potentially achieve greater efficacy with lower toxicity than
with external beam radiation. ARCs enable a broader usage of radiation than external beam radiation as they can be used in the
treatment of both solid tumors and blood cancers. Blood or hematologic cancers are known to be highly sensitive to radiation. Our
clinical pipeline is focused on ARCs targeting the antigens CD45 and CD33, both of which are expressed in multiple hematologic
cancers. Our clinical programs are focused on two primary areas: (1) targeted conditioning prior to a bone marrow transplant, or
BMT, adoptive cell therapy, or ACT, such as CAR-T or gene therapy and (2) ARC therapeutic combinations with other agents. Our product
development strategy is actively informed by clinical data with our ARCs in over 500 patients, including our ongoing Pivotal Phase
3 SIERRA trial. Our clinical pipeline has emanated from our Antibody Warhead Enabling, or AWE technology platform, which is protected
by over 140 issued and pending patents, trade secrets and know-how and is being utilized in a collaborative research partnership
with Astellas Pharma, Inc.
Recent Developments
Impact of COVID–19 Pandemic
In December 2019, a
novel strain of COVID-19 was reported in China. Since then, COVID-19 has spread globally. The spread of COVID-19 from China to
other countries has resulted in the World Health Organization (WHO) declaring the outbreak of COVID-19 as a “pandemic,”
or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions
on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses, and as of the date of this
report, many local jurisdictions continue to have such restrictions in place.
As many local jurisdictions
continue to have such restrictions in place, our ability to continue to operate our business may also be limited. Such events may
result in a period of business, supply and drug product manufacturing disruption, and in reduced operations, any of which could
materially affect our business, financial condition and results of operations. In response to COVID-19, we implemented remote working
and thus far have not experienced a significant disruption or delay in our operations as it relates to the clinical development
of our drug candidates. Such government-imposed precautionary measures may have been relaxed in certain countries or states, but
there is no assurance that more strict measures will be put in place again due to a resurgence in COVID-19 cases, including those
involving new variants of the coronavirus, which may be more contagious and deadly than prior strains. Therefore, the COVID-19
pandemic may continue to affect our operation, may further divert the attention and efforts of the medical community to coping with COVID-19 and
disrupt the marketplace in which we operate and may have a material adverse effect on our operations.
45
The spread of COVID-19,
which has caused a broad impact globally, may materially affect us economically. While the ultimate economic impact brought by,
and the duration of, the COVID-19 pandemic may be difficult to assess or predict, including new information which may emerge concerning
the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others, the pandemic has resulted in significant
disruptions in the general commercial activity and the global economy and caused financial market volatility and uncertainty in
significant and unforeseen ways in the recent months. A continuation or worsening of the levels of market disruption and volatility
seen in the recent past could have an adverse effect on our ability to access capital, which could in the future negatively affect
our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our
business and the value of our common stock.
Currently, the Phase 3
SIERRA trial for our lead program, Iomab-B, continues to remain active at a majority of our clinical trial sites, with investigators
providing feedback that recruitment and enrollment will remain active because of the acute nature of the disease, the high unmet
needs of patients with relapsed or refractory AML, the potentially curative nature of BMT and the differentiated profile of Iomab-B.
Certain sites that had not been actively enrolling due to COVID-19 at the initial outbreak of the pandemic resumed recruitment
and enrollment in mid-2020, and we currently do not have any sites that are not recruiting and enrolling patients due to COVID-19.
We also believe our earlier stage clinical trials for our CD33 program will also continue to recruit and enroll patients given
the acute nature of relapsed or refractory AML. The continuation of the pandemic could adversely affect our planned clinical trial
operations, including our ability to conduct the trials on the expected timelines and recruit and retain patients and principal
investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if their geography is impacted
by the pandemic. Further, the continuation and/or resurgence of the COVID-19 pandemic could result in delays in our clinical trials
due to prioritization of hospital resources toward the pandemic, restrictions in travel, potential unwillingness of patients to
enroll in trials at this time, or the inability of patients to comply with clinical trial protocols if quarantines or travel restrictions
impede patient movement or interrupt healthcare services. In addition, we rely on independent clinical investigators, contract
research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out
our preclinical studies and clinical trials, and the pandemic may affect their ability to devote sufficient time and resources
to our programs or to travel to sites to perform work for us.
Additionally, COVID-19
may result in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with
IRB’s or Institutional Review Boards, local and foreign regulators, ethics committees and other important agencies and contractors
due to limitations in employee resources or forced furlough of government employees.
To date, COVID-19 has not
had a financial impact on our company. However, COVID-19 has caused severe disruptions in transportation and limited access to
our facility, resulting in limited support from our staff and professional advisors.
We continue to monitor
the impacts of COVID-19 on the global economy and on our business operations. However, the ultimate impact from COVID-19 on our
business operations and financial results during 2021 will depend on, among other things, the ultimate severity and scope of the
pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease,
the rate at which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with
which the economy recovers. We are not able to fully quantify the impact that these factors will have on our financial results
during 2021 and beyond, but developments related to COVID-19 may materially affect us in 2021.
46
Results of Operations – Year Ended
December 31, 2020 Compared to the Year Ended December 31, 2019
The following table sets
forth, for the periods indicated, data derived from our statements of operations:
For the year ended December 31, Increase
Revenues $ - $ - $ -
Operating expenses:
Research and development, net of reimbursements 16,085 16,550 (465 )
Other income
Revenues
We recorded no commercial
revenues for the years ended December 31, 2020 and 2019, respectively.
Research and Development Expense
Research and development
expenses declined by $0.5 million to $16.1 million for the year ended December 31, 2020 compared to $16.6 million for the year
ended December 31, 2019. The decrease was primarily attributable to lower expenses related to our CD33 program, mostly offset by
higher expenses on our CD45 program.
General and Administrative Expenses
General and administrative
expenses increased by $0.8 million to $6.3 million for the year ended December 31, 2020 compared to $5.5 million for the year ended
December 31, 2019, primarily attributable to higher third-party professional fees, including consultants, investor relations and
recruiters.
Other Income
Other income of $0.2 million
for both time periods was attributable to interest income - net.
Net Loss
Net loss increased by $0.3
million to $22.2 million for the year ended December 31, 2020 compared to $21.9 million for the year ended December 31, 2019, primarily
due to higher general and administrative expenses.
47
Liquidity and Capital Resources
We have financed our operations
primarily through sales of our stock, pre-funded warrants and warrants.
The following tables sets
forth selected cash flow information for the periods indicated:
For the year ended December 31,
Cash used in operating activities $ (21,618 ) $ (21,462 )
Cash used in investing activities (253 ) (64 )
Cash provided by financing activities 76,177 17,114
Net change in cash, cash equivalents and restricted cash $ 54,306 $ (4,412 )
Net cash used in operating
activities for the year ended December 31, 2020 of $21.6 million increased by $0.1 million from $21.5 million used in operations
for the prior year, primarily due to the timing of payments to vendors.
Net cash used in investing
activities of $253 thousand and $64 thousand for the years ended December 31, 2020 and December 31, 2019, respectively, was for
the purchase of equipment.
Net cash provided by financing
activities was mainly generated by the sale of shares of common stock, pre-funded warrants and warrants. Net cash provided by financing
activities was $76.2 million for the year ended December 31, 2020, reflecting $76.6 million in proceeds from the sales of common
stock and pre-funded warrants in April and June 2020 and sales of common stock throughout 2020. During 2019, net cash provided
by financing activities was $17.1 million, reflecting $15.9 million in proceeds from the sale of common stock and warrants, plus
$1.5 million in proceeds from the exercise of warrants.
On April 24, 2020, we issued
and sold 4.3 million shares of common stock and pre-funded warrants to purchase 2.8 million shares of common stock. The price to
the public for each share of common stock sold in the offering was $4.50, and the price to the public for each pre-funded warrant
sold in the offering was $4.497. The pre-funded warrants were exercisable at an exercise price of $0.003 per share and were exercisable
immediately upon issuance. Gross proceeds from this offering were $31.6 million, before deducting underwriting discounts and commissions
and other offering expenses payable by us. Net proceeds from the offering were approximately $29.1 million
On June 19, 2020, we issued
and sold 1.9 million shares of common stock and pre-funded warrants to purchase 0.7 million shares of common stock. The price to
the public in this offering for each share of common stock was $9.75 and for each pre-funded warrant was $9.747. Each pre-funded
warrant had an exercise price of $0.003 per share and were exercisable immediately upon issuance. Gross proceeds from this offering
to us were $25.0 million, before deducting underwriting discounts and commissions and other offering expenses payable us. Net proceeds
from this offering were approximately $23.0 million.
During the year ended December
31, 2020, holders of all 2.8 million pre-funded April 2020 warrants and 0.7 million pre-funded June 2020 warrants exercised their
pre-funded warrants at $0.003 per share and received 2.8 million shares of common stock and 0.7 million shares of common stock,
respectively.
In August 2020, we entered
a Capital on DemandTM Sales Agreement with JonesTrading, pursuant to which we may sell, from time to time, through or to JonesTrading,
up to an aggregate of $200 million of our common stock. Shares of common stock are offered pursuant to our shelf registration statement
filed with the SEC on August 7, 2020. As of December 31, 2020, we sold 2.1 million shares of common stock, resulting in gross proceeds
of $22.6 million and net proceeds of $21.7 million.
48
In December 2018, we entered
into the Amended and Restated At Market Issuance Sales Agreement with B. Riley FBR, Inc. and JonesTrading pursuant to which we
conducted our at-the market program. In early 2020, we sold 0.3 million shares of common stock through our at-the-market program,
resulting in net proceeds of $2.5 million.
In October 2018,
we and Lincoln Park Capital Fund, LLC, or Lincoln Park entered into a purchase agreement and a registration rights agreement, pursuant
to which we have the right to sell to Lincoln Park shares of our common stock having an aggregate value of up to $32.5 million,
subject to certain limitations and conditions set forth in the agreement. In early 2020, we elected to sell to Lincoln Park 27
thousand shares and received $0.2 million.
In April 2019, we sold
1.4 million shares of common stock at an offering price of $11.55 per share and warrants to purchase 1.4 million shares of common
stock at an exercise price of $15.00 per share and with a term of 5 years, resulting in gross proceeds of $16.5 million and net
proceeds of $15.1 million after deducting underwriting and other offering expenses.
As of the date of filing
this report, we expect that our existing resources will be more than sufficient to fund our planned operations for more than 12
months following the date of this report.
Off-Balance Sheet Arrangements
We do not have any off-balance
sheet arrangements.
Critical Accounting Policies
Our management’s
discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities
and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting
periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates
could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported
results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions
or conditions
Fair Value of Financial Instruments
Fair value is defined as
the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants.
A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs.
Research and Development Costs
Research and development
costs are expensed as incurred. These costs include the costs of manufacturing drug components and final drug product, the costs
of clinical trials, costs of employees and associated overhead, and depreciation and amortization costs related to facilities and
equipment. Research and development reimbursements are recorded by us as a reduction of research and development costs.
Share-Based Payments
We estimate the fair value
of each stock option award at the grant date by using the Black-Scholes option pricing model. The fair value determined represents
the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange
for the award. We account for forfeitures of stock options as they occur.
49
Income Taxes
We use the asset and liability
method to calculate deferred taxes. Deferred taxes are recognized based on the differences between the financial reporting and
income tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. We review deferred tax assets for a valuation allowance based upon whether it is more likely than not that
the deferred tax asset will be fully realized. A valuation allowance, if necessary, is provided against deferred tax assets, based
upon our assessment as to their realization.
We recognize tax when the
positions meet a “more-likely-than-not” recognition threshold. There were no tax positions for which it is considered
reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next
year. We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Accounting Standards Recently Adopted
In August 2018, FASB issued
ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements
on fair value measurements, primarily associated with Level 3 fair value measurements and is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the standard
for disclosures modified or removed with a delay of adoption of the additional disclosures until their effective date. We adopted
this standard effective January 1, 2020 and the standard did not have a significant impact to our financial statements.
In November 2018, FASB
issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606,
which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be
accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019, with early adoption permitted. We adopted this standard effective January 1, 2020 and
the standard did not have a significant impact to our financial statements.
Recent Accounting Standards
In August 2020, FASB issued
ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies
the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminates
the need for us to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2)
whether counterparty rights rank higher shareholder’s rights, and (3) whether collateral is required. In addition, the ASU
requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial
instruments accounted for under this ASU on earnings per share. This ASU may be applied on a full retrospective of modified retrospective
basis. This ASU is effective January 1, 2022 and interim periods presented. Early adoption of the ASU is permitted by us effective
January 1, 2021. We are in the process of assessing the adoption of the ASU on our financial statements.
Subsequent Events
Since December 31, 2020
we have sold 1.7 million shares of common stock under our Capital on DemandTM Sales Agreement with JonesTrading, resulting
in net proceeds of $14.4 million.
In January 2021, we announced
a collaborative research agreement with Astellas Pharma, Inc. and began work on this project that will utilize our AWE technology
platform with select targeting agents owned by Astellas in the development of theranostics for solid tumor indications, which combine
the ability of radioisotopes to be used for both diagnostic and therapeutic purposes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Not Applicable
50
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and Board of Directors of
Actinium Pharmaceuticals, Inc.
Opinion on the Financial
Statements
We have audited the accompanying
consolidated balance sheets of Actinium Pharmaceuticals, Inc. (the “Company”) as of December 31, 2020 and 2019, the related
consolidated statements of operations, stockholders’ equity and cash flows for each of the years ended December 31, 2020 and 2019,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2012.
Houston, Texas
March 31, 2021
F-1
Actinium Pharmaceuticals, Inc.
Consolidated Balance Sheets
Assets
Current Assets:
Restricted cash – current 48 48
Prepaid expenses and other current assets 1,317 786
Property and equipment, net of accumulated depreciation of $291 and $237 312 113
Operating lease right-of-use assets 579 807
Finance leases right-of-use assets 140 221
Security deposit 50 50
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses $ 4,340 $ 4,598
Note payable - 381
Operating leases current liability 342 286
Finance leases current liability 85 79
Long-term operating lease obligations 245 531
Long-term finance lease obligations 66 151
Commitments and contingencies
Stockholders’ Equity:
Total Liabilities and Stockholders’ Equity $ 66,397 $ 11,670
See accompanying notes to the consolidated
financial statements.
F-2
Actinium Pharmaceuticals, Inc.
Consolidated Statements of Operations
For the Year ended December 31,
(amounts in thousands, except share and per share data) 2020 2019
Revenue $ - $ -
Operating expenses:
Research and development, net of reimbursements 16,085 16,550
Other income:
Deemed dividend for warrant down-round protection provision (1 ) (1 )
Net loss applicable to common stockholders $ (22,216 ) $ (21,901 )
Loss per common share - basic and diluted $ (1.83 ) $ (4.40 )
See accompanying notes to the consolidated
financial statements.
F-3
Actinium Pharmaceuticals, Inc.
Consolidated Statement of Changes in Stockholders’ Equity
For the Years Ended December 31, 2020 and 2019
(amounts in thousands, except share amounts)
Common Stock Additional Paid-In Accumulated Stockholders’
Shares Amount Capital Deficit Equity
Issuance of common stock from exercise of warrants 84,793 - 1,504 - 1,504
Deemed dividend for warrant down-round protection provision - - 1 (1 ) -
Issuance of common stock from exercise of pre-funded warrants 3,458,929 4 6 - 10
Issuance of common stock from exercise of warrants 2,613 - 37 37
Deemed dividend for warrant down-round protection provision - - 1 (1 ) -
See accompanying notes to the consolidated
financial statements.
F-4
Actinium Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
For the Year ended December 31,
Cash Flows from Operating Activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense 1,254 1,295
Depreciation and amortization expense 447 420
Changes in operating assets and liabilities:
Decrease in:
Prepaid expenses and other current assets (531 ) 253
Increase (decrease) in:
Accounts payable and accrued expenses (257 ) (1,255 )
Operating lease liabilities (315 ) (275 )
Net Cash Used In Operating Activities (21,617 ) (21,462 )
Cash Flows from Investing Activities:
Purchase of property and equipment (253 ) (64 )
Net Cash Used In Investing Activities (253 ) (64 )
Cash Flows from Financing Activities:
Payments on note payable (381 ) (249 )
Payments on finance leases (79 ) (73 )
Proceeds from the exercise of warrants 47 1,504
Net Cash Provided By Financing Activities 76,176 17,114
Net change in cash, cash equivalents and restricted cash 54,306 (4,412 )
Cash, cash equivalents and restricted cash at beginning of year 9,693 14,105
Cash, cash equivalents and restricted cash at end of year $ 63,999 $ 9,693
Supplemental disclosures of cash flow information:
Cash paid for interest $ 8 $ 26
Cash paid for taxes $ - $ -
Supplemental disclosure of non-cash investing and financing activities:
Prepaid expenses financed by accounts payable $ 753 $ 423
Deemed dividend for warrant down-round protection provision $ 1 $ 1
See accompanying notes to the consolidated
financial statements.
F-5
Actinium Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and
Summary of Significant Accounting Policies
Nature of Business
- Actinium Pharmaceuticals, Inc. (the “Company”, “Actinium”, or “We”) is a clinical-stage,
biopharmaceutical company focused on developing and potentially commercializing therapies for targeted conditioning prior to cell
therapies such as a BMT or Bone Marrow Transplant or CAR-T, a type of cellular therapy that
genetically alters a patient’s own T cells to target and kill their cancer cells, and for other adoptive cell therapies.
In addition, the Company is also developing potential therapies for targeting and killing of cancer cells either as single agents
or in combination with other drugs.
Principles of Consolidation
- The consolidated financial statements include the Company’s accounts and those of the Company’s wholly owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
in Financial Statement Presentation - The preparation of these consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those estimates.
Reverse Stock Split
In August 2020, the
Company effected a reverse stock split of its outstanding common stock by combining outstanding shares of common stock into a lesser
number of outstanding shares of common stock by a ratio of 1-for-30. Accordingly, all common share and per common share data in
these consolidated financial statements and related notes hereto have been retroactively adjusted to account for the effect of
this reverse stock split for all periods presented.
Impact of COVID–19
Pandemic on Financial Statements
In December 2019, a
novel strain of COVID-19 was reported in China. Since then, COVID-19 has spread globally. The spread of COVID-19 from China to
other countries has resulted in the World Health Organization (“WHO”) declaring the outbreak of COVID-19 as a “pandemic,”
or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions
on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses, and many local jurisdictions
continue to have such restrictions in place.
As local jurisdictions
continue to put restrictions in place, the Company’s ability to continue to operate its business may also be limited. Such
events may result in a period of business, supply and drug product manufacturing disruption, and in reduced operations, any of
which could materially affect the Company’s business, financial condition and results of operations. In response to COVID-19,
the Company implemented remote working and thus far, has not experienced a significant disruption or delay in its operations as
it relates to the clinical development or drug production of our drug candidates.
F-6
The spread of COVID-19,
which has caused a broad impact globally, may materially affect the Company economically. While the ultimate economic impact brought
by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, including new information which may emerge
concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others, the pandemic has resulted
in significant disruptions in the general commercial activity and the global economy and caused financial market volatility and
uncertainty in significant and unforeseen ways in the recent months. A continuation or worsening of the levels of market disruption
and volatility seen in the recent past could have an adverse effect on the Company’s ability to access capital, which could
in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the
spread of COVID-19 could materially affect the Company’s business and the value of the Company’s common stock.
Additionally, COVID-19
may result in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with
IRB’s or Institutional Review Boards, local and foreign regulators, ethics committees and other important agencies and contractors
due to limitations in employee resources or forced furlough of government employees.
To date, COVID-19 has
not had a financial impact on the Company. However, COVID-19 has caused severe disruptions in transportation and limited access
to the Company’s facility, resulting in limited support from its staff and professional advisors. The Company continues to
monitor the impacts of COVID-19 on the global economy and on its business operations. However, at this time, it is difficult to
predict how long the potential operational impacts of COVID-19 will last or to what degree further disruption might impact the
Company’s operations and financial results.
Cash and Cash Equivalents
- The Company considers all highly liquid accounts with original maturities of three months or less to be cash equivalents.
Balances held by the Company are typically in excess of Federal Deposit Insurance Corporation insured limits.
Following is a summary
of cash, cash equivalents and restricted cash at December 31, 2020 and December 31, 2019:
Restricted cash – current 48 48
Restricted cash – long-term 391 391
Cash, cash equivalents and restricted cash $ 63,999 $ 9,693
Current restricted
cash relates to credit card accounts, while long-term restricted cash relates to a certificate of deposit held as collateral for
a letter of credit issued in connection with the Company’s lease for corporate office space.
Property and Equipment
- Machinery and equipment are recorded at cost and depreciated on a straight-line basis over estimated useful lives of three
to five years. Furniture and fixtures are recorded at cost and depreciated on a straight-line basis over estimated useful lives
of seven years. When assets are retired, the cost and related accumulated depreciation are removed from the accounts, and any related
gain or loss is reflected in operations. Repairs and maintenance expenditures are charged to operations. Capitalized lease assets
are recorded at the lesser of the present value of minimum lease payments or fair value and amortized over the estimated useful
life of the related property or term of the lease.
Leases –
The Company has operating and finance leases for corporate office space, office equipment and furniture located at the corporate
office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases
is recognized on a straight-line basis over the lease term.
F-7
Fair Value of Financial
Instruments - Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability,
in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives
the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs.
Income Taxes -
The Company accounts for income taxes in accordance with FASB ASC 740 Income Taxes, which requires the asset and liability method
to calculate deferred taxes. Deferred taxes are recognized based on the differences between the financial reporting and income
tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected
to reverse. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that
the deferred tax asset will be fully realized.
FASB ASC 740 prescribes
guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions. Tax positions must meet
a “more-likely-than-not” recognition threshold to be recognized. There were no tax positions for which it is considered
reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next
year. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses
Revenue Recognition
- Revenue will be recognized when control of the promised goods or services is transferred to customers in an amount that reflects
the consideration expected to be entitled to in exchange for those goods or services.
Research and Development
Costs - Research and development costs are expensed as incurred. These costs include the costs of manufacturing drug product,
the costs of clinical trials, costs of employees and associated overhead, and depreciation and amortization costs related to facilities
and equipment. Research and development reimbursements are recorded by the Company as a reduction of research and development costs.
Share-Based Payments
- The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing
model. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee
is required to provide service in exchange for the award. The Company accounts for forfeitures of stock options as they occur.
Loss Per Common
Share - Basic loss per common share is computed by dividing the net loss available to common stockholders by the weighted average
number of common shares outstanding during the reporting period. For periods of net income, and when the effects are not anti-dilutive,
diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of
shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common shares underlying common
stock options and warrants using the treasury stock method. For periods of net loss, diluted loss per share is calculated similarly
to basic loss per share because the impact of all potential dilutive common shares is anti-dilutive. For the years ended December
31, 2020 and 2019, the Company’s potentially dilutive shares, which include outstanding common stock options and warrants
have not been included in the computation of diluted net loss per share as the result would have been anti-dilutive.
Subsequent Events
- The Company’s management reviewed all material events through the date the consolidated financial statements were issued
for subsequent event disclosure consideration.
F-8
Accounting Standards
Recently Adopted -
In August 2018, FASB
issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure
requirements on fair value measurements, primarily associated with Level 3 fair value measurements and is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance
of the standard for disclosures modified or removed with a delay of adoption of the additional disclosures until their effective
date. The Company adopted this standard effective January 1, 2020 and the standard did not have a significant impact to the Company’s
financial statements.
In November 2018, FASB
issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which,
among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted
for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019, with early adoption permitted. The Company adopted this standard effective January 1, 2020
and the standard did not have a significant impact to the Company’s financial statements.
Recent Accounting Standards –
In August 2018, FASB
issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure
requirements on fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. Early adoption is permitted upon issuance of the standard for disclosures modified or removed with a delay
of adoption of the additional disclosures until their effective date. The Company is in the process of evaluating the impact the
standard will have on its financial statements.
In November 2018, FASB
issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606,
which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be
accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating the impact
the standard will have on its financial statements.
Accounting Standards
Recently Issued-
In August 2020, FASB
issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies
the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated
the need for the Company to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares,
(2) whether counterparty rights rank higher shareholder’s rights, and (3) whether collateral is required. In addition, the
ASU requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain
financial instruments accounted for under this ASU on earnings per share. This ASU may be applied on a full retrospective of modified
retrospective basis. This ASU is effective January 1, 2022 and interim periods presented. Early adoption of the ASU is permitted
by the Company effective January 1, 2021. The Company is in the process of assessing the adoption of the ASU on the Company’s
financial statements.
Note 2 - Prepaid Expenses and Other
Current Assets
Prepaid expenses and
other current assets consisted of the following at December 31, 2020 and 2019:
December 31, December 31,
Prepaid clinical trial expenses 457 236
Other prepaid expenses and other current assets 68 70
Total prepaid expenses and other current assets $ 1,317 $ 786
F-9
Note 3 - Property and Equipment
Property and equipment
consisted of the following at December 31, 2020 and 2019:
December 31, December 31,
Office equipment & furniture 3 - 7 years 225 202
Less: accumulated depreciation (291 ) (237 )
Property and equipment, net $ 312 $ 113
Depreciation expense
consisted of the following for the years ended December 31, 2020 and 2019, respectively:
December 31, December 31,
Research & development $ 36 $ 32
General administrative 18 22
Total Depreciation expense $ 54 $ 54
Note 4 - Leases
The Company adopted
ASC 842 as of January 1, 2019, using a modified retrospective approach and applying the standard’s transition provisions
at January 1, 2019, the effective date. The Company made an accounting policy election to exclude from balance sheet reporting
those leases with initial terms of 12 months or less.
The Company determines
if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company
the right to control the use of a fixed asset for a period of time in exchange for consideration. Control of an underlying asset
is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic
benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which
the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable
lease components are recognized when the obligation is probable.
Right-of-use assets
and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ASC 842 requires
a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily
determined, its incremental borrowing rate. As an implicit interest rate was not readily determinable in the Company’s leases,
the incremental borrowing rate was used based on the information available at commencement date in determining the present value
of lease payments.
The lease term for
all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either
a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to
extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term
(and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.
At December 31, 2020,
the Company has an operating lease for corporate office space and two finance leases for office equipment and furniture located
in the corporate office space. In addition, the Company has auxiliary corporate office space that it rents on a month-to-month
basis; this rental is accounted for as an operating lease with the same term as the Company’s main office in the same building.